DIFC Trade Secrecy Law

Jane Lambert

 

In November 2019 the Dubai International Financial Centre ("DIFC") enacted a new intellectual property law (see DIFC Intellectual Property Law (Law No 4 of 2019)). I described its structure in my Introduction to, and Overview of, the New DIFC Intellectual Property Law on 11 Dec 2019 and discussed its provisions relating to patents and utility certificates, industrial drawings and designs, copyrights and neighbouring rights and trade marks and trade names in subsequent articles. In this article, I discuss the provisions relating to trade secrets (arts 52 to 55). There was already an action for breach of confidence under the Law of Obligations which I discussed in DIFC Law of Confidence on 27 Jan 2011.

According to the table to para 3 of Sched. 1 of the Intellectual Property Law, the term "Trade Secret" includes the following:

"all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, programs, devices, formulas, designs, prototypes, methods, techniques, processes, procedures, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialised physically, electronically, graphically, photographically, or in writing

Art 52 of the Law provides that a Trade Secret can be protected when it meets each of the following criteria:

"(a) the information involved constitutes a Trade Secret, or part thereof; 

(b) the information derives actual or potential economic value from not being generally known to other persons who may obtain economic value from its disclosure or use; and 

(c) the person lawfully in control of the information has taken reasonable measures to keep the information a secret."

 This is not dissimilar to art 2 (1) of  Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1) ("the Trade Secrets Directive"):

"(1) ‘trade secret’ means information which meets all of the following requirements: 

(a) it is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; 

(b) it has commercial value because it is secret; 

(c) it has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret."

As in the Trade Secrets Directive, the owner is deemed to be the person lawfully in control of the Trade Secret and he or she is defined as "a  person lawfully in control of the Trade Secret is every person having the right of its disclosure, use and storage" (see art 53 (1) (a) and art 53 (2)).  Such person has "the right to licence (sic), transfer, s4 hare, or assign lawful control of the Trade Secret to any person in return for a consideration or otherwise" under art 53 (1) (b) and also "to prevent any person from misappropriation of the Trade Secret, and shall have the right to claim compensation for any damage caused due to misappropriation thereof by any person" under art 53 (3).

Art 54 provides that the following acts shall constitute misappropriation of a Trade Secret and prohibited under the Law: 

"(a) the acquisition of a Trade Secret by Improper Means; 

(b) the disclosure or use of a Trade Secret by a person who used Improper Means to acquire knowledge of the Trade Secret; 

(c) the acquisition, disclosure or use of a Trade Secret by a person who at the relevant time knows, or ought to have known, that the knowledge of the Trade Secret was: 

(i) derived from or through a person who had utilised Improper Means to acquire it; 

(ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or 

(iii) derived from or through a person who owed a duty, towards the person lawfully in control of the Trade Secret, to maintain its secrecy or limit its use. 

(d) the disclosure or use of a Trade Secret by a person who knows, or ought to have known, that it was a Trade Secret and that knowledge of it had been acquired by accident or by mistake."

"Improper Means" is defined in the above-mentioned table to include "fraud, forgery, theft, bribery, misrepresentation, breach or inducement of a breach of a legal or contractual duty to maintain secrecy, or espionage through electronic or other means."   

The following acts, however, are permitted by art 55:

"(a) the discovery, acquisition or use of information from public sources, or known and available information; 

(b) the discovery, acquisition or use of information as a result of scientific research, innovation, invention, development, modification and improvement exerted by persons independent of the person lawfully in control of the Trade Secret; 

(c) the discovery of information pursuant to a licence, transfer, sharing, or assignment of the information; or 

(d) the discovery of information through reverse engineering."

This is an important branch of the law because every invention starts life as a trade secret and there are some technologies that can only be protected by trade secrecy law.  In the next few days, I shall write a short article with some practical tips on how inventors, entrepreneurs and others can safeguard secret technical or commercial information.  It will be angled for a British audience but it should apply equally to the DIFC.

In the meantime, anyone who wishes to discuss this article or trade secrecy and confidentiality generally may call me during UK office hours on +44 (0)20 7404 5252 or send me a message through my contact form. 

An IP Case from the DIFC at Last: Capital Healthcare Partners Ltd v Ali Akbar Hashemi

On 27 April 2011 I discussed the Dubai International Financial Centre's Law of Confidence. It is set out in art 37 of the DIFC Law of Obligations (DIFC Law No. 5 of 2005):

"37. Breach of confidence 
(1)  Subject to Article 37(4), a person has a duty not to misuse specific information which he has received from another (a "confidant"), directly or via an intermediary, and which can reasonably be regarded as confidential, where he knows or ought to know that the information is confidential.
(2) If a person breaches his duty as defined in Article 37(1), he is liable to the confidant.
(3) Unless non-confidentiality is otherwise expanded by agreement, information is not confidential if:

(a) it is in the public domain;
(b) it is trivial or useless; or
(c) it is in the public interest that the information should not be confidential. 

(4) Misuse of information includes, but is not limited to, its disclosure.
(5) A person may disclose confidential information where -

(a) the confidant has consented, expressly or by implication, to its disclosure;
(b) its disclosure is required by law;
(c) its disclosure is required in the interests of the confidant;
(d) it is no longer confidential; or
(e) it is disclosed to a person who has a legitimate interest in receiving it. 

(6) It is no defence that the defendant did not know that he was misusing the confidential information."

In CFI 045/2012 TVM Capital Healthcare Partners Limited v Ali Akbar Hashemi 22 May 2014 Justice Roger Giles QC held that the defendant Aki Akbar Hashemi owed the claimant a duty of confidence under a confidentiality agreement dated 24 Nov 2011 and art 37 (1) to use certain PowerPoint presentations that had been given to him in confidence for the sole purpose of evaluating a new healthcare investment on behalf of an undisclosed principal and that he had breached that obligation by disclosing the information to other investors. The judge awarded the claimants damages of AED 250,000 on the basis that that would have been the fee charged by the claimant for relaxing the obligation of confidence. In reaching his decision the learned judge relied on Mr Justice Brightman in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 as it had been applied and extended in subsequent cases.

The defendant appealed against the finding of liability on the ground that the judge should have found that the case was res judicata and thus an abuse of the process of the court, that there was no evidence upon which the award of damages could have been founded and that the claimant should not have been awarded all its costs having regard to the fact that it had claimed US$29 million but had actually recovered only a small fraction of that sum. The appeal came on before Sir John Chadwick, Sir David Steel and HE Justice Omar Al in CA 006/2014 TVM Capital Healthcare Partners Ltd v Ali Akbar Hashemi 27 Jan 2015,

The Court rejected the res judicata and res judicata point on three grounds.  First, not all the parties to the present appeal had been before the court in the proceedings relied upon. These were in any case criminal proceedings rather than a claim for breach of confidence, Secondly, the defendants had been charged with an offence that covered some but not all the claims in the instant appeal. Thirdly, issue estoppel had not been pleaded in the court below.

As to damages, the judge had not erred in his approach and while the figure might have been higher than the appeal judges would have awarded there was no basis on which to interfere with the judge's decision.

The Court did disallow some of the claimants' costs but these were more than offset by his contribution to the costs of the appeal.

The interesting point from this case is that the DIFC courts seem to protect trade secrets by contract but also under the law of obligations as a statutory duty. Also, there seems to be no difference in the basis upon which damages under contract and the law of obligations. Justice Giles gave a very thorough judgment on the point which was not substantially challenged.  Although the DIFC Courts probably reached the same conclusion as would have been reached by an English court the route by which they arrived at it was different.

Should anyone require amplification or clarification of this case, or the DIFC law of confidence generally he or she should call me during office hours on +44 (0)20 7474 5252 or use my contact form.

The DIFC Law of Passing Off

In my article on the DIFC law of confidence of 27 Jan 2011 I wrote:

"The DIFC (Dubai International Financial Centre) is like a little bit of London in the Gulf. Covering an area of 45 hectares - slightly smaller than Kensington Gardens - it is a free zone for the banking, insurance, trading and other financial services industries with its own legal system. As I said in my article on The DIFC Courts, the interesting attribute of this legal system is that the laws are in English and its courts apply the common law."

The law of confidence is one of two areas of intellectual property law for which there is legislation in the DIFC. The other area is the law of passing off. Both derive from the same source, namely the Law of Obligations.

Art 38 (1) of that law provides:

"A defendant is liable to a claimant if:

(a) the claimant's goods, services or business have acquired a goodwill or reputation in the market and are known by some distinguishing feature;

(b) the defendant makes a misrepresentation which confuses or deceives persons in relation to the goods, services or business of the claimant, or is likely to do so; and

(c) the claimant suffers or is likely to suffer damage as a result of that belief."

Art 40 (1) gives "misrepresentation" the same meaning as in contract law save that a statement made without regard for its truthfulness which is in fact untrue and which induces the representee to enter into a contract, whether or not that was the intention of the representor, shall be a misrepresentation for these purposes. Instances of confusion or deception include the reasonable belief that

(a) the defendant's goods, services or business are the goods, services or business of the claimant, or vice versa;

(b) the claimant's goods or services of one class, quality, condition or state are of another class, quality, condition or state;

(c) the defendant's goods or services belong to a class of goods or services with a discrete reputation, when they do not; and

(d) goods are covered by the claimant's guarantee when they are not so covered.

Art 38 is clearly derived from the Lord Oliver's speech in Reckitt and Colman Products Ltd v Borden Inc and Others [1990] 1 WLR 491, [1990] 1 All ER 873, [1990] UKHL 12, [1990] RPC 341:

"The law of passing off can be summarised in one short general proposition - no man may pass off his goods as those of another. More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number. First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying "get-up" (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services. Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff. Whether the public is aware of the plaintiff's identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff. For example, if the public is accustomed to rely upon a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name. Thirdly, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff."

Art 38 (2) adds that it is not necessary for the purpose of art 38 that the persons confused or deceived should be aware of the claimant's identity, provided that they are accustomed to the claimant's goods, services or business. It is spelt out in art 38 (3) that it is no defence that the defendant did not intend to cause deception or confusion. A defendant is liable under art 39 if he knowingly assists or facilitates passing off by another person.

DIFC Law of Confidence

The DIFC (Dubai International Financial Centre) is like a little bit of London in the Gulf. Covering an area of 45 hectares - slightly smaller than Kensington Gardens - it is a free zone for the banking, insurance, trading and other financial services industries with its own legal system. As I said in my article on The DIFC Courts, the interesting attribute of this legal system is that the laws are in English and its courts apply the common law.

There is now a comprehensive body of civil and commercial law for the Centre covering such matters as companies, contracts, insolvency, partnerships and data protection. DIFC Law No. 5 covers obligations which includes much of the law of tort (negligence, nuisance and deceit) and equitable obligations (fiduciary duties and confidence).

The DIFC law of confidence is set out in art 37 of this Law of Obligations. Paragraph (1) provides:

"Subject to Article 37 (4), a person has a duty not to misuse specific information which he has received from another (a "confidant"), directly or via an intermediary, and which can reasonably be regarded as confidential, where he knows or ought to know that the information is confidential."

It should be noted that the word "confidant" has a special meaning in this article in that it refers to the person imparting information rather than the person to whom information is confided (cf my note on "The Law of Confidence" in IP/IT Update). Art 37 (2) continues:

"If a person breaches his duty as defined in Article 37(1), he is liable to the confidant."

"Misuse" in the DIFC code includes but is not limited to disclosure (art 97 (4)). There is no attempt to define confidential but art 97 (3) provides that "unless non-confidentiality is otherwise expanded by agreement, information is not confidential if:

(a) it is in the public domain;

(b) it is trivial or useless; or

(c) it is in the public interest that the information should not be confidential."

The obligation of confidence is subject to the following limits in art 97 (4):

"(a) the confidant has consented, expressly or by implication, to its disclosure;

(b) its disclosure is required by law;

(c) its disclosure is required in the interests of the confidant;

(d) it is no longer confidential; or

(e) it is disclosed to a person who has a legitimate interest in receiving it."

Finally, it is no defence that the defendant did not know that he was misusing confidential information (art 97 (5)).

There does not appear to be any case law on the obligation of confidence. The only other relevant legislation that I have been able to find is art 29 of the DIFC Law of Contracts:

"Where information is expressly given as confidential by one party in the course of negotiations, the other party is under a duty not to disclose that information or to use it improperly for its own purposes, whether or not a contract is subsequently concluded. Where appropriate, the remedy for breach of that duty may include compensation based on the benefit received by the other party."

This provision would clearly apply to discussions between those with a business proposition such as inventors and potential backers such as angels or venture capitalists. However, it should be noted that the information must be disclosed "expressly in confidence" which implies a confidentiality agreement of the kind I have drafted for use in England (see my "Confidentiality Agreement" on the JD Supra website).

I should be glad to discuss this article with anybody who has any questions. He or she can contact me through my on-line form.