UK: Confidentiality Clause is Ruled to be in Breach of Competition

Last Updated: 4 August 2010
Article by Sarah Hanson, Hannah Curtis and Susan Hankey

The claimant, Mr Jones, was the founder of CMP Group Limited (CMP), which, prior to its liquidation, assisted companies in acquiring and managing their photocopying equipment.  CMP negotiated on behalf of its clients with third parties and had developed a relationship with Ricoh UK Limited ("Ricoh") a manufacturer of multi-functional office automation devices ("MFDs").  Ricoh and CMP entered into a trading agreement in 1998 and a confidentiality agreement in 1999, the aim of the latter being to protect CMP's relationship with its clients so that it could not be cut out of the relationship by Ricoh dealing with them directly.

One of CMP's major clients was ADtranz, which was acquired by Bombardier in 2000.  Following the acquisition, Bombardier considered extending its UK model used for the procurement of MFDs to Europe and issued invitations to tender to CMP and Ricoh in 2003 and to, amongst others, Ricoh in 2007.  Whilst CMP and Ricoh submitted separate bids in response to the 2003 ITT, CMP was not involved in the 2007 bid and the related contract was awarded to Ricoh in 2008.

Mr Jones brought an action in the High Court against Ricoh claiming that its submission of tenders to Bombardier and the supply of MFDs to the group after June 2008 were in breach of certain provisions of the 1999 confidentiality agreement.  In response, Ricoh made an application for summary judgment of the breach of contract proceedings brought by Mr Jones which included, amongst other points, the allegation that clause 7 of the agreement (on which Mr Jones relied heavily) was in breach of Article 101 of TFEU.

Clause 7 of the 1999 agreement provided that:

"no approach or contact direct or indirect in connection with or during our discussions or whilst any Confidential Information remains in the possession or under the control of any Relevant Person [and connected company] shall be initiated, accepted or made by or on behalf of any Relevant Person to or with any employee, client or supplier of yours or any government body or regulatory or other authority or to or with any other person who to our knowledge has any actual prospective connection with you without your prior written consent."

This was interpreted to mean that for as long as any confidential information remained in the possession of Ricoh, Ricoh would be in breach of contract if any of its group companies made or accepted any approach to or from or any contact with any client of CMP, any government body or regulatory or other authority or any other person to Ricoh's knowledge "has any actual prospective connection" with CMP.

There were found to be a number of weaknesses in the drafting of the confidentiality agreement with the commercial justification for the breadth and extent of the prohibitions it contained being questionable.  The clause's reach was very broad with no limit in terms of geography or time; it also applied to dealings by Ricoh and its associated companies that were very likely to occur.  The wide definitions of "confidential information" and "relevant person" meant that if Ricoh remained in possession of any private information relating to CMP or its business practices, finances, dealings and clients that was received from CMP it would be in breach of contract if any of the companies in its group made any contact with any of CMP's existing or prospective clients or any government body or authority.

In relation to the application of Article 101 the High Court noted that:

  • the restriction in Clause 7 may affect trade between EU member states; Mr Jones wished to apply the clause in relation to supplies to Germany and Sweden (2003 ITT) and the whole of the EU (2007 ITT); 
  • the object of the clause appeared to be to protect confidential information disclosed to Ricoh, however it went further than required for that purpose in restricting over 150 Ricoh companies from dealing with any of CMP's clients for as long as Ricoh had any of a wide range of confidential information.  Therefore, although very unusual for this type of agreement, the confidentiality agreement was regarded as anti-competitive in its object; and 
  • Clause 7 also resulted in the agreement having an anti-competitive effect.  If the clause was to be given effect, Ricoh, one of the world's major manufacturers and suppliers of MFDs which competes with a small number of other major suppliers, would be prohibited from bidding in a large number of instances.  Enforcing Clause 7 would mean that international groups such as Bombardier would be precluded from receiving a competitive bid from one of the world's leading suppliers but could receive bids from other major suppliers.

It followed that the restriction was deemed to amount to a prohibition under Article 101 and as CMP was not acting as Ricoh's distributor or as a re-seller, Ricoh and CMP were not operating at different levels of the distribution chain and the block exemption relied upon by Mr Jones did not apply.

Additionally, the High court also held that as both the 2003 ITT and the 2007 ITT sought offers to supply Bombardier in territories including the EU, and as the claim was brought as regards Ricoh's responses to those invitations to tender, there was no scope for reliance on Clause 7 in this action in respect of potential dealings by Ricoh with customers wholly outside the EU, in respect of which Article 101 may not apply.

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Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 02 August 2010.

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