Confidential Information and Know-How
10
Confidential information is the riskiest form of intellectual property in which to deal, because of its nature. There is no registered right to evaluate or assess. It is not like patents, copyright or designs where a particular ‘thing’ is afforded protection. Rather, know-how or certain such information is valuable precisely because it is confidential and not in the public domain. The extent of the confidential information or know-how is usually difficult to establish with certainty. In the UK, an action for breach of confidence may lie in equity, or contract or at common law. The legal doctrine of confidential information is a set of principles developed over centuries by the courts. It is the application of those principles to particular fact situations which determines whether the information is confidential or not. To achieve fairness, broad legal principles have been developed to permit considerable flexibility. The fundamental legal principle that forms the underlying basis of the law of confidence is that a person who has received confidential information from another will not take unfair advantage of it or profit from the wrongful use or publication of it.
Essay questions will usually expect the student to focus on the elements of the action for breach of confidence and the defences. Problem questions often arise in a commercial or employee/employer context.
Question 44 |
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For the past two years, Paul, a consultant aviation engineer and former airline pilot, has been independently developing an innovative highly geared bypass fan (HGBF). Paul has been careful to keep his innovation confidential and has not disclosed the details to any other third party. However, in January 2009, he attends a preliminary meeting at the London head office of Orion Aerospace and meets with the Research and Development director, Dr Gunn. At the beginning of the meeting Paul states that the subject matter of the meeting is confidential as between the two men. Dr Gunn nods in agreement and Paul proceeds to tell him about the details of his invention. Paul also shows Dr Gunn a technical drawing of the fan but retains this when he departs the meeting. Dr Gunn confirms Paul’s innovation is of interest to Orion and that they should meet again to discuss proposals for the manufacture of a new aircraft HGBF. Two further meetings are held in February. However, after some disagreements between Paul and Orion Aerospace regarding the terms of a potential licence agreement and in particular the royalty rate, negotiations break down. In June 2009 Orion proceed to manufacture their own new aircraft by-pass fan, the Orion X2009. In July 2009 Paul becomes aware of Orion’s new development when he reads an article in an aeronautical engineering trade magazine which features a photo of Dr Gunn and two other members of his team standing beside the X2009 fan. Paul is livid and suspects that Orion has used at least some of the information he disclosed to Dr Gunn earlier in the year. Paul seeks your advice as to whether he has a case for breach of confidence. In particular, he is concerned that he did not insist that Dr Gunn sign a written non-disclosure agreement and enquires whether this will affect his legal rights.
Answer Plan
A straightforward question concerning breach of confidence set in a commercial context. The issues to be considered are:
- The implication of oral agreement and lack of a formal contract between the parties and the impact this may have on bringing an action for breach of confidence.
- Whether the facts establish the elements of the action for a breach of confidence as set out in Coco v AN Clark (Engineers) Ltd (1969):
1. the information must have a necessary element of confidentiality;
2. the information was communicated in circumstances of an obligation of confidentiality;
3. the information is used in an unauthorised way [possibly] to the detriment of the party communicating it.
- If Orion Aerospace have any relevant defences to rely on.
- The remedies available to Paul.
Answer |
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While Paul has taken the prudent step of verbally stating to Dr Gunn that the information he will disclose regarding his new highly geared bypass fan (HGBF) is confidential, he has not required Dr Gunn or Orion Aerospace to sign a written agreement including terms to protect his confidential information, namely, the ‘know-how’ or ‘trade secret’ related to his HGBF, nor have the parties entered into a formal licence agreement. The difficulty for Paul will be to prove that an oral agreement exists, and while not impossible, this could be problematic. Fortunately, the law of confidence is often used to protect economically valuable commercial information such as Paul’s HGBF design and his industrial ‘know-how’ (although it may apply equally to any information that has the necessary quality of confidence). Orion Aerospace and its employee Dr Gunn have possibly breached the law of confidence by designing their own HGBF if they have used any of Paul’s information without his consent. Accordingly, Paul should consider initiating an action against Orion Aerospace relying on the doctrine of confidential information. To clarify, this means that the equitable doctrine of breach of confidence will operate as a stand-alone action regardless of any contractual relationship between the parties: Prince Albert v Strange (1849); Morrison v Moat (1851). This is because an action for breach of confidence has its roots in equity on the basis that it involves a breach of trust between the parties: Coco v AN Clark (Engineering) (1969); Naomi Campbell v Mirror Group Newspapers (2004). The law of confidence can operate as a stand-alone cause of action in its own right or as a supplementary action or for example, supporting an action for patent infringement or breach of contract. The court can act independently in equity even in the absence of proof of an oral agreement between Paul and Dr Gunn that the information disclosed by Paul directly to Dr Gunn would remain confidential. Indeed, in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) Lord Greene MR stated that: ‘If a defendant is proved to have used confidential information directly or indirectly obtained from the [claimant] with the consent, express or implied, of the [claimant], he will be guilty of an infringement of the [claimant’s] rights.’ He further stated that the obligation to respect confidence is not limited to cases where the parties are in a contractual relationship.
English law does not distinguish between types of information that may be protected against breach of confidence. In the ancient case of Morrison v Moat (1851) a recipe for medicine was protected via the doctrine of confidential information. There is a wide range of protected information, which may include trade or technological secrets and know-how and commercial records: Robb v Green (1895). It is clear therefore that Paul’s HGBF design information is the type of information able to be protected via the doctrine of confidential information. Finally, in Seager v Copydex Ltd (1967) the Court of Appeal confirmed that it would act independently of the law of contract. The facts are a case in point here. During preliminary negotiations with the defendants, the claimant revealed secret information to them about a carpet grip he had invented. After the negotiations had broken down, the defendants produced a carpet grip of their own which apparently made use of the claimant’s information. There was no contract between the parties. In his judgment, Lord Denning MR stated:
Prima facie Paul has an action against Orion Aerospace for breach of confidence. The three elements of an action were established by Megarry VC in the seminal case of Coco v AN Clark (Engineers) Ltd (1969) as follows: (1) the information must have a necessary element of confidentiality; (2) the information was communicated in circumstances of an obligation of confidentiality; and (3) the information is used in an unauthorised way (possibly) to the detriment of the party communicating it.
Paul’s action for breach of confidence against Orion Aerospace will fail unless the essential elements for a successful action in breach of confidence are shown. Each element of the test for breach of confidence will be considered in turn below.
First, for Paul’s HGBF design information to be ‘confidential’, it must not be public property or knowledge. Specifically, in Saltman Engineering v Campbell Engineering (1948) Lord Greene MR stated that information must have ‘the necessary quality of confidence about it, namely it must not be something which is public property and public knowledge’. It is clear that Paul’s information is valuable technical information and is not mere ‘trivial tattle’. The facts do not suggest that Paul’s information has entered the public domain. However, Paul’s design information and know-how must be shown to be clearly identifiable and sufficiently well-developed so as to be capable of realisation: De Maudsley v Palumbo and Others (1996); Lock International plc v Beswick (1987). This could be done by referring to specific documentation, such as Paul’s technical design drawing and his research notes, which clearly confirm the HGBF technical information and suggest it was not merely an idea, but rather was sufficiently developed. It would be very helpful if such documentation was marked with the words ‘confidential information’ or the like and dated. If Orion Aerospace has reproduced the documentation, in particular if they have reproduced a technical design drawing incorporating Paul’s information, an action may also lie for breach of copyright.
Second, the next question is whether Paul’s HGBF information was communicated in a way that obliged Dr Gunn and Orion Aerospace to keep the information confidential. Dr Gunn, employed as the Research and Development director for Orion Aerospace, expressly agreed with Paul his HGBF information was confidential at their preliminary meeting in January 2009. The objective test formulated by Megarry J in Coco v Clark is clearly satisfied:
Dr Gunn will have the expertise and experience in the field to realise that Paul is disclosing the information on a confidential basis. Dr Gunn (and therefore his employer, Orion Aerospace) has a clear obligation to keep Paul’s information confidential and not to use it without Paul’s permission. The second element of the action for breach of confidence is made out.
Third, has Orion Aerospace used the information in an unauthorised way to Paul’s detriment? This is not clear on the facts. We are told that Dr Gunn and his team at Orion Aerospace have developed their own HGBF known as the Orion-X2009. It may be that Orion Aerospace has used Paul’s confidential HGBF technical information to its advantage as a ‘springboard’. Paul will require further evidence as to the nature of the Orion-X2009 and its development process in order to establish this third element of the action for breach of confidence. In his favour, Paul has not placed his HGBF in the public domain such that the information is accessible by the public, so Orion Aerospace will have to explain how it developed its Orion-X2009. As Roxburgh J stated at 392 in Terrapin v Builders Supply:
A person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public … The possessor of the confidential information still has a long start over any member of the public.
If Paul is able to prove that Orion Aerospace has used his confidential information to assist it to develop its Orion-X2009, then an inference of breach of confidential information could certainly be drawn on this point. There are many examples of cases where suppliers or manufacturing companies take the original inventor’s ideas and manufacture their own products. For example, the new carpet grip invented by Mr Seager, which Copydex ‘unconsciously’ used after licensing negotiations with Mr Seager broke down: Seager v Copydex Ltd (1967) as mentioned earlier. See also EPI Environmental Technologies plc v Symphony Plastic Technologies plc (2004).
Orion Aerospace does not appear to have any relevant defence. Paul’s technical HGBF information is not in the public domain, nor has there been any undue lapse of time, nor does a ‘public interest’ argument arise on the facts.