Trade Secrets 2021

Last Updated April 28, 2021

Malaysia

Law and Practice

Authors



Gan Partnership is led by a team of advocates with more than 20 years’ experience, and is among the leading law firms specialising in dispute resolution, alternative dispute resolution and intellectual property (IP). Internationally recognised, Gan Partnership provides clients with an arsenal of services and skillsets, ranging from senior counsel with over 25 years’ experience to aggressive junior and modern litigators. Following the latest addition of two partners with over three decades' experience between them, the firm has gone from strength to strength. The IP team is known for litigation and enforcement, registration and prosecution, commercialisation, strategy and branding, franchising and licensing, privacy and data protection, confidential information, entertainment, gaming, advertising and media, technology and telecommunication.

In Malaysia, the most important source of law is the Federal Constitution, the State Constitutions, legislation and subsidiary legislation. Case law is also an important body of law, and plays a pivotal role in providing the requisite guidelines on trade secret and confidentiality protection.

The principle propounded by Megarry J in Coco v A.N. Clark (Engineers) Ltd. [1969] RPC 41 is deeply entrenched in Malaysian jurisprudence. Very briefly, as long as the information sought to be protected has the necessary quality of confidence, it will be guarded by law in Malaysia.

In Lionex (M) Sdn Bhd v Allen Lim Lai Wah [2016] 1 LNS 1799, Lau Bee Lan J (as her Ladyship then was) held that what is confidential is a question of fact in each case. The relevant factors to be considered in deciding whether the information sought has the necessary quality of confidence include:

  • whether skill and effort were expended to acquire the information;
  • whether the information is jealously guarded by the employer, is not readily made available to employees and could not, be acquired by others without considerable effort and/or risk;
  • whether it was plainly made known to the employee that the material was regarded by the employer as confidential;
  • whether the usages and practices of the industry support the assertion of confidentiality; and
  • whether the employee in question has been permitted to share the information only by reason of his or her seniority or high responsibility within the employer's organisation.

These factors merely illustrate the approaches adopted by the courts in earlier cases where claims were made for the protection of trade secrets or confidential information. What constitutes a trade secret varies from industry to industry.

Information that enters the public domain, or that is useless or trivial, may not possess the necessary quality of confidence for protection.

If the information is partly public and partly private, it does not take away the confidential nature thereof. In Lionex (supra), the court adopted the “Springboard doctrine” propounded in the English Court of Appeal case of Seager v Copydex, Ltd. [1967] 2 All ER 415: "When the information is mixed, being partly public and partly private, then the recipient must take special care to use only the material which is in the public domain. He should go to the public source and get it: or, at any rate, not be in a better position than if he had gone to the public source. He should not get a start over others by using the information which he received in confidence."

The following have been judicially recognised as being confidential in nature and considered trade secrets:

  • information relating to cost prices, quoted prices, the specific needs and requirements of customers and suppliers, the status of all ongoing negotiations with customers, and price lists (Schmidt Scientific Sdn Bhd v Ong Han Suan & Others [1998] 1 CLJ 685);
  • compilations of information and data on suppliers and customers and the individual contacts therein (Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon [2010] 8 MLJ 297; Lionex (supra));
  • internal marketing strategies;
  • internal financial data and information;
  • know-how and business strategy;
  • customer lists or customer lists that are deliberately memorised by the employee with the intention of using them later;
  • a list of names of suppliers and customers and the individual contracts (Lionex (supra));
  • a list of prices negotiated with and quoted to various customers, the contents of various agreements, records of sales, requirements of customers (Certact Pte. Ltd. v Tang Siew Choy & Others [1991] 4 CLJ (Rep) 716); and
  • stock listing on various locations as well as certification information (Lionex (supra)).

Trade secrets or information, as lucidly laid down by Lord Goff of Chieveley in Attorney-General v Observer Ltd. And Others, Attorney-General v Times Newspapers Ltd. And Another [1990] 1 A.C. 109, includes “certain situations, beloved of law teachers – where an obviously confidential document is wafted by an electric fan out of a window into a crowded street, or where an obviously confidential document, such as a private diary, is dropped in a public place, and is then picked up by a passer-by” (Worldwide Rota (supra)).

In order to succeed in an action for breach of confidence or trade secret, the plaintiff must prove that the documents and information were:

  • of a confidential nature;
  • communicated in circumstances importing an obligation of confidence; and
  • used in an unauthorised way to the detriment of the plaintiff (China Road & Bridge Corporation & Another v DCX Technologies Sdn Bhd [2014] 7 CLJ 644; Coco (supra); Seven Seas Industries Sdn Bhd v Philips Electronic Supplies (M) Sdn Bhd & Another [2008] 4 CLJ 217; Lionex (supra)).

The court will only lend its aid to provide protection if the document or information sought to be protected has the necessary quality of confidence.

Whilst the existence of reasonable measures may not be a prerequisite for a trade secret owner to enjoy protection of its trade secret, failure to take proper or reasonable measures may compromise the categorisation of the information sought to be protected.

For example, if particular information enters the public domain, it may prejudice the trade secret owner’s action in court. Thus, it is always prudent to take reasonable measures to ensure that intangible assets and intellectual property are jealously guarded.

The higher the value of the trade secret, the more measures need to be taken, and less accessibility should be granted to employees or any third party.

It is good practice to make the confidential nature of the documents or information known to the employee (or recipient).

Whilst the protection of trade secrets does not depend on any contract, express or implied terms, or otherwise, and depending on the principle of equity (that he who has received information in confidence shall not take unfair advantage of it), when there is an agreement (eg, an employment agreement or a non-disclosure and confidential agreement) that clearly spells out the terms (which include restrictive covenants), this may elevate certain controversies at the time of disputes.

Other reasonable measures include:

  • adopting a clear policy, including restricting disclosure and accessibility;
  • implementing secure passwords and tailored “access profiles”; 
  • where practicable, implementing the proper categorisation, marking and labelling of documents and information; and
  • proper storage of documents and information.

In general, an employee owes the employer a duty of fidelity and good faith throughout their employment.

This duty of good faith or fidelity does not just require the employee to refrain from misusing or disclosing information whilst still in the employment; there is also an implied duty not to use any confidential information obtained during the employment, without the employer's consent, for the employee's own or someone else's use after the employment contract ends.

In Schmidt Scientific (supra) the court held that: “… it is a breach of the fidelity clause and the implied duty to remove a customer list or to deliberately set out to memorise the said list with the intention of using it later, even though any use or disclosure is confined to the post-employment period. In such a case the eventual exploitation of the information is considered to be no more than an extension of the original breach of good faith and fidelity.”

In Robb v Green [1895] 2 QB 315 the Court of Appeal held that the employee was in breach of an implied term of the contract of service in making copies of his employer's list of customer names and addresses, with the intention of using it for the purpose of soliciting orders from them after he had left his employer's service and set up a similar business on his own account.

Lord Esher MR said: “… the question is whether such conduct was not what any person of ordinary honesty would look upon as dishonest conduct towards his employer and a dereliction from the duty which the defendant owed to his employer to act towards him with good faith. I think the judge was perfectly justified in holding that such conduct was a breach of the trust reposed in the defendant as the servant of the plaintiff in his business. The question arises whether such conduct is a breach of contract. That depends upon the question whether in a contract of service the court can imply a stipulation that the servant will act with good faith towards his master. In this case it is said that the contract of service was in writing; but there is nothing in the express terms of the contract that contradicts such an implication. I think that in a contract of service the court must imply such a stipulation as I have mentioned, because it is a thing which must necessarily have been in view of both parties when they entered into the contract.”

The above has been accepted by the Malaysian courts in various decisions, including Lionex (supra) and Worldwide Rota (supra).

Notwithstanding the above, it is important to bear in mind that the plaintiff must establish to the satisfaction of the court the following three elements in order to succeed in an action for breach of confidence or trade secret:

  • that the information the plaintiff is seeking to protect is of a confidential nature;
  • that the information in question was communicated in circumstances importing an obligation of confidence; and
  • that an unauthorised use of that information would be to the detriment of the party communicating it.

Whilst disclosure of a trade secret to employees may not, in general, directly affect the availability of protection for the trade secret, it is important for certain measures to be put in place so that the employer's rights are not compromised.

The fact that a product is sold in the market does not necessarily destroy the confidential information relating to how it is produced, even it is possible to discover the confidential information through reverse engineering. If, for example, substantial work is required to analyse a product and discover the confidential information on how saidproduct is produced, such information remains confidential.

However, the law on trade secrets is not intended to restrict anyone's ability to compete. The use of technological advances and innovations, including independent discovery or reverse engineering, may be acceptable in law. It will be potentially harmful to swing the pendulum by imposing a new form of servitude or serfdom.

When the information is partly public and partly private, the recipient must take special care to use only the material that is in the public domain. He or she should go to the public source and get it, or should at least not be in a better position than if he or she had gone to the public source. The recipient should not get a headstart over others by using the information they received in confidence (Seager (supra)).

Apart from trade secret protection, computer software and/or technology may be subject to protection through copyright, patent or trade marks.

The IP laws are important to accord protection to computer software and/or technology, particularly when the computer software and/or technology are developed for commercialisation.

Copyright

Literary work is eligible for copyright protection in Malaysia (Section 7(1)(a) of the Copyright Act 1987).

"Literary work" includes:

  • tables or compilations, whether or not expressed in words, figures or symbols and whether or not in a visible form; and
  • computer programs (Section 3 Copyright Act 1987).

"Computer program" means an expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended to cause a device having an information processing capability to perform a particular function either directly or after either or both of the following:

  • conversion to another language, code or notation;
  • reproduction in a different material form (Section 3 of the Copyright Act 1987).

The works shall be protected irrespective of their quality and the purpose for which they were created as long as:

  • sufficient effort has been expended to make the work original in character;
  • the work has been written down, recorded or otherwise reduced to material form; and
  • the author of the work is a “qualified person” under the Copyright Act 1987.

The owner of copyright in a literary work or a derivative work has the exclusive right to control the following in Malaysia, regarding the whole work or a substantial part thereof, in either its original or derivative form:

  • the reproduction in any material form;
  • the communication to the public;
  • the distribution of copies to the public by sale or other transfer of ownership; and
  • the commercial rental to the public.

Patent

An invention is patentable if it is new, involves an inventive step and is industrially applicable (Section 11 of the Patents Act 1983).

An invention may be either a product or a process, and permits in practice the solution to a specific problem in the field of technology.

An invention is new if it is not anticipated by prior art (Section 14(1) of the Patents Act 1983).

Prior art consists of:

  • everything disclosed to the public, anywhere in the world, by written publication, by oral disclosure, by use or in any other way, prior to the priority date of the patent application claiming the invention; and
  • the contents of a domestic patent application having an earlier priority date than the patent application referred to above, to the extent that such contents are included in the patent granted on the basis of said domestic patent application.

An invention shall be considered as involving an inventive step if, having regard to any matter that forms part of the prior art, such inventive step would not have been obvious to a person that has ordinary skill in the art (Section 15 of the Patents Act 1983).

If the computer software and/or technology is new, involves an inventive step and is industrially applicable, it may qualify for protection under the law of patent in Malaysia.

The owner of a patent has the following exclusive rights in relation to the patent:

  • to exploit the patented invention;
  • to assign or transmit the patent; and
  • to conclude licence contracts.

Trade Marks

Trade mark law accords certain protection for computer software and/or technology. Whilst it does not protect code or the contents of software, for example, it does protect the brand name and trade marks (including logos).

Duration

In Dynacast (Melaka) Sdn Bhd v Vision Cast Sdn Bhd [2016] 6 CLJ 176, the Federal Court affirmed the principle of law in Svenson Hair Center Sdn Bhd v Irene Chin Zee Ling [2008] 8 CLJ 386 that protection of confidential information and trade secret “does not have any time limits”.

In coming up with such a proposition of law, the courts rationalised that a contrary view would mean that an ex-employee could exploit confidential information with impunity; they would just need to wait until the expiry of the restriction period. Such an outcome could not have been intended by any of the contracting parties as it would defeat the very purpose of having a confidentiality provision in an employment agreement.

The only caveat to be placed on this is the criteria set out in 1.4 Elements of Trade Secret Protection.

Effect of Disclosure

The disclosure of trade secrets may or may not have an impact of the trade secret owner’s rights.

For example, if a disclosure is made in a haphazard manner and results in the trade secret being widely circulated in the public domain, it may result in the document or information losing its confidential nature.

Thus, if the trade secret owner decides to disclose certain trade secrets to a third party or any person, it is crucial that the recipient is made aware that the trade secret was communicated in circumstances importing an obligation of confidence.

Accidental Disclosure

In general, an accidental disclosure does not ipso facto mean that the trade secret loses its confidential nature.

As rightly noted in Observer Ltd (supra), “where an obviously confidential document is wafted by an electric fan out of a window into a crowded street” or “where an obviously confidential document, such as a private diary, is dropped in a public place, and is then picked up by a passer-by”, a duty of confidence may arise in equity independently of such cases to protect those trade secrets (Worldwide Rota (supra)).

However, it is important to take immediate steps to retrieve these trade secrets or prevent further disclosure of such information or to control the circulation of such information.

As the proprietor of intangible assets and/or intellectual property, a trade secret owner certainly has rights, like any other proprietary right to grant any party a licence.

In order to maintain the value of the trade secret and not to allow the licensee to dilute the value, or harm the nature of the trade secret to the extent that it loses its “quality of confidence”, it may be important for the parameter of use to be expressly spelt out in the agreement between the parties.

Certain measures and terms ought to be expressly provided, including the following:

  • the ownership of the trade secret;
  • the licensee's obligation to maintain confidence;
  • the duration of such obligation – eg, "forever" and in perpetuity; and
  • measures to be taken by the licensee, including:
    1. restricting disclosure and accessibility;
    2. proper storage of documents and information; and
    3. steps to be taken in the event of accidental disclosure.

Intellectual property includes copyrights, patents, industrial designs and trade marks.

The term “trade secret” speaks volume. Information or documents that have a quality of confidence ought to be jealously guarded and not made readily available or accessible to others in order for them to be “secret”. The higher the value of the “secret”, the more onerous the measures that should be taken to store those “secrets”. For this obvious reason, there is no registration system, and no requirement for trade secrets to be registered in order to enjoy legal protection.

On the other hand, a registration mechanism is available for patents, industrial designs and trade marks. In particular, for patent and industrial designs, the IP owner ought to file for registration prior to its disclosure to the public.

Generally, there is no restriction on a plaintiff asserting trade secret rights in combination with other types of intellectual property rights. The only caveat is that it must fulfil the requirements of the respective branch of intellectual property.

By way of an example, a trade secret owner may claim for protection in tort to protect its trade secret, and at the same time sort protection under the law of copyright, provided, for example, that the necessary requirements for the subsistence of the copyright are met.

Category

The subject matter of the trade secret is one of the following:

  • literary works;
  • musical works;
  • artistic works;
  • films;
  • sound recordings; or
  • broadcasts.

Criteria

The following criteria must be met:

  • sufficient effort has been expended to make the work original in character;
  • the work has been written down, recorded or otherwise reduced to material form; and
  • the trade secret does not merely consist of an idea, a procedure, a method of operation or a mathematical concept.

Author

The author of the work is a qualified person:

  • a citizen of, or a permanent resident in, Malaysia; or
  • a body corporate established in Malaysia and constituted or vested with legal personality under the laws of Malaysia.

The third element the plaintiff is required to establish in an action for breach of confidence or trade secret is that the documents and information were used in an unauthorised way to the detriment of the plaintiff. Whilst “misappropriation” may complete the equation in a claim for breach of confidence, the element to be established is, in essence, “unauthorised use”.

Like all cases, one need not put all one's egg into one basket. One may formulate a claim based on breach of statutory duty, breach of fiduciary duty or tortious claim, for example, based on unlawful interference of trade or unlawful interference of contract.

Breach of Statutory Duty

A director of a company shall at all times exercise his or her powers for a proper purpose and in good faith in the best interest of the company (Section 213(1) of the Companies Act 2016).

A director of a company shall exercise reasonable care, skill and diligence with:

  • the knowledge, skill and experience that may reasonably be expected of a director that has the same responsibilities; and
  • any additional knowledge, skill and experience held by the director (Section 213(2) of the Companies Act 2016).

Any breach of these duties may be an offence. The company may also initiate action against the director for breach of his or her statutory duties.

Breach of Fiduciary Duty

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances that give rise to a relationship of trust and confidence (The Board of Trustees of the Sabah Foundation & Others v Datuk Syed Kechik Syed Mohamed & Another [2008] 3 CLJ 221).

For example, a director has three broad categories of duties: fiduciary duties, duties of skill, care and diligence, and statutory duties.

A director’s main and overriding duty is to act in what he or she honestly considers to be the company's interests, and not in the interests of some other person or body.

A director must not place himself in a position where his or her duty to the company and his or her personal interests may conflict.

A director must employ the powers and assets that he or she is entrusted with for the purposes for which they were given, and not for any collateral purpose (Lionex (supra)).

When a director is disloyal, the principal is entitled to bring an action against the director for breach of fiduciary duties.

Unlawful Interference with Trade

Very briefly, the elements that constitute the tort of unlawful interference with trade or business are:

  • interference with the plaintiff's trade or business;
  • unlawful means;
  • intention to injure the plaintiff; and
  • the plaintiff is injured thereby (H & R Johnson (Malaysia) Bhd v H & R Johnson Tiles Limited & Another [1995] 2 CLJ 581; Megnaway Enterprise Sdn Bhd v Soon Lian Hock [2009] 8 CLJ 130).

Unlawful Interference of Contract

In order to succeed in a claim for tort of inducing a breach of contract, five conditions are to be fulfilled:

  • there must be "direct" interference or "indirect" interference coupled with the use of unlawful means;
  • the defendant must be shown to have knowledge of the relevant contract;
  • the defendant must be shown to have had the intent to interfere with it;
  • in bringing an action other than a quia timet action, the plaintiff must show that he or she has suffered more than nominal damage; in any quia timet action, the plaintiff must show the likelihood of damage occurring to him or her if the act of interference is successful; and
  • so far as it is necessary, the plaintiff must successfully rebut any defence based on justification that the defendant may put forward (Loh Holdings Sdn Bhd v Peglin Development Sdn Bhd & Another [1984] 2 MLJ 105; SV Beverages Holdings Sdn Bhd & Others v Kickapoo (Malaysia) Sdn Bhd [2008] 4 CLJ 20; Lionex (supra)).

A trade secret owner may pursue a civil claim against an infringer.

In addition to the remedy in a civil claim, an infringer may commit an offence of misappropriating a trade secret, which is the “property” of another. Some examples follow.

Section 378 of the Penal Code

Offence:

  • whoever, intending to take any movable property dishonestly out of the possession of any person without that person's consent, moves that property in order to such taking, is said to commit theft;
  • the words "movable property" are intended to include corporeal property of every description, except land and things attached to the earth or permanently fastened to anything that is attached to the earth (Section 22).

Penalty:

  • seven years or a fine or both; a second or subsequent offence shall be punished with imprisonment and also be liable to a fine or whipping.

Section 403 of the Penal Code

Offence:

  • whoever dishonestly misappropriates any property, or converts it to his or her own use, or causes any other person to dispose of it, commits an offence.

Penalty:

  • imprisonment for a term of not less than six months and not more than five years and whipping, in addition to being liable to a fine.

Section 3 of the Computer Crimes Act 1997

Offence:

  • a person shall be guilty of an offence if:
    1. he or she causes a computer to perform any function with intent to secure access to any program or data held in any computer;
    2. the access he or she intends to secure is unauthorised; and
    3. he or she knows at the time of causing the computer to perform the function that that is the case.

Penalty:

  • fine not exceeding MYR50,000 or imprisonment for a term not exceeding five years, or both.

Section 3 of the Computer Crimes Act 1997

Offence:

  • a person shall be guilty of an offence if he or she communicates a number, code, password or other means of access to a computer, directly or indirectly, to any person other than a person to whom he or she is duly authorised to communicate such information.

Penalty:

  • fine not exceeding MYR25,000 or imprisonment for a term not exceeding three years, or both.

Section 218 of the Companies Act 2016

Offence:

  • a director or officer of a company shall not, without the consent or ratification of a general meeting:
    1. use the property of the company;
    2. use any information acquired by virtue of his or her position as a director or officer of the company;
    3. use his or her position as such director or officer;
    4. use any opportunity of the company of which he or she became aware in the performance of his or her functions as the director or officer of the company; or
    5. engage in business which is in competition with the company, to gain directly or indirectly a benefit for himself or herself or any other person, or cause detriment to the company.

Penalty:

  • imprisonment for a term not exceeding five years or a fine not exceeding MYR3 million, or both.

A claim for breach of a trade secret is a tortious claim.

The High Court has jurisdiction to try all civil proceedings in the following locations:

  • where the cause of action arose;
  • where the defendant or one of several defendants resides or has his place of business;
  • where the facts on which the proceedings are based exist or are alleged to have occurred; or
  • where any land the ownership of which is disputed is situated (Section 23(1) of the Courts of Judicature Act 1964).

Section 23(1) of the Courts of Judicature Act 1964 confers extraterritorial jurisdiction on the High Court. In determining whether the High Court has jurisdiction, the issue to be considered is whether the statement of claim disclosed that the plaintiff's action was based principally on:

  • whether the causes of action arose within Malaysia;
  • whether the defendant or one of several defendants resides or has his place of business in Malaysia; or
  • whether the facts on which the proceedings were based in this case occurred or are alleged to have occurred within Malaysia (Goodness for Import and Export v Phillip Morris Brands Sarl [2016] 7 CLJ 303).

Whilst misappropriation may occur in another jurisdiction, if the trade secret is used in Malaysia in an unauthorised way to the detriment of the plaintiff, the Malaysian court will have jurisdiction to hear the claim by the plaintiff in Malaysia.

Civil Action

The three elements to be established in order to succeed in an action for breach of confidence are that the information sought to be protected has the necessary quality of confidence, that the information was communicated in circumstances importing an obligation of confidence, and that there has been an unauthorised use of that information to the detriment of the party communicating it.

In respect of the third element, it may be argued that “misappropriation” per se may not meet the requirement. The plaintiff may need to establish that there has been “unauthorised use” and that such use is to the “detriment” of the plaintiff.

A trade secret is an intangible asset of the plaintiff, and the intellectual property of the plaintiff. The fact that the defendant has wrongfully gained access to the trade secret without the permission of the plaintiff may show that such access amounts to use.

In Svenson Hair Center (supra), the court held that "… it must be recognised that particulars such as customers' names, lists and details have also been judicially recognised as being confidential in nature, and wrongful utilisation of such particulars warrants injunctive protection."

In Schmidt Scientific (supra), the court held that “... [I]t is a breach of the fidelity clause and the implied duty to remove a customer list or to deliberately set out to memorise the said list with the intention of using it later, even though any use or disclosure is confined to the post-employment period. In such a case the eventual exploitation of the information is considered to be no more than an extension of the original breach of good faith and fidelity. In Robb v Green [1895] 2 QB 315 the Court of Appeal held that the employee was in breach of an implied term of the contract of service in making copies of his employer's list of customers' names and addresses, with the intention of using it for the purpose of soliciting orders from them after he had left his employer's service and set up a similar business on his own account.”

Thus, when the defendant has misappropriated and gained access to the trade secret, it is inherently improbable in itself to accept the argument that there is no “use” of the trade secret. The fact that one has gained access to the trade secret without permission may show that there is an intention to refer to or use such information at a later date. In fact, the obtaining of information is akin to the obtaining of an advantage. Based on the decided cases, this may be sufficient to fulfil the third requirement to complete the equation for a claim for breach of confidentiality.

Innocent “misappropriation” or “accidental misappropriation” may not be a valid defence for an action for breach of confidence.

Criminal Action

For criminal action, the burden of the prosecutor is higher. Mens rea is an important component.

Section 378 of the Penal Code

Offence: a person may be guilty of an offence if there is intention to take a trade secret dishonestly out of the possession of the trade secret owner without the latter’s consent.

Section 403 of the Penal Code

Offence: a person may be guilty of an offence if he or she dishonestly misappropriates any property, or converts it to his or her own use, or causes any other person to dispose of it.

Section 3 of the Computer Crimes Act 1997

A person shall be guilty of an offence if:

  • he or she causes a computer to perform any function with intent to secure access to any program or data held in any computer;
  • the access he or she intends to secure is unauthorised; and
  • he or she knows at the time of causing the computer to perform the function that that is the case.

The principle propounded in Coco (supra) is deeply entrenched in Malaysian jurisprudence. The elements to be established for a trade secret claim are applicable whether the person who misappropriated the trade secret is an employee of the owner or otherwise.

Employees are “fiduciaries”, and an employer is entitled to the single-minded loyalty of their fiduciaries. The employee has the implied duty to act in good faith and must not make a profit out of the employer's trust, nor place himself or herself in a position where his or her duty and interest may conflict. The employee may not act for his or her own benefit or the benefit of a third person without the informed consent of their employer.

In brief, the law imposes the core duties of loyalty and fidelity on the employee. A breach of fiduciary obligation, therefore, connotes disloyalty or infidelity.

During employment, the duty of fidelity prevents an employee from acting in conflict with their employer, regardless of whether the information they use is confidential or otherwise. The duty of fidelity may continue after the termination of employment, although the scope of duty is narrower.

The law equally recognises the existence of obligations between joint venturers with respect to their respective trade secrets.

In Worldwide Rota (supra), one of the employees was asked to join the defendant's company, and was instructed to obtain as much information about the plaintiff before joining the defendant's company. The court found that the employee was asked by the defendant to spy on the plaintiff for the benefit of the defendant, and this is akin to an industrial espionage.

For industrial espionage, there may be a basis for the plaintiff to claim aggravated damages or exemplary damages over and above a general damages and injunctive order.

In Worldwide Rota (supra), the court held that whenever the defendant's conduct is sufficiently outrageous to merit punishment in situations where the defendant's conduct discloses malice, fraud, cruelty, insolence or the like, then exemplary damages would be granted. Lord Devlin in Rookes v Barnard And Others [1964] AC 1129, at page 1226, aptly said that "... an award of exemplary damages can serve a useful purpose in vindicating the strength of the law and thus affording a practical justification for admitting into the civil law a principle which ought logically to belong to the criminal.”

"Where a defendant with a cynical disregard for a plaintiff's rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. This category is not confined to moneymaking in the strict sense. It extends to cases in which the defendant is seeking to gain at the expense of the plaintiff some object – perhaps some property which he covets – which either he could not obtain at all or not obtain except at a price greater than he wants to put down."

There is no dearth of literature suggesting various “best practices” to safeguard trade secrets, but these practices are merely suggested guidelines.

It is important for an organisationto embrace trade secret protection and instil the culture from the top level down.

Taking stock of what the organisation possesses and what is properly regarded as trade secrets is always a fundamental start.

For example, a company should:

  • implement proper internal policies for intellectual property rights;
  • maintain a holistic system with regard to record keeping, storage and document classification, controlling accessibility and retention;
  • develop a proper regime and procedures with regard to the system;
  • formulate proper terms and conditions in employment agreements and agreements with third parties in the event of any disclosure of trade secrets – eg, non-disclosure and confidentiality agreements;
  • conduct periodic audits;
  • provide a training and awareness programme; and
  • set up a team and develop a plan to react in the event of a breach.

An exit interview for departing employees is often conducted in Malaysia, generally by a member of human resources. Such interview enables the organisation to obtain full and frank feedback from departing employees.

A properly worded terms of employment would impose obligations on the employees, whether during the term of employment or thereafter, regarding their duties of confidentiality, and the employees would have assured the organisation with respect to confidentiality and/or trade secrets.

There is no fiduciary duty against legitimate competition between directors (including employees) with a company upon resignation.

There may not be any restriction on the employee using his or her general knowledge and skills in his or her undertaking post-employment.

What is guarded by law is information that has the necessary quality of confidence. If the impugned "information" was from within the general fund of the employee's own knowledge, exposure and experience accumulated in the industry over the years, there may be no grounds to assert that there has been a "breach of fiduciary duty" or even a breach of confidentiality (Vision Cast Sdn Bhd v Dynacast (Melaka) Sdn Bhd [2014] 8 CLJ 884).

The factors that are relevant to determining whether a given body of information is confidential include the following:

  • the extent to which the information is known outside the owner's business;
  • the extent to which it is known by employees and others involved in the owner's business;
  • the extent of measures taken by the owner to guard the secrecy of the information;
  • the value of the information to the owner and his or her competitors;
  • the amount of effort or money expended by the owner in developing the information; and
  • the ease or difficulty with which the information could be properly acquired or duplicated by others (ie, through their independent endeavours) (Electro Cad Australia Pty Ltd v Mejati RCS Sdn Bhd [2008] 4 CLJ 217).

In Philip Morris Products SA v Ong Kien Hoe [2010] 2 CLJ 106, the learned Judge Mary Lim (now FCJ) held that “Innocence is therefore not a defence to an infringement of a registered trade mark.” Based on the same rationale, “inevitable disclosure” may not accord any defence to the infringer if the elements for breach of confidence are established by the plaintiff.

There is no hard and fast rule on what is considered “best practices” for employers who hire employees from competitors to minimise the likelihood that the employer or new employees will be subject to a trade secret misappropriation claim. However, some due diligence may be important to minimise such risk.

For example, prior to the hire, it may be important to ascertain whether the employee is subject to any restraining clause from their previous employment.

For the terms of employment, it may be prudent to include a certain term to elicit assurance from the new employee that their conduct is within the law and not in breach of the rights of any third party.

Furthermore, having a proper policy in place and training within the organisation may eliminate the risk. Companies should embrace the culture of respecting others' trade secrets at all levels of the organisation.

There is no prerequisite to filing a lawsuit.

An action for breach of confidence is a tortious claim. Actions shall not be brought more than six years after the date on which the cause of action accrued.

The law on when a cause of action accrues is well settled and very much entrenched in Malaysian jurisprudence. A cause of action founded on tort accrues on the date of its breach and that time begins to run from that breach (Great Eastern Life Assurance Co. Ltd v Indra Janardhana Menon [2005] 4 CLJ 717).

A "cause of action" is the entire set of facts that gives rise to an enforceable claim; the phrase comprises every fact which, if traversed, the plaintiff must prove in order to obtain judgment.

A lawsuit is initiated by filing a writ and statement of claim or originating summons.

Most cases for a trade secret claim are filed in the High Court. There is a specialised Intellectual Property High Court in certain states that hears IP disputes. Thus, if the action consists of a claim for breach of confidence and the infringement of IP rights, the action may be heard by the specialised Intellectual Property High Court.

If the claim is for a subject matter that does not exceed MYR1 million, a Sessions Court has jurisdiction to try the action.

The remedy or relief being sought must be specifically pleaded.

In brief, every pleading shall contain:

  • the particulars of the parties;
  • a summary of the material facts and documents, but not the evidence;
  • a matter showing illegality, including:
    1. alleging that any claim or defence of the opposite party is not maintainable;
    2. that any issue, if not specifically pleaded, might take the opposite party by surprise; or
    3. any issues of fact not arising out of the preceding pleading;
  • a matter that has arisen at any time, whether before or after the issue of the writ;
  • a raising of any point of law;
  • the necessary particulars, including:
    1. the particulars of any misrepresentation, fraud, breach of trust, wilful default or undue influence on which the party pleading relies; and
    2. where a party alleges any condition of the mind of any person, whether any disorder or disability of mind or any malice, fraudulent intention or other condition of mind except knowledge exists, and particulars of the facts on which the party relies; and
  • the relief or remedy that the plaintiff claims, but costs need not be specifically claimed.

A party shall not, in any pleading:

  • make an allegation of fact or raise any new ground or claim that is inconsistent with a previous pleading; or
  • quantify any claim or counterclaim for general damages.

For a claim for breach of confidence specifically, the plaintiff must identify the "confidential information" that has been misused with sufficient particularity in their pleading (Statement of Claim), and whether it was peculiarly part of the plaintiff’s intellectual property.

Details or the particulars of the confidential material or information sought to be protected or that formed the subject of the allegation of misuse must be pleaded. An averment in wide and general terms is not acceptable in law (Vision Cast (supra)).

The plaintiff may also seek other forms of relief prior to service of the papers on the infringer, such as Anton Piller Orders or ex parte interlocutory injunctions. An Anton Piller Order enables a party to preserve evidence that is relevant to a suit so that the relevant evidence may be subsequently adduced in the suit, in the interest of justice.

Among other matters, the plaintiff must establish:

  • an extremely strong prima facie case that the patent has been infringed;
  • that the defendant has incriminating documents; and
  • that there is a real possibility that such documents may be destroyed.

If the court grants an ex parte interim injunction order, that order shall automatically lapse 21 days from the date of the order, unless it is revoked or set aside earlier (Order 29 rule 1 (2B), RC). An ex parte order must be served within seven days of the date of the order, and the court, when granting the order, must fix a date to hear the application inter partes within 14 days of the date of the order (Order 29 rule 1 (2C), RC).

At the outset, it may be worth mentioning that illegally obtained evidence remains admissible in law if it is found to be relevant to the case.

Discovery

Discovery applications are typically made at the High Court after the close of pleadings but before the start of a trial (Order 24, RC).

There are three stages:

  • disclosure of a list of documents;
  • copies of documents are inspected and taken; and
  • production of the documents.

When the court orders for discovery, a party may be required to disclose documents that support or adversely affect their own or another party’s case.

The list of prospective documents to be disclosed must be succinct.

Each relevant document must be identified.

Where a document is privileged, it must be described as such, along with justification.

The list is to be accompanied by an affidavit to verify its contents.

A pre-action order for discovery against a person or a Norwich Pharmacal Order may be given if there are sufficient grounds for doing so. The application must provide details of the intended proceeding and whether the person against whom the order is sought is likely to be a party to subsequent proceedings in court (Order 24 rule 7A, RC):

  • pre-action discovery – obtaining relevant information to support a claim against a potential defendant who is already identified;
  • Norwich Pharmacal Order – obtaining relevant information to identify a potential defendant.

The court has power to grant a Confidentiality Order or a Protective Order in appropriate cases, to maintain the secrecy of the trade secrets at issue in the litigation.

Generally, a trial is conducted in open court. In very limited circumstances, the court may order the proceedings to be conducted in camera, although this is usually confined to cases where the identity of minors may not be disclosed, for instance, in the interest of justice.

The following defences are available in trade secret litigation:

  • the plaintiff’s case does not fulfil the requirements for breach of confidence;
  • the information sought to be protected does not have the quality of confidence;
  • the plaintiff failed to identify the confidential information that was alleged to have been disclosed;
  • the information is no longer confidential;
  • there is just cause or justifies grounds for disclosure; and
  • public interest.

Upon the application of a party or on its own motion, the court may determine any question of law or the construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the court that:

  • such question is suitable for determination without a full trial of the action; and
  • such determination will finally determine the entire cause or matter, or any claim or issue therein.

On such determination, the court may dismiss the cause or matter or make such order or judgment as it thinks just (Order 14A of the Rules of Court 2012).

At any stage of the proceedings, the court may order to be struck out or amended any pleading or the endorsement of any writ in the action, or anything in any pleading or in the endorsement, on the grounds that:

  • it discloses no reasonable cause of action or defence, as the case may be;
  • it is scandalous, frivolous or vexatious;
  • it may prejudice, embarrass or delay the fair trial of the action; or
  • it is otherwise an abuse of the process of the court (Order 18 rule 19 of the Rules of Court 2012).

The court has discretion to award costs, and to determine the quantum of costs.

Generally, the winning party will be awarded costs.

Costs may be dealt with by the court at any stage of the proceedings or after the conclusion of the proceedings, and any costs ordered shall be paid at the conclusion of the proceedings unless the court orders otherwise.

Where in any cause or matter anything is done improperly or unnecessarily, or an omission is made, by or on behalf of a party, the court may direct that any costs to that party in respect of it shall not be allowed to that party, and that any costs occasioned by it to other parties shall be paid by said party.

In assessing the costs, the court may have regard to all relevant circumstances, including:

  • the complexity of the item or of the cause or matter in which it arises and the difficulty or novelty of the questions involved;
  • the skill, specialised knowledge and responsibility required of, and the time and labour expended by, the solicitor or counsel;
  • the number and importance of the documents prepared or perused, however brief;
  • the place and circumstances in which the business involved is transacted;
  • the importance of the cause or matter to the client;
  • the amount or value of any money or property that is involved; and
  • any other fees and allowances payable to the solicitor or counsel in respect of other items in the same cause or matter, but only where work done in relation to those items has reduced the work that would otherwise have been necessary in relation to the item in question.

Trade secret trials are decided by a judge.

Upon the close of pleadings, the court will give directions for the exchange of documents between the parties. The court will also direct the exchange of witnesses’ statements prior to trial.

Trials are conducted in open court, where witnesses will be called to testify and adduce evidence during Examination-in-Chief. Witnesses are subject to cross-examination by opposing counsel and re-examination by their respective counsel.

Generally, a matter filed in Malaysian courts will be disposed within nine months.

Due to the outbreak of the COVID-19 pandemic, the court has, in the interest of justice, conducted civil and criminal proceedings of any cause or matter through remote communication technology.

Expert witness testimony is allowed in court.

It is the duty of an expert to assist the court on the matters within his or her expertise. This duty overrides any obligation to the person who has instructed or paid the expert witness (Order 40A rule 2 of the Rules of Courts 2012).

Unless the court directs otherwise, expert evidence to be given at the trial of any action is to be given in a written report signed by the expert and exhibited in an affidavit sworn to or affirmed by said expert, testifying that the report exhibited is his or hers and that he or she accepts full responsibility for the report.

An expert's report shall:

  • give details of the expert's qualifications;
  • give details of any literature or other material upon which the expert witness has relied in making the report;
  • contain a statement setting out the issues that the expert has been asked to consider and the basis upon which the evidence was given;
  • if applicable, state the name and qualifications of the person who carried out any test or experiment that the expert has used for the report and whether or not such test or experiment has been carried out under the expert's supervision;
  • where there is a range of opinion on the matters dealt with in the report, summarise the range of opinion and give reasons for the expert's opinion;
  • contain a summary of the conclusions reached;
  • contain a statement of belief of the correctness of the expert's opinion; and
  • contain a statement that the expert understands that their overriding duty in giving their report is to the court and that this duty has been complied with (Order 40A rule 3 of the Rules of Courts 2012).

Interlocutory injunctions may be granted by the High Court where the applicant successfully establishes that:

  • there is a bona fide serious issue to be tried;
  • the balance of convenience tilts in favour of the grant of the interlocutory injunction; and
  • damages would not be an adequate remedy if the plaintiff succeeded at trial (Keet Gerald Francis Noel John v Mohd Noor bin Abdullah [1995] 1 MLJ 193).

The court may also consider the following factors:

  • where the justice of the case lies;
  • the practical realities of the case;
  • the plaintiff's ability to meet its undertaking in damages should the suit fail. The court may require the plaintiff to provide an undertaking – eg, a bank guarantee;
  • whether there is any delay; or
  • public interest.

Where the injustice to the plaintiff is manifest, the judge may dispense with the usual undertaking as to damages (Cheng Hang Guan v Perumahan Farlim (Penang) [1988] 3 MLJ 90).

Ex Parte Interim Injunction Order

An application for an ex parte injunction order requires strict compliance with the provision under Order 29 rule 1 (2A), RC (Motor Sports International v Delcont [1996] 2 MLJ 605; Pentamaster Instrumentation (supra)).

The affidavit in support of an ex parte application must contain a clear and concise statement of:

  • the facts giving rise to the claim;
  • the facts giving rise to the application for the interim injunction;
  • the facts to justify the application ex parte, including details of any notice given to the other party or the reason for not giving notice;
  • any answer by the other party (or which is likely to be asserted) to the claim or application;
  • any facts that may lead the court not to grant the application;
  • any similar application or order made earlier; and
  • the precise relief sought (Order 29 rule 1 (2A), RC).

Furthermore, it is important that the plaintiff in an ex parte injunction application provides full and frank disclosure, failing which the ex parte order may be set aside (Pentamaster Instrumentation (supra)).

In most trade secret actions, the remedies granted by the courts are as follows:

  • injunctive order;
  • general damages;
  • aggravated damages;
  • exemplary damages; and
  • costs.

The current potential civil remedy against an infringer is either an assessment of the profit made by the infringer or an award of damages representing the lost profit suffered by the originator.

It is trite law that the same principle applies when considering the award of damages. The usual principal head of damage is the loss of business profits caused by the defendant.

The plaintiff is entitled to "such damages as naturally flow from their unlawful act, and that there is no artificial limitation." Consistent with the established principle of law, the award of damages is compensatory – ie, it is to put the plaintiff in the same position he or she would have been in had the wrong not been committed. While it is quite easy to state the general principle, the mechanics of ascertaining damages actually sustained by the plaintiff are not simple to determine. There is no hard and fast rule that is foolproof and universally accepted (Taiping Poly (M) Sdn Bhd v Wong Fook Toh [2011] 3 CLJ 837).

See also 2.4 Industrial Espionage regarding aggravated and exemplary damages.

A permanent injunction is the main remedy for a successful trade secret claimant. Unless the court imposes a certain time limit, a permanent injunction provides for perpetual restrain against the infringer for unlawful use of the trade secret.

The court will not usually impose any limitation on an employee obtaining lawful employment else, but the permanent injunction will restrain the employee from unlawful conduct.

The costs of and incidental to court proceedings are at the discretion of the court, which has full power to determine by whom and to what extent the costs are to be paid.

See 5.11 Cost of Litigation.

An appeal may be made to the Court of Appeal.

Subsequently, parties may appeal the decision of the Court of Appeal to the Federal Court, with leave from the Federal Court.

Appeal at the Court of Appeal is by way of rehearing.

It is a settled principle of law that in an appeal, where facts have to be reviewed, it is undesirable for the findings of the court below to be disturbed by a court of appeal unless it appears that those findings are clearly wrong, and more especially that it is undesirable to do so where the conclusion reached must to a large extent depend on the credibility of the witnesses and the impression formed by a court that has seen them and can judge their honesty and accuracy.

An appeal before the Federal Court usually involves questions of law.

In the face of that finding by the trial judge on the question of fact, the Federal Court is only entitled to displace that conclusion if it is satisfied that the trial judge's view was plainly wrong and that any advantage which he or she enjoyed by having seen and heard the witness was not sufficient to explain his or her conclusion, as the authorities already quoted show.

A trade secret owner may lodge a police report.

Please refer to 1.14 Criminal Liability and 2.1 The Definition of Misappropriation.

Alternative dispute resolution mechanisms are available to parties who have consented to use such mechanisms. Consent may be obtained at the outset of the relationship (eg, in the agreement entered between the parties) or after a dispute arises.

Gan Partnership

D-32-02, Menara SUEZCAP 1
KL Gateway, 2
Jalan Kerinchi
59200 Kuala Lumpur
Malaysia

+603 7931 8668

+603 7931 8063

zhijian@ganlaw.my www.ganlaw.my
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Law and Practice

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Gan Partnership is led by a team of advocates with more than 20 years’ experience, and is among the leading law firms specialising in dispute resolution, alternative dispute resolution and intellectual property (IP). Internationally recognised, Gan Partnership provides clients with an arsenal of services and skillsets, ranging from senior counsel with over 25 years’ experience to aggressive junior and modern litigators. Following the latest addition of two partners with over three decades' experience between them, the firm has gone from strength to strength. The IP team is known for litigation and enforcement, registration and prosecution, commercialisation, strategy and branding, franchising and licensing, privacy and data protection, confidential information, entertainment, gaming, advertising and media, technology and telecommunication.

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