Briefing Note - Law of Confidential Information in the UK

The right to confidentiality in information arises from either contract or as a right under common law. In a commercial context, the only means available to preserve the value of information will in most cases be by maintaining its confidentiality explicitly by contract. The exploitation in commerce of confidential information and know-how requires disclosure of the information to some extent, particularly where the article or process may be reverse engineered. It is this type of disclosure that should be regulated by contract to preserve the confidentiality. The law of confidence operates independently of contract but may be eroded or diffused by contractual agreements.

Nature of Confidential Information

Unlike other areas of intellectual property, information is not considered property in the legal sense, as is the case in the United States. Information and its form should be considered separately. One of the benefits of a legal system not characterizing information as property is that the duty of confidence disregards the form of the information, whether it is written, encrypted, otherwise recorded or spoken.

A duty of confidence arises from the broad principle of equity that ‘he who has received information in confidence should not take unfair advantage of it’. As such parties may rely on law to intervene where a recipient seeks to use information received to the prejudice of the party who gave it without obtaining his consent.

The Rationale for Confidential Information

The basis of modern law finds its foundation in a judgment by Mr Justice Megarry in Coco v Clark, which was summarised by Lord Greene in Saltman v Campbell. ‘First, the information itself must have the necessary quality of confidence about it.’ Secondly, that information must have been communicated in circumstances importing an obligation of confidence. Thirdly, there must be unauthorised use of the information to the detriment of the party communicating it. The information should be clearly identifiable and original.

Types of Confidential Information

The types of confidential information may be loosely categorised as Personal, Commercial or other information, although in principle the categorization of the information is not relevant. Instances of information include:

• Commercial records, such as customer lists, sales information, strategy and information about commercial plans.
• Unpublished copyright works
• Mathematical formulae and manufacturing techniques
• Source code and algorithms
• Marketing techniques and procedures
• Personal information
• Price lists and
• Plans, sketches, diagrams

When is Information considered Secret and Confidential?

Information may be confidential for any number of reasons. For instance, it has been held that the obligation arises without the existence of a contract, such as information passed during negotiations for a commercial contract that was not executed. Unsolicited letters marked confidential are probably not confidential where the correspondence is returned indicating that no such obligation is taken to be imposed, as opposed to retaining the information.

To ascertain whether information has been received with an obligation to keep it secret, an objective test is applied. ‘If the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realized that upon reasonable grounds the information was being given to him in confidence, then it should suffice to impose upon him the equitable obligation of confidence’: Megarry J. Where obligation has been assumed by the recipient, it is immaterial how the information is imparted, subject to a public disclosure by the person imparting the information to the public without conditions maintaining the confidence. Encryption of software in a publicly accessible vending machine has been held to be a disclosure dissolving the confidence in the source code.

The obligation may also arise when one person provides information on condition that it is kept secret. The confidentiality may be partial or total. If a disclosure has taken to a limited number and definable set of people the confidentiality will probably remain in place.

Information falling into the hands of employees is not considered confidential information when the information is of a character that the employee would fairly be entitled to use when they leave.

In matters relating to technology, the ‘springboard’ principle offers a useful guide. A person who is in receipt of information which is confidential ought not to use it to save himself the time and expense of creating the information, as he would have had to do if he had no prior knowledge of it or the expense of obtaining it from someone else: Coco v AN Clark (Engineers) Ltd; Cranleigh Precision Engineering Ltd v Bryant [1966] RPC 81; 3 All ER 289. If obtaining the information requires very little trouble, for instance, it can be located in a standard published work, then the information need not be treated as confidential.

Recipients should ask themselves, ‘If I did not already know this information, how would I acquire it?’ The more money, skill and time needed to acquire it, the greater the indication that the information is confidential. A person is not entitled to misuse confidential information as a jump-start over others, however the information will not be protected forever.

If the information is placed in the public domain by the owner with the intention of making it freely available to the public, the duty of confidentiality dissolves. Reverse engineering of such information is not a breach of confidence and contractual rights that seek to do so may be unenforceable when carried out by a person entitled to use it: Copyright, Designs and Patents Act 1988: s 50BA.

It may be that a person is under no obligation to treat the information confidentially where they have received the information prior to a contractual or fiduciary duty arising.

Springboard Principle

Where information has been acquired unlawfully, the springboard principle applies to prevent the recipient and others utilising the information, but not indefinitely. The factors to consider in assessing whether the principle will apply include the means and manner by which the information becomes public; by what other lawful means could the defendant acquire the information and the defendant’s state of mind in disclosing the information.

Confidential information may overlap with other areas of intellectual property protection, and they may be applied in protecting names, slogans and logos. For more about confidential information, click here.