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vestergaard-logoIn the case of Vestergaard Frandsen A/S & Ors v Bestnet Europe Ltd & Ors [2013] UKSC 31, the Supreme Court considered the scope of the duty of confidence. It held that an action for breach of confidence is based ultimately on conscience and that a person can only be liable if they agree or know that the information being used is confidential.

Background

The claimants, developed techniques that enabled them to manufacture and sell long-lasting insecticidal nets. From 2000 to 2004, Mrs Trine Sig and Mr Torben Larsen were employed by Vestergaard. Their employment contracts contained provisions requiring them to respect the confidentiality of Vestergaard’s trade secrets. In 2004, they set up a competing company employing Dr Ole Skovmand, who worked as a consultant to Vestergaard. The new company launched a competing product. After proceedings were brought in Denmark another new company, Bestnet Europe Limited, was formed in England and carried on working in the same business.

Vestergaard brought proceedings in England seeking damages and other relief for misuse of Vestergaard’s confidential information. In two judgments, Arnold J found that the techniques constituted confidential information in the form of trade secrets. He found the defendants, including Mrs Sig, were liable for breach of confidence. The judge found that Mrs Sig did not herself ever acquire the confidential information in question; and that until some point during the proceedings, she was unaware that the new companies had used Vestergaard’s trade secrets.

The Court of Appeal ([2011] EWCA Civ 424) upheld the first instance judge on all points save for this finding against Mrs Sig. Vestergaard appealed to the Supreme Court.

On appeal it was argued that Mrs Sig was liable for breach of confidence on three different bases: (i) under her employment contract, either pursuant to its express terms or to an implied term; (ii) for being party to a common design which involved Vestergaard’s trade secrets being misused; (iii) for being party to a breach of confidence, as she had worked for Vestergaard, and then formed and worked for the companies which were responsible for the breaches of confidence.

Judgment

The Supreme Court unanimously dismissed the appeal. Vestergaard’s arguments failed because of the combination of two crucial facts: (i) Mrs Sig did not herself ever acquire the confidential information in question; and (ii) until some point during these proceedings, Mrs Sig was honestly unaware that Netprotect had been developed using Vestergaard’s trade secrets [21].

An action for breach of confidence is based ultimately on conscience. In order for the conscience of the recipient to be affected, she must have information which she has agreed, or knows, is confidential, or she must be party to some action which she knows involves the misuse of confidential information [23]. Given that Mrs Sig knew neither of the identity of Vestergaard’s trade secrets, nor that they were being, or had been, used, it would seem to follow that Mrs Sig should not be liable for breaching Vestergaard’s rights of confidence [22].

More broadly, 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 protection of intellectual property, including trade secrets, is a vital contribution of the law to research and development. However, 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 [44], and it would be inconsistent with maintaining that balance to hold Mrs Sig liable to Vestergaard [45].

Mrs Sig was not liable for breach of confidence under any of the three alleged bases. (i) The express provisions of Mrs Sig’s employment contract are of no assistance to Vestergaard’s case [30], and it is not seriously arguable that a term can properly be implied into the contract which would render her liable in the circumstances of this case [31].

(ii) Mrs Sig cannot be liable under “common design”. Although she was party to the activities which may have rendered other parties liable for misuse of confidential information, she neither had the trade secrets nor knew that they were being misused [34]-[35]. Vestergaard cannot be entitled to damages from Mrs Sig in respect of losses suffered from misuse of their trade secrets at a time when she was honestly unaware of the fact that there had been any misuse of their trade secrets. A defendant can only be liable under common design if she shares with others the essential elements which renders the design unlawful [34],[39].

(iii) To find that Mrs Sig was wilfully blind to the fact that Dr Skovmand was using Vestergaard’s trade secrets would require a finding against Mrs Sig of dishonesty. The judge did not make any such finding, and there was no basis for making any such finding [42]. It is not enough to render a defendant secondarily liable for misuse of trade secrets by another to establish merely that she took a risk in acting as she did [43].

Comment

The judgment is an interesting restatement of the importance of “conscience” in breach of confidence cases. A defendant cannot be liable without knowledge that the information is confidential. In view of the fact that Mrs Sig had not acquired any confidential information and did not know that Vestergaard’s confidential information had been used she could not be liable for breach of confidence.

In this case Mrs Sig started her own business in direct competition with her former employer. She recruited former colleagues who she knew that been directly involved in the development of her former employer’s products. They then developed a competing product. This was not, however, enough to impose a liability for breach of confidence. As the Court of Appeal put it, “She behaved reprehensibly in a number of ways. But breach of confidence was not one of them” [50].

The Supreme Court noted that it is possible for a defendant who has not actually used confidentially information to be liable for breach of confidence if they assist in the misuse. However, in such a cases

“she would normally have to know that the recipient was abusing confidential information. Knowledge in this context would of course not be limited to her actual knowledge, and it would include what is sometimes called ‘blind-eye knowledge'”. [26]

The Court referred to the well known case of Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (especially at pp 390F-391D), as setting the relevant standard. No reference was made to other authorities in this context but it is clear the Court agreed with the view that “more is required than merely careless, naive or stupid behaviour” (see Toulson and Phipps, Confidentiality, 3rd Edn, para 3-071; see also Valeo Vision SA v Flexible Lamps [1995] RPC 205 and Thomas v Pearce [2000] FSR 718).

The Court accepted that Mrs Sig did not have actual – or “blind eye” – knowledge that Vestergaard’s confidential information was being misused. She was not, therefore, liable for assisting in the misuse by Mr Larsen and Dr Svokmand. Although surprising on the facts, the result is entirely consistent with previous authority.

The handing down of judgment is available on Youtube.