The Court of Appeal has recently issued helpful guidance as to
the extent of the right of a successful Claimant to claim damages
in misuse of confidential information (trade secrets) cases.
The the long running case of Vestergaard Frandsen A/S
(now called MVF3 ApS) & Ors v Bestnet Europe Ltd &
Ors concerns secret information used in the
manufacture of long lasting insecticidal mosquito nets
("LLINs"). Mr Justice Arnold heard the trial
of the liability phase of the action and in his judgment dated 3
April 2009 ([2009] EWHC 657 (Ch)) he found
that Bestnet Europe Ltd ("Bestnet") had misused
Vestergaard Frandsen ("VF's") confidential
information in the development of its "Netprotect" LLIN.
In a subsequent judgment dated 2 June 2009 ([2009] EWHC 1456 (Ch)) Arnold
J held that it was right to grant an injunction to restrain future
sales of Bestnet's Netprotect LLIN launched in October 2005.
However he declined to grant an injunction in respect of a later
variant of the Netprotect LLIN submitted for WHOPES (World Health
Organisation Pesticide Evaluation Scheme) evaluation referred to as
WHOPES II. In a short subsequent judgment given on 2 July
2009 ([2009] EWHC 1623 (Ch)) Arnold J held that the same applied to
another variant submitted for WHOPES evaluation referred to as
WHOPES I.
Arnold J held that the WHOPES I and II Netprotect LLINs did not
amount to an to a misuse of VF's confidential information but
were derived from the misuse of VF's confidential
information and, in declining an injunction on these derived
products, he held that VF's remedy for past misuse should be a
financial one.
The conclusions of Arnold J were upheld by the Court of Appeal (Sir
Robin Jacob, Jackson LJJ and Sir John Chadwick) on 20 April 2011 ([2011] EWCA Civ 424).
By his order dated 2 July 2009, Arnold J ordered an enquiry as to
damages or equitable compensation for breach of confidence or at
VF's option an account of Bestnet's profits made. VF
elected for an enquiry as to damages or equitable compensation and,
in its primary case seeks its lost profits, or alternatively a
royalty on sales of all products, whether those products were made
using its confidential information or were "derived" from
the misuse.
The Defendants brought a strike out application seeking to
eliminate from the scope of the enquiry anything other than the
October 2005 NetProtect product identified on the basis that, as
the judge had held that the manufacture and sale of the mosquito
nets made in accordance with the formulation submitted for WHOPES
evaluation did not amount to misuse of confidential information, VF
could not claim damages or equitable compensation in respect of the
impact on VF of sales of those products.
The Defendants application failed at first instance again before
Arnold J. On appeal, the Court of Appeal has held that it
would be undesirable to lay down, by striking out the relevant
parts of the claim, a general principle for the assessment of
damages in cases of breach of confidence leading to the manufacture
and sale of derived products. Such a decision is far better taken
once the full facts have been determined. The Court of Appeal
went on to highlight that injunctions and damages are distinct
remedies and the principles which govern their availability are not
the same. It endorsed the judgment of Laddie J in Ocular
Sciences Limited v Aspect Vision Care Ltd (Part 2) [1997] RPC
39 that, if the facts of the case make a judge hesitate as to
whether to grant an injunction, a financial penalty may be the
appropriate alternative.
The Court of Appeal concluded that "when it comes to
considering damages, the distinction between the two classes of
product sold by Bestnet may not be as material as it is when
considering the grant of an injunction. Both classes, to some,
although a differing degree, benefit from the VF confidential
information. Whether it is right, in the end, to limit VF to head
start damages in respect of the derived products is a decision
which can only properly be made when the extent of that benefit has
been established on the facts" and that it would
"be wholly wrong at this stage to hold that VF had no real
prospect of establishing their primary case in relation to the
derived products."
The full judgment of the Court of Appeal can be found by
clicking here.
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.