Report on Confidential Information and Trade Secrets

1995-01-01

REPORTONCONFIDENTIALINFORMATIONANDTRADESECRETS

by
FrançoisPainchaud*
LEGERROBICRICHARD,Lawyers,
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8
thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.(514)9876242-Fax(514)8457874
www.robic.ca-info@robic.com

and
BryanE.Kelling

TheintroductionofthenewCivilCodeofQuebec(“CCQ”)onJanuary1st,
1994hasbroughtaboutsomenoteworthychangesinthefieldofconfidential
informationandtradesecretslaw.Someoftherelevantsectionsdealwith
confidentialinformationwhileothersdealonlywithtradesecrets.Even
thoughthelegislationhaschosentotreatcertainaspectsofconfidential
informationandtradesecrets,ithasnotprovideddefinitionsforeither.This
approachappearstobeconsistentwiththetypicalcivilistphilosophywhich
consistsofcodifyingthegeneralunderlyingprinciplesofthelawleavingto
thecourtsthetaskofinterpretingandapplyingtheseprincipleswithinthe
contextofspecificcasesandfacts.
Inaccomplishingsuchtasksinthepast,Quebeccourtshaveacceptedthe
approachadoptedinFacendaChickenLtd.v.Fowler(1986)1AllE.R.617
whichidentifiesthreecategoriesofconfidentialinformation(whichremain
validlawundertheCCQ):(i)informationwhichalthoughitisconfidential,is
alsotrivialandcouldbefoundorgatheredindependently,(ii)information
thatisconfidentialbutduetoitsnaturewillremaininone’smemoryandis
thereforeanintegralpartoftheskillsandknowledgeofsuchperson,and(iii)
specifictradesecrets(soconfidentialthattheycanonlybeusedbytheir
masters).
Keepinginmindthesebasicprinciples,threenoteworthydevelopmentsare
worthmentioning:
I.Section1457,1458and1472oftheCCQ

LEGERROBICRICHARDandBryanE.Kelling,1995.*Lawyer,FrançoisPainchaudisaseniorpartnerinthelawfirmLEGERROBICRICHARD,g.p.
andinthepatentandagencyfirmROBIC,g.p.Thismaterialwasdesignedforthepurposeof
ageneralreportonCanadianLegislationbytheLESin1995.Publication184.

Sections1457and1458oftheCCQconstitutethecornerstonesofciviland
contractualliabilityinQuebec.Section1457referstothedutyofevery
person”toabidebytherulesofconductwhichlieuponhimaccordingtothe
circumstances,usageorlawsoasnottocauseinjurytoanother”,andtothe
existenceofliabilitytorepairinjurycausedbyone’sfailureinsaidduty.
Section1458oftheCCQstatesthat”everypersonhasadutytohonourhis
contractualundertakings”,andshouldhefailinthisduty,heisliableforthe
injurieshecausestotheothercontractingparty.Theuseanddisclosureof
confidentialinformationandtradesecretsaregovernedgenerallybythese
basicprinciplesofcivilandcontractualliability.
Section1472oftheCCQ,whichiseffectivelynewlaw,servestotemperone’s
liabilityarisingfromthedisclosureofatradesecretincertainspecific
circumstancesof”generalinterest”.Section1472oftheCCQreadsas
follows:
“1472.Apersonmayfreehimselffromhisliabilityforinjurycaused
toanotherasaresultofthedisclosureofatradesecretby
provingthatconsiderationsofgeneralinterestprevailedover
keepingthesecretand,particularly,thatitsdisclosurewas
justifiedforreasonsofpublichealthorsafety.”(underliningisby
theundersigned)
Itshouldbenotedthatthissectionposessomeproblemsofapplicationsdue
tothemannerinwhichitwasdrafted.Suchadefenceisonlyavailablefor
thedisclosureoftradesecrets,andnotthatofotherconfidentialinformation
obtainedinconfidencewhichwouldnotconstituteatradesecret.
II.Section1612oftheCCQ
AnothersectionwhichisalsoconsideredtobenewlawinQuebecisSection
1612oftheCCQwhichispartofthechapterdealingwith”Performanceof
obligations”(assessmentofdamages).Itfindsitsrootsinthe
recommendationsmadeinareportpublishedin1986bytheCanadian
DepartmentofJusticeconcerningtradesecrets(“LesSecretsCommerciaux”)
bytheInstituteofLawResearchandReformEdmonton,Albertaanda
federal-provincialworkgroup.Thissectionreadsasfollows:
“1612.Thelosssustainedbytheholderofatradesecretincludes
theinvestmentexpensesincurredforitsacquisition,perfection
anduse;theprofitofwhichheisdeprivedmaybecompensated
forthroughpaymentofroyalties.”

ItisstipulatedinthecommentsoftheMinisterofJusticeofQuebecthatthis
sectionwaswarrantedtofurtherparticularizewhatelementsshouldbe
includedincalculatingthelosssustainedbytheholderofatradesecret.This
section,whichagainspecificallypertainstotradesecrets,willprovide
assistanceandguidancetothecourtsinassessingthedamagesincases
dealingwithlossessustainedbythetradesecretholder.Itshouldbenoted
thatthelistisnotexhaustivebutmerelyinclusive.Oneofthequestionswhich
isbroughtforthbythisnewsectionisthefollowing:Hastheholderofatrade
secretbeendeprivedofaprofitduetosuchuseofthetradesecretbyathird
party?If,forexample,theholderhasnotsufferedalossofsalesduetothe
faultofthirdparty,cantheholderclaimthelossincurredbythefactthathad
helicensedsaidtradesecretstothatthirdparty,hewouldhavebenefited
fromarevenueofwhichheisnowdeprived?Thisapproachwould,if
followedbythecourts,giveveryimportantrightstotheholderofatrade
secret.
Furthermore,theFrenchversionoftheCCQrefersto”holder”as”le
propriétaire”whichtranslatesas”owner”or”proprietor”.However,most
authorsseemtoagreethattheword”propriétaire”usedintheoriginalFrench
versionisanoversightofthelegislatorandshouldnotbeconstruedas
qualifyingtradesecretsasproperty.TradesecretsinQuebecaretobe
consideredsuigenerisorproprietaryrights.Thisprovisionislikelytobethe
subjectofalivelydebateintheyearstocome.
III.EmploymentSituation
Sections2088,2089and2095oftheCCQwhicharepartofthechapter
concerningContractsofEmploymentreadasfollows:
“2088.Theemployeeisboundnotonlytocarryonhisworkwith
prudenceanddiligence,butalsotoactfaithfullyandhonestly
andnottouseanyconfidentialinformationhemayobtainin
carryingonorinthecourseofhiswork.
Theseobligationscontinueforareasonabletimeaftercessation
ofthecontract,andpermanentlywheretheinformation
concernsthereputationandprivatelifeofanotherperson.”
2089.Thepartiesmaystipulateinwritingandinexpressterms
that,evenaftertheterminationofthecontract,theemployee
mayneithercompetewithhisemployernorparticipateinany
capacitywhatsoeverinanenterprisewhichwouldthen
competewithhim.

Suchastipulationshallbelimited,however,astotime,placeand
typeofemployment,towhateverisnecessaryfortheprotection
ofthelegitimateinterestsoftheemployer.
Theburdenofproofthatthestipulationisvalidisonthe
employer.”
“2095.Anemployermaynotavailhimselfofastipulationofnon-
competitionifhehasresiliatedthecontractwithoutaserious
reasonorifhehashimselfgiventheemployeesuchareasonfor
resiliatingthecontract.”
Section2088oftheCCQeffectivelybringstoanendthedebateasto
whetherornotthereexistsinQuebeclawtheconceptof”fiduciaryduty”with
regardstoemployeeswhicharisesfromone’sobligationtoactfaithfullyand
honestlytowardsone’semployer.Italsostipulatesexpresslythatanemployee
maynotuseanyconfidentialinformationfora”reasonableperiod”.
AccordingtotheMinisterofJustice,thissectionservestocodifytherecent
doctrineandjurisprudenceonthesubject.ItisalsostatedbytheMinisterof
Justicethattheconceptofconfidentialinformationincludestradesecrets
andasaconsequencealsoincludestheexceptionreferredtoaboveat
Section1472oftheCCQ.Theconcernraisedbythissectionisthatbynot
distinguishingbetweentradesecretsandotherconfidentialinformation,it
remainstobedeterminedwhatwillbeconsideredtobeareasonabletimeof
protectionfortradesecrets.Inotherwords,canatradesecretthatisbeing
activelyguardedtoensureitssecrecybeusedbyaformeremployeeaftera
certain”reasonableperiod”oftime.Thisissueisevenmoretroublingsincein
thissamesection2088oftheCCQthelegislatorgoesontospecifywhat
informationmustbekeptconfidentialonapermanentbasis,anditdoesnot
excludetradesecrets.Theeffectofthissectionseemstopartwiththe
otherwiseacceptedprinciplethatatradesecret,ifwellguardedbycontract
orotherwise,couldultimatelyretainitsstatusasatradesecretforan
unlimitedperiodoftime.
Section2089oftheCCQsimplyrestatesQuebeclawasitconcernsrestrictive
covenantswiththeexceptionofonemajorchangeatthethirdparagraph
whichtransferstheburdenofprovingthevalidityofthestipulationtothe
employer,whereasbefore1994,thisburdenwasplacedontheemployee.
Finally,Section2095oftheCCQwhichisconsideredtobenew,willrender
unenforceableanon-competitioncovenantiftherelatedemployment
contractisnotterminatedfora”seriousreason”.Certainauthorshave
reviewedtheissueofwhatconstitutesa”seriousreason”asopposedtothe
previousconceptof”justcause”foundintheformerCivilCode.Accordingto
theseauthors,thereremainsadoubtastowhetherornottheyhold

equivalentmeanings.However,itseemsthattheopinionofthemajorityisto
theeffectthattheconceptremainsessentiallythesame.Priorto1994,the
conceptof”justcause”wasinterpretedveryrestrictivelybythecourts,
therefore,oneisledtobelievethatifthesameinterpretationisgiventothe
words”seriousreason”stipulatedinsection2095oftheCCQ,restrictive
covenantsmaybefoundtobeevenmoredifficulttoenforceinan
employer/employeerelationship.

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