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I. Introduction

In South Africa, cases involving unauthorized conduct in relation to trade secrets (including acquisition, use, and publication) may be categorized around the actors involved.  First, the party involved in the unauthorized conduct may be an employee.[1]  In this case, the remedies available to the employer differ depending on whether the violation occurred during or after the termination of the employment contract.  Second, the unauthorized use may involve a competitor, which is recognized in South Africa as a form of unlawful competition.[2]

For information to qualify as a trade secret, three requirements must be met: the information must relate to and be capable of application in trade or industry, it must be secret or confidential, and it must be of economic value to the proprietor.[3]

The misappropriation of trade secrets is prima facie wrongful under the laws of South Africa.[4]  The existence of a contractual[5] or fiduciary obligation forms a legal basis for the protection of trade secrets and know-how.[7]  Over the years South African courts have recognized various forms of information that can be categorized as “confidential,” including the following:

  • Customer lists
  • Information received by an employee (or others bound by a fiduciary obligation) regarding business opportunities available to the employer
  • Information provided to an employee in confidence during the course of his employment
  • Information contained in stolen documents
  • Publicly available information when gathered and compiled into a useful form through labor and skill and kept in limited confidence
  • Information that relates to the proposal for the name, design, etc., of a new product if it is the result of skill and labor and is kept confidential
  • Information on the specifications of a product or manufacturing process obtained through skill and labor and kept confidential
  • Tender prices[8]

The confidentiality of any of the above-listed information is not always automatic, absolute, or permanent.  Confidential information not classified as a trade secret may be used by an employee for his own benefit or for the benefit of others after the termination of his employment to the extent that it was not copied and/or deliberately memorized for use after termination of the employment contract.[9]  For instance, a method for assembling/building a certain machine may be confidential; however, there is a legal recognition that when an employee is terminated from his position, some knowledge acquired during the course of his employment in assembling/building machines will remain in the employee’s memory, which he is free to use or distribute, including to a new employer in direct competition with the old one.[10]  In addition, confidential information remains confidential for as long as it would take another person to gather such information.[11]

There are instances in which the acquisition, use, and/or publication of trade secrets may not be considered wrongful.[12]  Public interest is one justification for waiving the protection that proprietors of trade secrets enjoy.[13]  This is particularly true when the issue arises in the context of an employer-employee relationship in which the employee, having acquired certain skills and knowledge by working for one employer, wishes to apply such skills and knowledge in the service of a rival business after termination of the previous employment contract.  In this instance, the wrongfulness of the actions of the employee is determined through “the criteria of fairness and honesty” and by weighing the rival interests involved.[14] 

The remainder of this report discusses questions of infringement on trade secrets as they relate to current and former employees, as well as trade competitors.  It also provides a brief outline of the remedies framework in cases of breach. 

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II.  Employees

One way a person/company can protect trade secrets from misappropriation is by incorporating confidential information clauses in employment contracts and/or by incorporating restraint of trade clauses in service contracts.[15]  A restraint of trade agreement clause may incorporate the duty not to disclose trade secrets and confidential information belonging to the employer.[16]  A restraint clause prevents a person from using confidential information gained through the course of his employment to the detriment of the employer.[17]  An employee who breaches this duty while still employed may be dismissed for breach of an express or implied term of his employment contract or a fiduciary duty.[18]  Where the disclosure comes from a former employee, legal action can also be taken (see remedies discussion below).[19]

Enforcing restraint of trade agreements and confidentiality clauses, like any other agreement, is subject to constitutional provisions that guarantee individual rights.[20]  South African courts have relied on principles such as public interest as well as reasonableness, public policy, legally recognizable interest, and/or proprietary interest worthy of protection as core factors in reaching their decisions when asked to adjudicate and enforce the protection of trade secrets and know-how.[21]

A restraint clause is unenforceable if it prevents a party, after termination of his or her employment, from partaking in trade or commerce without a corresponding interest of the other party deserving protection.[22]  A party who breaches a confidentiality clause or restraint of trade clause and seeks to avoid the contractual obligation to which he solemnly agreed is required to prove that the public interest would be detrimentally affected by the enforcement of the clause.[23]  The courts also examine the issue of reasonableness.  The requirement of reasonableness is used to assess whether the restraint of trade clause is contrary to public policy.[24]  The South African Supreme Court has identified four questions in assessing the reasonableness of a restraint:

(1)  Does one party have an interest that deserves protection after termination of the agreement?

(2)  If so, is that interest threatened by the other party?

(3)  In that case, does such an interest weigh qualitatively against the interest of the other party not to be economically inactive and unproductive?

(4)  Whether an aspect of public policy having nothing to do with the relationship between the parties requires that the restraint be maintained or rejected.[25]

If the interest of the party sought to be restrained outweighs the interest to be protected, the restraint will be deemed unreasonable and unenforceable.[26]

Other lower courts have expanded these questions to include whether the restraint is broader than what is necessary to protect the interest in question.[27]  Recent court decisions have also considered the issue of whether the employer has a proprietary interest in the know-how acquired by an employee.[28]  South African courts treat the determination of whether an employer has a proprietary interest, either generally[29] or within the know-how[30] acquired by an employee, as a question of fact.[31] 

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III.  Competitors

The unauthorized acquisition and use of a rival’s trade secret is recognized as a form of unlawful competition.[32]  Competition involving wrongful interference with another’s right to trade constitutes an injury and may result in an Aquilian action[33] if it results in damages.[34]  In 1968, the Supreme Court of South Africa held that,

[w]here a trader has by the exercise of his skill and labour compiled information which he distributes to his clients up on a confidential basis, . . . a rival trader who is not a client but in some manner obtains this information and, well knowing its true nature and the basis up on which it was distributed, uses it in his competing business, commits a wrongful act vis-à-vis the latter and will be liable to him in damages.  In an appropriate case, the plaintiff trader would also be entitled to claim an interdict [injunction] against the continuation of such wrongful conduct.[35]

A person commits a tort of unlawful competition “if the acquisition and use of a rival’s trade secret are likely to cause the latter loss of custom, thereby in principle infringing his right to goodwill (‘right to carry on his trade and attract custom’).”[36]

The protection of a trade secret is not limited to its proprietors; other legal users such as licensees of the proprietor are also protected.  The Witwatersrand Local Division held in a 1980 case that

[t]he dishonest use of confidential information is a species of unlawful competition or unlawful interference with the trade of another which our laws will not countenance.  The trader’s remedy is Aquilian.  In principle there is no reason for limiting the scope of this type of action by conferring it only up on the owner of the confidential information.  The wrong up on which the remedy lies is not an invasion of rights of property.  The wrong is the unlawful infringement of a competitor’s right to be protected from unlawful competition.  If A is in lawful possession of the confidential information of B and such possession was obtained by A to further his own business interests, it would be a wrong committed against A for C, a trade rival of A, to obtain that information by dishonest means from A for the purpose of using it the to the detriment of the business of A.  That it might also be a wrong committed against B is another matter.  Once there is a dishonest conduct of the type just posited and loss or damage suffered thereby to the person against whom the wrong has been committed, the requisites for Aquilian liability are present.[37]

Unlawful competition by a trade rival through unauthorized acquisition, use, and/or publication of a trade secret entitles the wronged party to an injunction and/or damages, remedies that carry different evidentiary thresholds (see the section on remedies below).[38]

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IV.  Remedies

Upon a finding of inappropriate use of trade secrets, South African courts have various remedies at their disposal depending on the parties involved.  In an action based on unlawful competition, the wronged competitor has two remedies available: an injunction (“interdict”)[39] and an Aquilian action.[40]  An injunction requires a showing of unlawful conduct or a “well-founded apprehension” that unlawful conduct will be committed and the unavailability of other remedy/ies to the claimant.[41]  It also applies when there is fear/expectation that the infringement is actually or potentially recurrent.[42]  An Aquilian action requires proof of damages and causation.[43]

In an action based on an inappropriate use of trade secrets by persons bound by a contract or a fiduciary responsibility (such as an agent or employee), the wronged party has a number of remedies at his disposal.  In this instance, he may bring an action for the breach of an express or implied contractual term.[44]  A remedy in tort may also be sought.[45]

When the action for breach involves a former employee, the process gets slightly complicated.  This is due to the recognition of two forms of confidential information: trade secrets, and other confidential information that enjoys protection.[46]  The former is information so secret that it may not be used by an employee in competition with the former employer during or after the termination of employment, while the latter is confidential information that remains in the employee’s memory after the termination of the employment contract and forms part of his skill that may be used even to compete with a former employer.[47]  Thus, an allegation of a breach against a former employee would involve a determination as to whether the information involved is a trade secret or other confidential information.  If the information is indeed a trade secret, the former employer may seek an injunction and/or damages.[48]

Specifically, to successfully obtain an injunction or damages, be it against a trade rival or a current or former employee, a claimant needs to prove that

  • he has an interest in the information (not necessarily ownership),
  • the information is confidential in nature (specifically a trade secret if the defendant is a former employee),
  • there is a relationship between the parties from which a duty arises on the part of the defendant to preserve the information (this could be an employment relationship or a situation where the parties are trade rivals and the defendant obtained the information in question improperly),
  • the defendant made improper use of the information, and
  • the claimant suffered damages as a result (this is applicable only when seeking damages).[49]

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Hanibal Goitom
Foreign Law Specialist*
July 2013

 

* This report was prepared with the assistance of Law Library intern Antoinette Ofosu-Kwakye.

[1] Van Heerden-Neethling, Unlawful Competition 223 (2d ed. 2008).

[2] Id. at 219.

[3] Id. at 215.  See also Townsend Production (Pty) Ltd v. Leech 2001 (4) SA 33 (C).

[4] J. Neethling & B.R. Rutherford, Competition, in The Laws of South Africa 195, 267 (L.T.C. Harms & J.A. Faris eds., 2d ed., pt. 2, 2003).

[5] Reddy v. Siemens Telecommunications 2007 (2) SA 486, 491, 499–501 (SCA).

[6] Wespro (Cape Town) v. Stephenson (1995) 16 ILJ 452, 460–61 (IC), available at HeinOnline, http://heinonline.org /HOL/Page?handle=hein.journals/iljuta16&div=50&g_sent=1&collection=journals (by subscription).

[7] Schultz v. Butt 1986 (3) SA 667, 678–84 (AD); see also Strike Productions (Pty) Ltd v. Bon View Trading 131 (Pty) Ltd and Others (2011), available on the Southern African Legal Information Institute (SAFLII) website, at http://www.saflii.org/za/cases/ZAGPJHC/2011/1.rtf.

[8] Meter Systems Holdings Ltd v. Venter and Another 1993 (1) SA 409, 410–11 (WLD); see also Neethling & Rutherford, supra note 4, at 267.

[9] Strike Productions (Pty) Ltd v. Bon View Trading 131 (Pty) Ltd and Others, supra note 7.

[10] Automotive Tooling Systems v. Wilkens and Others 2007 (2) SA 271, 279 (SCA).

[11] Meter Systems Holdings Ltd v. Venter and Another, supra note 8, at 411.

[12] Van Heerden-Neethling, supra note 1, at 218.

[13] Neethling & Rutherford, supra note 4, at 267.

[14] Id.

[15] Reddy v. Siemens Telecommunications, supra note 5, at 491–501 (SCA).

[16] Id.; see also Wespro (Cape Town) v. Stephenson, supra note 6, at 458–59.

[17] Reddy v. Siemens Telecommunications, supra note 5, at 491.

[18] Wespro (Cape Town) v. Stephenson, supra note 6, at 457–58.

[19] Id. at 454–59.

[21] Reddy v. Siemens Telecommunications, supra note 5, at 496–97; Basson v. Chilwan and Others 1993 at 49–56 (Sup. Ct. App. Div.), available at http://www.saflii.org/za/cases/ZASCA/1993/61.pdf.

[22] Reddy v. Siemens Telecommunications, supra note 5, at 497.

[23] Basson v. Chilwan and Others, supra note 21, at 53–54.

[24] Van Jaarsveld et al., Labour Law, in 13(1) The Laws of South Africa 9, 113 (J.A. Faris ed., 2d ed. 2009).

[25] Reddy v. Siemens Telecommunications, supra note 5, at 497.

[26] Id.

[27] Nampesca (SA) Products (Pty) Ltd v. Zaderer 1999 (20) ILJ 549, 556–57 (C), available at http://heinonline.org /HOL/Page?handle=hein.journals/iljuta20&div=84&g_sent=1&collection=journals (by subscription).

[28] Automotive Tooling Systems v. Wilkens and Others, supra note 10, at 277–79.

[29] Nampesca (SA) Products (Pty) Ltd v. Zadeer, supra note 27, at 562.

[30] Automotive Tooling Systems v. Wilkens and Others, supra note 10, at 279.

[31] Id.

[32] Van Heerden-Neethling, supra note 1, at 219.

[33] An Aquilian action is a Roman law principle that enables a person who has suffered calculable damage (patrimonial loss) to seek and obtain appropriate compensation.  You and Your Rights: Aquilian Action, Legality, http://www.legalcity.net/Index.cfm?fuseaction=RIGHTS.article&ArticleID=7059794 (last visited Aug. 14, 2013). 

[34] Premier Hangers CC v. Ployoak (Pty) Ltd 1997 (1) SA 416, 421–22 (SCA), available at http://www.saflii.org/za /cases/ZASCA/1996/119.html.

[35] Dun and Bradstreet (Pty) Ltd v. S.A. Merchants Combined Credit Bureau (Cape) Ltd, 1968 (1) SA 209, 221 (C).

[36] Van Heerden-Neethling, supra note 1, at 221.

[37] Prok Africa (Pty) Ltd and Another v. NTH (Pty) Ltd and Others 1980 (3) SA 687, 687–88 (W).

[38] Van Heerden-Neethling, supra note 1, at 221–22.

[39] Reddy v. Siemens Telecommunications, supra note 5, at 486.

[40] Van Heerden-Neethling, supra note 1, at 221.

[41] Id.; H. Daniels, Beck’s Theory and Principles of Pleading in Civil Actions 329 (6th ed. 2002).

[42] Strike Productions (Pty) Ltd v. Bon View Trading 131 (Pty) Ltd and Others, supra note 7.

[43] Id.

[44] Id.

[45] Van Heerden-Neethling, supra note 1, at 224. 

[46] Waste Products Utilization (Pty) Ltd v. Wilkes and Another 2003 (2) SA 515, 518 (WLD). 

[47] Id.

[48] Id.

[49] Waste Products Utilization (Pty) Ltd v. Wilkes and Another, supra note 46, at 518–19 (WLD); Strike Productions (Pty) Ltd v. Bon View Trading 131 (Pty) Ltd and Others, supra note 7.

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Last Updated: 05/01/2015