CONSEQUENCES OF THE CRIMINALIZATION OF TRADE SECRET THEFT IN CANADA.

• Author: Malone, Matt

1. INTRODUCTION

   Trade secrets and confidential information are information-based assets that are not widely known and which have value from not being widely known, and which have been the subject of reasonable steps to maintain and continue their secrecy. In the Canadian context, legal protections for trade secrets and confidential information permeate many vectors of the law. One academic described this array of law as an "umbrella", where "[t]he ribs of the umbrella represent various areas of the law under which some measure of protection... is available." (1) The Alberta Institute of Legal Research and Reform described the legal landscape of Canadian trade secret law in its 1986 study of the subject in the following terms: "Whether a citizen can obtain legal protection of a trade secret depends upon a consideration of many areas of the law and an intelligent selection of that area which will afford the best legal protection in the particular case. There is no specialist body of law which has a distinct functional application to trade secrets, and is easily located and applied." (2) The accuracy of this assessment has been little challenged, until the passage of the omnibus Bill C-4, also known as "An Act to implement the Agreement between Canada, the United States of America and the United Mexican States". Bill C-4 added to the Criminal Code section 391, which states in lull:

   (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.

   (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).

   (3) Everyone who commits an offence referred to in subsection (1) or (2) is guilty

   (a) of an indictable offence and is liable to imprisonment for a term not exceeding 14 years; or

   (b) of an offence punishable on summary conviction.

   (4) For greater certainty, no person commits an offence under subsection (1) or (2) if the trade secret was obtained by independent development or by reason only of reverse engineering.

   (5) For the purpose of this section, trade secret means 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 secrecy. (3)

   Given its reach, section 391 represents a significant overhaul of the legal landscape of trade secrets and confidential information in Canada. Currently, there is no statutory right of action for the misappropriation of trade secrets or confidential information between private parties. (4) A proposed Uniform Trade Secrets Act creating such a right was drafted in 1989 but never adopted. (5) Attempts to articulate information and non-tangible assets as property within the meaning of provisions of the Criminal Code concerning the offense of theft of property had previously failed. (6) Other statutes, to be sure, set out offenses for trade secret and confidential information misappropriation in narrow circumstances and trade secrets are also instrumentalized elsewhere as the basis for public overrides (e.g., as the basis for a refusal to disclose information in the possession of the government). (7) But apart from these narrow forms of codification, recourse is primarily through judge-made law, including: breach of confidence; breach of fiduciary duties; breach of the duty of confidentiality during and after employment; breach of other implied duties during and after employment (e.g., the duty of loyalty to an employer, the duty to abide by governing professional ethics codes, and the duty to accept proper orders); as well as breaches of contract such as restrictive covenants and business-to-business licenses that set out express obligations.

   Section 391 adds a significant new statute to this body of law, creating a statutory offense for "everyone" (8) who obtains, communicates, or makes available a trade secret by deceit, falsehood, or other fraudulent means (as well as a related third-party offense). The law was enacted as a requirement of the Canada-United States-Mexico Agreement (CUSMA), which required Canada to adopt an approach closer to the one utilized in the United States, despite the historical variance between the two countries in this area of law--and despite never before being a topic of criminal law in Canada. For this reason, the law presents challenges unfamiliar to an American backdrop--namely, concerns about the constitutional dimensions of legislating on trade secrets and confidential information; enforcement issues; and utility considerations and policy implications that arise from operating in a different environment.

   The definition of trade secrets provided in section 391 does not vary from that found in existing Canadian law, and, thus, has a sweeping gamut of potential application. (9) Indeed, the scope of what subject matter is susceptible to trade secret designation has only expanded in the current technological and employment context, where job mobility (and precarity) is heightened, (10) work is increasingly remote and dislocated, (11) employee attitudes towards taking employer information have shifted, (12) and formalistic tools of intellectual property have proven less adaptive than trade secrets in the context of fast-paced innovation. (13) The COVID-19 pandemic has accelerated all of these trends. In short, section 391's indiscriminate language generates potentially far-reaching exposure to liability for individuals and companies (and their employees) who intentionally misappropriate information-based and other non-tangible assets. (14) Moreover, unlike adjunct provisions of the Criminal Code concerning other areas of intellectual property law--such as copyright and trademark, which sanction specific activities related to those areas of law (15)--section 391 seemingly covers the whole field of trade secret law itself. In doing so, it overhauls the landscape of legal protections to trade secrets and confidential information and, simultaneously, carries important consequences for this area of law.

   This article begins by briefly reviewing the broader landscape of Canadian trade secret and confidential information law, situating section 391 in the broader context of existing civil legal protections. It then examines the American law, where trade secret law has assumed importance in terms of national security, before turning to the trade agreement negotiations that catalyzed the passage of the law. Thereafter, the article examines three areas of consequence for the newly-enacted provision. First, it probes the constitutional dimensions of the new law, drawing attention to the continuing uncertainty of the federal government's jurisdiction in this area of law. Second, it examines the issues related to enforcement and queries the actual likelihood of prosecutions under the law. And finally, it examines the utility and policy implications of the law and suggests that the law may not reflect a solidified mindset concerning the theft of intangible assets in Canada.

2. CONTEXT OF CANADIAN LAW

   Often considered an orphan of intellectual property law, trade secret and confidential information law has grown in importance in recent decades. Though empirical research is scant, a survey conducted by the National Science Foundation for the US Chamber of Commerce noted that companies conducting research and development "reported trade secrets to be the most important form of intellectual property protection." (16) Since its inception, the law has transformed from a bastion of provincial master-servant disputes created to provide remedy to employers whose confidence in an employee had been violated into a primary instrument for companies to protect information-based assets. This transformation has intensified the significance of the law's unsettled questions, including: What assets are susceptible to designation as a trade secret or confidential information (and what are not)? When and how are these designations gained and lost? Is the thrust of the offense the nature of the asset or the relationship at hand? Such considerations, and, in particular, the policy tensions between protecting information and fostering mobility of persons and information, are central to this area of law.

   In addition to these questions are the foundational debates at the heart of trade secret and confidential information law, in particular whether and how extending such protections discourages or fosters innovation and economic growth, as well as whether and how extending such protections infringes the freedom of individuals to contract. In Herbert Morris Ltd v Saxelby (1916), Lord Atkinson recognized these tensions as such:

   He is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture, which may be of vast value, and that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also not entitled to have his old customers by solicitation or such other means enticed away from him. But freedom from all competition per se apart from both of these things, however lucrative it might be to him, he is not entitled to be protected against. He must be prepared to encounter that even at the hands of a former employee. (17) These acute tensions between "the right of [a] businessman to be protected against unfair competition stemming from the usurpation of his trade secrets and the right of an individual to the unhampered pursuit of the occupations and livelihoods for which he is best suited" have not gone away, (18) even as the power of courts to invoke equity "as a court of conscience" to correct such wrongs has been maintained...