Timing of mosquito season influences calculation of damages in breach of confidence case

Out-Law News | 24 Oct 2014 | 4:07 pm | 4 min. read

The timing of the mosquito season in two African countries helped a mosquito net manufacturer avoid liability for damages owed for accelerated entry into market of a product developed using a rival's confidential information.

The High Court in London ordered Bestnet Europe (Bestnet) to pay Danish company Vestergaard $485,419 in damages to compensate it for the misuse of confidential information.

However, the judge, Dame Vivien Rose, rejected Vestergaard's claims that it was owed further damages on the basis that Bestnet had benefited from being able to sell its product earlier than it would otherwise have been able to had it not misused Vestergaard's confidential information to develop its product faster.

Vestergaard, which makes long lasting mosquito nets, previously won a court ruling which found that a consultant it had contracted with, Dr Ole Skovmand, had exploited Vestergaard's trade secrets whilst developing a rival mosquito net product injected with insecticide for Bestnet, called Netprotect.

Vestergaard had developed two different "formulae" comprising different additives which helped insecticide injected into the polyethylene yarn with which Bestnet's mosquito nets were manufactured. The make up of the formulae affected the speed at which the insecticide was regenerated from within the net material after the nets were washed, and therefore influenced how effective the nets were at repelling mosquitos soon after washing as well as the overall life-span of the nets.

The first formula nets did not receive approval under the World Health Organisation Pesticide Evaluation Scheme (WHOPES). However, the final formula nets did receive WHOPES approval. 

Dame Vivien Rose ruled that Bestnet had sold 248,152 first formula nets that Dr Skovmand had developed, in part, on the basis of Vestergaard's confidential information.

The judge said that for that misuse, Bestnet was liable to pay Vestergaard $335,419. The primary basis for determining that figure was a calculation of the percentage of the 248,152 nets that Bestnet sold which would otherwise have been sold by Vestergaard if the Bestnet product had not been on the market, she said.

Dame Vivien determined that 73.9% of the Bestnet sales would have gone to Vestergaard and that damages should be calculated at a rate of $2.02 per net. She revised the damages figure she calculated down to reflect the "minority interests" in Vestergaard's business that would have been entitled to a share of the damages Bestnet owed but then revised that figure up to account for an additional payment of royalties that would have applied to some of the sales.

To add to the $335,419 total, the judge said that further damages of $150,000 were owed by Bestnet for confidential information misuse which led to the development of the final formula.

She rejected Vestergaard's primary argument that damages owed for the breach of confidence that applied to the final formula nets should be calculated on the basis of its "lost profit on diverted sales and a royalty on remaining sales". 

Dame Vivien also rejected Vestergaard's suggested alternative suggested basis for calculation of damages which would have involved establishing a notional royalties rate that would have applied had Vestergaard given Bestnet a licence to access and use its confidential information.

Instead, Dame Vivien said that it was appropriate to apply a "quasi-consultancy fee" which would "reflect the extent to which the sales of later formula nets were brought about by the use of the confidential information by [Bestnet]". In addition, she said Bestnet was also liable for "payment of compensation in respect of sales made in any period when [Bestnet] were on the market selling Netprotect when they would not have been on the market if they had not misused [Vestergaard's] confidential information".

Dame Vivien held Bestnet liable for a $150,000 quasi-consultancy fee after determining the figure to be "an appropriate reflection of the use made of the first formula nets and of tests results on those nets" by Dr Skovmand in developing the final formula nets "when balanced against the further work carried out and the expertise brought to bear when arriving at the [WHOPES] approved Netprotect product".

The judge determined that Dr Skovmand would have taken six months longer to develop the final formula for the mosquito nets on the basis of his own knowledge and further testing than he did when using Vestergaard's confidential information to do so. There would also have been a subsequent six months delay in the time it would have taken for Bestnet to get its Netprotect product through the first phase of WHOPES testing, she ruled.

However, Dame Vivien said that the six months saved did not equate to six months of sales that Bestnet should have to compensate Vestergaard for.

She said that the Netprotect product, if developed six months later than it had been, would still have been subject to second phase WHOPES "field testing" at the same time as it was in reality. This was because of the particular timing of the mosquito seasons in Burkina Faso and Tanzania where the field testing occurred.

The Netprotect product passed phase one of the WHOPES approval process in September 2006 but was not subjected to field testing in Burkina Faso until May 2007 and in Tanzania in October 2007.

Dame Vivien said that the theoretical six month delay in the process of Netprotect's development would have resulted in the same testing timeframe for the Netprotect product developed without the aid of Vestergaard's confidential information as what applied in reality.

Bestnet did not benefit from accelerated entry to market of the Netprotect product and so it did not owe additional damages to Vestergaard, she ruled.

"Even if it had taken Dr Skovmand an additional six months to arrive at the later formula, avoiding using [Vestergaard's] confidential information, it would not have made any difference to the date on which WHOPES interim approval was achieved," the judge said. "There was therefore no accelerated entry onto the market for the later formula nets. No damages in respect of later formula nets are payable."