UK Supreme Court Confirms That There Can Be No Liability For Misuse Of Trade Secrets Unless And Until Confidential Information Is Acquired

The UK Supreme Court has issued its decision in the case of Vestergaard Frandsen A/S v Bestnet Europe Limited [2013] UKSC 31, dismissing Vestergaard's appeal and holding that there can be no liability for misuse of confidential information unless and until that information has been acquired, together with reasonable knowledge of its confidentiality.

The Supreme Court's judgment also provides useful guidance on the extent to which terms of confidentiality will be implied into a contract, as well as the limits of invoking liability on the grounds of common design. Further, the court's decision demonstrates a clear appreciation of the significance of intellectual property rights (including trade secrets) to the promotion of commercial enterprise and the need to balance this with the right of former employees to compete honestly with their former employers.

The Relevant Law

Under English law, a person may be precluded from disclosing/misusing confidential information through: (a) the terms of a contract to which he/she is a party; and (b) an equitable action for breach of confidence. Although as a cause of action breach of confidence has developed judicially over many years, its principal elements have remained essentially unchanged from those originally formulated in Coco v A N Clark (Engineers) Ltd [1969] RPC 41. In summary, to benefit from protection, the information in question must:

Have the necessary quality of confidence about it, i.e. it must be secret, identifiable and not trivial; Be communicated in circumstances importing an obligation of confidence, whether contractual or merely through objective knowledge of its confidentiality; and Be used without authorisation and to the detriment of the party communicating it. If all three of these elements can be satisfied on the balance of probabilities, a person will be adjudged primarily liable for breach of the equitable right. In addition, the Supreme Court confirmed in its judgment that, in principle, where two or more defendants each share a common design to disclose and/or misuse information that is clearly secret, contrary to a duty of confidence, they may be deemed jointly liable for breach of confidence.

The Facts

Vestergaard Frandsen A/S ("Vestergaard") develops, manufactures and markets mosquito nets, which are specially formulated with insecticide to help reduce the mosquito population. Vestergaard has invested considerable time and money in the development of mosquito nets, in particular to maintain the nets' insecticidal resistance over a long period of time. Vestergaard explored various techniques in its quest to create such long lasting insecticidal nets ("LLINs"), including the incorporation of insecticide into molten polythene (the "Techniques").

Two of the defendants in these proceedings were ex-employees of Vestergaard: Mrs Sig had worked for the company as a sales and marketing assistant and subsequently a regional sales manager; Mr Larsen was employed by Vestergaard as head of production. Both...