Ex-employees Liability for Trade Secrets

01.05.2013

This month, the UK Supreme Court has issued its decision in the case of Vestergaard Frandsen A/S v Bestnet Europe Limited, balancing the significance of intellectual property rights with those of former employees to compete with their former employers. The Supreme Court decided 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.

This case involves an ex-employee and a former consultant of Vestergaard that decided to set up a rival company. The ex-employee, Mrs. Sig, had an employment contract forbidding her to use confidential information of Vestergaard even after she left her employment there. Dr Skovmand, the former consultant, had no such contract but obtained the confidential information from Vestergaard. Dr Skovmannd used the confidential information to make a competing product, but there was no evidence that Mrs. Sig knew that he had obtained the information from Vestergaard in breach of confidence.

Vestergaard’s main complaint was that the Respondents’ product was developed using their confidential information. Vestergaard’s appeal is against the Court of Appeal’s reversal of a decision by Arnold J that Mrs. Trine Sig, their ex-employee, was liable for misuse of their trade secrets after she ceased her employment with them.

 

Vestergaard’s contention that Mrs. Sig is liable for breach of confidence was based on: her employment contract; secondly, on the basis that she was party to a common design which involved Vestergaard’s trade secrets being misused; thirdly, for being party to the breach of confidence. The Supreme Court found that each of these three arguments must fail. Mrs. Sig did not herself ever acquire the confidential information in question, whether during the time of her employment with Vestergaard or afterwards. Also, until some point during the currency of the proceedings, Mrs. Sig was unaware that the product had been developed using Vestergaard’s trade secrets. Meaning, Mrs. Sig, was not liable for breach of confidence as she did not know, and there was no reason why she ought to have known, that what she was doing amounted to misuse of confidential information.

 

As for Vestergaard claim that Mrs. Sig had “blind-eye knowledge” of the use of the trade secrets, the court found that since there was no evidence that Mrs. Sig had been dishonest, merely taking a risk was not sufficient to establish secondary liability. Vestergaard’s main argument was that Mrs. Sig was liable on the basis of common design was also rejected as Mrs. Sig lacked the necessary knowledge. Meaning, so that an employee be party to a common design, he/she must share with the other parties each of the “features of the design which make it wrongful”. As for the claim for Contractual liability, the terms of the contract were of no assistance. The court found that Mrs. Sig neither knew the trade secrets nor that they were being misused, which is inconsistent with the contract’s express terms; therefore there could be no liability.

The protection of intellectual property, including trade secrets, is one of the vital contributions of the law to research and development in the commercial world. Nevertheless, the law and should not discourage attempts to competition made by former employees by imposing unfair potential difficulties. If the UK Supreme Court’s decision was any different, it would have amounted to imposing strict liability for breach of confidence. Unlike patent infringement, which is a strict liability tort, so that an employer would be able to take action against a former employee for misusing trade secrets, where there is no express contractual term, there must be an ability to show dishonesty or at least knowledge that the information in dispute is confidential.

 

 

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