The Past and Future of Canada’s Criminalization of Trade Secret Theft – Part II

March 3, 2020

By Noel Courage

In Part I of this article, the history of trade secret criminal sanctions in Canada was reviewed. Trade secret information per se is not considered “property” capable of theft for purposes of the Criminal Code1. A patchwork of other laws can potentially cover trade secret theft. There are currently gaps in the scope of criminal law protection for trade secrets.

The Criminal Code is about to be amended to provide additional protection for trade secrets. This amendment is occurring as a result of the new Canada-US-Mexico free trade agreement (CUSMA)2. The agreement is being implemented by a recently-introduced Bill C-4 in Canada’s Parliament3.

 

Trade Secret

“Trade secret” will be defined in S.391 of the Criminal Code as any information that:

(a) is not generally known in the trade or business that uses or may use that information;

(b) has economic value from not being generally known; and

(c) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy4.

This definition is generally consistent with the approach to trade secrets taken by the Supreme Court of Canada in a case involving trade secrets in the context of federal access to information (ATI) legislation5. The ATI prohibits the government from handing over a company’s trade secret information to the party making the access request.

The definition is also similar to the definition in the federal Security of Information Act6 which is targeted at preventing foreign espionage. Section 19 of that Act defines a trade secret as any information, including a formula, pattern, compilation, program, method, technique, process, negotiation position or strategy or any information contained or embodied in a product, device or mechanism that:

(a) is or may be used in a trade or business;

(b) is not generally known in that trade or business;

(c) has economic value from not being generally known; and

(d) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

The Offence

The Criminal Code offence is stated as follows:

391 (1) Everyone commits an offence who, by deceit, falsehood or other fraudulent means, knowingly obtains a trade secret or communicates or makes available a trade secret.

Trade secret — prior knowledge

(2) Everyone commits an offence who knowingly obtains a trade secret or communicates or makes available a trade secret knowing that it was obtained by the commission of an offence under subsection (1).

The initial offender, as well as those who knowingly obtain and misuse the trade secret may all be prosecuted. This may be prosecuted as a summary conviction offence or as an indictable offence. The indictable offence creates liability for up to 14 years of imprisonment.

The Security of Information Act has a similar offence, plus it also creates an offence to obtain, retain, alter or destroy a trade secret. The Criminal Code may therefore be more limited, as it focuses on communicating or making the trade secret available. 

Independent development and reverse engineering of the subject matter of a trade secret are specifically excluded from the Criminal Code offence7. Interestingly, an explicit exception for work-acquired knowledge is not included. The Security of Information Act includes such an exclusion for information acquired in the course of the person’s work that is of such a character that its acquisition amounts to no more than an enhancement of that person’s personal knowledge, skill or expertise8. It does appear possible that a court may nonetheless interpret the legislation as containing this exclusion, because there are situations, for example, where a departing employee can use general skills and knowledge in a new position, but does not use a former employer’s trade secrets. The omission of Criminal Code wording creating of an offence for obtaining or retaining a trade secret may indicate that departing employees are not intended to be caught for having trade secret knowledge in their mind, as long as they do not misuse it by communicating it or making it available.

 

Consequences of Criminalization

Employees are going to have to be very careful not to take or use trade secret information with them in a new position. If they communicate or make available this trade secret information to a new employer or in their own competing business, then they may now face criminal and civil liability9. The primary remedy in the past where only trade secret information has been taken would have been civil liability. Similarly, when a business collaboration breaks off, each party must be careful not to use the others’ trade secrets.

Employers who want to get the benefit of criminal protection for trade secrets will need to be prepared to prove that the trade secrets exist and that reasonable measures were taken to maintain secrecy. Confidentiality agreements with employees and business partners are reasonable measures. Company policies should clearly state measures to protect trade secrets, and that they may only be used for the business, and that consent to use them ends when employment ends. Electronic and physical security are also typical measures. Precautions to protect trade secrets should also be taken with respect to business and research collaborations with other companies. 

An employer that hires an employee from a competitor face potential liability if they “knowingly” obtain trade secrets from that employee. Employment agreements and onboarding training should clearly state to new employees that they may not use trade secrets from any former employer in their new job. 

Canadian law enforcement agencies will also have to figure out how to deal with trade secrets. See, for example, the US FBI’s checklist for reporting trade secret theft.

There is a significant challenge for law enforcement and courts to fairly interpret this Criminal Code provision and determine when taking of a trade secret is suitable for criminal prosecution. Identification of the existence of a trade secret can be legally and factually complex, particularly if complex scientific subject matter or engineering technology is involved. Disputes between companies and their departing employees or former business collaborators can also be very polarized and intense, making it further difficult to judge the facts well enough at the outset to decide whether to lay charges. There will be a careful balancing act required to protect the economic interests of the trade secret owner against casting an overly-broad or overly-hasty criminal net.


1 It may be criminal to steal a device containing trade secret information, but the information itself is not property. 

2 Article 20.72 of USMCA: Criminal Enforcement. “…each party shall provide for criminal procedures for the unauthorized and willful misappropriation of a trade secret.” 

3 “An Act to Implement the Agreement between Canada, the United States of America and the United Mexican States.” Bill C-4.

4 S.391(5).

5 Merck Frosst Canada Ltd. v. Canada (Health), [2012] 1 SCR 23

6 Security of Information Act, R.S.C., 1985, c. O-5, s.19.

7 S.391(4).

8 S.19(3)(b).

9 Again, this article is referring to a situation where information (intangible property) is taken, not tangible property such as an employer’s hard drive or laptop.

Information on this website is for information only. It is not, and should not be taken as, legal advice. You should not rely on, or take or not take any action, based upon this information. Professional legal advice should be promptly obtained. Bereskin & Parr LLP professionals will be pleased to advise you.

Author(s):

Noel Courage Noel Courage
B.Sc. (Biochem.), LL.B.
Partner
416.957.1655