BACKGROUND

CMP assisted companies in acquiring and managing photocopiers and multi-functional office automation devices (MFDs). CMP would negotiate with the manufacturers of MFDs on behalf of its clients to obtain the best terms and provide for the smooth delivery, installation and servicing of the devices at the clients' premises. CMP developed a strong relationship with Ricoh, a leading manufacturer of MFDs and, in around 1998, CMP and Ricoh entered into a trading agreement. On 5 February 1999, the parties signed a confidentiality agreement in order to protect confidential information disclosed by CMP to Ricoh.

The 2003 Invitation to Tender

In 2003, one of CMP's major clients, ADtranz (which had since been acquired by the Canadian aerospace group, Bombardier Transportation), issued an invitation to tender (ITT) for the supply of MFDs to Bombardier's sites in the United Kingdom, Sweden and Germany, with the intention of expanding to its other European and global sites. The decision to issue the ITT had come as a result of a joint presentation made to the procurement team by CMP and Ricoh, which had already worked together successfully with the UK Bombardier team. The ITT was sent to CMP and Ricoh. CMP expected to make a joint tender, whereas Ricoh decided to go it alone.

CMP entered subsequently into a negotiation with another manufacturer and submitted a joint tender. This was successful, but implementation of the equipment failed as a result of incompatibility issues with Bombardier's existing IT systems. In the end, Bombardier did not order any devices and terminated the relationship.

The 2007 Invitation to Tender

In July 2007, Bombardier issued a further invitation to tender for the supply of MFDs (the 2007 ITT). CMP was not involved in this process, but in June 2008, it learned that Ricoh had been selected to be Bombardier's global supplier of MFDs.

THE ACTION

CMP went into voluntary liquidation in 2009. A claim was brought by Mr Jones, the founder of CMP Group Ltd and assignee of the causes of action previously vested in CMP, for 

  • Breach of clause 7 of the confidentiality agreement.

That no approach or contact direct or indirect in connection with or during our discussions or whilst any confidential information remains in the possession or under the control of any relevant person shall be initiated, accepted or made by or on behalf of any relevant person to or with any employee, client or supplier of yours or any government body or regulatory or other authority or to or with any other person who to our knowledge has any actual prospective connection with you without your prior written consent. 

  • Breach of clauses 2 and 3 of the confidentiality agreement in making the tenders for both the 2003 and 2007 ITT.

(2). That [Ricoh] will use and procure that the confidential information is used only for the purpose of evaluating the purchasing terms available to [CMP] and with a view to entering into an agency agreement with you.

(3). That [Ricoh] will not (except as expressly stated in paragraph 2 above) use the confidential information for our own benefit and will procure that it is not used for the benefit of any other person (including without limitation any Relevant Person);

Ricoh applied for summary judgment in that 

  • Clause 7 was contrary to Article 101 and/or in unreasonable restraint of trade and therefore unenforceable. 
  • As regards the 2003 ITT, any damages claimed are irrecoverable 
  • As regards the 2007 ITT, any alleged breach is fanciful

DECISION

Clause 7

Mr Justice Roth looked first at the scope of the restriction imposed by clause 7 and found that the definitions of both "confidential information" and of "relevant person" were very wide. Although the object of the agreement might, at first sight, appear to have been to protect CMP's confidential information, it was clear that the restrictions in clause 7, on any objective interpretation, went, as Roth J said, "very far beyond any possible view of what could be needed for that purpose. Therefore, although confidentiality agreements are not usually regarded as giving rise to an anti-competitive agreement by object, Roth J decided that, in this case, the agreement exceptionally came within that category.

The Judge went on to say that if he were wrong on that analysis, the agreement was, alternatively, clearly an agreement that was anti-competitive in effect. As Roth J said, "if clause 7 were enforceable, an international group like Bombardier … would be precluded from receiving a competitive bid from one of the world's leading suppliers of MFDs whereas other major suppliers such as Canon could take part". Therefore, he found that the provision had the potential effect of restricting competition appreciably. Moreover, Roth J found that this conclusion was so clear that there was no basis on which further evidence at trial could lead to a different conclusion.

Mr Jones argued that the agreement was exempt as it fell within the Vertical Restraints Block Exemption (Commission Regulation 2790/1999/EC). Roth J disagreed, finding that the purchases of the MFDs were actually made from Ricoh by CMP's clients. Accordingly, CMP and Ricoh were not operating at a different level of the distribution chain: CMP was not acting as Ricoh's distributor, or as a re-seller.

It followed therefore that clause 7 was void and unenforceable.

Clauses 2 and 3

It was alleged by Mr Jones that Ricoh had breached both Clauses 2 and 3 of the confidentiality agreement by responding to both the 2003 and 2007 ITTs. Mr Jones alleged that Ricoh would have had a substantial amount of what would have been confidential information that would have assisted in the preparation of the tenders. With regard to the 2003 ITT, Ricoh did not deny (for the purpose of the summary judgment application) that the breach of clauses 2 and 3 could not be rejected, but claimed that in any event the loss claimed was irrecoverable. The Judge reviewed a substantial amount of law on the point advanced by Ricoh and concluded eventually that the damages sought would have been for the loss caused allegedly by the decision to use confidential information in the tender and so could be recoverable. As for the 2007 ITT, the Judge found that this was not a case where an account of profits would be appropriate, but did find that Mr Jones may be able to recover on a “Wrotham Park” basis.

COMMENT

Ricoh's application for summary judgment therefore succeeded on one ground, clause 7, but it was dismissed in respect of two further alleged breaches of the agreement on the grounds that there was sufficient evidence before the court to suggest that the Claimant had a realistic prospect of success at trial. The judgment in regard to these two latter breaches provides a good review of the law of recoverable damages.

The case is a good reminder that a confidentiality clause that is drafted too broadly and restricts a company's activities dramatically may have the effect of being in breach of competition law, not only in the sense that it might be seen as having an appreciable effect on trade between Member States, but, depending on the scope of the drafting, it may even be seen as having an anti-competitive object.