In Vestergaard Frandsen A/S (now called MVF 3 ApS) v Bestnet Europe Limited the Supreme Court ruled, in the final stage of the case, that an ex-employee could not have misused confidential information if she had not known about the confidential information or the fact of its misuse. Crucially, the court held that her "conscience" needed to be affected for a breach of confidence to have been committed.
The main takeaway point of the judgment is that if businesses think that their confidential information has been misused, they should think carefully about whom to pursue for this misuse. Ex-employees who did not know that the information was confidential or who did not themselves use the confidential information will not be found liable for breach of confidence, even if they were somehow involved in activities related to the misuse of the confidential information.
The claimant, Vestergaard, had a business that involved the development, manufacture and marketing of mosquito nets. Vestergaard had developed special techniques which ensured that their nets retained their insecticidal properties after washing. These special techniques were recorded in the so-called 'fence database', which was maintained by Vestergaard and amounted to a trade secret.
The case revolved around two ex-employees (Mr Larsen and Ms Sig) and an ex-consultant of Vestergaard (Dr Skovmand). Both Larsen and Skovmand were involved in developing the confidential techniques while working at Vestergaard. Sig was involved in sales and marketing, and did not have access to the fence database while working at Vestergaard.
In 2004 Larsen and Sig decided to set up a business in competition with Vestergaard. Skovmand agreed to work with them and began developing a product, which was in due course manufactured and put on the market under the name 'Netprotect'.
The Netprotect product was produced and marketed through an English company, Bestnet, of which Sig was sole director.
In early 2007 Vestergaard launched UK proceedings for misuse of its confidential information against parties including Bestnet, Larsen and Sig.
The requirements for a breach of confidence have long been established (Coco v A N Clark) and are as follows:
- The information is confidential in nature (ie, it is not publicly available).
- The information is disclosed to the recipient in circumstances of confidentiality.
- The information is used by the recipient to the detriment of the discloser.
The judge at first instance established that Skovmand had used Vestergaard trade secrets to develop the Netprotect product. He referred to Faccenda Chicken Ltd v Fowler ( Ch 177), the key confidential information case concerning employees, and concluded that a duty of confidentiality applied to Skovmand, even after he had stopped working with Vestergaard. It followed that using the fence database to develop the Netprotect product was a breach of that confidentiality. The judge further held that Sig could also be held liable for breach of confidence because of her involvement in selling the Netprotect products. The Court of Appeal reversed that finding and confirmed that Sig was not liable.
The Supreme Court agreed with the Court of Appeal, confirming that Sig could not be held liable for breach of confidence because:
- Sig never acquired the confidential information herself, either while she was working at Vestergaard or afterwards; and
- at all relevant times, Sig was unaware that Vestergaard's trade secrets had been used in the development of the Netprotect product.
The Supreme Court commented that a breach of confidence is ultimately based on conscience. Sig would need to have known that the information was confidential in order for her conscience to be affected. This was not the case. Crucially, by comparison, in Seager v Copidex the defendants had been made aware that the relevant information was confidential when they acquired it, and so were under an obligation to protect that information. The fact that they used it unconsciously became irrelevant in light of this.
The Supreme Court added that the express terms of Sig's employment contract would not render her liable; nor was it fair to imply a punitive term imposing strict liability into her contract.
Finally, in order to have a common design with Larsen and Skovmand to misuse the confidential information, Sig would have needed to know that Vestergaard's trade secrets were being used (which she did not). Again, this meant that her own conscience remained unaffected and she therefore could not be held liable for breach of confidence, either directly or by way of joint tortfeasorship or common design.
This decision confirms that breach of confidence is not a strict liability offence. While not a surprising conclusion, the decision reminds us that a classic case of breach of confidence involves confidential information being misused in some way, by a recipient of that information who knows, or should have appreciated, that the information was confidential.
Crucially, the conscience of the person who misuses the information must be affected and for this to happen, knowledge (whether actual knowledge, or that implied by 'turning a blind eye') is necessary.
The Supreme Court commented that a balance must be struck between the competing interests of protection of IP rights and the ability of individuals to compete with their ex-employers. Imposing a strict liability burden on the use of information (whether by contract or otherwise) would arguably have the effect of unduly stifling competition in the marketplace.
For further information on this topic please contact Louise Morgan or David Cran at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (email@example.com or firstname.lastname@example.org).
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