In Canada, trade secrets and various forms of proprietary data has been increasingly thought of like a type of intellectual property. This follows American developments following the statutory codification of its trade secret law by nearly all states. Yet how can you effectively assert intellectual property rights to a trade secret, in the sense of legally preventing others from engaging in activities using misappropriated information?
The short answer is that if a trade secret rights holder wants to prevent others from misusing their trade secret, they need to engage in the high risk/reward activity of seeking a pre-trial injunction shortly after discovering the misuse of their confidential information. If you do not, the problem is that by the time a trial arrives, you are, in effect, asking a judge to prohibit commercial activity associated with the misuse of secret or confidential information when that misappropriation occurred years ago. The courts tend to be reluctant to grant an injunction under these circumstances. You are therefore typically left with some form of money damages award instead. Thus, if you want to assert a right to control the further use or disclosure of a trade secret, you must strike while the iron is hot by seek an injunction soon after discovering that someone is misappropriating your secret.
Injunctions and Exclusive Control
Legally speaking, the ability to assert the sole right to use or control an information source is associated with the injunction remedy, a court order requiring someone to do or refrain from doing a specified act. The courts are, generally speaking, quite willing to grant an injunction that forbids ongoing acts that infringe on the traditional and statutorily defined intellectual property rights in patent, copyright, and trademark, at least during the currency of the IP right in question. Knockoff producing factories are shut down. Product lines infringing on patented technology sans license are forbidden. That sort of thing.
You certainly can obtain an injunction that prohibits unlawful acts that misuse secret or confidential information. In practice, however, the courts are reluctant to order an injunction once significant time has passed since the information in question was first taken and misused. Understanding why this is the case requires digging into how Canadian courts tend to determine the remedy they should grant for misappropriating confidential information.
The Problem With Asking for an Injunction at Trial
In Cadbury Schweppes Inc. v. FBI Foods Ltd.,  1 SCR 142, the Supreme Court of Canada confirmed the remedial flexibility and judicial discretion necessarily involved in granting relief after confidential information has been misappropriated. The Court confirmed previous authority in observing that it is often impossible to calculate the loss resulting from a misappropriation “with mathematical accuracy.” Similarly, in a commercial setting, judges may need to take a “flexible and imaginative approach” to decide on the appropriate remedy or estimate of damages.
The Unfair Competition Time Period
As the economist Kenneth J. Arrow noted, information may act like a valuable commodity because its use enables the production of specific goods and services, or allows an entrepreneur to more accurately assess the risks and uncertainties associated with market competition. It is for this reason, I would suggest, that our legal system most often views misappropriating secret or confidential information in terms of unfair (and therefore unlawful) competition.
Specifically, our legal system has a strong tendency to measure the injury resulting from misappropriating secret or confidential information by converting it into a time period. For example, if a wrongdoer takes and misuses technical and customer information to set up a competing service, a court might find that the wrongdoer received two years of unfair “springboard” or “head start” advantage. There are, I should mention, other possible ways to measure damages depending on the circumstances (see, for example, TDC Broadband Inc. v Nova Scotia (Attorney General), 2018 NSCA 22, where damages appear to have been limited to an approximation of the plaintiff’s profit for their services). Yet measuring the injury by deeming a time period associated with unfair competition or a springboard advantage is the most common.
Flexibly Applying the Time Period
At a trial on the merits, the courts tend to apply this time period as a baseline when “flexibly and imaginatively” selecting among the available remedies to apply. For damages, the major options are a proof of loss calculation, generally representing a loss in revenue allegedly caused by the misappropriation, or stripping (“disgorging”) the misappropriating wrongdoer of their profits or gains. While the remedial flexibility in this area means that it is not treated as a hard-and-fast rule, the courts may well require a trade secret plaintiff to choose between injunctive relief aimed at stopping the misappropriation or a monetary damages award.
The ”Property Rule”
Perhaps the most defining hallmark of a property interest is the right to exclude others from using your property – at least without needing to bargain with you on the terms. In fact, legal academics often refer to the right to obtain an injunction remedy to enforce exclusive use as the “property rule.” Further, as I have written here, holders of trade secrets and confidential information do enjoy a similar capacity to act as its gatekeepers in the sense that those who want lawful access to their particular information source must bargain with the rights holder to gain that access.
No Injunctions Preventing Misappropriation as of Right
In Cadbury Schweppes, the Supreme Court of Canada acknowledged that confidential information may act like property in many circumstances, in that rights relating to it can be sold, licensed, bequeathed, passed to a trustee in bankruptcy to benefit creditors, and the like. Yet the Court acknowledged this while rejecting the argument that the commercial use of confidential information should enjoy the same form of “property rule” type protection as statutory intellectual property.
When it comes time to enforce trade secret rights, doctrinally speaking, the cause of action is based on “the relationship of confidence” and not the legal characteristics or label attached to the information disclosed. The legal significance of this reasoning in Cadbury Schweppes is that the proprietary remedy of an injunction does not automatically follow a breach of confidentiality. In other words, just because you have a contract coached in the language of proprietary or ownership rights, it does not automatically follow that the courts will grant an injunction as a remedy.
To be clear, the courts may well grant an injunction. But, legally speaking, granting an injunction is an option that is available to the court. It is not a right that can be demanded by a trade secret holder. Canadian courts are not, in this important sense, willing to simply treat a trade secret as a type of intellectual property.
Seek a Pre-Trial Injunction Shortly After Detecting the Misappropriation
As a practical matter the courts tend to react differently if a pre-trial injunction aimed at cutting off misappropriating behaviour is put into place at an early stage. Seeking interim and interlocutory injunctions is a time consuming and high-risk activity. Further, if successful, injunctions often result in rolling court battles regarding their duration or enforcement. Nonetheless, putting such injunctions into place at an early stage provides a path to actually stopping unfairly competitive behaviour and regaining real-world control over trade secrets and confidential information.
EnWave Corporation v Dehydration Research, LLC, 2022 BCSC 637, provides a recent example of successfully obtaining interim and interlocutory injunctions at an early stage. The interlocutory injunction granted in EnWave included both restrained the alleged act of unfair competition and required the individual defendants to deliver to the plaintiff all of their original or modified materials that they unlawfully took or kept. If your trade secrets or confidential information have been misappropriated, you should consider whether you can plausibly pull off the same manoeuvre shortly after detecting the misuse.
Conclusion: Strike When the Iron is Hot
The crux of the matter is that you must strike while the iron is hot. Generally speaking, the more time that passes from the misappropriating event, the more difficult obtaining this type of injunctive relief will become.