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Canadian law on industrial espionage needed

|Written By Natalie Fraser

Nearly half of Canadian employees polled don''t believe their organizations would take legal action to protect their information assets from being used by former employees, according to a recent Ipsos-Reid survey sponsored by EDS Canada.

Shoehorning industrial espionage into available Criminal Code provisions is a difficult proposition, says Stuart McCormack.
Shoehorning industrial espionage into available Criminal Code provisions is a difficult proposition, says Stuart McCormack.
This surprising statistic emphasizes the need for specific Canadian legislation dealing with industrial espionage. Currently, Canadian businesses have to rely on common law and criminal provisions to protect confidential business information.
"Until the legal and business communities are granted legislation specifically designed to define and offer redress for breaches of trade secrets and confidential information, uncertainty shall reign. This uncertainty will cost both individual companies in the business community and Canada's economy as a whole," said Richard Austin and Stuart McCormack in a paper written for the municipal law program of the Ontario Bar Association's 2006 Institute.
Austin is chief legal counsel for EDS Canada and McCormack is head of the intellectual property practice group at Stikeman Elliott LLP's Ottawa office.
No statutory definition exists for confidential information, said McCormack during the Institute. Instead, a list of factors has developed through the common law system to make up the definition. These factors include whether the owner of the information has clearly communicated that it was confidential in nature, and took measures to ensure the information remained secret. Other factors are whether only a few people knew of the information, whether it is unique, and whether time, effort, and money were expended in compiling the information.
Businesses launching civil actions claiming a breach of confidential information use this common law definition. They also use common law concepts as the basis of their claims.
"Civil actions for breach of confidential information have traditionally been grounded in contract, equity, or tort, and more recently, reliant upon all three. This is why most statements of claim adopt a 'throw it all in and see what sticks' approach to prosecuting breaches of confidential information," wrote Austin and McCormack.
The Criminal Code can also be used to prosecute breaches of trade secrets, McCormack said. However, the Supreme Court of Canada concluded that information is not property for the purposes of the theft provisions of the code.
"In R. v. Stewart, [justice Antonio] Lamer decided that confidential information is not capable of being stolen, because when taken it is not 'converted' such as to deprive the owner of its use," McCormack said.
The concept of fraud under the Criminal Code, which requires that one party has deprived the other of property by dishonest means, has the same difficulty, said Austin. In cases of industrial espionage, nothing is actually taken and the owner of the information has not been deprived of the property.
However, McCormack noted that the facts of some cases could allow criminal prosecution using the theft or fraud provisions of the Criminal Code. In Air Canada v. WestJet, a former Air Canada employee allegedly provided WestJet with access to a web site containing confidential passenger traffic and available seating information. Air Canada has argued that it was deprived of passengers and the ability to compete effectively in the marketplace, said McCormack. This deprivation could fit within the theft provisions. However, it remains a difficult argument.
"There just isn't very much in a criminal law context you can do with the theft of information. The U.S. is significantly ahead of us in this arena," Austin said.
In the U.S., the Uniform Trade Secrets Act (UTSA) attempts to make trade secret law uniform throughout the country. Most states have adopted some form of it. Remedies for breach of confidential information under the UTSA include injunctive relief, and damages such as replacement of actual losses caused by the misappropriation of the information, as well as for unjust enrichment. The UTSA provides for exemplary damages, something not generally available in Canada, McCormack said.
In addition to the UTSA, the U.S. has also enacted the Economic Espionage Act (EEA), which criminalizes trade secret theft, said Austin.
The EEA defines a trade secret as all forms of information, however stored and maintained, if reasonable efforts have been made to keep the information secret and if the information has independent economic value.
Under the EEA, courts must order the forfeiture of any proceeds or property derived from theft of confidential information. The act authorizes the government to commence a civil action for an injunction to prevent further disclosure of the trade secrets during a criminal investigation.
"This can enable small companies with limited means to successfully challenge larger multinationals guilty of trade secret theft," said Austin.
In spite of the lack of legislation, Canadian companies can take steps to protect themselves from industrial espionage, says McCormack. Based on a discussion with corporate investigators, Austin and McCormack compiled a list of recommendations to assist companies in avoiding the theft of confidential information.
Pre-employment recommendations include entering into employment contracts with non-disclosure obligations as well as non-competition and non-solicitation covenants. As well, companies should institute corporate policies promoting the protection of information by policing the use of information assets and the Internet, as well as maintaining on-going surveillance and monitoring of information use. Every company should have a code of conduct regarding the use of confidential information.
During employment, companies should provide their employees with awareness training and education regarding information assets, and employees should undergo annual code-of-conduct re-certifications, Austin said. He also suggested ethics hotlines and incident reviews.
Post-employment, Austin recommended companies conduct exit interviews with employees to ensure they understand what constitutes misappropriation of information. Finally, companies must be prepared to litigate when appropriate.

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