Breach of confidence requires infringer having knowledge of breach, rules Supreme Court

Out-Law News | 28 May 2013 | 2:47 pm | 2 min. read

Former employees of companies that use trade secrets to develop products cannot automatically be found to have acted in breach of confidence if they are involved in rival operations that exploit the protected information, the Supreme Court has ruled.

 The Court said that individuals generally have to have a level of knowledge that trade secrets are being misused in order to be found liable for a breach of confidence. (14-page / 126KB PDF)

"A person can be liable for breach of confidence even if he is not conscious of the fact that what he is doing amounts to misuse of confidential information," Lord Neuberger said in the Supreme Court's judgment. "I would agree that a person who is not otherwise subject to an obligation of confidence (eg by contract) will not come under an equitable obligation of confidence purely as a result of the receipt of confidential information unless and until he or she has notice (objectively assessed by reference to a reasonable person standing in the shoes of the recipient) that the information is confidential."

Danish company Vestergaard, which makes long lasting mosquito nets, had claimed that a former sales manager it employed, Trine Sig, was liable for a breach of confidence. Vestergaard made the claim after discovering that Sig, having left her employment, had set up rival businesses, including Bestnet Europe (Bestnet), that made mosquito nets injected with insecticide.

Consultant Dr Skovmand was contracted by Bestnet to develop its mosquito net product. However, Dr Skovmand had previously worked for Vestergaard and in 2009 the High Court had ruled that he had exploited the Danish company's trade secrets in order to develop the rival Bestnet product.

The High Court had said that Sig was also liable for a breach of Vestergaard's confidence, but Sig challenged that finding and won her appeal. Now the Supreme Court has upheld the decision of the Court of Appeal and dismissed the challenges brought against that judgment by Vestergaard.

Because Sig was "honestly unaware" that Dr Skovmand had misused Vestergaard's trade secrets to develop a rival mosquito net, she could not be held liable for a breach of confidence herself, the Supreme Court ruled.

The Court also rejected claims made by Vestergaard that Sig's contract with it had placed her under a duty of confidence that she had broken.

"It is not seriously arguable that a term can properly be implied into Mrs Sig's employment contract to the effect that she would not assist another person to abuse trade secrets owned by Vestergaard, in circumstances where she did not know the trade secrets and was unaware that they were being misused," Lord Neuberger said in the Supreme Court's judgment.

"To impose such a strict liability on Mrs Sig appears to me to be wrong in principle as it is inconsistent with the imposition of the more limited express terms [that placed a duty of confidence on Sig in her employment contract with Vestergaard], unnecessary in order to give the employment contract commercial effect, and almost penal in nature, and thus incapable of satisfying either of the well established tests of obviousness and reasonableness," the judge said.

Sig neither acquired Vestergaard's confidential information during her time in employment with the Danish firm nor afterwards, the Court said. Sig was never aware that Dr Skovmand had relied on Vestergaard's trade secrets to develop the product Bestnet was selling in competition, it said. The Supreme Court also said that Sig had not turned a blind-eye to the misuse of Vestergaard's trade secrets.

"Given that [Sig] did not learn of any relevant trade secrets owned by Vestergaard when she was employed by them, and did not appreciate that any such secrets were being used by an employee of the company of which she was a founder and director, it would be oppressive to hold Mrs Sig (as opposed to the employee or the company) liable to Vestergaard for breach of confidential information, whether or not she had previously worked for Vestergaard pursuant to a contract containing a standard sort of provision aimed at protecting Vestergaard's trade secrets," Lord Neuberger said.