MISAPPROPRIATION OF CONFIDENTIAL INFORMATION
Introduction
As we are taught, "Thou shall not steal".
Whilst I accept that I cannot enter my rival's shop and steal goods from his shelves, the question is whether I may "steal with my eyes and ears".
Put another way, can I appropriate and use for myself your information you regard as being confidential and of economic value? What is the difference between my stealing a can of beans from your shop or your idea?
One of the many leading cases on the topic is the matter of Gordon Lloyd Page and Associates versus Rivera[1].
Factual summary
Page determined to develop a shopping centre.
Having identified the property he effected the purchase thereof through a shelf company and in turn assembled a team of appropriate property related consultants to research and produce a preliminary feasibility study.
In search of an appropriate anchor tenant, Page approached Pick n Pay. Whilst some interest was expressed by Pick n Pay, Page could not close any deal. In turn, Page was unable to pay for the purchase of the property and the sale fell through.
Not a man to give up, Page continued to market the opportunity. In due course Page met Rivera, a property developer, who traded through a legal entity namely Tiber Projects (Pty) Ltd ("Tiber").
During the course of discussions, Page introduced Rivera to the opportunity. Following consideration of the opportunity, Rivera rejected the proposal as being unviable "in its present form".
Some 6 months later, Tiber purchased the property and in due course erected a shopping mall, and an office complex, on the property now known as The Cloisters, in Rivonia. The anchor tenant was Pick n Pay.
In turn, Page instituted proceedings against Rivera and Tiber. The cause of action relied upon by Page was a breach of a tacit contract, alternatively, a claim in delict.
Page's concern was essentially that Rivera had exploited his opportunity, to his exclusion. As they say in the industry, "I was bypassed".
Finding
The Supreme Court of Appeal turned Page down. An adverse costs order followed.
The reasons for the decision are instructive and include the following:
the fact that knowledge and information is useful, or even of value, does not necessarily make it worthy of legal protection; and
something more is required namely a quality of confidentiality and a legal interest or proprietary right to the information in question.
Another way of putting the above is to ask whether or not Page was the owner (i.e. proprietor) of the information in question.
Having regard to the facts, the proposal developed by Page and his consultants and put to Rivera included certain development planning information, access and zoning information, architectural drawings and a financial viability report. On the face of it, this information would appear to be information that the law should protect.
The court, however, when considering this latter aspect, referred to the information in question as having a limited shelf life, as being readily accessible to any property developer and as being in the public domain.
What the court further found was that the discussions held between Page and Rivera did not emerge into a binding contract between them.
Summary
Back to proof of an offer and proof of an acceptance!
Because Page could not rely on an express contract, i.e. a contract arising by words spoken or written, he sought to rely on a tacit contract namely a contract evidenced effectively by the conduct of the parties.
We enter into tacit contracts every day, for example when shopping. By our conduct we accept the shopkeepers offer to contract when we take the jeans from the showroom area and approach the teller and make payment. Tacit contracts are also referred to as implied contracts or contracts arising by conduct.
In the Page matter, could it be said that proof of Rivera's acceptance of Page's proposal (i.e. offer to collaborate) was borne out by Rivera's subsequent conduct namely the commercialization of the opportunity introduced to him by Page.
On Rivera's version, he had rejected Page's proposal (i.e. offer) in writing. The court accepted Rivera's version.
What the court further found was that no agreement arose as to the issue of confidentiality. Indeed, the court found that Page had permitted Rivera to pass the information on to others. This militated against a finding that a tacit agreement had arisen between the parties as to the issue of confidentiality.
What must further be borne in mind is that the basis of Page's claim was the alleged misappropriation of confidential information by Rivera.
Given the courts finding that the information in question was not confidential, it followed that Page's cause of action in this regard should fail.
As a general rule, a breach of a legally protected interest will found a cause of action in both contract and delict. In the absence of a provable contract, to prove a delict, you will need to prove a breach of a duty of care. To found a cause of action in delict, Page would have had to have shown that Rivera's conduct was legally reprehensible or wholly unreasonable in the eyes of the community and hence wrongful.
By way of an example, confidential information is an interest that is legally protected because, in the eyes of the community, it is worthy of legal protection. So too is a traders right to goodwill or performance. Invariably, the question is as to the lawfulness of the use of another's protected interest a question which is to be decided in the light of the policy consideration that competition, and even robust rivalry, is to be encouraged in the marketplace.
All very loose and woolly you say! Yes it is! That is why the delictual cause of action is at best fraught with difficulties. Whilst industrial espionage, telephone tapping, outright theft of customer and pricing lists and the like, is one thing, in practice traders generally resort to more sophisticated ways of acquiring confidential information. Perpetrators certainly do not stand on rooftops and tell us what they did or didn't do.
As such, and whilst any unreasonable or unlawful infringement of a protected interest is theoretically actionable in delict, Page had no information which the court considered to be confidential and hence any use of this information by Rivera was not unlawful.
Commentary
My comment is as follows:
as an immutable rule, an express written contract would not be out of place in all cases. In practice however, life is not so simple;
By contract I do not mean the standard NDA or like agreement commonly used in the marketplace. These standard form NDA's are invariably unhelpful save possibly to show a relationship between the parties. Generally speaking these NDA's fail for a lack of a proper definition of the information sought to be protected, the duration of the contract and or the scope or area of the contract. In this regard a distinction should be drawn between a restraint agreement and an NDA;
As a general rule, three criteria make up a trade secret, i.e. as three chords will make up a song, namely:
As a further general rule, there is no limit to the number of classes of information which may be regarded as trade secrets. In this regard I refer to certain "known suspects" including as to technical, business and marketing information, the know-how of an undertaking, customer lists, trade connection lists, price lists, tender prices and technical processes.
Conclusion
The question arises as to whether or not Page could have made use of a further alternative cause of action and if so, could he have been successful?
I deal with this issue next month under the rubric "Breach of Fiduciary Duty".
[1] 2001(1) SA 88 (SCA)
Introduction
As we are taught, "Thou shall not steal".
Whilst I accept that I cannot enter my rival's shop and steal goods from his shelves, the question is whether I may "steal with my eyes and ears".
Put another way, can I appropriate and use for myself your information you regard as being confidential and of economic value? What is the difference between my stealing a can of beans from your shop or your idea?
One of the many leading cases on the topic is the matter of Gordon Lloyd Page and Associates versus Rivera[1].
Factual summary
Page determined to develop a shopping centre.
Having identified the property he effected the purchase thereof through a shelf company and in turn assembled a team of appropriate property related consultants to research and produce a preliminary feasibility study.
In search of an appropriate anchor tenant, Page approached Pick n Pay. Whilst some interest was expressed by Pick n Pay, Page could not close any deal. In turn, Page was unable to pay for the purchase of the property and the sale fell through.
Not a man to give up, Page continued to market the opportunity. In due course Page met Rivera, a property developer, who traded through a legal entity namely Tiber Projects (Pty) Ltd ("Tiber").
During the course of discussions, Page introduced Rivera to the opportunity. Following consideration of the opportunity, Rivera rejected the proposal as being unviable "in its present form".
Some 6 months later, Tiber purchased the property and in due course erected a shopping mall, and an office complex, on the property now known as The Cloisters, in Rivonia. The anchor tenant was Pick n Pay.
In turn, Page instituted proceedings against Rivera and Tiber. The cause of action relied upon by Page was a breach of a tacit contract, alternatively, a claim in delict.
Page's concern was essentially that Rivera had exploited his opportunity, to his exclusion. As they say in the industry, "I was bypassed".
Finding
The Supreme Court of Appeal turned Page down. An adverse costs order followed.
The reasons for the decision are instructive and include the following:
the fact that knowledge and information is useful, or even of value, does not necessarily make it worthy of legal protection; and
something more is required namely a quality of confidentiality and a legal interest or proprietary right to the information in question.
Another way of putting the above is to ask whether or not Page was the owner (i.e. proprietor) of the information in question.
Having regard to the facts, the proposal developed by Page and his consultants and put to Rivera included certain development planning information, access and zoning information, architectural drawings and a financial viability report. On the face of it, this information would appear to be information that the law should protect.
The court, however, when considering this latter aspect, referred to the information in question as having a limited shelf life, as being readily accessible to any property developer and as being in the public domain.
What the court further found was that the discussions held between Page and Rivera did not emerge into a binding contract between them.
Summary
Back to proof of an offer and proof of an acceptance!
Because Page could not rely on an express contract, i.e. a contract arising by words spoken or written, he sought to rely on a tacit contract namely a contract evidenced effectively by the conduct of the parties.
We enter into tacit contracts every day, for example when shopping. By our conduct we accept the shopkeepers offer to contract when we take the jeans from the showroom area and approach the teller and make payment. Tacit contracts are also referred to as implied contracts or contracts arising by conduct.
In the Page matter, could it be said that proof of Rivera's acceptance of Page's proposal (i.e. offer to collaborate) was borne out by Rivera's subsequent conduct namely the commercialization of the opportunity introduced to him by Page.
On Rivera's version, he had rejected Page's proposal (i.e. offer) in writing. The court accepted Rivera's version.
What the court further found was that no agreement arose as to the issue of confidentiality. Indeed, the court found that Page had permitted Rivera to pass the information on to others. This militated against a finding that a tacit agreement had arisen between the parties as to the issue of confidentiality.
What must further be borne in mind is that the basis of Page's claim was the alleged misappropriation of confidential information by Rivera.
Given the courts finding that the information in question was not confidential, it followed that Page's cause of action in this regard should fail.
As a general rule, a breach of a legally protected interest will found a cause of action in both contract and delict. In the absence of a provable contract, to prove a delict, you will need to prove a breach of a duty of care. To found a cause of action in delict, Page would have had to have shown that Rivera's conduct was legally reprehensible or wholly unreasonable in the eyes of the community and hence wrongful.
By way of an example, confidential information is an interest that is legally protected because, in the eyes of the community, it is worthy of legal protection. So too is a traders right to goodwill or performance. Invariably, the question is as to the lawfulness of the use of another's protected interest a question which is to be decided in the light of the policy consideration that competition, and even robust rivalry, is to be encouraged in the marketplace.
All very loose and woolly you say! Yes it is! That is why the delictual cause of action is at best fraught with difficulties. Whilst industrial espionage, telephone tapping, outright theft of customer and pricing lists and the like, is one thing, in practice traders generally resort to more sophisticated ways of acquiring confidential information. Perpetrators certainly do not stand on rooftops and tell us what they did or didn't do.
As such, and whilst any unreasonable or unlawful infringement of a protected interest is theoretically actionable in delict, Page had no information which the court considered to be confidential and hence any use of this information by Rivera was not unlawful.
Commentary
My comment is as follows:
as an immutable rule, an express written contract would not be out of place in all cases. In practice however, life is not so simple;
By contract I do not mean the standard NDA or like agreement commonly used in the marketplace. These standard form NDA's are invariably unhelpful save possibly to show a relationship between the parties. Generally speaking these NDA's fail for a lack of a proper definition of the information sought to be protected, the duration of the contract and or the scope or area of the contract. In this regard a distinction should be drawn between a restraint agreement and an NDA;
As a general rule, three criteria make up a trade secret, i.e. as three chords will make up a song, namely:
- the information must be capable of application in the trade or industry;
- the information must be secret or confidential, i.e. not in the public domain; and
- the information must be of economic value
As a further general rule, there is no limit to the number of classes of information which may be regarded as trade secrets. In this regard I refer to certain "known suspects" including as to technical, business and marketing information, the know-how of an undertaking, customer lists, trade connection lists, price lists, tender prices and technical processes.
Conclusion
The question arises as to whether or not Page could have made use of a further alternative cause of action and if so, could he have been successful?
I deal with this issue next month under the rubric "Breach of Fiduciary Duty".
[1] 2001(1) SA 88 (SCA)