Criminal Liability for Trade Secrets Offences

Sep 30 2020

Bill C-4, An Act to implement the Agreement between Canada, the United States of America, and the United Mexican States, was passed by the Canadian House of Commons on March 13, 2020. Under Bill C-4, section 391 of the Criminal Code now provides that:

(1) Everyone commits an offence who, by deceit, falsehood or other fraudulent means, knowingly obtains a trade secret, or communicates or makes available a trade secret.

(2) Everyone commits an offence who knowingly obtains a trade secret, or communicates or makes available a trade secret knowing that it was obtained by the commission of an offence under subsection (1).

Prior to Bill C-4, there was no criminal liability for wrongful disclosure of trade secrets unlike in the U.S. Instead, parties seeking to remedy wrongful disclosure of trade secrets in Canada were required to rely on civil remedies under the common law. While no precise definition of a trade secret exists under the common law, Courts have looked at a variety of factors to determine the existence of a trade secret including1:

(1) Extent to which information is known outside the business;

(2) Extent to which it is known by employees and others in the business;

(3) Measures taken to guard secrecy;

(4) Value of the information of the holder;

(5) Effect on money expended;

(6) Ease with which information can be acquired or duplicated; and

(7) Whether the holder and taker of the secret treat it as secret.

The Criminal Code now defines a trade secret for the purposes of section 391 as any information that:

(a) is not generally known in the trade or business that uses or may use that information;

(b) has economic value from not being generally known; and

(c) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

While companies with valuable trade secrets to protect will welcome these criminal sanctions there are several factors to consider about the effectiveness of criminal sanctions including that:

(a) It is law enforcement that will need to determine whether to pursue criminal prosecution;

(b) Determining the existence of a trade secret and whether it was wrongfully obtained (reverse engineering is excluded from the offence) and/or disclosed is complex especially when considering novel technologies that may be involved; and

(c) Criminal remedies, such as imprisonment, offer no redress to the harmed company.

Given that this provision is new, it is yet to be determined whether it will be effectively employed by law enforcement. However, these provisions, coupled with their widespread knowledge, will likely have a chilling effect in those who may desire to wrongfully obtain and disclose trade secrets, which could provide the necessary deterrence that companies were looking for. Furthermore, companies may still rely on civil remedies to rectify any wrongful disclosure of trade secrets.

This article is for information purposes only and does not constitute legal or professional advice. Have a question for one of our trade secrets professionals? Check this page to see which members of our team can help you get started.

Author: Abbas Kassam

1Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc., 2018 ONSC 5206

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Tags: Abbas Kassam, Trade Secrets