Canada: Who Should Win? The Chicken Or The Prince? A Lesson In Protecting Your Confidential Information

The recent decision of the Court of Appeal in Generics (UK) Ltd v Yeda Research & Development Co Ltd,¹gives rise to important issues for in-house legal professionals to consider when they are seeking to take employment with a rival to their present employer, especially when there is ongoing or imminent litigation between the two competitors. The Court has issued guidance that clarifies whether the common law standard for employees differs when they have a legal or quasi legal position in house: Patent Attorneys are held to the same standard as solicitors, but in house lawyers may be held to a lower standard than those in private practice.

Legal Background

Confidential information handled by employees necessarily needs protection, but it becomes more difficult once employees have left their positions to protect it, if held in their personal knowledge. There are two separate approaches that courts have taken when analysing the onus of responsibility owed by a former employee to their previous employer regarding confidential information. If there are no contractual provisions restraining ex-employees on confidentiality matters, then for general employees the case of Faccenda Chicken v Fowler²provides guidance.  Following that case the only information that will be protected once the employment relationship has terminated is a trade secret, or information which is of a sufficiently high degree of confidentiality as to amount to one.  However, there is a more onerous requirement on solicitors who have previously worked for a client and subsequently represent a new client with adverse interests to the former client: In Prince Jefri Bolkiah v KPMG³the court held that a solicitor (or their equivalent, such as accountants or patent attorneys) who are in possession of a client's confidential information owes an unqualified duty to preserve the confidentiality of information imparted during that relationship. As a result of such a duty, the solicitor must not be permitted to act against their previous client's interests unless they can establish that there is no risk of the confidential information being disclosed to third parties.

It is therefore an interesting question as to whether an in-house solicitor (or patent attorney) is subject to the general employee confidentiality requirements as laid out in Faccenda or the more onerous requirement that is equated to private practice solicitors in Prince Jefri Bolkiah. In Generics we may have the answer from the Court of Appeal 

The Facts

From 2008 to January 2011 an in-house patent attorney was employed by Yeda, responsible for oppositions in the European Patent Office.  In February 2011 the attorney was hired by Generics (trading under the name 'Mylan') as the Director of Intellectual Property, where at that time Yeda and Mylan were in litigation involving patents over a drug called Copaxone.  The attorney was not engaged in any of this litigation before leaving Yeda, and no one in her department had any involvement; however, in her new role she had direct involvement in the Copaxone litigation. After the attorney's hiring at Mylan, Yeda became aware of her involvement in the pending litigation, however Yeda did not object to that involvement until some eight months later when Mylan made a request for the release of confidential information to the attorney. An injunction was sought barring the attorney from working on any matters regarding the Copaxone litigation based on claims that she had been privy to confidential information on the case while employed with them. Evidence was provided that supported she was exposed to confidential information, albeit peripherally, through copied emails and one discussion regarding the litigation. The Patents Court granted an injunction on the grounds that Mylan could use such information to the detriment of Yeda.

The Decision

The Court of Appeal was unanimous in its decision to allow the appeal and discharge the injunction, allowing the attorney to work on the litigation. It was held that the confidential information held by the employee was at most peripheral to the Copaxone litigation and there was, moreover, no real risk of misuse of that information. It should be noted that all three of the judges agreed that a patent attorney stands in the same position as a solicitor, and that therefore, an in-house patent attorney shall be treated the same as an in-house solicitor. While the judges all came to the same result, their rationales varied.

 Jacob L. J. preferred the approach taken in Bolkiah; that once it was shown that the attorney had received confidential information, the burden of demonstrating that there is no risk of misuse lies on the attorney. He held that Floyd J. in the Patent Court was wrong in his assessment, as the information disclosed was at best peripheral to the litigation, and the fact that Yeda delayed by nearly eight months before applying for the injunction demonstrated that they did not regard this information as confidential. As a consequence, the burden on the attorney was discharged by Yeda's own conduct.

Jacob L.J. also took an expansive interpretation of Bolkiah by stating that it applies with equal force to a former in-house litigator (or patent attorney) as it does to a former independent litigator. He conducted a thorough analysis of the similarities between the two and concluded that there is no rational distinction for treating them differently, and went on to say that a 'former employer is entitled to just as much protection from his former employee litigator acting against him as if the litigator had been independently engaged. The overriding interest in the administration of justice so requires.'[4]

Etherton L.J. took a different approach preferring the rationale in Faccenda and did not agree that the principles in Bolkiah should apply to in-house solicitors. He went on to note that the approach taken by Jacob L.J. of equating in-house solicitors to that of one in private practice was too simplistic, and there was no good reason to import into the employment field and to place on the former employee the Bolkiah evidential burden of proving an absence of risk of disclosure. His decision to not import this rational was that if employers want to restrict their employee's activities they should do so through restrictive covenants so that the employee will know with certainty what they will be able to undertake for a new employer. On the facts of the case in applying Faccenda he found that the relevant information was not sufficiently secret or confidential to amount to a trade or business secret.  Etherton L.J. did note however, that a barring order may be appropriate in exceptional circumstances when an in-house solicitor is acting in a confidential role on a current contentious matter, and then takes up a position in a similar capacity for the other side in the same contentious matter.

Ward L.J. was more tentative in his analysis and was "[M]ost reluctant to adjudicate between the characteristically forceful common sense judgement of Sir Robin Jacob...and the characteristically erudite judgement of Etherton L.J.." As tentative as it may have been his judgement prefers the Faccenda approach, and did not equate in-house solicitors to the same onus as a solicitor in private practice by noting that if a solicitor, whether in-house or not, was in possession of highly confidential information about his former employer or a client of his firm, would be bound from acting against the interests of the employer/client. He noted that an injunction would be granted whether Bolkiah or Faccenda was applied, and that there are only marginal differences between the approaches. The most vital difference between the two, as he wrote, is the onus on the solicitor to prove no real risk of harm in Bolkiah. He went on to argue that the 'search for justice' should not require a former employed solicitor to have such an obligation favouring the protection of freedom of employment.

Analysis

The overall effects of this decision may only be seen in later cases and industry reaction.  However, the potential ramifications of it may be wide ranging for in-house legal professionals. The most significant part of this decision is different reasoning taken by the different judges. While the majority of the Court of Appeal preferred the lower threshold set out in Faccenda for in-house solicitors post-employment, it is still important for in-house professionals who are contemplating a move to a rival company, to be aware of the potential for the approach taken by Jacob L.J. to be applied in the future.

If the approach of Jacob L.J. is followed, the higher standard in Bolkiah will be extended to in-house professionals, and as Ward L.J. notes, could "[G]enerate a modern state of commercial slavery," especially for young in-house solicitors who are keen to advance their careers by switching jobs.  It cannot be overlooked that the higher standard in Bolkiah, if broadly applied, may overly burden employees who acquire confidential information during the course of their employment, hindering them from moving to rivals.  To businesses this must be an interesting development both in protecting themselves from employees that leave, and also for those looking to higher people with 'experience.'  In specialist areas that experience may now be harder to find if you cannot higher from your rivals with ease.  This decision is a welcome that patent attorneys are considered to be the same as solicitors, but it is not clear as to whether the standard test is the one in Faccenda or not.

Ward L.J. agreed with Etherton L.J. that there is "[A] thicket of confusion" surrounding this topic and Ward L.J.  points out that if Sir Robin Jacob's reasoning is correct:

This passage signifies that this issue is far from resolved.  At the very least it should be a warning shot to all parties involved in the legal profession (especially in-house) to be aware of employment issues that arise from the use of confidential information.

While it appears that the lower burden from Faccenda is the preferred reasoning, former employers may want to avoid such conflicts altogether by having greater clarity in their employment contracts. To set down the type of confidential information that is protected in the clearest form possible, and what disclosure to the former employer and competitors employee must make before and during work for any new employer, especially a competitor. Such covenants must obviously be reasonable and proportionate; but drafting detailed and sufficient covenants at the hiring stage may mitigate many unnecessary conflicts later on.

Employers who wish to hire legal professionals (in-house or not) from rival firms may be able to avoid situations like in the current case by keeping their new hires separate from any litigation involved with their previous employer through the use of information barriers.

This decision clarifies that employers wish to bar a former employee from litigating for rival companies against them, they must protest or object to such action immediately from the moment they become aware of any risk of disclosure, as delay may thwart them. As Jacob L.J. noted; "If someone is treading on your toe or about to do so you shout. If you wait for months first then complain in a desultory way, you are apt not to be believed.⁶"

In short professionals may to be treated differently from other employees when it comes to confidentiality but for now the test is the same for all employees, and so the Chicken won this race.

Footnotes

1. [2012] EWCA Civ 726.

2. [1987] Ch. 117

3. [1999] 2 A.C. 222

4. Ibid at para 36.

5. [2012] EWCA Civ 726 at para 108.

6.  Ibid at para 18.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.