Vestergaard Frandsen A/S and others v. Bestnet Europe Limited and others

[2009] EWHC 657 (Ch)

[2009] EWHC 1456 (Ch)

High Court, Chancery Division (Arnold J.)

Judgment dates 3 April 2009 and 26 June 2009

Vestergaard Frandsen A/S and the other claimants (VF) are in the business of the manufacture and sale of mosquito nets under the name PermaNet. They had developed a database relating to the manufacture of these nets referred to as the "Fence" database. The defendants developed and marketed a polythene mosquito net which they sold under the name Netprotect. VF claimed that the Fence database contained their confidential information and that the defendants had used it in developing their Netprotect nets.

Background

VF had developed the Fence database over a number of years. It contained information about the recipes used for making the mosquito nets including the polymers and insecticides used. An important feature of the nets is that the insecticide regenerates after the net is washed by migration of insecticide to the surface. The Fence database also includes details of tests performed on nets made from various recipes.

Much of the main judgment revolves around the activities of a Dr Skovmand, who was not a defendant but who had acted as a consultant for VF and had developed much of the Fence database. He ceased to act for VF and was largely instrumental in developing the Netprotect product for the defendants. A Mr Larsen, formerly a senior employee of VF and who was a defendant, was also instrumental in the development. It was common ground that although the proper law governing the relationship of Dr Skovmand to VF might not be English law, it would be assumed to be the same as English law.

In the main judgment, Arnold J. concluded that the information in the Fence database was not just the ordinary stock of knowledge that an employee, or in his case a consultant, would acquire in the course of his duties. On the contrary it constituted VF's trade secrets. The test was an objective one based on the nature of the information, the attitude of VF to the information among other factors. Dr Skovmand's subjective view was irrelevant.

Arnold J. also concluded that Dr Skovmand misused the information in the Fence database by using it to devise the initial Netprotect recipes which were tested in October 2004. However, although Dr Skovmand misused VF's trade secrets, he did not simply copy any particular recipes and the misuse of VF's trade secrets was merely the starting point for a substantial program of further development which resulted in a formulation which is different from any of VF's recipes in a number of respects.

Against this background, Arnold J. decided that the remedies granted to VF should be the subject of a further hearing. His second judgment followed the hearing and dealt comprehensively with the issues of what injunctions or other remedies should follow a finding that the defendant has misused the claimant's confidential information.

Outcome

Arnold J. identified five main topics which he needed to "disentangle":

  1. The general principles applicable to the grant of injunctions and in what circumstances will damages be an adequate remedy.
  2. The so-called "springboard doctrine".
  3. The position where the information could be derived by third parties, but has a limited degree of confidentiality as a result of relative inaccessibility.
  4. Whether a defendant can be restrained from continuing to benefit from past misuse of confidential information.
  5. Whether the defendant can be restrained from making and selling products derived from misuse of the information but which do not themselves embody or disclose the information.

Although expressed initially as separate topics, issues 2, 3 and 4 are closely related.

Injunctions - the general principle

Arnold J. deals with the general principles, issue 1, relatively shortly. From cases starting with Shelfer v. City of London Electric Lighting Co. [1] he concludes that, in the absence of specific discretionary reasons for the refusal of an injunction, where the claimant has established that the defendant has acted in breach of an equitable obligation of confidence and that there is a sufficient risk of repetition, the claimant is generally entitled to an injunction.

The springboard principle

The requirement for the risk of repetition is important to the judge's consideration of points 2, 3 and 4 and his conclusions about the springboard principle. His main conclusion is that, although past cases such as Cranleigh Precision Engineering Ltd. v. Bryant [2] and Speed Seal products Ltd. v. Paddington [3] may be said to be based on the view that an injunction can be granted to restrain the use of information even after it falls into the public domain, particularly if it is the defendant who has put the information in the public domain, that can no longer be supported in the light, particularly, of the Spycatcher [4] case. Once the information is out it is no longer confidential and use of it, at that point, cannot amount to a repetition of the breach. So, the judge reasons, the springboard principle must have some other basis and he considers two possible candidates.

First, in such cases, the information may retain a limited degree of confidence, his point 3. For example in Terrapin Ltd. v. Builders Supply Co. (Hayes) Ltd [5], the confidential information related to the construction of portable buildings. Even though the buildings in question were on the market, a third party could not instantly acquire the information but would have needed time and effort to deduce it by reverse engineering. The defendant, who had used the plaintiff's drawings and technical information, had no need to do the reverse engineering and an injunction should be granted to last a limited period to reflect the fact that the defendant had a head start over third parties. The explanation, Arnold J. considered, was that the drawings and technical information retained a limited degree of confidence.

The second possible basis set out by Arnold J. for the springboard principle is that its purpose is to restrain the defendant from continuing to benefit from past misuse of the information at a time when it did retain its confidentiality. The judge finds the cases on this subject unclear. Terrapin, Roger Bullivant v. Ellis [6] and Universal Thermosensors Ltd. v. Hibben [7] support the proposition, although they were all cases about interim injunctions where different considerations may apply, while Spycatcher and Ocular Sciences Ltd. v. Aspect Vision Care Ltd & Ors.[8] appear to be against it.

Interestingly, the judge finds support for this proposition in two authorities not about confidential information, Attorney-General v. Blake [9] and Dyson Appliances Ltd. v. Hoover Ltd. (No 2) [10]. In Dyson an injunction was granted to restrain the manufacture and sale by the defendant of a particular type of vacuum cleaner for a period of a year after the patent covering it had expired, a conclusion which can only be based on the restraint of the defendant from benefiting from his activities in the past when the patent subsisted.

Derivative products

Arnold J. decided that an injunction can be granted to restrain the manufacture and sale of derivative products, his point 5. Whether or not it will be in any particular case depends on the circumstances, especially the extent and importance of the use of the information in the derivation of the product. The judge based himself largely on the decision of Laddie J. in Ocular Sciences.

Application of the principles

VF sought some wide-ranging injunctions but the judge was only persuaded to grant a more limited injunction. He granted an injunction to restrain the continued sale of the defendants' original product on the basis that it did involve the use of VF's confidential information, but he refused an injunction for a later, derived product, considering that such an injunction would be disproportionate. This was clearly an exercise of the principles relating to derived products extracted from Ocular Sciences.

Comment

The judgment is something of a tour de force in a complex and unclear area of the law, particularly as the judge apparently had limited assistance from counsel at the hearing. He recognised the uncertainty by granting leave to appeal to both sides with regard to the grant and withholding of injunctions. He considered this to raise difficult questions of principle which merited consideration by the Court of Appeal.

One of the interesting features of the judgment is that, although the judge analyses in detail the basis for the continued application of the springboard principle, it is not clear how, if at all, his views on this subject affected the scope of the injunctions he granted. The injunction in respect of the early exemplar of the Netprotect product is not limited in time and proceeds from the fact that this product incorporated the confidential information. There is no suggestion that the confidential information was, by the time of the trial, in the public domain. The refusal of the injunction aimed at the later product is based on the fact that it is a derivative product with, to put it generally, insufficient connection to the confidential information.

The case also raises a very interesting question about the calculation of damages. The judge considers the applicability of an injunction in two particular circumstances, among others. The first is the case where the defendant continues to use information which was confidential but which the defendant, for example, has placed in the public domain. The second is the case where the defendant is making a derivative product which does not of itself contain or disclose the confidential information.

In both cases the judge considers whether it would be appropriate to grant an injunction or whether the correct remedy is the imposition of a financial penalty, either damages or an account of profits. In basic terms, the defendant can go on doing what he is doing but must pay for it. Similarly, there appears to be an increasing trend in US patent cases to refuse an injunction but grant the plaintiff a pecuniary remedy.

How is the pecuniary remedy to be calculated considering that it goes forward in time as well as backwards? In some cases the court may consider that the financial remedy should be for a fixed time into the future, where, for example the court considers the information is available to the public but would take some time to deduce. Indeed, the idea of the grant of springboard damages in patent cases is well established, at least since Gerber Garment Technology Inc. v. Lectra Systems Ltd. [11], but these only contemplate damages for a limited time following expiry of the patent to compensate the patentee for the fact that the defendant had a head start on anyone who started to develop machines based on the patent after expiry.

However, in other cases, the financial remedy might stretch indefinitely into the future, for example where the defendant is making a derived product but the information itself remains and will continue to remain confidential, or at least for some considerable time, for example if damages are considered to be an adequate remedy or the claimant is denied an injunction on some specific ground.

It is not clear what the financial remedy would consist of. It might amount to a use-based royalty going forward, a kind of compulsory licence, or it might be that the court would assess a lump sum, a kind of paid-up licence.