Trade secret protection and enforcement has been the subject of a recent South African judgment, Universal Blending (Pty) Ltd v Sarel Henderson,in the Gauteng Local Division.
The judgment seems to offer little in the way of law, but this is through no fault of the judge. Instead, it is an example of the problems that can arise when the parties involved have an unstructured commercial relationship. Given how important confidential information and trade secrets are in the law of unlawful competition, this judgment is worth discussing, especially because it provides an example of a scenario where the law of trade secrets comes into play.
The case in short
The respondent, Sarel Henderson, had been an employee and shareholder of Universal Blending, and during his time with the company, Mr Henderson had acquired considerable knowledge about the company's pothole-filling product, Roadsaver. When Mr Henderson left Universal Blending to join a competitor, Universal Blending brought a court application against him based on the unauthorised use of its trade secret (a formula for a pothole-filling product) by Mr Henderson.
Universal Blending claimed that Mr Henderson was the only person who knew the full formula for the pothole-filling product due to Mr Henderson being responsible for revising the product formula while still at the company. However, Mr Henderson had refused to divulge the full revised formula that he was responsible for developing while employed by Universal Blending despite multiple demands to do so by the company.
In its application, Universal Blending sought full disclosure of the formula to the company, as well as an interdict restraining Mr Henderson from competing with the company by using confidential information (ie, the formula), disclosing it to others, patenting it, or otherwise exploiting it.
The application was ultimately unsuccessful in that the judge, Wesley AJ, held that Universal Blending had not established that it was the owner of the Roadsaver product, and therefore dismissed the application.
Image source: Wikimedia commons
The law on trade secrets in South Africa
Although the Universal Blending case provided a limited additional contribution to the law on trade secrets in South Africa, this aspect of our law is well-developed.As set out in the 2018 Supreme Court of Appeal ("SCA") judgment, Pexmart CC v H. Mocke Construction (Pty) Ltd, which was referred to in the Universal Blending judgment, the misuse of trade secrets or confidential information falls squarely within the law of unlawful competition.
The SCA, in this case, confirmed that for information to qualify as a trade secret, three requirements must be met:
- the information must be secret or confidential (ie, reasonable measures must have been taken by the holder to maintain secrecy, and it cannot be information already known to the public);
- the information must be of economic (business) value to the plaintiff; and
- the information must be capable of application in trade or industry.
Additionally, to enforce its rights in a trade secret, a proprietor would need to demonstrate that the secret information was obtained from it and used or disclosed without its authority.
Another well-known South African judgment on the issue of trade secrets and confidential information is Dun and Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape) Ltd. In this case, Judge Corbett said this:
"The conduct of a rival trader who obtains and, well knowing the position, uses the information to advance his own business interests and activities amounts to a deliberate misappropriation and filching of the products of another's skill and labour. Such conduct must, in my view, be regarded as dishonest and as constituting a fraud upon the compiler of the information."
It is worth remembering that in South Africa, the law of trade secrets is simply a category or sub-species of unlawful competition. Arguably the most important South African court judgment on unlawful competition in the case of Schultz v Butt . In that case, the court explained unlawful competition as follows:
"As a general rule, every person is entitled freely to carry on his trade or business in competition with his rivals. But the competition must remain within lawful bounds. If it is carried on unlawfully, in the sense that it involves a wrongful interference with another's right as a trader, that constitutes an injuria for which the Aquilian action lies if it has directly resulted in loss."
Some final words
Confidential information and trade secrets form a crucial part of the intellectual property assets of most businesses and systems should be implemented to prevent their unauthorised use or disclosure. Proprietary confidential information can range from formulations, products or processes, to source code for computer programs, or know-how and information concerning marketing and business information generally, including:
- customer and supplier lists;
- customer or trade connections;
- credit records;
- price lists;
- tender prices; and
- business discussions.
The judgments discussed above suggest, there is significant scope in South Africa for cases to be brought under the broad law of unlawful competition, including the more specific ground of unauthorised use of trade secrets, provided that the owner of these rights has taken care to implement systems to protect these intellectual property assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
