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Gas company vicariously liable for database rights infringement by staff

Out-Law News | 18 Oct 2013 | 4:52 pm | 4 min. read

The market leader in the sale of liquid propane gas (LPG) in the UK has been found vicariously liable for the infringement of database rights belonging to a rival.

The High Court ruled that the actions of two members of Calor Gas' (Calor) staff in misusing a list of customers that had been copied from a database belonging to Flogas Britain (Flogas) had been so "closely linked to the conduct of the business" that Calor itself should be held vicariously liable for database rights infringement.

The case was rare as it looked at the assessment of damages arising out of a breach of confidence and database rights.

Intellectual property law expert Iain Connor of Pinsent Masons, the law firm behind Out-Law.com, said that the ruling demonstrates the need for companies to be careful when recruiting sales staff.

"It is one thing to hire a person with ‘industry knowledge’ but quite another to go out and exploit the former employer’s customer database," Connor said. "Where a rogue member of staff is guilty of misconduct which is outside his normal duties then an employer should not be liable.  However as here, where Calor’s corporate marketing activity was directed by the rogue marketing director, a company cannot escape liability on the basis that it was not responsible for the employee using the database in breach of a third party’s database rights."

According to the judgment, former Flogas employee Matthew Finch had, during his term in employment with the company, copied customer details from Flogas' database and passed it on to Flogas' former sales director, David Hughes, who then went on to work for Calor.

Hughes passed a copy of the list of Flogas customers to Calor's head of marketing, Sarah Haythornthwaite, who arranged for marketing information to be sent out to the listed Flogas customers to try to persuade them to switch away from Flogas to Calor for their supply of LPG.

More than 19,000 mail shots were issued to Flogas customers by Calor before Calor prevented a final mail shot of 12,500 letters being sent out. Calor decided not to proceed with the final mail shot after internal investigations, prompted by complaints by Flogas' managing director about the marketing activity undertaken, revealed the link between Haythornthwaite, Hughes and Flogas. Calor summarily dismissed Hughes and Haythornthwaite following a disciplinary hearing and ordered the destruction of the final mail shot material by the advertising agency it used.

Mrs Justice Proudman said that, in a qualitative sense, a "substantial part" of Flogas' database had been extracted from the company's systems and that its protected information had been misused. She held Calor vicariously liable for database rights infringement despite finding that the company "did undoubtedly take steps to mitigate the effect of the mail shots".

"In my judgment the extractions, which are in essence the handling and/or copying of data from the Flogas Database, do have a close connection to the employment of Mr Hughes and Ms Haythornthwaite, in that they related to business intelligence that was closely linked to the conduct of the business," Mrs Justice Proudman said in her judgment. "That connection is so close that it would not be unjust to impose vicarious liability on [Calor] for it."

"The wrongful conduct may fairly and properly be regarded as effected by Mr Hughes and Ms Haythornthwaite while acting in the ordinary course of the firm's business or the employee's employment, because the copying and handling of this data is in principle something that would come within the realm of the ordinary course of their employment," the judge said.

Flogas won the right to damages from Calor that covered the loss of customers it experienced following Calor's mail shot. It also won damages accounting for the income it lost out on as a result of having to offer lower prices to retain customers who had received Calor's marketing material.

In addition, Flogas was awarded costs from Calor that related to the lost time to its management that stemmed from the market disruption, as well as costs relating to its hiring of computer forensics experts.

Mrs Justice Proudman refused, though, to allow Flogas to claim damages relating to the business Flogas said it would have won had it not been for the market disruption caused by Calor's mail shot. She said there was insufficient evidence to support such a claim. In total Calor was ordered to pay more than £250,000.

The judge bundled the award of damages to cover both Calor's breach of confidence and its breach database rights.

Three distinct protections can apply to databases and their contents. The whole database can be protected by the 'sui generis' database right provided there has been a substantial investment in the obtaining, verifying and presenting the contents. In addition the database structure in terms of how the data is selected and arranged can be protected by copyright if it is the “author’s own intellectual creation”.

Pure facts are not protected by copyright but it is possible that some of the contents of a database may be copyright works in themselves. For example, a map showing the location of a property can be a copyright work but the address itself will not be protected by copyright. The contents of a database can also be subject to laws which protect confidential information.

The 'sui generis' database right was created by the European Union to encourage the development of database-dependent digital systems and it allows a creator to stop others using a database or the information in it if the investment of time, money and skill in that original database was large enough. Under copyright law alone such protection would not necessarily apply if the database lacked originality in its arrangement of data within it, as only the expression of facts and not facts themselves can be copyrighted.