Out-Law News 4 min. read

Ruling should warn businesses against using confidential information to shortcut product development, says expert

Businesses should view a recent UK court ruling as a warning against using confidential information to shortcut their development of products, an expert has said.

Andrew Herring of Pinsent Masons, the law firm behind Out-Law.com, who specialises in resolving disputes over use of confidential information, said businesses will be worse off if they are found to be misusing a rivals' confidential information.

Herring was commenting after the High Court in London banned food manufacturer Bakkavor from undertaking a range of commercial activities that would involve exploiting confidential information belonging to Kerry Ingredients, a subsidiary of Irish food business Kerry Foods.

Bakkavor "misused" confidential information concerning Kerry's manufacture of edible infused oils, the High Court judge Mr Justice Newey ruled.

Herring said: "The ruling makes clear that businesses can reverse engineer products for the purpose of developing a rival alternative, but shows that companies will pay a very high price if they try to gain a competitive advantage by misusing confidential information for that purpose. Bakkavor has spent years, and no doubt a significant amount of money, in seeking to develop an alternative to Kerry's products. Now that it is on the brink of manufacturing and selling its alternative, it has been issued with a prohibitive injunction that will delay its plans. In addition, Bakkavor may yet face a claim for damages from Kerry over its use of confidential information."

"The judgment should serve as a warning to all businesses that come into contact with third party information, whether from another company directly or new employee they have recruited. They should be wary that any such information may be of a confidential nature, particularly if it is not in the public domain, and should seek advice on the potential consequences of using such information," he said.

Alan Sheeley of Pinsent Masons, an expert on tackling theft or improper use of confidential information in the civil courts, said businesses need to act quickly if they suspect their confidential information has been stolen or used inappropriately. Prompt action can bring an end to infringement and help preserve the "evidence trail necessary to demonstrate that the confidential information has been stolen", he said.

"This case demonstrates that courts are willing to enforce a party’s rights, which means businesses can continue on an equal footing and that companies should not be fearful of their rights to confidence being overridden by aggressive business strategies," Sheeley said. "Also, this case does not stop progress and competitive business practices as the injunction was only allowed for a reasonable period of time – the time it would take for a company (without the proprietary information) to reverse engineer the product."

"Civil fraud solicitors are well versed in obtaining injunctions and in particular search and seize orders. Such orders enable, without police intervention, access to properties and the seizure of computers and paperwork that will assist in evidencing the theft. Such orders are particularly useful when seeking to evidence theft of confidential information. However, to be successful with such an order time is of the essence and victims should contact civil fraud solicitors as soon as they become aware of any theft," he said.

In his ruling Mr Justice Newey said that information provided by Kerry to Bakkavor for "safety and regulatory purposes" had the "necessary quality of confidence" to be classed as confidential information and had to be treated as such by Bakkavor. However, he said that Bakkavor had misused the information by using it and sharing it with third parties, including with researchers at Sheffield Hallam University, for the purposes of developing a rival product.

The judge dismissed claims by Bakkavor that an article published by Food Manufacture magazine which detailed some of Kerry's manufacturing processes did not "detract from the confidentiality of the information" Kerry had shared with Bakkavor. The article did not reveal "any significant part" of the confidential information, he said.

Mr Justice Newey said "an equitable duty of confidence" was imposed on Bakkavor when the information was shared with it.

"It seems to me that a reasonable person would have realised that the information was not to be used otherwise than for the particular purposes for which it was being provided and, more specifically, that it could not be used to develop a rival product," the judge said.

Mr Justice Newey said it was "abundantly clear" Bakkavor had "breached the obligation of confidence". He said Kerry can pursue "financial relief" against Bakkavor and said he would grant an injunction against Bakkavor that will apply until 30 June 2017 which will be "along the lines" of the interim injunction which applied in the case prior to the High Court's judgment being issued.

The interim injunction, issued in December 2015, barred Bakkavor from "importing, exporting, putting on the market or offering for sale any edible oil product infused with herbs and/or spices the making of which was enabled or assisted by the use of the alleged confidential information", according to the High Court's ruling.

The new injunction to be issued "will not prohibit Bakkavor from undertaking development work", the judge said.

"While, however, Bakkavor might have been able to devise a replacement product without relying on the confidential information, the fact is that it made extensive use of the confidential information when developing its own process," Mr Justice Newey said.

The judge said the confidential information "influenced Bakkavor's thinking throughout" its product development work and that it was "unlikely" that the work "would have proceeded in quite the way it did, or that the end result would have taken its present form, or been as similar to Kerry's, if Bakkavor had not been using the confidential information".

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