The Difference Between Trade Secrets And Confidential Information

An important element to check in the moment of drafting and negotiating an NDA or agreements that require confidentiality is the nature of the information that will be exchanged. In this article it will be explained the difference between confidential information and trade secrets, both important elements for the business but treated separately due to their specificities. 

  Trade secrets: 

Firstly, it is important to mention that trade secrets are a type of confidential information, which are treated separately by the law due to their specific characteristics. To be characterised as a trade secret, the information must comply with the following requirements, according to article 39(2) of TRIPS agreement and Article 2 of the EU Trade Secrets Directive (DIRECTIVE (EU) 2016/943 ): 

  1. it must be a secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 
  1. it must have commercial value because it is secret; 
  1. it must have been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret; 

 

The World Intellectual Property Organization has well elucidated trade secrets as, for example “[…] technical information, such as information concerning manufacturing processes, pharmaceutical test data, designs and drawings of computer programs, and commercial information, such as distribution methods, list of suppliers and clients, and advertising strategies. […] Other examples of information that may be protected by trade secrets include financial information, formulas and recipes and source codes.” 

Although there is no need for formalities for trade secrets to be protected (European IP Helpdesk – European Commission, 2019), an NDA or agreements with confidentiality clauses are useful tools to ensure security in the exchange of information. According to the European Commission, they can last indefinitely in most jurisdictions, as long as the conditions for the information to be  considered as a trade secret are fulfilled. This is the scenario, for example, in regions and countries as the EU, South America, the United States and China. Consequently, in case of exchanging information considered as a trade secret, it is common to see an unlimited duration of the confidentiality duty in the NDAs or other agreements with confidentiality clauses. 

 

Confidential information: 

Confidential information, on the other side, is a broad category that means any information that has not been disclosed to the public. In this regard, all elements that a company finds suitable to remain secret can be a general confidential information. This could be, for example, a company’s information that varies over time due to external factors and therefore does not necessarily meet the aforementioned requirements to be classified as a trade secret, but it is still convenient to keep it confidential (e.g. a business pricing list, employees data, etc). 

Confidential information is generally protected through non-disclosure agreements with a duration of the duty of confidentiality that may vary according to the business interests. Unlike the subset trade secrets, in the case of confidential information in its broadest sense, it is more appropriate to set a fixed duration for the duty of confidentiality, which may vary according to the needs of business and the content of the information.  

For example: In the German Federal Court of Justice there are cases involving agreements with confidentiality clauses (in this case, a know-how contract) with a duration of 20 years. However, one must be cautious when it comes to setting a very long duration in confidentiality agreements, since it can be perceived as abusive by the courts. In Augusta Medical Complex, Inc. v. Blue Cross (Kansas, United States), for example, the Court expressively stated their distaste for contracts with unlimited duration. In the same sense, the Superior Court of Brazil has also stated that an NDA must have a time limit on the duration of the confidentiality in order to have a minimum of credibility. 

 

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Note: This Article is neither intended nor should be understood as legal advice. Please consult your lawyer before proceeding on any elements covered by this article. 

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