IP monitor: A welcome and timely boost for trade secret protection in Canada

Canada, the United States, and Mexico have each completed the domestic processes necessary to bring the United States-Mexico-Canada ‎‎(USMCA) trade agreement into effect. USMCA will come into force on July 1, 2020.

The USMCA has led to the enactment of new Criminal Code provisions strengthening the protection of trade secret rights in Canada. This is a major development in protecting intellectual property in Canada. It comes at a time when businesses and employees are adjusting to new working environments in the midst of the global COVID-19 pandemic. Manufacturers and other businesses and their employees are finding ways to do what they did before in new, faster, more efficient and creative ways. That is the hallmark of a trade secret: a formula, pattern, device, process or information that is not known and provides an advantage to those who do not know or use it. 

Consideration of trade secret rights is now more important than ever in the face of shrinking IP business budgets since unlike patent rights, trade secret protection requires no registration or associated legal fees for their recognition. 

The previous limits on trade secret protection in Canada 

Prior to the passage of the USMCA, trade secret rights in Canada were difficult to enforce and limited largely to monetary and injunctive relief. Unlike in the United States, there is no statute or regulation directed solely to protecting trade secrets. Instead, the owner of a trade secret was limited to civil remedies associated with common law causes of action – think breach of contract for the theft of a confidential customer list taken by a departing employee or breach of confidence for the misuse of that list by that departing employee’s new employer. 

Those actions faced major legal hurdles. In the employment context, they often entailed enforcement of restrictive covenants in employment contracts, which courts have considered presumptively unlawful since they threaten the ability of an individual to earn a livelihood. Actions for breach of confidence posed a significant burden on the trade secret owner who is required to prove misuse and damage by the defendant in circumstances where the defendant has been intentionally deceptive and left no trace of having taken that customer list he or she had kept on a home computer. 

Worse, in instances where employees admitted or were found to have downloaded confidential information from their work computers after their termination, liability was not found where the employer was unable to prove that the activity harmed it. 

New criminal remedies available

The new Criminal Code provisions are aimed at the intentional theft of trade secrets. Trade secrets are defined as any information that: (a) is not generally known in the trade or business that uses or may use that information; (b) has economic value from not being generally known; and (c) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (Article 391(5)). 

Article 391 of the Criminal Code provides that:

• Everyone commits an offence who, by deceit, falsehood or other fraudulent means, knowingly obtains a trade secret or communicates or makes available a trade secret (see ss.391(1)).
• Everyone who commits an offence who knowingly obtains a trade secret or communicates or makes available a trade secret knowing that it was obtained by the commission of an offence under subsection (1) (see ss. 391(2)) .

Anyone convicted of these new offences (or related offences of conspiracy or attempt to commit or being an accessory after the fact in relation to the theft of a trade secret) can be punished either by way of an indictable offence (with imprisonment for a term not exceeding 14 years), or by way of summary conviction (Article 391(3)).

Consistent with past law on trade secrets, ss. 391(4) provides a defence of independent development or reverse engineering. 

Criminal liability for fraudulent acts

These new offences for the theft of trade secrets are grounded in fraud. Traditionally, fraud requires a dishonest, deceitful, underhanded or unscrupulous act that puts at risk the deprivation of something belonging to someone else. Neither negligence nor the taking advantage of an opportunity to someone else's detriment are enough. While it is unclear whether the wrongful downloading of a customer list by a departing employee will meet this threshold, nevertheless these new offences should act as a powerful deterrent to the theft of trade secrets.

Protecting trade secrets

Companies who rely on trade secret protection should take steps to identify the information that they wish to protect as a trade secret and ensure that all reasonable steps are taken to maintain the secrecy of that information. While the metes and bounds of “reasonable” efforts is not prescribed in the Criminal Code, existing case law is informative – restricted access, password protection and written acknowledgements that the information is confidential. 

Employers should take the opportunity to ensure that employment agreements and confidentiality policies make clear what employees are permitted and not permitted to do with confidential information belonging to the employer and ensure that employees are able to identify confidential information in the workplace that those restrictions apply to.