Trade Secrets 2022

Last Updated April 28, 2022

New Zealand

Trends and Developments


Authors



Russell McVeagh is internationally recognised for thought leadership, depth of experience and ability to translate complex legal issues into client success stories. Its specialist Marketing Law, Media and Intellectual Property practice provides comprehensive and clear advice, with the focus always on achieving commercial outcomes for its clients. The team advises on the litigation and commercial aspects of all types of intellectual property, including brand protection, trade marks, designs, copyright, confidential information and trade secrets, joint ventures, licensing, research and development arrangements, and intellectual property collaboration/development. The team also advises on matters touching on trade secrets and breach of confidence, including media law, defamation, data protection and privacy. Its clients include major local and international corporates and organisations in the telecommunications, banking, pharmaceutical, manufacturing, food and beverage, FMCG, media, energy and sporting industries. The team of seven lawyers is led by partner Joe Edwards.

Introduction

Outside of the employment relationship, the tort of breach of confidence continues to be the primary means of protecting trade secrets in New Zealand. There are an increasing number of (but still relatively few) breach of confidence cases in New Zealand and very few that deal directly with trade secrets. Largely, such cases proceed by way of interim injunction application, given urgency considerations.

In the employment jurisdiction, there are regular cases involving employers seeking to protect against the use of trade secrets and confidential information by former employees. Given the usual practice of including specific confidentiality and intellectual property clauses in employment agreements, enforcing those provisions is often more straightforward than pursuing the tort of breach of confidence.

As far as the authors are aware, despite having criminal liability in New Zealand for taking or copying trade secrets for financial advantage or to cause detriment, there have been no reported decisions in this area.

This article therefore focuses on some trends and developments around breach of confidence, including in the franchise space, with consideration of the employment jurisdiction. We also discuss an increasing interest in valuable intellectual property in due diligence undertaken for potential bidders in M&A transactions.

Hacked Data Ordered to Be Deleted by the High Court

The increasing prevalence of cyber-attacks in New Zealand and globally is a continuing concern for businesses looking to protect trade secrets and other data. New Zealand suffered several high-profile cyber-attacks in 2021, including that of a District Health Board, the Reserve Bank of New Zealand and the New Zealand Stock Exchange. 

In Waikato District Health Board v Radio New Zealand Limited & Unknown Defendants [2021] NZHC 2002, hackers stole a large amount of sensitive patient data and staff data. When a ransom was not paid, the hackers sent the data to several media outlets. One media outlet extracted sensitive details from the hacked data – a child was kept in hospital for nine weeks because a government agency assigned to care for the child could not find a suitable replacement – and published these details in a broadcast. 

Waikato DHB sought an interim injunction in the High Court against the media outlet and the hackers as unknown defendants. Waikato DHB sought orders preventing the further use of the hacked data and requiring the media outlet to permanently delete the data. 

The High Court referred to an earlier decision of the High Court in Slater v APN New Zealand Limited [2014] NZHC 2157 where a well-known political blogger, Cameron Slater, had his computer hacked. The hacked data was made available to a political writer, who published a book containing details from Mr Slater's emails. These details suggested the National Party may have enlisted Mr Slater to discredit certain individuals in the lead-up to an election. The hacked data was also made available to three media outlets.  When the political writer's book was published, Mr Slater took interim injunction proceedings against both the hacker and three media outlets to prevent the hacker from making available any further information and the media outlets from publishing any hacked information not already in the public domain. 

The court in the Slater v APN case refused to make the orders against the media outlets on the basis that the public interest in holding to account political parties in the democratic process outweighed the interest of Slater in having the confidential information returned. The court was, however, very prepared to grant an interim injunction against the hacker, an unknown defendant. Ultimately, Mr Slater agreed to withdraw the substantive injunction proceedings against the media outlets upon agreement that they would not use information that was not in the public interest.

The Waikato DHB case differed from the Slater v APN case, as the court was prepared to grant the injunction in terms of the orders sought against both parties, albeit with the media outlet's consent. Unfortunately, given the urgent nature of the orders sought, the court did not go into detail in explaining its reasoning. However, the fact that the media outlet agreed to the injunction suggests that it was certainly possible that the court would have granted the injunction in any case, despite an arguable public interest in the story. 

As a result, the case is helpful for those seeking to urgently enforce the protection of trade secrets and other confidential information against both unknown defendants and media outlets in circumstances where the latter may otherwise have a public interest in publishing the confidential information.

Trade Secrets and Other Unregistered Intellectual Property in M&A Due Diligence

A trend that New Zealand has experienced in recent years in the M&A space is marked increase in interest from potential bidders in conducting due diligence around valuable unregistered intellectual property. The focus, historically, has been registered intellectual property, which is much easier to assess as part of the due diligence process.

Lawyers are increasingly being asked to undertake a close examination of what confidential information or trade secrets are owned and used by companies and how this is protected. This includes considering employment agreements, confidentiality agreements, distribution agreements and deeds of assignment of intellectual property, for example, in the consideration of whether a vendor's unregistered intellectual property is adequately protected. 

In addition, lawyers are also being asked to consider non-legal considerations, such as practical measures adopted by the vendor to prevent the unauthorised use or disclosure of trade secrets and other confidential information. For example, whether cameras are installed on the premises, whether visitors have limited access and whether sensitive information is password-protected with access only on a need-to-know basis.

Only once a final bidder or bidders are selected are trade secrets and other valuable unregistered intellectual property disclosed in what is often described as the "black box", so that due diligence can also be performed on the valuable unregistered intellectual property itself. This method enables due diligence to be performed without an increased risk of disclosing the valuable intellectual property to those bidders that are not within contention.

The increased focus on unregistered intellectual property such as trade secrets is a positive development, particularly in countries such as New Zealand where there may be a reluctance to invest heavily in registered intellectual property protection such as patents during the early stages of a business's life. It is also important where trade secrets and other valuable unregistered intellectual property rights form the principal component of the value in the company itself.

A Continued Focus on the Employment Space

Most judicial decisions concerning trade secrets and confidential information in New Zealand continue to come from the employment jurisdiction. Former employees may be justifiably restrained from using confidential information that is tantamount to trade secrets as well as being found liable for breaches of their employment agreements, common law duties and the statutory duty of good faith.

Benefits of proceeding before the Employment Relations Authority (as opposed to the High Court) include that mediation is required unless certain requirements are met, enabling the parties to maintain the confidentiality of the proceedings in circumstances where that confidentiality would otherwise be lost before the High Court. Further, the Authority and the Employment Court can grant interim injunctions, which will suit employers that wish to proceed with urgency.

Consideration of Trade Secrets in the Franchise Space

The recent decision of Green Acres Franchise Group Limited v L & K Ferrick Limited [2021] NZHC 997 was a relatively rare decision involving a successful application for an interim injunction to protect against a former sub-franchisee using confidential information, including trade secrets. Green Acres was a lawnmowing and gardening services company and the interim injunction was sought when it became apparent that the directors of the former sub-franchisee (L & K Ferrick Limited) were setting up a competing lawnmowing and gardening services business. 

The court had no difficulty finding for the plaintiff. In terms of the orders sought, the court found that these were sufficiently clear, being (broadly) orders restraining the defendants from using or disclosing any customer details, systems, technical information, trade secrets and pricing structures provided to them while acting as a Green Acres sub-franchisee. 

The court also had no difficulty accepting that there was an arguable case that the confidential information was provided to the former sub-franchisee in confidence. We note in this regard that a range of terms were well-defined in the franchise agreement itself, which certainly assisted the plaintiff.

Finally, in finding that there was an arguable case that the defendants had misused the confidential information, the court was able to draw inferences from the defendants' affidavit evidence. The defendants had registered a new company name, given evidence that the new company would be providing lawnmowing and gardening services, failed to return confidential information when demanded by the plaintiff and sought to buy relevant assets from their former company that had previously operated the sub-franchise (now in liquidation). The court also considered that the defendants' evidence was deliberately vague.

The case therefore serves as a reminder that in a breach of confidence claim the plaintiff must ensure that the information claimed as confidential is pleaded with sufficient particularity. The case also shows the willingness of the court to infer an arguable case that there has been unauthorised use of confidential information when there is sufficient evidence to do so, and the importance of the parties' evidence even under urgency.

Russell McVeagh

Level 30, Vero Centre
48 Shortland Street
PO Box 8
Auckland 1140
New Zealand

+64 9 367 8000

+64 9 367 8163

contactus@russellmcveagh.com www.russellmcveagh.com
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Trends and Development

Authors



Russell McVeagh is internationally recognised for thought leadership, depth of experience and ability to translate complex legal issues into client success stories. Its specialist Marketing Law, Media and Intellectual Property practice provides comprehensive and clear advice, with the focus always on achieving commercial outcomes for its clients. The team advises on the litigation and commercial aspects of all types of intellectual property, including brand protection, trade marks, designs, copyright, confidential information and trade secrets, joint ventures, licensing, research and development arrangements, and intellectual property collaboration/development. The team also advises on matters touching on trade secrets and breach of confidence, including media law, defamation, data protection and privacy. Its clients include major local and international corporates and organisations in the telecommunications, banking, pharmaceutical, manufacturing, food and beverage, FMCG, media, energy and sporting industries. The team of seven lawyers is led by partner Joe Edwards.

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