White SW Computer Law
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At some stage in our lives everybody has signed a confidentiality agreement. What do they mean? Are they enforceable? Should I sign it?
The High Court has recently reviewed the enforceability of confidentiality agreements in the case of Maggbury Pty Ltd v Hafele Australia Pty Ltd  HCA 70 (13 December 2001). In that case Mr Allen, was a director of Maggbury Pty Ltd and he wished to obtain a commercial partner to produce and market worldwide an ironing board in its variations represented by the three prototypes which had been built. Prior to disclosing some information to a potential partner, Haefle Australia in 1995, Mr Allen insisted on the execution of a “confidentiality agreement”.
There were terms of the Agreement that:
2.1 The Inventor ( “Maggbury” ) wishes to commercially exploit the Product.
2.2 The Inventor and Hafele [Australia] wish to hold discussions to consider mutually advantageous ways of commercially exploiting the Product (the 'Purpose').
2.3 In the course of these discussions the Inventor or his representatives may disclose information about the Product to Hafele [Australia].
2.4 The Inventor and Hafele [Australia] have entered into this Deed so as to set out the terms and conditions governing any disclosure by the Inventor about the Product.
2.5 Hafele [Australia] has agreed to enter into this Deed to acknowledge the right title and interest of the Inventor in the Product and to scrupulously observe a strict code of confidentiality in relation to the Product.“
The definition of the expression “Product” used in the agreement included “the product identified by patent application no [PN4147]”; “all future patent applications”; “secrets and know how”; and the invention created by the Inventor being a foldaway ironing board assembly and in particular a folding ironing board mounted to a support structure such as a wall, kitchen unit, cupboard bench support, mobile cabinet or drawer.
5.1 Hafele [Australia] shall treat the Information as private and confidential.
5.2 Hafele [Australia] shall not use the information, or any part thereof, for any purpose other than to fairly and properly assess proposals canvassed with the Inventor in relation to the Purpose.
5.3 Hafele [Australia] shall take all reasonable steps to ensure that the Information is made known only to [particular officers or employees of Hafele Australia identified as the 'Permitted Persons'].
5.6 Hafele [Australia] shall not at any time hereafter use the Information for any purpose whatsoever except with the Inventor's informed prior written consent.”
12. It is a condition of this agreement that Hafele [Australia] will forever observe the obligations of confidence set out in this Agreement, unless released from such obligations in writing by the Inventor. Without limiting the generality of this condition, Hafele [Australia] agrees to continue to observe its obligations as to confidentiality:
16. If any provision of this Agreement cannot be given effect or full force and effect by reason of statutory invalidity or other invalidity that provision shall be severed or read down but so as to maintain and uphold so far as possible the remaining provisions of this Agreement.”
In October 1997, Hafele Australia began distributing a wall-mounted foldaway ironing board. Mr Allen first became aware of this on 31 July 1998 and thereafter became aware that Hafele was manufacturing a wall-mounted ironing board in Germany along with a new drawer-mounted version. By a writ filed 21 September 1998, Maggbury instituted litigation in relation to the alleged (mis)use of the information.
The Court found that the confidential information described in the agreement was not confidential and therefore the agreement was unenforceable as a restraint of trade. The information was not confidential because it had been published. In this case, the information had been published in the process of applying for a patent but the particular method of publication was not considered relevant.
The Court was not prepared to read down the agreement in accordance with the severance clause as, what was being sought by Maggbury was an injunction to prevent Hafele Australia using information, which had been published.
The lessons to be learnt from this case are:
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MAY 2002 www.computerlaw.com.au © White SW Computer Law 2002
This paper is a guide only and should not be used as a substitute for legal advice, readers should make their own enquiries and seek appropriate legal advice.