Shining a light on trade secrets and intellectual property rights

April 1st, 2024
x
Bookmark

Picture source: Getty/iStock

By Ramon Camarinha

Definitional elements

Generally held, in South African jurisprudence, trade secrets are intellectual property rights on confidential information, which may be sold or licensed (EA Rowe and SK Sandeen Trade Secrecy and International Transactions: Law and Practice (Cheltenham: Edward Elgar Publishing 2015) at 269). ‘A trade secret is confidential business or industrial information having particular economic value’ (H Klopper, T Pistorius, B Rutherford, LA Tong, P van der Spuy and A van der Merwe Law of Intellectual Property in South Africa (Durban: LexisNexis 2016) at 93); which ‘may be described as trade, business or industrial information belonging to a person’, and; is not generally available to the public (J Neethling Unlawful Competition (Durban: LexisNexis 2015) at 402). Information is considered confidential for present purposes if it involves and is capable of application in trade or industry; and not public knowledge or public property but known to a restricted number of persons and is objectively of economic value to the plaintiff (LTC Harms Amler’s Precedents of Pleadings (Durban: LexisNexis 2018) at 93; cf Alum-Phos (Proprietary) Limited v Spatz and Another [1997] 1 All SA 616 (W)). By way of conduct, a trade secret is considered as information in confidence that is not permitted to be used in a manner detrimental to the person who made the confidential communication (O Dean and A Dyer Dean & Dyer: Introduction to Intellectual Property Law (Cape Town: Oxford University Press 2014) at 256).

  • Scope

It is generally accepted that a trade secret is a distinct type of intellectual property (Klopper (op cit) at 93; Neethling (op cit) at 402) and, therefore, any unauthorised acquisition, use or publication of such information is in principle wrongful and unlawful (see M Fouché Legal Principles of Contracts and Commercial Law (Durban: LexisNexis 2020) at 301; where it is stated that: ‘There can be no doubt that the infringement of the goodwill of a rival as a result of the unauthorised acquisition and use of his unpublished business ideas, inventions, and so on, constituting trade secrets or confidential business information, is legally reprehensible’; in Neethling (op cit) at 402).

  • Entitlements

As the owner of a trade secret has the exclusive use and enjoyment of that secret information; the nature of business information which may qualify as a trade secret is held to be irrelevant (Neethling (op cit) at 402). However, two broad categories have emerged from case law. The first is that of ‘confidential information’ which is useful for the carrying on of the business; and the second is that of ‘trade connections’ of the business, forming part of incorporeal property known as goodwill (Bidvest Protea (Coin) (Pty) Ltd v Seetharam and Another (LC) (unreported case no D14/2022, 28-2-2022) (Van Niekerk J) at para 17). In Phumelela Gaming and Leisure Ltd v Gründlingh and Others 2007 6 SA 350 (CC) at 361–363, the court accepted that the right to goodwill is a protectable immaterial property in terms of the Bill of Rights (J Neethling ‘The constitutional impact on the burden of proof in restraint of trade covenants – a need for exercising restraint: Analyses’ (2008) 20(1) SA Merc LJ 89). Furthermore, the right to goodwill in the case of unlawful competition is determined by the notion of wrongfulness, which is estimated by the boni mores or reasonableness criterion (see J Neethling and J Potgieter Law of Delict 8ed (Durban: LexisNexis 2020)).

Re-statement from case law

Although trade secrecy law has relatively few limiting doctrines to promote information diffusion; it is evident from the definitional elements above that confidentiality is a characteristic feature of trade secrecy, in that the ‘information must have the necessary quality of confidentiality about it’ (O Dean O and A Dyer (op cit) at 256). In Pexmart CC and Others v H Mocke Construction (Pty) Ltd and Another 2019 (3) SA 117 (SCA); it is apparent that the information must comply with three requirements in order to be deemed worthy of protection, namely that –

  • the information must relate to, and be capable of application in trade or industry;
  • the information must be secret or confidential of which it is known only to a restricted number of persons, in that it is not readily available to the public; and
  • the information must be of economic value.

Whether information constitutes a trade secret is factually determined (see Townsend Productions (Pty) Ltd v Leech and Others 2001 (4) SA 33 (C); Mossgas (Pty) Ltd v Sasol Technology (Pty) Ltd [1999] 3 All SA 321 (W) at 333; Walter McNaughtan (Pty) Ltd v Schwartz and Others 2004 (3) SA 381 (C); SA Historical Mint (Pty) Ltd v Sutcliffe and Another 1983 (2) SA 84 (C); Cambridge Plan AG and Another v Moore and Others 1987 (4) SA 821 (D)). It remains trite that before a piece of information may be deemed a trade secret, reasonable measures must be taken in protecting that information that is of industrial value (see Atlas Organic Fertilizers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd and Others 1981 (2) SA 173 (T); Schultz v Butt 1986 (3) SA 667 (A); Knox D’Arcy Ltd and Others v Jamieson and Others 1992 (3) SA 520 (W); Meter Systems Holdings Ltd v Venter and Another 1993 (1) SA 409 (W); Gordon Lloyd Page & Associates v Rivera and Another 2001 (1) SA 88 (SCA)). The duty to protect or not to use confidential information may arise from agreement or from a general legal duty; as confidential information may be protected by an interdict or breach of confidential information which may be a ground for a claim for damages (Harms (op cit) at 93; Waste Products Utilisation (Pty) Ltd v Wilkes and Another 2003 (2) SA 515 (W); Automotive Tooling Systems (Pty) Ltd v Wilkens and Others 2007 (2) SA 271 (SCA)).

The Constitutional application
  • Supremacy and influence

The scope of the Constitution and its influence are far-reaching; in that the Constitution should not be used in a formalistic manner; ‘to effect changes to the law solely by way of a technical and literal reading’; as the ‘Constitution has a much broader role’ to ‘facilitate and achieve transformation in society’ (J Heaton The South African Law of Persons 6ed (Durban: LexisNexis 2021) at 6). Contractual terms relating to trade secrecy are subject to constitutional rights and the courts have a mandate to invalidate and refuse the enforcement of an agreement contrary to public policy; which are in itself, informed by the Constitution (A Govindjee (ed) Introduction to Human Rights Law (Durban: LexisNexis 2016) at 196). All intellectual property doctrine is subject to the provision of the Constitution, which plays an important role in its interpretation and application. The Constitution is the fundamental bedrock or grundnorm from which all law in South Africa now derives its validity; and thus, no doctrine of law can survive unless it is consistent with the Bill of Rights and the normative framework of the Constitution.

  • Application

The tension between the competing goals of contract law is quite evident; and thus the law of contract is accordingly, not only concerned with the sanctity of contract, as public interest requires that parties should comply with their contractual obligations, as embodied in the common-law principle of pacta servanda sunt (see Esquire System Technology (Pty) Ltd t/a Esquire Technologies v Cronjé and Another (2011) 32 ILJ 601 (LC); C Visser ‘The Principle Pacta Servanda Sunt in Roman and Roman-Dutch Law, with Specific Reference to Contracts in Restraint of Trade’ (1984) SALJ 641; Govindjee (op cit) at 195). Fairness in contractual dealings must too be consistent with constitutional values (see Y Mupangavanhu ‘The Relationship between Restraints of Trade and Garden Leave’ (2017) 20 PELJ). In part to the fact that no direct measures for the protection of competitors – in relation to trade secrecy are found in statute – comparatively, ‘most treatise and textbook writers readily acknowledge international law as a source for domestic intellectual property law’ (RC Dreyfuss and ES-K Ng Framing Intellectual Property Law in the 21st Century: Integrating Incentives, Trade, Development, Culture, and Human Rights (Cambridge University Press 2018) at 217).

  • Interpretation

‘The right to freedom of trade, occupation and profession is enshrined in section 22 of the Constitution’; which are said to be related to competition principles (Dean and Dyer (op cit) at 246; cf J Scott and S Cornelius The Law of Commerce in South Africa 3ed (Cape Town: Oxford University Press Southern Africa 2020) at 126). In consideration, it is trite that none of the entrenched rights of the Constitution are absolute; and are thus subject to limitation. In the case of Laugh it Off Promotions CC v South African Breweries International (Finance) Bv t/a Sabmark International 2005 (2) SA 46 (SCA) the court held that intellectual property had no special status, and consequently intellectual property rights may be limited, similar to other property rights. In contemplation of a restraint of trade; in the case of Advtech Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn and Another 2008 (2) SA 375 (C); the Constitutional Court held that a justification on a limitation on the right to work, must be considered in respect to relevant constitutional provisions; while factoring the importance placed on the dignity of work; which further was held to be subject to limitation and in this instance; justifiable in an open and democratic society based on human dignity, equality and freedom.

Conclusions

It is trite that a restraint of trade, per se, does not offend the provisions of s 22 of the Constitution (Canon Kwazulu-Natal (Pty) Ltd t/a Canon Office Automation v Booth and Another 2005 (3) SA 205 (N)). The court held that the litigant had to comply with s 36 of the Constitution and demonstrate that the restraint poses a justifiable limitation on the right to freedom of trade and occupation in that it is both reasonable and justifiable; and not contra boni mores. The Constitutional Court has confirmed that the boni mores test is constitutionally sound in that it appropriately balances two constitutional rights that are often brought to the fore in unlawful competition; the first being the right of freedom to trade and the second being the right to property; both of which encompass competition, inclusive of intellectual property. Inasmuch as public policy requires that agreements be kept pacta sunt servanda; consideration also prohibits the courts to uphold and enforce provisions that are contra boni mores and unreasonable. It is thus clear that the courts are tasked to balance competing interests in consideration of the constitutional rights enshrined in the Bill of Rights against the common law principle of pacta servanda sunt; which may not be unreasonable and against public policy (Correia Spares CC t/a Omega Motor Spares v Croucamp (FB) (unreported case no 760/2021, 3-5-2021) (Daffue J) at para 11). It is, however, generally held that applicants fail to draw the important distinction between the principle of contra boni mores and the application of the provisions of s 22 of the Constitution. If an employee believes that their rights are implicated, an employee bears the onus of pleading the rights affected and to demonstrate that he or she is completely prevented from the plying of a trade, occupation or profession by the enforcement of the restraint (Biobee Intergrated Crop Solutions (Pty) Ltd v Botha and Others (LC) (unreported case no J673/21, 6-7-2021) (Moshoana J) at para 3). A party wishing to be absolved from a restraint of trade agreement must allege and prove that the enforcement of the restrictive condition would be contrary to public policy (Harms (op cit) at 317; Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A); Den Braven SA (Pty) Ltd v Pillay and Another 2008 (6) SA 229 (D)).

Ramon Camarinha LLB (UNISA) is a Certified Peer Reviewer in Pretoria.

This article was first published in De Rebus in 2024 (April) DR 20.

X