CONFIDENTIAL INFORMATION: SURVEY OF PERMISSIBLE CONSTRAINTS AND DISCLOSURE REQUIREMENTS
| Jurisdiction | Derecho Internacional |
(Nov 1997)
CONFIDENTIAL INFORMATION: SURVEY OF PERMISSIBLE CONSTRAINTS AND DISCLOSURE REQUIREMENTS
DeConcini McDonald Yetwin & Lacy, P.C.
Tucson, Arizona
CONFIDENTIAL INFORMATION: PART ONE, THE COMMON LAW ANALYSIS
I. Introduction
A review of the papers presented before institutes of the Rocky Mountain Mineral Law Foundation reveals that no less than 21 papers have been presented related to protection or disclosure of confidential information. A list of these papers is provided as Appendix A to this paper. These investigations can be divided into the areas of (1) protection against disclosure of confidential information to unauthorized persons by employees, former employees and third parties (2) requirements that may be imposed to disclose proprietary and confidential information during the course of negotiations, and (3) laws and regulations regarding disclosure to ensure that investors or potential investors are not misled regarding the value of mineral properties. The investigations have been principally based upon common law concepts, and the purpose of the first part of this paper is to provide background for Latin American lawyers to understand what procedures and requirements are imposed on mining companies that may have their practices examined in a common law country. The second part of this paper focuses on an analysis of these subjects in Latin America.
II. Information as Intellectual Property
A. Private Property Rights in Minerals.
In the United States, a property right in information related to minerals likely exists because mineral rights are, for the most part, recognized as private property rights. These rights have their origin in (1) rights granted by the United States, (2) rights granted by individual states from lands granted to the individual states, or in some cases (3) private rights recognized under treaties between the United States and Spain, Mexico, Great Britain, and France in lands now included within the boundaries of the United States. Most of the mines of base or precious metals in the United States are situated on what is, or once was, the "public domain" of the United States. In these lands, the mineral laws have, since 1866, granted citizens (including those who had declared an intention to become a citizen and corporations organized under the laws of any state of the United States) a right to purchase land and the underlying mineral rights upon proof of the discovery of a "valuable" mineral.1 Prior to any purchase, the decisions of the courts of the United States have recognized a "possessory" right in the minerals of public domain, a right similar to an exploration concession
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under the laws of most Latin American countries.2 Because the claimant has been granted the right to purchase the fee of the land, the private right in the information regarding the mineral deposit allows limited protection from disclosure to third parties. The principal exception relates to disclosures to the United States itself, which can require the claimant to prove that a "valuable mineral" has been discovered. Even here, however, the claimant is not required to make the disclosure, but a failure to do so might result in the loss of the right to the claim.3
B. Trade Secrets.
The legal device most generally thought of to protect commercial information is the patent system authorized by Article 1, Section 8 of the United States Constitution.4 This authority establishes a federal patent system that applies to all 50 states and territories. Patents are not, however, all encompassing and basically cover only technical inventions meeting certain requirements. Much information of commercial importance to the minerals industry, including geologic information (that is, field maps, cross sections, reserve estimates, core analyses, structure maps and recommendations), geophysical data, economic information, market forecasts, long-range corporate plans, inventories of prospects, negotiating intent, tax information, competitor activity files, proprietary computer programs, internal technical bulletins and research documents, analytical techniques and legal analyses,5 are not patentable and can only be legally protected through contractual limitations or by preserving the information as a "trade secret." The English common law first protected trade secrets to prevent an employee under contract from using knowledge of a secret to his own advantage and to the detriment of his employer. This same rule has been recognized in the United States for some time.6
The definition of a "trade secret" is determined by the laws of the individual States and therefore no single definition exists. A widely recognized commentary used by the courts of the United States defines a trade secret as:
...any formula, pattern, device or compilation of information which is used in one's business and which gives him an opportunity to obtain an advantage over
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competitors who do not know or use it."7
Another widely used definition can be found in the Uniform Trade Secrets Act that reads:
"Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique or process, that both:
(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.8
In the context of the minerals industry, geophysical and geological data obtained at the owner's expense and effort are normally entitled to protection as trade secrets. In the case of accumulated information such as market forecasts, inventory files and title information, there has been some question as to whether this information could be considered a trade secret,9 but the majority of court decisions suggest that if the information, even if it was compiled from information in the public domain, contains components in a unique combination that afford a competitive advantage, it may be protected as a trade secret.10 Therefore, if information provides a unique interpretation of existing geological data,11 or involves regional geologic and property information accumulated at considerable time, effort and expense, it should be protectable as a trade secret.
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III. Protection Against Disclosure
A. Keeping the Secret
The Supreme Court of the United States has ruled that a trade secret is a property right entitled to protection but will disappear if the trade secret becomes generally known. The key element is secrecy. Thus, to effectively protect trade secret information, the owner must honestly and genuinely treat the information as confidential from the outset. Additionally, reasonable measures must be taken to maintain secrecy commensurate with the requirements of the business as long as trade secret protection is desired.12
The normal procedures for protection of confidential information are (1) to require employees to sign an employment agreement containing prohibitions against disclosure of information and covenants not to compete against the employer13 and (2) to require consultants and third parties seeking to enter into leases or other arrangements to sign confidentiality agreements.
B. Confidentiality Agreements
Most companies have forms of confidentiality agreements that third parties are required to sign before confidential information is disclosed. The elements of these agreements typically define the nature of the information, establish protocols for delivery of information, place specific restrictions on the duplication of information, prohibit further disclosure of information and establish a method for enforcement of breaches. Also, in common law jurisprudence, the courts have both legal and equitable powers. The legal powers usually involve the fixing of damages for injuries whereas a court's equitable powers will allow the court to require specific action (or non-action) from a party subject to its jurisdiction. A court may, for example, forbid the dissemination of information or require its return by court mandate. The rule of application between these two powers is that equitable relief cannot be used if the party who has been damaged can be adequately compensated. Thus, confidentiality agreements normally include a statement whereby the parties acknowledge that money damages are speculative and that the use of the court's equitable powers is agreed to upon any breach. A committee of the Rocky Mountain Mineral Law Foundation has recently surveyed the practices of the industry and published a form of confidentiality agreement as Form 7, the text of which is attached to this paper as Appendix B (the full form contains alternative provisions and commentary).
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IV. Protection Against Competition
A. Covenants Not to Compete
The common way of protecting information is through covenants not to compete in employment agreements and confidentiality agreements. Here, the employee who may receive confidential information typically agrees that he or she will not use any such information except for the benefit of the employer and that any opportunities afforded to the employee, even after termination of employment, will be first offered to the employer. The covenant not to compete in common law jurisprudence runs contrary to accepted standards that would hold that parties must be free to compete in the market place. The fundamental law in the United States is premised upon a federal law, the Sherman Antitrust Act,14 originally passed in 1890, that codifies a "rule of reason" that a covenant, even if it restrains trade, is enforceable if it does not unduly interfere with the public interest. The purpose of the Sherman Act is to...
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