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Monday, 27 May 2013

Net gain for Dane: breach of confidence can't be imputed, says UK Supreme Court

Lets mosquitos in, but cats
still can't get out ...
For most of us, the word "net" conjures up web pages, search engines, spam and other such delights. Not so for the mosquito, for whom the same word is synonymous with deterrence and the deferment of one's delights until one's victims emerge into the open air.  It is unlikely that many mosquitos have been scanning the pages of the legal net these past few days for news of a rare case involving mosquito nets, but they would probably have been impressed by the duration of a case which, litigated a little bit at a time, has enabled many good folk to feed off it.  The case is Vestergaard Fransen S/A (now called MVF3 APS) & others v Bestnet Europe Ltd and five others [2013] UKSC 31, a decision of the UK Supreme Court last week. The team of judges consisted of Lords Neuberger, Clarke, Sumption, Reed and Carnwath and this was an appeal against a decision going all the way back to April 2011 (noted here by Matt the Kat).

In short, the Danish company Vestergaard manufactured insecticidal fabrics that were used for mosquito nets. Two former employees, Sig and Larsen, set up a business which competed with Vestergaard. Before she left Vestergaard, Sig -- who was involved in the development of a new product for the new business--  had worked with Skovmand, a consultant biologist who coincidentally was also employed by Vestergaard.

Vestergaard was not happy about this and, considering that the new product which was being cooked up by its former employees had been developed using confidential information from a database which Sig had created for it, sued Intection, the company that Sig and Larsen incorporated in order to carry on their business.  This business was subsequently shifted to a UK company, Bestnet, in an attempt to avoid the effects of the Danish litigation.

In Vestergaard Frandsen A/S v Bestnet Europe Ltd [2009] EWHC 657 (Ch), before the Chancery Division of the High Court, England and Wales, Mr Justice Arnold found that Skovmund had breached his duty not to use any confidential information acquired during his work for Vestergaard and that Sig was liable. too. In Vestergaard Frandsen A/S v BestNet Europe Ltd [2009] EWHC 1456 (Ch), the same judge further found that Sig was subject to an obligation of confidentiality under her employment contract with Vestergaard for which she could be liable even if she was not aware that she had misused the confidential information. Taking the opposite view, the Court of Appeal held that Sig could not have misused confidential information of which she had no knowledge and that there was no scope for implying strict liability into a confidentiality obligation under a contract of employment. Vestergaard then appealed to the Supreme Court.

Last Wednesday the UK Supreme Court dismissed Vestergaard's appeal. In its view:

* Sig had never acquired the confidential information in question during her employment with Vestergaard; nor had she done so afterwards. Indeed, it was not until some point after Vestergaard had commenced proceedings that she had become aware that the new company's product had been developed using Vestergaard's trade secrets.

* Unless Sig's employment contract with Vestergaard imposed any liability, she could not be primarily liable for misuse of confidential information since she had not received any. Nor could she could not be secondarily liable for misuse of confidential infomation: she had not known that Skovmund was using, or had used, Vestergaard's confidential information to develop the product. In any event, it had not been argued hat she could be vicariously liable for any misuse of Vestergaard's confidential information by Skovmund.

* The express provisions in Sig's employment contract with Vestergaard were of no assistance to Vestergaard in this action since the confidential information which Skovmund used was neither "information relating to [her] employment" nor "knowledge gained in the course of [her] employment". It was knowledge gained by Skovmund in the course of his consultancy work for Vestergaard. This being so, it could not be seriously argued that a term could be implied into Sig's employment contract to the effect that she would not assist another person to abuse Vestergaard's trade secrets in circumstances where (i) she did not know the trade secrets and (ii) was unaware that they were being misused. It would be wrong in principle to impose such strict liability.

* Two or more defendants could in principle be liable for sharing a "common design" to misuse confidential information. However, in order to be party to a common design, a defendant had to share with the other party each of the features of the design which made it wrongful. This was not the case here, on the facts, since Sig did not share any such common intention with the other defendants.

* The argument that Sig had turned a blind eye to the fact that Skovmund was using Vestergaard's trade secrets could only succeed if a finding of dishonesty were made against her -- which was not the case here.  The mere fact that she had taken a risk in starting a new business with Larsen and in employing Skovmund as a consultant was not enough to render her secondarily liable for the misuse of trade secrets.

Says the IPKat, this case was only going to go one way on the authorities, but it's worth looking at the following attempt to express a principle of policy by Lord Neuberger, speaking for the court at [44]:
Particularly in a modern economy, the law has 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 market place. The importance to the economic prosperity of the country of research and development in the commercial world is self-evident, and the protection of intellectual property, including trade secrets, is one of the vital contributions of the law to that end. On the other hand, the law should not discourage former employees from benefiting society and advancing themselves by imposing unfair potential difficulties on their honest attempts to compete with their former employers.
The concern about the law not discouraging former employees from benefiting society is commendable -- but this Kat isn't so sure about the bit about "honest attempts to compete with former employers": we are talking about a set of facts in which Sig is the only person who hasn't been found to have been involved in some form of breach of confidence, unlike Larsen, Skovmund and Bestnet. It doesn't look as though there's much benefit to society here.

Merpel merely notes that this litigation has been progressing in the United Kingdom since at least October 2007 and that it must have been commenced earlier in Denmark.  It's not as if we're talking about rocket science either.  If a scheme for better and firmer case management and the speedier hearing of appeals in cases like this lies beyond the wit of mankind, what hope is there for us?

Blogpost on this case by Mark Anderson on IP Draughts here
Maybe mosquitos aren't so bad here

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