Celgard secures UK injunction to protect alleged trade secrets

Celgard has secured an interim injunction to prevent the supply in the UK of battery separators manufactured by its rival, Senior, which are alleged to misuse Celgard's confidential information and/or trade secrets, in a High Court judgment from Mr Justice Trower (Celgard, LLC v Shenzhen Senior Technology Material Co Ltd [2020] EWHC 2072 (Ch)). 

Background

Celgard and Senior both make battery separators (specifically, "dry" battery separators, which are engineered sheets of microporous polymer). Separators are critical to the performance, lifespan and safety of lithium-ion batteries, the market for which is growing because of the move towards electric vehicles. Senior is (ironically) the junior player in the market, and Celgard the more established player. 

In 2016, a Celgard scientist named Dr Zhang left Celgard and, in January 2017, he joined Senior as Chief Technology Officer. Not long afterwards, Senior's product range expanded considerably and its market share increased to 25% (from a previously stable 15%) between 2017 and 2019. The evidence showed that Dr Zhang and Senior had potentially misled Celgard about Dr Zhang going to work for Senior. Further, Dr Zhang's responsibilities at Celgard included the selection of resins to use in Celgard's separator products, and analysis adduced by Celgard suggested that Senior had begun using a binder (produced by a third party) in a particular formulation that it did not use previously, and that this change in formulation quite possibly occurred after Dr Zhang joined Senior. Senior sought to explain away these facts by pointing to an increase in its independent R&D activity.  

Celgard sought an interim injunction in the UK only, with the particular aim of preventing Senior from supplying a sample of separators to a UK company (the name of which remains confidential) which makes lithium-ion batteries for a well-known manufacturer of electric vehicles. The separators were to be supplied for the purpose of evaluating the Senior product against the Celgard equivalent, with the possible result that Senior would become a "qualified" supplier to the UK customer. Celgard's case, in essence, is that such qualification would, if achieved, not have been possible without Senior's reliance on, and misuse of, Celgard's trade secrets. 

Decision

The court had to decide (i) the law that would apply to the dispute; (ii) whether it had jurisdiction over the dispute; and (iii) whether to grant the injunction sought. 

Applicable law

Celgard is based in the US, Dr Zhang signed an NDA governed by the law of South Carolina, and any misappropriation of trade secrets is likely to have taken place in the US. The incorporation of any of Celgard's trade secrets into Senior's products would, however, have taken place in China. Senior was keen that Chinese law should apply to the dispute, but the judge agreed with Celgard that English law should apply. The parties agreed that Rome II should be used to determine the applicable law as the obligation of confidentiality (at least in relation to Senior) is non-contractual. Therefore, the court proceeded to apply Article 4 of Rome II and determine the country in which the damage (would) occur, the law of which would govern the dispute. Celgard's claim focuses on the loss that would be suffered should Senior's separators be supplied in the UK; not on the alleged theft of Celgard's trade secrets in the US or the alleged misuse of the trade secrets in China. This point applied equally to Celgard's claim that Senior is vicariously liable for Dr Zhang's alleged breach of confidence as to the claim brought directly against Senior. 

Jurisdiction

Given the multi-jurisdictional history of the dispute (and ongoing parallel litigation in the US and China), it was not a given the High Court would have jurisdiction to hear the dispute. The three conditions are, in summary: (i) is there a serious issue to be tried; (ii) does one of the "jurisdictional gateways" apply; and (iii) is England and Wales the "proper place" to bring the claim (i.e. forum conveniens).

1. Serious issue to be tried. Senior heavily criticised the level of detail at which Celgard identified the relevant trade secrets and the manner in which they were alleged to have been misused, as well as various aspects of Celgard's evidence to support the allegation of misuse. Counsel for Celgard did not hide the fact that Celgard's case was not fully pleaded and proved up at this (interim) stage, and the judge agreed with him that this did not matter: it is often challenging to develop a complete claim for misuse of trade secrets, at least until the defendant has given disclosure. The evidence that Celgard had been able to provide was enough to establish that there is a serious issue to be tried in the dispute (in relation to both Celgard's claim under the Trade Secrets Regulations (which implemented the Directive in the UK) and the claim for breach of confidence in equity). 
2. Jurisdictional gateways. This was not a contentious issue: Celgard's claim clearly engaged two of the gateways: a claim for an injunction to restrain an act threatened in the UK; and a claim for breach of confidence where an act likely to be committed in the UK may cause detriment to Celgard. 
3. Forum conveniens. The relevant question is whether England and Wales is clearly or distinctly the most appropriate forum for the dispute, considering the totality of the dispute between the parties. To answer this question, the court looks for factors connecting the dispute to the jurisdiction. As mentioned, Celgard's claim is focused on Senior's attempts to secure business from Celgard's UK customer, and in this claim Celgard is not seeking relief in any other jurisdiction. Notwithstanding the parallel litigation in other jurisdictions and the fact that certain key acts took place in the US and China, the court was satisfied that England and Wales is the forum conveniens for this dispute, as pleaded.  

Injunction

Given that the court had already concluded that there is a serious issue to be tried, the only remaining elements of the American Cyanamid test were: (i) would damages be an adequate remedy; and (ii) where lies the balance of convenience?

Regarding (i), the evidence showed a risk of the loss of the benefits enjoyed by the incumbent "qualified" supplier to the UK-based customer and price erosion (which may have consequential effects in other countries), should an injunction not be granted. The effects of both would be difficult to quantify, especially given potential complicating factors such as further new market entrants and changes to market conditions. Regarding (ii), the balance of convenience tipped slightly further in favour of granting an injunction because of the potential disruption to the UK customer should the court grant a permanent injunction (following trial) in respect of Senior's battery separators.  

Comment

From an engaging dispute and judgment (well worth a read in full if you have time), this GuestKat takes three key points: 

1. Celgard was careful in structuring its claim and the relief sought, which was important (in the context of a dispute with such a strong international dimension) in ensuring that the English court would accept jurisdcition. 
2. This is one of a tiny handful of trade secrets disputes to come before the English court since the implementation of the Trade Secrets Directive in the UK. It may well also be the first to explore whether the received wisdom (that the implementation would have no substantive effect on the law of confidence) is entirely correct. Certainly, Mr Justice Trower took the trouble to point out that Recitals 4, 9 and 28 to the Directive make clear that it was intended to close any loopholes that may have existed in national law in relation to the importation of goods "infected" by an unlawful appropriation or misuse of trade secrets that may have occurred in another jurisdiction. The coming into force of the Regulations is unlikely to make a difference to the outcome based on the facts of this case, but it will be interesting to see what the final judgment says regarding the Directive more generally. [Edit: a distinguished retired Court of Appeal judge subsequently drew to this GuestKat’s attention a 1987 case involving similar facts and sausage skins - no loopholes to be seen. Thanks, Sir Robin! The judgment isn’t on Bailii, but can be found here instead.]  
3. No need to panic following Neurim v Mylan - the English court is still ready and willing to grant interim injunctions in IP claims (where the facts support this). 

Enjoying the benefits of battery separators