Two Arnolds for the price of one (part 1)

Lord Justice Arnold's work-rate is the stuff of legend, so it is perhaps unsurprising that we have recently been treated to not one, but two, Court of Appeal judgments delivered by Arnold LJ, on the same day.

Both cases relate to confidential information, a relatively unloved (but often hugely valuable) IP right. The first case, Shenzhen Senior Technology Material Co Ltd v Celgard, LLC [2020] EWCA Civ 1293, is a relatively "traditional" claim involving alleged theft and misuse of trade secrets by a former employee and his new employer, with interesting legal questions arising largely due to the multi-jurisdictional nature of the dispute. The second case, The Racing Partnership Limited and Ors v Sports Information Services Limited [2020] EWCA Civ 1300, serves up a fascinating application of the equitable doctrine of breach of confidence / misuse of confidential information (specifically, sports betting data), a sprinkling of the tort of conspiracy to injure by unlawful means, and firm ground on which to trot out some really hacked-up horse puns [more on that next time]. 

Ahem. Back to Celgard's trade secrets. 

Background

The key facts of the dispute are summarised in the IPKat's post on the first instance judgment. US-based Celgard (claimant/respondent) and China-based Senior (defendant/appellant) are rival manufacturers of battery separators, which are used in lithium-ion batteries for (among other things) electric vehicles. [No doubt the atmosphere in the courtroom was electric.]

A former R&D employee of Celgard (Dr Zhang) joined Senior in early 2017, following which Senior quickly expanded its range of products, gained market share and (allegedly) changed the formulation of a particular binder used in its products. Celgard said this was all because of unlawful disclosure and use of its trade secrets. 

Celgard brought proceedings against Senior in the English High Court earlier this year, shortly after Celgard learned from a UK-based customer (with which Celgard was negotiating a significant new contract) that the customer was looking at Senior as a potential supplier. Celgard, concerned that it would be undercut if Senior became a "qualified" supplier, sought an interim injunction to restrain Senior from supplying sample separators to the customer. Celgard's claim is based on breach of an equitable obligation of confidence and/or breach of Regulation 3 of the Trade Secrets (Enforcement, etc.) Regulations 2018, which partially implement the Trade Secrets Directive in the UK.  

At first instance, Celgard secured an interim injunction. The judge (Trower J) found that there was a serious issue to be tried; that English law governed the claim as pleaded; and that England and Wales was the proper place to hear the claim.  

The Court of Appeal's judgment

Arnold LJ gave the leading judgment, with which Davis LJ and Popplewell LJ agreed. The short summary - which is that the appeal failed - conceals some interesting points to watch in this case, and to note for future practice: 

• The judgment contains a helpful summary of the current law in this area and gives a potentially invaluable insight into Arnold LJ's view of the effect of implementing the Trade Secrets Directive. In relation to the former, he underlined that the doctrine of misuse of confidential information is (i) all about control of information; and (ii) a species of unfair competition. There is no property in information, and the Trade Secrets Directive does not create a (proprietary) species of intellectual property right. Under English law prior to the implementation of the Directive, trade secrets were a subcategory of confidential information. The primary distinguishing characteristic of this subcategory from other forms of confidential information was that an employee could be restrained from using or disclosing their employer's trade secrets, even after termination of employment. 
• In this context, Arnold LJ noted that Regulation 3 (titled "Wider protection") appears to be intended to ensure that if and to the extent that English law was more favourable to a trade secret holder than the minimum level required by the Directive, the higher level of protection will continue to be available, subject to the various safeguards set out in Article 1 of the Directive (in this case, the relevant safeguards seek to balance the protection of trade secrets against the preservation of mobility of employees). As is widely known, the UK did not fully transpose the Directive. Regulation 3 does not address the position if the level protection afforded by the Directive exceeds the level under the old law. The Marleasing principle would suggest that the higher level of protection will be applied (notwithstanding Brexit, as the implementation date of the Directive was 9 June 2018). 
• Except in relation to the specific binder (the formulation of which was particularised in a confidential annex), the judge was unconvinced that Celgard had particularised the information comprising the alleged trade secrets in sufficient detail. He underlined (with reference to Laddie J's judgment in Ocular Sciences v Aspect Vision Care [1997] RPC 289) that breach of confidence claims can be used to oppress and harass competitors and ex-employees. In this context, the defendant must be told what information is in issue (to ensure that they understand the case they have to meet, and that the terms of any injunction - commonplace in trade secrets disputes - are sufficiently precise). As Celgard's case in relation to the binder was adequately pleaded, this was enough to establish a real prospect of success in the case. Celgard was, however, implicitly criticised for its failure otherwise to plead actual "recipes". The judge did note (in Celgard's favour) that the case is at any early stage and Senior's lack of cooperation has made Celgard's job more difficult. 
• The location of the damage to Celgard (for the purposes of Article 4(1) of the Rome II Regulation) should be identified with reference to the location of the act(s) of unfair competition relevant to the claim - in this case, the UK - and not (as counsel for Senior argued) where the relevant intangible property was located when the damage became irreversible - in this case, China. This makes sense, given that information is not property. Further, Senior's argument would have had the result that where party A is based in country X, which has weak trade secrets protection, misuses party B's trade secrets to manufacture goods which party A then markets in the EU, the law of country X would apply to the exclusion of the law of the relevant EU country. This is unlikely to be the effect intended by the EU legislature. 
• There is a potentially fascinating argument to be had regarding the effect of Article 4(5) of the Directive, which prohibits unlawful use of a trade secret in the context of goods "where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully...". It seems to be possible to read this provision as requiring the application of the law of the location of misappropriation of the trade secret (e.g. China), instead of the law of the location of damage. This point was not raised in argument by either party but was instead put to them by Arnold LJ, who views this point as a difficult one, and one that perhaps will need to be referred to the CJEU in future.  

Comment

The claim proceeds to trial. This dispute has been hard-fought (perhaps due to the expected future market size for battery technology) and has thrown up a number of interesting legal points, even at this early stage. It is certainly one to watch for further detailed argument and analysis regarding interpretation of the Regulations and Directive, and their interplay with the existing doctrine of misuse of confidential information. 

This kind of international trade secrets dispute seems to be increasingly common. It is interesting to note how vigorously Senior has resisted the jurisdiction of the courts of England and Wales and instead argued that China is the proper forum for the dispute. This is in spite of the fact that the Chinese courts - by Senior's own submission - would be empowered to injunct Senior to prevent the exportation of the battery separators to the UK (and other jurisdictions). One can speculate that China would have provided a friendlier forum, but this is - as suggested - only speculation.  

This dispute has a clear UK dimension - the possibility of Senior selling to a UK customer - so it seems logical that the English court should have jurisdiction to hear the dispute. As one would expect, the claim seems to have been pleaded carefully in order to maximise the likelihood of this result (and, notably, Arnold LJ seemed to have doubts regarding the English court's jurisdiction to hear the element of the action concerned with Senior's potential vicarious liability for Dr Zhang's alleged misappropriation of the trade secrets, which took place in the US and China). 

  A possibly different Arnold, and a cat wielding lightsabers, yesterday. Perfectly normal.