Confidential information can be used (and misused) in lots of different ways. Disputes about use and misuse often arise following the termination of various kinds of contracts (including employment contracts and franchise contracts) which provide for confidential information to be provided by one party to the contract to the other party.
If a party is deliberately holding on to confidential information which that party ought to have given back, then this can be a powerful indicator that the party is Up To No Good. And if you can demonstrate that the opposing party is Up To No Good, that in turn will be extremely helpful in persuading a court to grant injunctive orders against the opposing party (both to protect the confidential information, and for other aspects of what may be a wider contractual dispute).
However, if the information is not actually confidential, the argument for an injunction can go cold very quickly. That was the position in a recent decision of the Supreme Court of New South Wales, which followed the termination of the franchise agreement for a “Pizza Capers” restaurant in Port Macquarie. The franchisee was a company, and one Mr Gill was a party to the franchise agreement who had guaranteed the franchisee’s obligations (including obligations in the form of post-termination restraints on the operation of pizza restaurants). However, his wife, Mrs Gill was not a party to the franchise agreement. Could she, and the company of which she was sole director, be restrained from running a pizza restaurant in Port Macquarie?
Recognising that the restraints in the franchise agreement were not binding on Mrs Gill and her company, the franchisor tried a variety of other arguments to stop Mrs Gill, including that Mrs Gill was misusing Pizza Capers’ confidential information. Two pieces of allegedly “confidential information” were identified; first, the Pizza Capers operations manual, and second, the menu used by Pizza Capers.
The franchisor failed on both counts. As to the manual (which, arguably, may well have comprised confidential information) the evidence appeared to establish that although the manual appeared to have gone astray in the post, it had been posted back to the franchisor. That left the menu, about which the judge said:
Counsel for the Plaintiff has had some difficulty in identifying precisely what is confidential about the menu. In my view, the reason for this is because the menu is not confidential. The menu is open to the public via the internet or perhaps printed matter, and it is there for the very good purpose of inviting and indeed enticing the public to purchase a Pizza Capers’ pizza.
In truth, the argument was always likely to be panned – the whole point of a menu is to communicate, to the public, information about the comestibles which can be obtained from the restaurant. Accordingly, an argument that the menu was confidential had about as much chance of success as a snowball in a pizza oven.
If your business does depend on confidential information (and most businesses do, often more than they realise until the information gets out), it is important to identify that information as confidential, and to treat it as such. The identification might take the form of stamping “confidential” across documents containing the information, or ensuring that electronic copies of the information are stored in separate (password protected) folders to those in which non-confidential files are stored. Where that information is provided to third parties like franchisees, it is important to have clear contractual provisions which deal with the use and protection of the information, and also for its return when the contractual relationship ends.
However, it is important to be discriminating about identifying genuinely confidential information – if the tendency is to stamp “confidential” across every document you generate, it will be harder to establish that the stamping shows a considered identification of what is truly confidential. As a famous American case in this area has explained, “You don’t make the multiplication tables a secret merely by calling them a secret” – and nor would make them confidential by applying that label, no matter how impressive your stamp.
So, the franchisor left without an injunction (but with an order to pay Mrs Gill’s costs). The lesson is that matters of confidential information need to be approached from a realistic perspective when disputes arise (and confidential information cannot always be relied upon obtain a remedy which is otherwise lacking from express terms of a contract). If a competitor has found out your 11 secret herbs and spices, then an injunction will be justified, but if all they know is that some of your pizzas include pineapple, then ask yourself – is that really something which you want the Supreme Court of New South Wales to know?
For more on our pizza law capabilities, please don’t contact Angus Macinnis – you’ll only encourage him