1. What are trade secrets and confidential information?

Trade secrets and confidential information is information that, when disclosed to a competitor, could be useful to such a competitor and could result in loss for the company or business it belonged to. What should be regarded as confidential information depends on the circumstances of each case and it has been held that an employer is entitled to dismiss an employee for a breach of the duty that requires an employee not to disclose trade secrets or confidential information of the employer. Where a business filches or in some manner obtains information from a competitor, which it knows to be secret and confidential and which has been developed by the competitors skill and industry, that business commits a wrongful act if it uses such information to the detriment of the rival and damages might be claimed.

2. How are trade secrets and confidential information protected?

Confidential information is protected through the use of confidentiality clauses in employment agreements, non-disclosure agreements between businesses and restraints of trade. The doctrine of restraint of trade may affect the enforceability of contracts restricting competition. The two main forms of such contracts concern potential competitors, namely where the seller of the goodwill of a business undertakes not to carry on a similar business in competition with the purchaser, and where an employee agrees with his employer not to compete against the employer by setting up his own rival business or by entering the service of a rival trader. Contracts in restraint of trade may, however, also be concluded between existing competitors. Generally a contract will, in the absence of factors like fraud and duress, be enforced even if its terms are unreasonable or unconscionable. Since it is not the function of the court to remake the contract, it will not relieve one party from any term which he finds onerous or unexpectedly harsh. But an agreement in restraint of trade may, on the ground of public policy, be unenforceable.

Before the decision of the Appellate Division in Magna Alloys and Research (SA) (Pty) Ltd v Ellis in 1984, the traditional approach of the courts, developed under the influence of English law, was that contracts in restraint of trade were prima facie void and hence unenforceable. Such a restraint was, however, enforced if it was, first, reasonable between the parties and secondly, not contrary to the public interest. In Magna Alloys and Research (SA) (Pty) Ltd v Ellis the appellate division rejected the traditional English-law approach to contracts in restraint of trade, namely that such contracts are prima facie void or unenforceable. Rabie CJ reinstated the common law principle that a restraint on competition is in principle enforceable; it will only be unenforceable (not invalid or void) if it is contrary to public policy or the public interest. The onus of proving that a restraint of trade is contrary to the public interest and hence unenforceable rests upon the opponent to the restraint. This burden of proof is not easily discharged. In deciding whether or not a contract in restraint of trade is contrary to public interest, regard should be had to two considerations: agreements freely concluded should be honoured, and everyone should be free to enter the business or professional world. In this regard an unreasonable restraint of trade inter partes would in general probably also be contrary to the public interest. The court will have regard to all the circumstances obtaining at the time when it is asked to enforce the agreement. The court is not limited to a finding in regard to the contract in restraint of trade as a whole, but may declare the contract partially enforceable or unenforceable (clauses 4.4.2.2 to 4.4.2.4 from LAWSA).

Reinhardt Buys is a partner at Buys Incorporated, a law firm specialising in internet, media and intellectual property law. Click here to visit their site.

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