|July 19, 2013|
Previously published on July 8, 2013
The UK Supreme Court (the Court) has upheld the Court of Appeal's earlier decision that an employee of one of the defendants was not liable for misuse of the claimant's confidential information.
This case will be of particular interest to businesses with R&D operations in the UK, as it highlights the limitations of employee contracts on protecting trade secrets once an employee has left the business. It also explores how far a claimant can allege that a defendant has been complicit in a "common design" to misuse trade secrets, when the defendant had no knowledge of the trade secrets or their misuse.
Vestergaard's business was the development, manufacture and marketing of insecticidal bednets, which were designed to prevent the sleeper from being bitten by mosquitos, and also to reduce the mosquito population. Vestergaard had developed certain techniques to manufacture and sell long-lasting insecticidal nets, known as "LLINs".
The case centres on the purported liability of a Mrs. Sig, who had joined Vestergaard as an employee in 2000. Her employment contract included a clause which required her to "keep absolutely confidential" all information relating to the employment and any knowledge gained in the course of her employment which inherently should not be disclosed to any third party. This duty of confidentiality was also expressed to apply after Mrs. Sig's employment had terminated.
Vestergaard had also employed a Dr. Skovmand, who had played a key part in developing the techniques. The information concerning the techniques was contained in a database maintained by Vestergaard.
Upon her departure from Vestergaard, Mrs. Sig started a new business manufacturing and selling LLINs in competition with her former employers. Dr. Skovmand agreed to work with her on this venture. He successfully tested a product, using confidential information he took from Vestergaard's database. Vestergaard discovered this, and tried to stop the testing and marketing of the product. At this stage, Mrs. Sig did not know about the confidential information, or the fact that Dr. Skovmand had used it in developing the product for her.
The litigation came before the English courts, and it fell to the UK Supreme Court to determine the question of Mrs. Sig's liability for misuse of confidential information regarding the techniques stored on the Vestergaard database. Vestergaard contended that Mrs. Sig was liable for breach of confidence on two main grounds, namely: (i) under the terms of her employment contract, or under an implied term in the same; and (ii) on the basis she was party to a "common design" to design, manufacture and market the LLIN, which involved using Vestergaard's trade secrets.
The Court held that these arguments failed. This was firstly because Mrs. Sig never acquired the confidential information in question, either during her employment with Vestergaard or afterwards. Secondly, she did not become aware that the LLIN had been developed using Vestergaard's trade secrets until after commencement of proceedings. It would have been surprising, therefore, if Mrs. Sig could have been found liable for breaching Vestergaard's rights of confidence, given that she did not know: (i) the identity of those secrets; or (ii) that they were being/had been used (let alone misused).
The confidentiality provisions of Mrs. Sig's employment contract did not help Vestergaard. The information that Dr. Skovmand used did not fall within the scope of those terms, because it was not information relating to her employment, nor was it knowledge gained in the course of her employment. Instead, it was knowledge gained by Dr. Skovmand in the course of his consultancy work for Vestergaard.
The Court declined to imply a term into Mrs. Sig's contract to the effect that she would not assist another person to abuse Vestergaard's trade secrets. Mrs. Sig was unaware of the trade secrets, and of their misuse. The court said the proposed implied term would be penal in nature, that it was not necessary for the business efficacy of the agreement, and that it would run counter to the express terms of the contract anyway.
The Court also disagreed that there had been a "common design" between Mrs. Sig and Dr. Skovmand to misuse the trade secrets. Mrs. Sig had been involved in activities that may have rendered other parties liable for misuse of confidential information, but she lacked the requisite knowledge of the trade secrets and their misuse herself.
The Court took care to acknowledge the importance of protecting intellectual property and the economic benefits that research and development brings. However, its decision also shows that the UK courts will not discourage former employees from benefitting society and advancing themselves by imposing unfair impediments on their honest attempts to compete with former employers.
In other words, faced with similar facts, the court sought to maintain a realistic and fair balance between: (i) effectively protecting trade secrets (and other intellectual property rights); and (ii) not unreasonably inhibiting competition in the marketplace.