Opinion: Striking the right balance

Actions for breach of confidence that aim to protect trade secrets need to prove a dishonest intent

Oudkerk

In the tug of war between encouraging competition and protecting trade secrets it is the latter that has had the upper hand over the past decade. The decision of the Supreme Court last month in MPF3 Apps (formerly Vestergaard Frandsen A/S) v Bestnet Europe Ltd is a timely reminder of the need to strike a fair balance between these countervailing public policies. Vestergaard opens the door to a more commercial approach to cases which turn on resolving the tension between lawful employee competition, IP rights and trade secrets.

As Lord Neuberger put it: “The importance to the economic prosperity of the country of research and development in the commercial world is self-evident, and the protection of intellectual property, including trade secrets, is one of the vital contributions of the law to that end. On the other hand, the law should not discourage former employees from benefitting society and themselves by imposing unfair difficulties on their attempts to compete with former employers”.

Vestergaard’s appeal on the issue of breach of confidence was put on three bases: breach of confidentiality requirements in an employment contract, a common design, and blind eye knowledge of use of trade secrets by a business partner. It failed because the individual alleged to be liable for breach of confidence did not herself ever acquire the confidential information in question, nor was she aware at the time that those she was in business with were misusing trade secrets.

Ambitious claims in respect of trade secrets are not uncommon. In many industries, IP rights or confidential information will be central to the commercial success of all parties. Leaving aside the question of damages, injunctive ‘springboard’ relief founded on the misuse of trade secrets is a powerful tool. Nevertheless, Vestergaard comes in the wake of a series of decisions in which the first-instance courts and the Court of Appeal have raised concerns about over-ambitious or unparticularised claims to commercial confidentiality.

The lessons of the Vestergaard case are clear. First, breach of confidence claims bite on conscience. To be liable an individual will normally need to know that she is abusing confidential information.

Secondly, claims framed under the contract of employment will be scrutinised and, unsurprisingly, the courts will neither strain the words of the contract nor imply terms to impose strict liability.

Finally, the courts will look at cases in this field in their commercial context with a view to maintaining a balance between the competing policy concerns.

Dishonesty will inevitably colour a court’s view. As the Supreme Court explained, actions for breach of confidence are ‘based ultimately on conscience’. The absence of a finding of dishonesty or reckless disregard was fatal to Vestergaard’s cause of action. Had there been dishonesty Vestergaard would have succeeded: use of trade secrets without lies was not enough.