UK: Misuse Of Confidential Information – Have You Been Bitten?

What can parties expect in the way of compensation when confidential information slips through the net?

Opposing parties are often very far apart on the topic of compensation for a breach of confidence. Claimants may believe that they are entitled to many millions of pounds whilst defendants expect to pay out considerably less. A recent decision from the Court of Appeal, MVF 3 APS (formerly Vestergaard Frandsen A/S) and others v Bestnet Europe Ltd and others,  establishes some important points regarding the assessment of damages for breach of confidence actions. It provides some clarity as to the sums a claimant can expect to recover, or a defendant should expect to pay out, in the wake of a misuse of confidential information.

The facts

A consultant (Dr S) employed by one of the claimant companies (collectively Vestergaard) developed a formula for use in the manufacture of long-lasting insecticidal mosquito nets. Dr S left Vestergaard in 2004 and began working for one of the defendant companies (collectively Bestnet), where he continued to use and develop the formula.

The High Court held that Bestnet had misused Vestergaard's confidential information.

In determining the quantum of damages, the High Court considered two categories of mosquito nets:

  • Nets made using the formula developed by Dr S during his time at Vestergaard (First Formula and First Formula Nets), which were sold by Bestnet.
  • Nets made using a different formula developed by Dr S whilst working at Bestnet (Later Formula and Later Formula Products). Dr S used the First Formula (i.e. the confidential information) as a starting point in developing the Later Formula Product and it was these nets which generated substantial sales for Bestnet.

Damages were awarded to Vestergaard in respect of both types of net, applying a different measure to each type. Both parties appealed against the court's assessment.

The Court of Appeal's decision

First Formula Nets

The Court of Appeal upheld the High Court's decision and dismissed both the appeal and cross appeal. It confirmed that the appropriate level of damages in respect of the First Formula Nets, being the original product, should be determined using settled principles set out in the General Tire & Rubber Co Ltd v Firestone Tyre & Rubber Co Ltd (No.2) case, namely:

  • Loss of profits where the defendant has made sales which would otherwise have been realised by the claimant but for the defendant's use of the confidential information.
  • A royalty where licenses are granted in respect of patented technology, based on the royalty the defendant would have paid if it had obtained a licence.
  • An appropriate amount as the court may decide, having regard to evidence presented by the claimant, where a normal rate of profit or normal royalty rate cannot be shown. In such circumstances the royalty is usually assessed on the basis of a hypothetical negotiation, taking into account the licence fee which would have been payable between a willing licensor and willing licensee.

Applying these principles, the Court awarded Vestergaard the following:

  1. Lost profits on sales of the First Formula Nets, to the extent that the sales made by Bestnet would have otherwise been made by Vestergaard.
  2. Where Vestergaard could not establish that it would have made the sales, a royalty based on a hypothetical negotiation taking into account the fee, or the "going rate", which the parties would have negotiated for Bestnet to use the First Formula.

Later Formula Products

The Court of Appeal, upholding the approach taken by the High Court, applied a very different test to the measure of damages in respect of the Later Formula Products. Where the product being sold derives from the misuse of confidential information (rather than being the original product itself), the Court concluded that the General Tire approach was not appropriate because the sale of the Later Formula Products was not itself a wrongful act. And, although the First Formula was not in the public domain, a team with Bestnet's technical skills would have been able to produce a competing product of its own accord.

Instead, the Court held that there are two heads of damages to consider in circumstances where the misuse of confidential information has led to the development of a derived product, tracing the development of the Later Formula Product back to the initial wrongful use of the First Formula:

  1. A "quasi-consultancy" fee for using the First Formula as a reference standard in developing the Later Formula Product. In developing the Later Formula Product, Bestnet had essentially been afforded the sort of assistance from Vestergaard that a consultant could have provided (and indeed Dr S did provide this assistance to Bestnet). The Court awarded a quasi-consultancy fee of US$150,000, having regard to the fees actually paid to consultants with expertise in the area, balanced against the substantial amount of further work done by Dr S in pursuing possible changes to the First Formula to create the Later Formula Product.
  2. Damages for accelerated entry into the market, taking into account:

    1. The time Bestnet saved by utilising the First Formula at the start of the process to develop the Later Formula Product;
    2. The level of accelerated sales made as a result of the time saved.

Notably, the Court declined to award any sum to Vestergaard for accelerated entry into the market. Although Bestnet was deemed to have saved 6 months' worth of development work by using the confidential information to create the Later Formula Product, the Court found that this would not have made any difference to the date on which the requisite World Health Organisation approval of the product was achieved. The Court found the Later Formula Product would have entered the market at the same time even if it had been developed from scratch.

The impact of the decision

The law relating to breach of confidence covers a wide range of factual situations and therefore the level of remedy/remedies for a particular breach of confidence will vary in each case. This is highlighted in this judgment by the Court's rejection of the assertion that Bestnet had a "head start" into the market. There are many factual considerations to take into account which may ultimately have an impact on the level of damages awarded in order to put the claimant in the position it would have been in, had no misuse of confidential information occurred.

Vestergaard was awarded total compensation of $485,419 in this instance, which no doubt was considerably less than it expected to achieve. The decision confirms that a successful claimant will be compensated in different ways depending upon the way its confidential information has been misused. It also confirms that an award for damages for the sale of a derived product is likely to be lower in value than an award for the sale of products made directly misusing confidential information.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
31 Oct 2017, Seminar, Toronto, Canada

Gowling WLG and ACA Aponix have joined forces to provide a practical session for regulated financial services businesses, putting the legal requirements into context and giving you concrete actions.

1 Nov 2017, Seminar, London, UK

Our next ThinkHouse Foundations session has again taken on board your feedback from the last session which means we are turning our attention to employment, cloud and warranties and liabilities.

2 Nov 2017, Seminar, Toronto, Canada

Our next ThinkHouse Foundations session has again taken on board your feedback from the last session which means we are turning our attention to employment, cloud and warranties and liabilities.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.