Confidential information

2014 SCMR 381 SUPREME-COURT-OF-UK Judicial Precedent

Trade secretsConfidential informationBreach of confidence by employeeScope and defenceCommon design in relation to misuse of trade secretsScopeTrade secrets/confidential information acquired by employee during employment, misuse ofFormer employee developing a new product using trade secrets/confidential information of his former employer

Claimant-companies ("Claimants") were involved in developing and manufacturing specialized insecticidal nets with the assistance of a consultant biologist ("consultant") "S", who was employed by the claimants as a sales manager, left her employment and set up a competing business, which also produced the same specialized insecticidal nets

"S" employed the consultant, who previously worked for claimants, to develop the competing product

Consultant developed competing product by using the claimants' trade secrets and was found to be in breach of his duty of confidence to the claimants

Claimants sought damages and relief for misuse of confidential information from "S"

Question as to whether "S" was liable for breach of confidence on basis of, inter alia, her contract of employment or being party to common design

Any former employee was not liable for breach of confidence for starting a business which developed a product using his/her former employers' trade secrets, in circumstances where he/she neither knew the identity of such secrets nor that they were being used to develop the new product

Former employee "S" was employed by the claimants in their sales department

"S" was not liable for breach of confidence relating to misuse of confidential information as she did not have actual or objective knowledge of the confidential information in question either during her employment or afterwards

"S" did not know the trade secrets and was not aware that they were being misused by the consultant

Unless S's employment contract with claimants expressly/impliedly imposed such a liability, she could not be primarily liable for misuse of confidential information because she had received no confidential information

"S" could also not be secondarily liable for such misuse as she had not known that the consultant was using, or had used, claimants' confidential information to develop the product, and it was not contended that she could be vicariously liable for any misuse of claimants' confidential information by the consultant

S's employment contract with claimants contained a clause which stated that she agreed to "keep absolutely confidential all information relating to the employment and any knowledge gained in the course of the employment and which inherently should not be disclosed to any third party"

Confidential information used by the consultant was neither information relating to S's employment nor knowledge gained by her in the course of her employment, in fact it was knowledge gained by the consultant in the course of his consultancy work for claimants

To imply a term into S's employment contract to the effect that she would not assist another person to abuse trade secrets owned by the claimants, in circumstances where she did not know the trade secrets and was unaware that they were being misused, would be wrong in principle

To impose such a strict liability on "S" was inconsistent with the express terms of S's employment contract; was unnecessary in order to give the employment contract commercial effect, and was almost penal in nature, thus incapable of satisfying tests of obviousness and reasonableness

With respect to liability of "S" on basis of being party to a common design, it had to be proved that she shared with other defendants each of the features of the design which made it wrongful

"S" could not be made liable on the basis of common design involving misuse of trade secrets given her state of mind, or knowledge, as she had no knowledge of the trade secrets and also did not know that they were being misused by the consultant

Argument that "S" had blind-eye knowledge" of the fact that the consultant was using claimants' trade secret could not succeed in the absence of any finding of relevant dishonesty on S's part

Contention that "S" had taken a risk in starting a new business and employing the consultant was on its own not enough to render her secondarily liable for the misuse of trade secrets

Law had to maintain a realistic and fair balance between effectively protecting intellectual property rights and not unreasonably inhibiting competition in the market place

Importance of research and development in the commercial world to the economic prosperity of a country was self-evident, and the protection of intellectual property was one of the vital contributions of the law to that end

On the other hand, the law should not discourage former employees from benefitting society and advancing themselves by imposing unfair potential difficulties on their honest attempts to compete with their former employers

Given the circumstances of the present case, it would be oppressive to hold "S" liable to claimants for breach of confidential information, notwithstanding whether she had previously worked for claimants pursuant to a contract containing a standard provision aimed at protecting claimants' trade secrets

Appeal was dismissed accordingly.

2014 CLD 473 SUPREME-COURT-OF-UK Judicial Precedent

Trade secretsConfidential informationBreach of confidence by employeeScope and defenceCommon design in relation to misuse of trade secretsScopeTrade secrets/confidential information acquired by employee during employment, misuse ofFormer employee developing a new product using trade secrets/ confidential information of his former employer

Claimant-companies ("Claimants") were involved in developing and manufacturing specialized insecticidal nets with the assistance of a consultant biologist ("consultant") "S", who was employed by the claimants as a sales manager, left her employment and set up a competing business, which also produced the same specialized insecticidal nets

"S" employed the consultant, who previously worked for claimants, to develop the competing product

Consultant developed competing product by using the claimants' trade secrets and was found to be in breach of his duty of confidence to the claimants

Claimants sought damages and relief for misuse of confidential information from "S"

Question as to whether "S" was liable for breach of confidence on basis of, inter alia, her contract of employment or being party to common design

Any former employee was not liable for breach of confidence for starting a business which developed a product using his/her former employers' trade secrets, in circumstances where he/she neither knew the identity of such secrets nor that they were being used to develop the new product

Former employee "S" was employed by the claimants in their sales department

"S" was not liable for breach of confidence relating to misuse of confidential information as she did not have actual or objective knowledge of the confidential information in question either during her employment or afterwards

"S" did not know the trade secrets and was not aware that they were being misused by the consultant

Unless S's employment contract with claimants expressly/ impliedly imposed such a liability, she could not be primarily liable for misuse of confidential information because she had received no confidential information

"S" could also not be secondarily liable for such misuse as she had not known that the consultant was using, or had used, claimants' confidential information to develop the product, and it was not contended that she could be vicariously liable for any misuse of claimants' confidential information by the consultant

S's employment contract with claimants contained a clause which stated that she agreed to "keep absolutely confidential all information relating to the employment and any knowledge gained in the course of the employment and which inherently should not be disclosed to any third party"

Confidential information used by the consultant was neither information relating to S's employment nor knowledge gained by her in the course of her employment, in fact it was knowledge gained by the consultant in the course of his consultancy work for claimants

To imply a term into S's employment contract to the effect that she would not assist another person to abuse trade secrets owned by the claimants, in circumstances where she did not know the trade secrets and was unaware that they were being misused, would be wrong in principle

To impose such a strict liability on "S" was inconsistent with the express terms of S's employment contract; was unnecessary in order to give the employment contract commercial effect, and was almost penal in nature, thus incapable of satisfying tests of obviousness and reasonableness

With respect to liability of "S" on basis of being party to a common design, it had to be proved that she shared with other defendants each of the features of the design which made it wrongful

"S" could not be made liable on the basis of common design involving misuse of trade secrets given her state of mind, or knowledge, as she had no knowledge of the trade secrets and also did not know that they were being misused by the consultant

Argument that "S" had blind-eye knowledge" of the fact that the consultant was using claimants' trade secret could not succeed in the absence of any finding of relevant dishonesty on S's part

Contention that "S" had taken a risk in starting a new business and employing the consultant was on its own not enough to render her secondarily liable for the misuse of trade secrets

Law had to maintain a realistic and fair balance between effectively protecting intellectual property rights and not unreasonably inhibiting competition in the market place

Importance of research and development in the commercial world to the economic prosperity of a country was self-evident, and the protection of intellectual property was one of the vital contributions of the law to that end

On the other hand, the law should not discourage former employees from benefitting society and advancing themselves by imposing unfair potential difficulties on their honest attempts to compete with their former employers

Given the circumstances of the present case, it would be oppressive to hold "S" liable to claimants for breach of confidential information, notwithstanding whether she had previously worked for claimants pursuant to a contract containing a standard provision aimed at protecting claimants' trade secrets

Appeal was dismissed accordingly.