Confidential Information

Confidentiality Agreement Malaysia

Confidential information is another form of intellectual property. However, it is not a registrable right (i.e., no registration required) and there is no time period for the usage of the intellectual property (as trademarks, designs, copyright and patents have).

In most countries, there is no specific legislation governing confidential information and usually, the law that has developed to date is based on common law (i.e., from cases decided in Court).

In some countries, there may ancillary legislation that concerns confidential information contained in databases or personal information collected by private bodies (e.g., Data Protection Act).

What constitutes Confidential Information?

Confidential Information means information that is not in the public domain and that is communicated to others (either verbal or in written form) in confidence. The following are examples of confidential information in the business world:

  • Client or customer lists
  • Supplier lists
  • Contracts with third parties
  • Price list for raw materials
  • Marketing strategy or plan
  • Business strategy or plan
  • Composition of material used in products
  • Ingredients and recipes
  • Salary structure and bonus structure
  • Financial and business data
  • Internal processes, methods and systems
  • Details of proposals or pitches made to potential clients
  • Ideas discussed with third parties

Confidential information that covers manufacturing or industrial secrets is also called “Trade Secrets”. This term has been made familiar by brands such as Coca-Cola® and KFC®. Coca- Cola® claims to keep the recipe for its over-a-century-old carbonated drink in a high-security vault in Atlanta, while KFC® claims that it stores its recipe of “11 herbs and spices” in a vault in its headquarters in Louisville.

It should go without saying that information that is confidential must be kept confidential.  One cannot claim that the information is confidential if he or she has disclosed the information to many parties unnecessarily. If there is a need for disclosure, the disclosure must be kept limited to only a few parties and even so, a Non-Disclosure Agreement (NDA) or a Confidentiality Agreement should be entered into.

Take the customer list or supplier list for instance; it is understandable that the staff of an organisation would need access to the list for either marketing or operations purposes. However, if the information is confidential, then the organisation must take the responsibility to ensure that reasonable effort is made to limit the access to the information. Perhaps only one or two key employees are provided the password to the databases.

Another example is the terms and conditions of a license agreement. The terms can contain highly confidential information or subject matter that, if leaked to competitors, could sabotage one’s business. Thus, although licensees have access to such terms, effort must be taken to limit third party access to the information and licensees should be strictly warned of the nature of the information.

Generally, when there is a misuse of confidential information, the Court will assess whether the information was treated as a secret by the owner of the information. If the owner did not treat it as a secret, then the information may be found not to qualify as Confidential Information.

Why is confidentiality important?

For many companies, especially small and medium sized businesses, their Unique Selling Point (USP) is usually something they offer that is better than their competitors. Either their price list is more competitive or they have created a business or marketing strategy that is extraordinary or a customer list that is reliable and with recurrent purchases and so on.

Where the business advantage cannot be protected by way of a registrable right (like patent, copyright and design), the only practicable way for the business to continue to maintain its advantage in its respective markets is to keep the information confidential.

What happens when the Confidential Information is misused?

The misuse of confidential information is termed “Breach of confidence”. The owner of the confidential information can sue the party that misused the information in Court for damages.

However, it is important to remember that once the information has been leaked out to the public, the information is already out there and cannot be made secret again. So although the owner may succeed in Court and win damages for the breach of confidence, the information that was meant to be confidential for an indefinite period of time is no longer confidential. Third parties, including competitors, will be able to use the confidential information to their benefit and the owner cannot sue them as the information is already in the public domain.

Therefore the best practice is for the owner to share information with a limited number of people and to take extreme and effective measures to ensure the information is kept as a secret (mark the documents as “Confidential”, repeatedly inform persons exposed to the information that it is confidential, ensure they sign NDAs, change passwords to the access regularly, etc.).

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