Protecting Canadian Innovation: Why We Need a Trade Secrets Law

By Laurent Carbonneau
CCI Vice President of Policy and Advocacy

In an era where intangible assets dominate, governments need to tie security, economic and innovation policies closely together. We’ve been working for a long time to advise governments on how they can do precisely that.

Over the summer, in partnership with researchers working with the Department of National Defence’s MINDS Collaborative Network ECONSEC, CCI surveyed our members and a network of startups and scaleups with a defence and security bent across Canada.

We asked about economic security, IP, their experience navigating Canada and other countries’ export control policies, espionage, and more. The goal was to help ECONSEC identify areas to develop targeted, achievable law and policy reform in areas of economic security that matter most to Canadian innovators. 

We now have a fascinating dataset to work with, and there is a lot to write about. Today, we’ll start with one policy that stood out as an easy win for Canadian governments, with clear consensus from the companies we surveyed: Canada needs statutory trade secret laws.

Approximately 30% of the responding companies suspected they had experienced attempts at espionage. Just under 10% of them reported IP theft. These are risks that are only going to become more pronounced in the AI and post-quantum eras - and 85% of companies agreed that trade secret laws could be an important part of shoring up Canada’s vulnerabilities.

What is a trade secret, and why do we need such laws?

A trade secret is an IP right that, unlike patents, copyright, or trademarks, is not made public. Where patents are publicly filed explanations of a new technology along with a time-bounded legal right to a monopoly on making and selling it, a trade secret is information that is not generally known, has real business or economic value by virtue of its secrecy, and whose owners take steps to protect it from disclosure. The formula for Coca-Cola, to give a concrete and well-known example, is a trade secret.

Canada, unlike many peer countries, does not have a statutory trade secret law.  In the 1950s, the federal government enacted a law prohibiting business practices "contrary to honest industrial or commercial usage." This encompassed the misappropriation of trade secrets. However, in 1977, the Supreme Court struck down the law, finding it to be a matter of "property and civil rights" -- an area of provincial jurisdiction. Unfortunately, no provinces have stepped in to fill the void by passing a trade secret law. 

Obviously, much has changed since 1977, including the global nature of threats companies face, the rise of value in intangible assets, and the growth of the digital economy. Today, data and privacy frameworks navigate federal-provincial jurisdiction issues in ways that federal and provincial trade secret laws might be able to imitate. In recent years, some voices have been calling for the passage of a federal trade secret law to fill the void.

The character of the theft of trade secrets has changed significantly. The common law originally evolved to deal with skilled artisans leaving an employer in bad faith for competitors or to set up as competitors in their own right. The architects of the Constitution did not foresee widespread, digitally-enabled, international attempts at stealing trade secrets. As we saw from our survey results, this is a real problem that innovators face.

Right now, there is a lot of legal space around trade secrets that remains unsettled. Parliament created a criminal offence around misappropriation of trade secrets as part of the CUSMA enabling legislation, but to date there have been no prosecutions under that statute (for example, a charge against an individual who worked at Hydro-Québec was dropped). The when, where, and how of enforcement beyond this still-unused criminal provision are still up in the air, even as innovators continue to experience misappropriation. 

Civil and common law provide a few remedies that fill the void, such as the breach of confidence or breach of fiduciary duties, but not uniformly across Canada, and not consistently in cases involving deliberate theft and espionage. Historically, when Canadian companies have been victims of theft of trade secrets, they have filed lawsuits in foreign jurisdictions.

If you’re running a company that relies on trade secrets for protection and you have reason to suspect you’ve had a breach, you have more options than is helpful. You can bring suits for breach of contract or of confidence, or under a few other doctrines. There’s no definition of what constitutes misappropriation of a trade secret, what is and isn’t a trade secret, no baseline for damages. You’re starting essentially from a blank slate every time. Judges in different jurisdictions have slightly different precedents to work from, and of course, Quebec has its own civil code to work from.

As innovative industries become increasingly central to our economy, Parliament or the provinces should make a clear set of predictable rules around trade secrets.

Want to learn more about trade secrets from Canada’s sharpest policy minds and practitioners? The Balsillie School of International Affairs is hosting Canada’s Trade Secrets: The Legal Framework to Defend Canada’s Economic Security and National Prosperity on November 24 in Waterloo, ON.

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Laurent Carbonneau is CCI's Vice President of Policy and Advocacy. He can be reached at lcarbonneau@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here.