Trade secrets: the price paid for a mid-season trade period

Co-author: Ross Watkins

As the 2019 Australian Football League (AFL) season draws to a close, the post-Grand Final debate looks set to be dominated by the issue of whether a mid-season trade period should be introduced. The idea has been canvassed for years, and the AFL finally looks set to allow players to switch clubs mid-season.

While the exact details of the trade period are yet to be determined, including whether a special bye week will be introduced to allow players to move clubs, the proposal raises significant issues of how employers, in this case clubs, can protect their confidential information, including tactics, from being misused by players who move to a rival club mid-season. This is especially critical if clubs are required to send players to other clubs, instead of just draft picks, in order to obtain a new player. Generally, the law provides a range of mechanisms which can be drafted into employment contracts to help employers protect their confidential information. We discuss three of these mechanisms below.

1. Duty of confidentiality

The first mechanism is the contractual duty of confidentiality. This is a standard duty in employment contracts and generally requires an employee not to misuse or disclose any confidential information obtained during their employment. Importantly, it survives the termination of the contract, meaning even former employees owe these duties. 

This was seen in a case from 1997 involving the AFL, the Essendon and Melbourne Football Clubs, and then Essendon Football Manager Danny Corcoran. Corcoran had accepted the Football Manager position at Melbourne, and Essendon argued Corcoran had breached his employment contract and his duty of confidentiality through certain conduct. The matter was settled outside court, but provides an insight into how the contractual duty of confidentiality may become a live issue in the AFL.

2. Equitable duty of confidence

The second mechanism is the equitable duty of confidence. Clubs may consider that their tactics and training regimes constitute confidential information in the form of trade secrets, which warrant the court of equity’s protection. The most common remedy for this cause of action is an injunction,¹ in order to prevent the player from joining another club, although damages are also available.

A club would face two difficulties in making out the equitable duty of confidence. Firstly, the club needs to show that the information that the player must keep confidential is a secret.² There is a strong argument that given the product of the tactics are viewed by hundreds of thousands of viewers every weekend, the tactics of clubs are not confidential. This argument was raised by John Cahill, a former South Australian National Football League coach who was taken to court by the Port Adelaide Football Club for breaching his duty of confidentiality after he attempted to sign with another club at the conclusion of the 1998 season.

Commentators have suggested that seeing the matches, which are the end product of all the game plans and training a team goes through, does not mean the underlying plans are no longer secret. These commentators cite, as an example, that the existence of certain brands of cars on the road does not mean their blueprints are not still a secret from their competitors and the public at large.

Secondly, the club needs to show that the player actually breached or threatened to breach their duty by divulging the information.³ This is especially difficult when it comes to on-field tactics. If the new club defeats the previous club when they play each other, the new club will likely refute any claim of breach of confidence by stating their success was due to the high volume of research they do on each opponent (for example, through watching footage of past games), making it hard to prove that the player has breached any confidentiality duty. 

3. Restraint of Trade

The third mechanism is post-employment restraints imposed on workers. Such restraints prevent employees from working in competition to their former employer once the employment relationship ceases, and are usually confined to certain geographical locations or time periods. Restraints of trade have historically been found to be invalid, especially where their purpose is to shield an employer from competition,⁴ and are prima facie unenforceable. In assessing the validity of a restraint of trade, courts consider how reasonable the restraint of trade is. In sport, this includes public policy considerations such as whether the restraint would deprive an athlete from earning a living and whether it would deprive the public of the opportunity to watch the athlete perform.⁵ Nevertheless, where the restraint is necessary to protect trade secrets, courts are more likely to find them to be valid.⁶

Therefore, if a club, as an employer, wished not to participate in the mid-season trade period, it is likely they could lawfully do so, as restraining players from moving to another club in order to prevent their club secrets from being divulged would be a legitimate restraint of trade. However, a restraint of trade would not entitle a club to prevent the player from leaving – it would only allow them to prevent the player joining another team. In opting to trade a player, each club would need to make their own assessment of the trade-off between acquiring new players and the risk that an offloaded player may disclose their confidential information to a new team.

Conclusion

The introduction of an AFL mid-season trade period appears imminent and provides a timely reminder to employers of the various ways that you can protect your confidential information. For clubs in this instance, while contractual and equitable duties of confidence may provide an avenue for protection, proving a breach appears difficult.

Further, while clubs could protect their secrets through a restraint of trade by refusing to allow their players to play at other clubs, this would frustrate the purpose of the trade period and likely be unpopular amongst fans and the AFL. Further, it could breach public policy ideals through preventing the public from witnessing the player’s performance, which could render the restraint of trade invalid. Such strategies for protecting confidential information are regularly effective outside the world of sport, but for clubs in this case, they may instead have to consider the risk of trade secrets getting leaked as just another cost incurred to bolster talent in their team mid-season.

[1] Printers & Finishers v Holloway [1965] RPC 239, 253

[2] See generally Coco v AN Clark (Engineers) Ltd [1968] FSR 415

[3] See Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 at [30]

[4] See, e.g. Adamson v New South Wales Rugby League Ltd (1991) 103 ALR 319

[5] Buckley v Tutty [1971] 125 CLR 353

[6] See Lindner v Murdock’s Garage (1950) 83 CLR 628