Section 20(1)(a) - Trade Secrets of a Third Party

The Provisions

  • 20(1)     Subject to this section, the head of a government institution shall refuse to disclose any record requested under this Act that contains
    • (a)   Trade secrets of a third party

Preliminary Matters

The Access to Information Act, R.S.C. 1985, c. A-1, (the Act) gives any Canadian Citizen or permanent resident within the meaning of the Immigration Act and any individual or any corporation present in Canada a right (of access) to most records under the control of the Federal Government. More specifically, the Act provides for access to all information in records controlled by government institutions listed in Schedule I of the Act unless there is a specific provision in the Act that permits or requires the head of the government institution to refuse to disclose the information, or unless the records (or part thereof) are excluded under section 68 or 69.

Paragraph 20(1)(a) is a mandatory class exemption. The consequence is that once the head determines that a record or part thereof contains certain information which falls within the class enunciated in the exemption, he/she must then refuse to grant access to the requested information unless either of the exceptions in 20(2) or (5) applies. The exemption process under 20(1)(a) is not completed until this determination is made.

Note: Subsection 20(6) (disclosure in the public interest) does not apply to information which constitutes a 'trade secret'.

The Test

1) Preamble:

The test is very simple to state (i.e. does the information contain or constitute a trade secret of a third party) but is often difficult to apply.

'Trade secrets' consists of commercial, scientific and/or technical information, which is treated consistently in a confidential manner by a third party. Thus it is safe to assume that all information which falls within the scope of 20(1)(a) will also fall within the scope of 20(1)(b). Accordingly, where a claim is made for the exemption of the same information under both 20(1)(a) and (b), investigators should first determine whether 20(1)(b) apply before considering the trade secret exemption. If you are satisfied that 20(1)(b) applies and that none of 20(2), (5) or (6) apply, there is no need to consider the trade secret exemption and arrive at a preliminary decision whether the information constitutes a trade secret. It is only when the trade secret exemption is claimed alone, or there is a concern that the public interest override exemption applies that the trade secret exemption should be considered. Each case will be determined on a case-by-case basis. The following pages will help you to determine what type of information you must obtain during the course of your investigation to determine whether you are dealing with a trade secret.

2) Criteria for application:

In the case of paragraph 20(1)(a) only one test must be met in order for the information to qualify for exemption - i.e. the information must contain a 'trade secret'. But what is a 'trade secret'?

'Trade secret' is not a term of art in Canadian law nor is it defined in the Access to Information Act.1 As noted above, anything that would fall within the ambit of 20(1)(a) would also be covered by 20(1)(b). However the opposite isn't necessarily true. Some confidential, commercial, scientific or technical information could meet the requirements of 20(1)(b) but not constitute a trade secret.

What attributes distinguish trade secrets from other confidential commercial, scientific or technical information?

The claim for exemption under 20(1)(a) has been made on three occasions and it has been rejected in a fairly summary manner. In Intercontinental Packers Limited v. Minister of Agriculture (1987), 14 F.T.R. 142 the Federal Court briefly rejected the claim for exemption by stating that a general allegation that such secrets existed were not enough to establish the exemption. Similarly, the decision in Merck Frosst Canada Inc v. Minister of Health & Welfare, (1988), 22 C.P.R. (3d) 177; 20 F.T.R. 73; 20 C.I.P.R. 302 (T.D.), provides the guidance that when the alleged trade secret has already been disclosed, the exemption is not applicable.

More recently, Mr. Justice Strayer in Société Gamma Inc. v. Department of the Secretary of State, (April 27, 1994), T-1587-93 & T-1588-93 (F.C.T.D.) attempted to illustrate the difficulty as follows:

"One can, I think, conclude that in the context of subsection 20(1) trade secrets must have a reasonably narrow interpretation since one would assume that they do not overlap the other categories: in particular, they can be contrasted to 'commercial...confidential information supplied to a government institution...treated consistently in a confidential manner...' which is protected under paragraph (b). In respect of neither (a) nor (b) is there a need for any harm to be demonstrated from disclosure for it to be protected. There must be some difference between a trade secret and something which is merely 'confidential' and supplied to a government institution. I am of the view that a trade secret must be something, probably of a technical nature, which is guarded very closely and is of such peculiar value to the owner of the trade secret that harm to him would be presumed by its mere disclosure."

i) The Treasury Board Guidelines2 defines the term 'trade secret' as follows:

"For a record to qualify under this paragraph as a trade secret, it must satisfy all of the criteria contained in the following list:

  • it must consist of information;
  • the information must be secret in an absolute or a relative sense (i.e. known only by one or a relatively small number of persons);
  • the possessor of the information must demonstrate that he has acted with the intention of treating the information as secret;
  • the information must be capable of industrial or commercial application; and
  • the possessor must have an interest (e.g. an economic interest) worthy of legal protection."

The Treasury Board's interpretation is consistent with the one formulated in 1986 by the Alberta Institute of Law Research Reform. (see definition below)3 However, the one formulated by Mr. Justice Strayer is much closer, if not indistinguishable4. At that time, the Institute of Law Research Reform made public a new proposal for the protection of trade secrets. It recommended a new legislation be enacted to give better defined legal protection to trade secrets. The Institute's proposed definition for trade secrets is often described as a comprehensive summary of the elements necessary for a finding of a trade secret in Canada.

"Trade secret means information including but not limited to a formula, pattern, compilation, programme, method, technique or process, or information contained or embodied in a product, device or mechanism which:

ii) The Institute defined the term 'trade secret' as follows:

  • (i)   is or may be used in trade or business;
  • (ii)  is not generally known in that trade or business;
  • (iii) has economic value from not being generally known; and
  • (iv) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

According to the Institute, there are four elements of trade secret protection:

  • Specificity: The information must be specific and ascertainable. For instance, general information on an area of technology does not constitute a trade secret.
  • Secrecy: To protect secrecy any disclosure made of the trade secret must be restricted and contained. The owner must treat the information as confidential and it must always be clear that the owner regards the information as a secret. If the owner discloses the information under contract, it must be on appropriate terms and conditions as to secrecy protection and confidentiality. Consequently, the ease with which discovery is possible by those not in a contractual, confidential or fiduciary relation with the owner bears on the question of secrecy.

The extent of employee knowledge also bears heavily on this question of secrecy. If there is unrestricted access to secret information by employees, the owner has probably failed to maintain the necessary element of control. If the access to the information is restricted to designated employees and there are appropriate safeguards in place, there is a greater chance of achieving trade secret status.

  • Commercial value: The trade secret must have a certain value which, in the hands of a competitor, would remove a competitive advantage enjoyed by the owner.
  • Not generally known to the public: This does not mean that the information be novel or that it be suitable subject matter for patent or copyright protection. It can be information that could be acquired from materials available to the public with the expenditure of time and effort.

The institute also described four categories of trade secrets:

  • Secret formulae and processes: For example, the recipe formulae for Coke or Pepsi. In such cases the formula/recipe is secret. Only a small number amount of persons know the formula.
  • Technological secrets: Every business uses a combination of labour, energy and raw materials to produce some product or service. Faced with soaring costs for all three items, contemporary businesses rely on technology to reduce costs and increase productivity. The ability of an enterprise to do well or even survive in today's highly competitive climate is directly related to its success in acquiring, protecting and using modern technology. Knowledge of these processes is usually referred to as technological 'know-how'. If this know-how becomes available to other industry members, the enterprise is not necessarily lost, but its market competitiveness will be reduced. For example, some factories do not permit visitors to view assembly lines for fear of technological espionage.
  • Strategic business information: Business spends a good deal of time and money preparing internal marketing studies, industry forecasts, etc. This inside information forms the raw data on which other decisions, such as financing or marketing may be based. Disclosure of such information might alert competitors to a particular business strategy, or save them valuable start-up time or costs in assembling the information.
  • Compilations and collations: This category relates to information as a product in and of itself. The value of the information lies in the collation, not the individual items, which can be publicly available. Secrecy in such cases is something of a misnomer. It applies because no one else has the equipment or know-how to collate the relevant information or has invested the time and resources required to do so.

The following constitutes an illustration of how trade secrets are interpreted in other jurisdictions:

a) Ontario:

(Orders #M-29, M-37, M-65, P-418, P-420, M-94, P-500, P-561).

  • Subsection 17(1) of the Ontario Freedom of Information Act, R.S.O. 1990, ch. F.31 is the equivalent to our paragraph 20(1)(a). In interpreting this provision, the Ontario Commissioner adopted the definition of 'trade secret' from the Institute of Law Research and reform.

The following constitutes some illustrations in application of this definition:

(Order 222)

  • The request involved information on bids of all contracts awarded by the Ministry. The Ministry of Culture and Communications exempted work plans, costing and overall proposal structures on the grounds that they constituted trade secrets. In his decision, Assistant Commissioner Tom Wright stated that while he agreed that the requested information constituted technical and commercial information, he could not agree that the information could constitute 'trade secrets'.


(Order M-29)

  • The requestor requested from the Etobicoke Board of Education any "information purchased by the institution from a research company". In his decision, Commissioner Wright stated that the research company did not provide sufficient information to support the position that the information was the subject of efforts which were reasonable to maintain its secrecy - which is a necessary element of the definition of 'trade secret'.

 

(Order M-65)

  • The Hamilton Board of Education received an access request to a proposal that was developed in conjunction with Apple Canada for an advanced technology secondary school. The records identified were a four-page document which outlined the conceptual framework for the development of a possible project and a one page 'Letter of Intent'. The inquiry officer refused to qualify the information as a trade secret since the connection between the information contained in the records and the commercial activities of Apple Canada was too remote.

 

(Order P-561)

  • The Commission found that information concerning the construction of the retractable roof of the SkyDome was 'trade secret' information. The records showed unique construction processes and techniques together with testing procedures for the roof seals. The information represented an acquired body of knowledge, experience and skill relating to the development of certain techniques, methods and processes unique to the construction of the SkyDome structure. The Commission found that the knowledge base or learning curve, conferred proprietary rights on its owners. The information had economic value and was subject to efforts to keep it confidential. While the information was circulated to a construction management group, it was done so on express terms that it be kept confidential.

b) Quebec:

"23. No public body may release industrial secrets of a third person or confidential industrial, financial, commercial, scientific, technical or union information supplied by a third person and ordinarily treated by a third person as confidential, without his consent."Section 23 of An Act Respecting Access to Documents held by Public Bodies and the Protection of Personal Information also refers to the notion of industrial secrets. That section reads as follows:

At the present time, only one decision is worth discussing for the purpose of this grid. In Récupération Portneuf Inc. c. Ministère de l'Environnement, [1991] C.A.I. 269 (C.Q.), the Commission stated that the fact that a document had inadvertently been misplaced in a public registry does not restrain the application of section 23 - i.e. the mistake does not affect the qualitative nature of the document.

While the decision demonstrated that the qualitative nature of a trade secret may not be inadvertently lost, we feel that in such circumstances it would be more difficult to substantiate that it was still a trade secret.

c)  United States

In Public Citizen Health Research Group v. FDA, 704 F. 2d 1280, 1288 (D.C. Cir. 1983), the Court of Appeal for the District of Columbia Circuit has adopted a narrow 'Common Law' definition of the term 'trade secret' that differs from the broad definition used in the restatement of Torts (i.e. that trade secret is a broad term extending to virtually any information that provides a competitive advantage). The D.C. Circuit's decision in that case represented a distinct departure from what until then had been almost universally accepted by the courts. The narrow definition provided described 'trade secrets' as "a secret, commercially valuable plan formula, process, or device that is used for the making, preparing, compounding or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort". This definition requires that there be a 'direct relationship' between the trade secret and the productive process.In the United States, exemption 4, 5 U.S.C. @ 552(b)(4), justifies withholding of trade secrets. 4. This exemption applies to "trade secrets and commercial or financial information obtained from a person and privileged or confidential".5 Here again, there is not very much guidance as to the meaning of the term 'trade secret'.

The Court of Appeal for the tenth Circuit has expressly adopted the D.C. Circuit's narrow definition, finding it "more consistent with the policies behind the FOI than the broad Restatement definition.6 In so doing, the Court of Appeal noted that the adoption of the broader Restatement definition "would render superfluous" the remaining category of exemption 4 information because there would be no information falling within the latter category that would be outside the reach of the trade secret category.

 

 

Table of Authorities

Trade Secrets

Canada

Intercontinental Packers Limited v. Minister of Agriculture (1987), 14 F.T.R. 142.

Merck Frosst Canada Inc v. Minister of Health & Welfare, (1988), 22 C.P.R. (3d) 177; 20 F.T.R. 73; 20 C.I.P.R. 302 (T.D.).

Société Gamma Inc. v. Department of the Secretary of State, (April 27, 1994), T-1587-93 & T-1588-93 (F.C.T.D.).

Ontario

Orders # M-29, M-37, M-65, M-94, P-22, P-418, P-420, P-500, P-561.

Quebec

Récupération Portneuf Inc. c. Ministère de l'Environnement, [1991] C.A.I. 269 (C.Q.).

United States

Anderson v. HHS, 907 F. 2d 936, 944 (10th Cir. 1990).

Public Citizen Health Research Group v. FDA, 704 F. 2d 1280, 1288 (D.C. Cir. 1983

Endnotes

1. C. H. McNairn & C.D. Woodbury, Government Information: Access and Privacy, Carswell, 1991.

2. Treasury Board Manual: Access to Information Volume, Treasury Board of Canada, December 1, 1993, Chap 2-8 at 26.

3. The Institute of Law Research and Reform, Alberta and a Federal-Provincial Working party, Trade Secrets, (Report No. 46, July 1986).

4. The interpretations of the Institute (and of Mr. Justice Strayer) is much narrower than the Treasury Board's interpretation and is preferred by this office. For example, the T.B. interpretation does not require the trade secret to have obtained its economic value from not being generally known, nor does it require that the efforts taken to protect the information be reasonable under the circumstances.

5. 5 U.S.C. § 552.

6. Anderson v. HHS, 907 F. 2d 936, 944 (10th Cir. 1990).

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