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If in doubt – throw it out!

If in doubt – throw it out!

Have you heard the old wartime saying “Loose lips sink ships”? It was part of an ongoing campaign aimed at both civilians and military, pointing out the dangers of giving out confidential information. In business, there is a huge amount of confidential information that you hold as an employee – and not just your company’s information: it might be confidential to a supplier or a customer. The court cases that turn up each year show that a lot of people take their responsibility lightly and to their cost, when they lose out to the owner of the confidential information.

A good example is not a court case, but was decided within the rules of an international sporting regulation body. In September 2007 the World Motor Sport Council fined Formula 1 team McLaren US$100 million. McLaren had misused the confidential technical information of Formula 1 rival Ferrari in relation to the development of its own Formula 1 car. While this case was decided on the sport’s own rules, those rules were applied in a similar manner to the way the law about misuse of confidential information works in New Zealand and elsewhere. McLaren’s engineering team had obtained a dossier of Ferrari documents that McLaren staff knew had been leaked in breach of the Formula 1 rules. Even though McLaren’s use of the Ferrari information didn’t directly result in changes to the McLaren car, the council found that McLaren had obtained benefits from the misuse of its Ferrari’s confidential information – and McLaren was fined handsomely.

Breach of confidence cases are quite common in New Zealand. Even where there is no contractual relationship, the law can require you to keep your employer’s and other peoples’ information confidential, as long as the information is communicated in circumstances showing that the information is confidential. Perhaps the most obvious examples of confidential information for resellers are customer details, new product specifications and pricing information – both buying and selling.

Where the circumstances show there is an obligation to maintain information as confidential, a person who wrongly discloses or misuses it can be sued. While court action usually starts with the owner of the confidential information getting an urgent court order to prohibit further disclosure of information, it can finish with both the person who disclosed the confidential information and the person who knowingly received it being sued for damages or being required to cough up all of the gross profit they made out of the information – and pay the owner’s legal costs.

Employees must always maintain confidence in regards to information they receive during their employment, including confidential information regarding their employer, customers and suppliers and other people associated with the business. It’s pretty bog standard stuff, isn’t it – and there is almost always a confidentiality clause in people’s employment contracts to drive it home. Not that you need a clause in your contract: the preservation of confidentiality is an obligation that exists separately from other legal relationships.

The most important point to remember is that you can get stung for breach of confidence no matter how or where the information came from, if you knew that it was confidential and you misused it. The mere fact that you used confidential information that you were freely given by a third party is irrelevant: the owner of the information can still sue you for breach of confidence.

And you still have to make your own business profitable anyway. In the Ferrari case, McLaren were harshly punished by the motorsport authorities, Ferrari sued the disgruntled ex-employee... and still Ferrari cars won the 2007 Formula 1 championship. So it was all for nothing.

This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.


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