LAW OF CONFIDENCE/TRADE SECRETS

“People ought to keep secrets if they said that they will do so. English courts have
translated this simple moral precept into a form of civil legal liability which is of
considerable breadth.” Cornish & Llewelyn - p. 299.

"...a gentleman's word is as good as his bond, sometimes better, as in the present
case." Charles Dickens, “The Old Curiosity Shop”

“There is an inherent public interest in individual citizens and the state having an
enforceable right to the maintenance of confidence. Life would be intolerable in
personal and commercial terms, if information could not be given or received in
confidence and the right to have that confidence respected supported by the force
of law.”
Attorney-General v Guardian Newspapers Ltd. and Others (No. 2) [1988] 2 W.L.R.
805 Lord Donaldson M.R at Para 7

“Breach of Confidence” is the law on the need to keep certain information secret.
It has existed since man first began to communicate, for example the Chinese
guarded the existence of the silk worm and their dependence on the mulberry
tree for centuries in order to protect the silk trade. It is advantageous to keep
information secret from others, be that migratory patterns of game animals,
knowledge of making flint tools, how to smelt bronze, etc. Those with secret
knowledge were often elevated to exalted positions. The Romans had a law that
would punish a person who induced another person to divulge secrets relating to
the master’s commercial affairs. It is therefore surprising, given the need to
develop trade secret law during the industrial revolution, that Britain’s laws of
confidence are almost completely based in common law, not statute.

• Most Common Law countries use the same legal tests for Breach of
Confidence.
• USA has the Uniform Trade Secret Act, but the case law is exhibits many of
the same characteristics as UK (the early case law is modeled on UK law).
• While many European countries have their own law the European Union
has set out a proposal for a harmonisation directive on trade secrets.
• http://register.consilium.europa.eu/doc/srv?l=EN&f=ST
%2017392%202013%20INIT
• The law on Breach of confidence has developed along ECHR lines in the
protection of Personality rights.

However, the fact that the law of confidence has not received statutory
protection does not negate its importance. Protection of secrets is
internationally recognised, as the TRIPS agreement (Agreement on Trade-
Related Aspects of Intellectual Property Rights), section 7 mandates “protection
of undisclosed information.” Specifically, Article 39 requires that:-
  Natural & legal persons shall have the possibility of preventing
information lawfully within their control from being disclosed to,
acquired by, or used by others without their consent in a manner contrary
to honest commercial practices so long as such information:
 (a) is secret in the sense that it is not . . . Generally known among or
readily accessible to persons within circles that normally deal with that
kind of information
 (b) has commercial value because it is secret
 (c) has been subject to reasonable steps . . . To keep it secret.
 Governments also have a duty to protect the confidentiality of
undisclosed testing data used in the approval process for new drugs &
products.

Note that trade secret actions are often combined with an action under more
traditional heads, such as copyright, patent or design.

History & growth of law of confidential information.

Prince Albert v. Strange [1849] 1 H & T 1

Prince Albert (acting on behalf of his wife) sued Strange for the return of
impressions of private etchings made by Prince Albert & Queen Victoria. The
Court started out by quoting the broad principle that an author has right to keep
unpublished work unpublished. It was uncertain how Strange had received the
etchings, and the court presumed that they were somehow obtained unlawfully
from the printer. Court found the employees of the printer had an implied duty
of confidentiality: “every clerk employed . . . Is under an implied contract that he
will not make public that which he learns in the execution of his duty as clerk.”
Since the etchings were the “fruit of the poisonous tree”, a potentially innocent
third party could be enjoined in an action.

So, as a result:-

 Court showed willingness to imply a duty of confidentiality on employees

 Court also showed willingness to enjoin non-breaching third party.
 Assumed (without discussion) that Prince Albert/Queen Victoria took
reasonable measures to keep etchings confidential.
 Almost all the hallmarks of the modern action appear in this case.

Morrison v. Moat [1851]

This involves Morrison’s secret recipe for quack medicine. Morrison’s partner,
Moat, told his own son the recipe. The Court found that this communication was
a “breach of faith” as in it relied upon equitable principles to establish a duty of
confidence, and thus followed Prince Albert v. Strange. Interestingly there was no
contractual relationship between Moat’s son and Morrison. So even at the start of
the law we can see the flexibility inherent in breach of confidence and the Courts
willingness to adapt the action.

Modern law of breach of confidence.

Saltman Engineering v. Campbell Engineering [1948] 65 RPC 203.

Saltman owned the copyright in drawings for a leather punch. The Defendant
manufactured the punches, and Saltman alleged that defendant used designs to
make its own competing punches, there was no contract between plaintiff &
defendant.

Court held: ““if two parties make a contract, under which one of them obtains for
the purpose of the contract . . . Some confidential matter, then, even though the
contract is silent on the matter of confidence, the law will imply and obligation to
treat the confidential matter in a confidential way . . ., but the obligation to
respect confidences is not limited to cases where the parties are in contractual
relationship.”
“if a defendant is proved to have used confidential information, directly or
indirectly obtained from the plaintiff, without the consent, express or implied of
the plaintiff, he will be guilty of infringement of plaintiff’s rights.”

“I think that I shall not be stating the principle wrongly if I say this with regard to
the use of confidential information. The information, to be confidential, must, I
apprehend, apart from contract, have the necessary quality of confidence about it,
namely, it must not be something which is public property and public knowledge.
On the other hand, it is perfectly possible to have a confidential document be it a
formula, a plan, a sketch, or something of that kind, which is the result of work
done by the maker upon materials which may be available for the use of anybody;
but what makes it confidential is the fact that the maker of the document has used
his brain and thus produced a result which can only be produced by somebody who
goes through the same process.”
Lord Green MR.

Court then defined when action for Breach of Confidence could be taken: “if a
defendant is proved to have used confidential information, directly or indirectly
obtained from the plaintiff, without the consent, express or implied of the plaintiff,
he will be guilty of infringement of plaintiff’s rights.”

Lord Greene noted that only information which was truly confidential could be
protected, “but what makes it confidential is the fact that the maker of the
document has used his brain and thus produced a result which can only be
produced by somebody who goes through the same process.”

This brought in the need for an element of effort by the plaintiff: Note the
similarity to TRIPS.

The element of effort and time saved by others by appropriating it is confirmed

in:-
Seager v. Copydex [1967] FSR 211.

Seager had patented a carpet grip, and while discussing with defendant the
possibility of marketing that product, he also discussed his idea for a new
invention, which they might also want to market. Defendant claimed to have no
interest, but as soon as the door was shut, they took his idea, and rushed a
product out to market before plaintiff. Court said there is a “broad principle of
equity that he who has received information in confidence shall not take unfair
advantage of it.” Even though some of plaintiff’s idea could be derived from
public sources (such as his previous patent), not all of it was in public domain.
Accordingly:-

“The law on this subject does not depend on any implied contract. It depends on the
broad principle of equity that he who has received information in confidence shall
not take unfair advantage of it. He must not make use of it to the prejudice of him
who gave it without obtaining his consent. The principle is clear enough when the
whole of the information is private. The difficulty arises when the information is in
part public and in part private.”

“When the information is mixed, being partly public and partly private, then the
recipient must take special care to use only the material which is in the public
domain. He should go to the public source and get it; or, at any rate not be in a
better position than if he had gone to the public source. He should not get a start
over others by using the information which he received in confidence. At any rate,
he should not get a start without paying for it.”
Lord Denning MR.

This was defined as the ‘Springboard Principe.’

This built on the earlier case of:-

Cranleigh Precision Engineering v. Bryant [1965] 1 WLR 1293

And

Terrapin v Builders Supply Co (Hayes) (No.1) [1960] R.P.C. 128

Here the “springboard principle” was described as occurring where: “a person

who has obtained information in confidence is not allowed to use it as a spring-
board 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.”
Roxburgh J

Eventually, these cases and the various elements contained therein coalesced to
bring about a definitive test for when a Breach of Confidence occurs.
Coco v. AN Clark [1969] RPC 41

The plaintiff in had developed a special moped engine and negotiated with
defendants to manufacture the engine, butt in the end they were not able to
reach agreement, although after negotiations broke off, the defendant’s offered
to pay him a royalty per engine, which was refused. The Defendants went ahead
and manufactured the engine anyway! The Court held that there were three
elements which must be proved for a breach of confidence action:

1. The information itself must have the necessary quality of confidence

about it. “something that has been constructed solely from materials in
the public domain may possess the necessary quality of confidentiality;
for something new and confidential may have been brought into being by
the application of the skill and ingenuity of the human being.”

Was there the necessary quality of confidence?

De Maudsley v Palumbo [1996] F.S.R. 447 - The Ministry of Sound
Case.

Fraser v Thames Television Ltd [1984] 1 Q.B. 44

The idea must:
Contain some element of originality
Be clearly identifiable
Be commercially attractive
Be sufficiently well developed to be capable of realisation

But for a discussion on breach of confidence and privacy see Douglas

v. Hello! Ltd [2005] where the decision, although seen as the start of
the trend towards personality rights, was decided very firmly along
traditional lines.

2. The information must have been imparted in circumstances

importing an obligation of confidence. “If the circumstances are such
that any reasonable man standing in the shoes of the recipient of the
information would have realised that upon reasonable grounds the
information was being given to him in confidence, then this should suffice
to impose upon him the equitable obligation of confidence. In particular,
where information of commercial or industrial value is given on a
business-like basis and with some avowed common object in mind, such
as a joint venture or the manufacture of articles by one party for the
other, I would regard the recipient as carrying a heavy burden if he seeks
to repel a contention that he was bound by an obligation of confidence.”
AG v Guardian Newspapers [1990] 1 A.C. 109

“…a duty of confidence arises when confidential information comes to

the knowledge of a person (the confidant) in circumstances where he
has notice, or is held to have agreed, that the information is
 confidential, with the effect that it would be just in all the
circumstances that he should be precluded from disclosing the
information to others. …The existence of this broad general principle
reflects the fact that there is such a public interest in the maintenance
of confidences, that the law will provide remedies for their protection.
…in the vast majority of cases, in particular those concerned with
trade secrets, the duty of confidence will arise from a transaction or
relationship between the parties - often a contract, in which event the
duty may arise by reason of either an express or an implied term of
that contract. …it is well settled that a duty of confidence may arise in
equity independently of such cases;”Lord Geoff

Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31- It

must be appreciated that the information was confidential

3. There must be an unauthorized use of that information to the

possible detriment of the plaintiff. “…for detriment to the plaintiff
plainly exists. I need therefore say no more than that although for the
purposes of this case I have stated the proposition in the stricter form, I wish
to keep open the possibility of the true proposition being that in the wider
form. Megarry J stated that he could foresee a situation where the plaintiff
may suffer no harm, yet be able to enjoin publication of such information
but “for purposes of this case I have stated the proposition in the stricter
form but I wish to keep open the possibility of the true proposition being in
the wider form.”

De Maudsley v Palumbo [1996] F.S.R. 447

Seager v. Copydex [1967] FSR 211 – The recipient must be very carful to
only use public information.
Coco v. AN Clark [1969] RPC 41

Megarry J had some issues with the springboard principle, and the inherent
confusion over what information could be legitimately used when some of the
information was public knowledge. His solution was to:- “ignore the duty, use
the information, and then pay damages.” Therefore, especially in the commercial
sector, injunction may be unavailable, but damages can be awarded.

When is breach of confidence used?

Employees/ex-employees

One of the most prolific areas of confidentiality/trade secrets disputes comes in

the employment arena. Any employee (especially those of higher ranking) is
likely to learn certain confidential information about the employer – it may be
needed as part of job training.
The question always arises as to what information the employee can legitimately
use when he/she leaves. Often, companies – especially hi-tech companies – will
require all employees to sign a confidentiality & non-competition contract.
In the UK the leading case is:–

Faccenda Chicken v. Fowler [1986] 3 WLR 288

.

Fowler was Faccenda’s sales manager, and decided to start his own competing
business. He took 8 of Faccenda’s employees with him. Court iterated a number
of important principles:-

1. Was there a contract of employment specifying duty of

confidentiality? If so, duty is that stated in contract and no other.
2. If there is no contract, duty of confidentiality can still be implied (i.e.,
as held in Prince Albert v. Strange/ Morrison v. Moat)
3. While employed, employee has implied duty of good faith & fidelity,
but scope of duty varies depending on position and nature of duties.
Deliberately copying confidential business information would likely be
a breach regardless of position.
4. After termination, implied duty much more restricted. Will generally
only cover true trade secrets, i.e. secret processes or methods of
manufacture.
5. To determine what information still retains aura of confidentiality
after termination, look at:

 Nature of employment -- did employee usually handle confidential

material?
 Nature of information – must be authentic trade
secret/confidential information
 Whether employee made clear that this was confidential
information
 Whether the information could be easily isolated from non-
confidential information or other information that the employee
was free to use.
Trade Secrets.
The Trade Secrets Directive (2016/943/EU) imposes a duty on member states to
protect:

2(1)(c) it has been subject to reasonable steps under the circumstances, by the
person lawfully in control of the information, to keep it secret;

This is a higher standard than UK Law where at least constructive knowledge is

needed.

The Directive also has a provision protecting ‘reverse engineering’ under Article
3(1) The acquisition of a trade secret shall be considered lawful when the trade
secret is obtained by any of the following means:
(a) independent discovery or creation;
(b) observation, study, disassembly or testing of a product or object that has
been made available to the public or that is lawfully in the possession of the
acquirer of the information who is free from any legally valid duty to limit the
acquisition of the trade secret;

Defences
The one most regularly sought of these is “Public Interest” this is not the same as
“of interest to the public”.

R v Ashworth Special Hospital Authority [2001] EWHC Admin 339, Monitoring

detained mental patients phone calls was not a beach of confidence.

A.G. v. Guardian Newspapers (No. 2) [1988] 3 All E.R. 545 (“Spycatcher”)

“…although the basis of the law’s protection of confidence is that there is a public
interest that confidences should be preserved and protected by the law,
nevertheless that public interest may be outweighed by some countervailing public
interest which favours disclosure…” Lord Geoff.

i) Nature of the information.

ii) Consequences of Non-disclosure.
iii) Type of Obligation.
iv) Belief of the confident.
v) To whom the information was disclosed.
vi) Other Factors.
vii) Public/private interests.

Remedies
Injunction – Can seek restraint of publication & use of information. However, if
the information has already been published or is in public domain, no injunction
will be possible. However, may be able to rely on springboard doctrine to
restrain defendant, even though others can use – but see Coco v. AN Clark, which
disapproved of this.

Interim injunction
American Cyanamid v Ethicon [1975] AC 369

• Whether there is a serious question to be tried.

• What would be the balance of convenience of each party should the order
be granted (in other words, where does that balance lie?)
• Whether there are any special factors.

And, what Lord Diplock referred to as the “governing principle:”

• Whether an award of damages would be an adequate remedy, the basis

for which he explained as follows:

“... the governing principle is that the court should first consider whether, if the
plaintiff were to succeed at trial in establishing his right to a permanent injunction,
he would be adequately compensated by an award of damages for the loss he
would have sustained as a result of the defendant’s continuing to do what was
sought to be enjoined between the time of the application and the time of the
trial. If damages in the measure recoverable would be [an] adequate
remedy and the defendant would be in a financial position to pay them, no
interim injunction should normally be granted, however strong the plaintiff’s
claim appeared to be at that stage.”

AB v CD (Rev 2) [2014] EWHC 1 (QB).

The expectations of damages were set by the agreement or circumstances
between the parties.

Human Rights Act 1998 s .12 Freedom of expression.

(1) This section applies if a court is considering whether to grant any relief
which, if granted, might affect the exercise of the Convention right to freedom of
expression.
(2) If the person against whom the application for relief is made (“the
respondent”) is neither present nor represented, no such relief is to be granted
unless the court is satisfied—
(a) that the applicant has taken all practicable steps to notify the respondent; or
(b) that there are compelling reasons why the respondent should not be notified.
(3) No such relief is to be granted so as to restrain publication before trial unless
the court is satisfied that the applicant is likely to establish that publication should
not be allowed.
4) The court must have particular regard to the importance of the Convention
right to freedom of expression and, where the proceedings relate to material
which the respondent claims, or which appears to the court, to be journalistic,
literary or artistic material (or to conduct connected with such material), to—
(a) the extent to which—
(i) the material has, or is about to, become available to the public; or
(ii) it is, or would be, in the public interest for the material to be published;
(b) any relevant privacy code.

Damages - But at what level should these be set? - if information was easily
derived by others with expertise, then damages may be limited to cost of
consultant to develop (Seager v Copydex). However, If information is truly
special, then should get value a willing buyer would pay for it.
Note that in privacy personality rights cases damages are often seen as
inadequate by the plaintiffs. Mosley v News Group Newspapers Ltd [2008] EWHC
1777 (QB)

Account for Profits.

Walsh v Shanahan [2013] EWCA Civ 411

Constructive Trust.
A.G. v. Guardian Newspapers (No. 2) [1988] 3 All E.R. 545 (“Spycatcher”)
Breach of Confidence and Image/Personality rights.

Review of the decisions before the Human Rights Act

Historically the courts have been very reluctant to allow privacy/image rights as
a right. Instead they granted protection (or often not) on an add hoc basis with
no overriding consensus or objective.

Prince Albert v Strange (1849) 2 De G & Sm 652

Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 R.P.C. 203
Coco v Clark [1969] R.P.C. 41
Kaye v Robertson [1991] FSR 62
Peck v UK (2003) 36 E.H.R.R. 41
Wainwright v Home Office. [2003] UKHL 53
There was no right of privacy and no real recognition of image rights in the UK.
An image could be protected through the use of an action for breach of
confidence, but this was based around the misuse of commercial information and
was unsuited to protecting an image.

Review of the decisions after the Human Rights Act.

There appears to be an emerging tort of privacy after the Human Rights Act
1998, if so to what extent are image rights protected?

Article 8 ECHR
Right to respect for private and family life
1 Everyone has the right to respect for his private and family life, his home and his
correspondence.
2 There shall be no interference by a public authority with the exercise of this
right except such as is in accordance with the law and is necessary in a democratic
society in the interests of national security, public safety or the economic well-
being of the country, for the prevention of disorder or crime, for the protection of
health or morals, or for the protection of the rights and freedoms of others.
Review of the decisions before the Human Rights Act

Article 10 ECHR
Freedom of expression
1 Everyone has the right to freedom of expression. This right shall include
freedom to hold opinions and to receive and impart information and ideas
without interference by public authority and regardless of frontiers. This Article
shall not prevent States from requiring the licensing of broadcasting, television
or cinema enterprises.
2 The exercise of these freedoms, since it carries with it duties and
responsibilities, may be subject to such formalities, conditions, restrictions or
penalties as are prescribed by law and are necessary in a democratic society, in the
interests of national security, territorial integrity or public safety, for the
prevention of disorder or crime, for the protection of health or morals, for the
protection of the reputation or rights of others, for preventing the disclosure of
information received in confidence, or for maintaining the authority and
impartiality of the judiciary.

Balance of Articles 8 and 10.

Theakston v MGN [2002] EMLR 398
Douglass v. Hello [2003] EWCA Civ 332.
Campbell v Mirror Group Newspapers Ltd. [2004] UKHL 22.
McKennett v Ash [2006] EWCA Civ 1714
OBG Ltd and another v Allan and others, Douglas and others v Hello! Ltd and others
(No 3) Mainstream Properties Ltd v Young [2008] 1 A.C. 1
Mosley v News Group Newspapers Ltd [2008] EWHC 1777 (QB)
Murray v Express Newspapers Plc and another [2008] EWCA Civ 446.
Terry (Previously “LNS”) v Persons Unknown [2010] EWHC 119 (QB)

The Human Rights Act allowed for the horizontal direct effect and the
supporting of Article 8 Rights ECHR Rights through the Courts. While this was
slow to spread with Douglas being decided on commercial grounds, Campbell
opened the doors to protecting an image through an emerging (and disputed)
‘tort’ of privacy. This was followed by a series of cases pushing the boundaries of
privacy and therefore protection of an image. This has been heavily influenced
and has been influential in the European Court of Human Rights.

How have the ECtHR Decisions affected the protection of image rights?

Von Hannover v Germany (2005) 40 E.H.RR 1.

Reklos v Greece [2009] E.M.L.R. 16
Axel Springer AG v Germany (39954/08) [2012] E.M.L.R. 15 (ECHR (Grand
Chamber))
Von Hannover v Germany (40660/08 and 60641/08) [2012] E.M.L.R. 16 (ECHR
(Grand Chamber))
Mosley v United Kingdom (48009/08) [2012] E.M.L.R. 1 (ECHR)

Initially the ECtHR was very favourable of giving effect to article 8 Rights and
therefore allowing for the protection of image rights. Going as far as to interfere
with other legal rights such as copyright in Reklos. More recently there appears
to have been some backtracking with the Article 10 Rights being given more
prominence in the balancing act between the two. In Mosley the lack of an
effective remedy was noted, but it was not sufficient for the UK to be in breach of
the ECHR Mosley appealed to the Grand Chamber asking for a right of pre-
notification. In 2011 The Grand Chamber of the ECtHR considered this and
concluded that there was no need for a right of pre-notification.

Mosley has continued to campaign for privacy launching a series of actions

against Google for allowing their search engine to link to the video of his orgy.

http://www.theguardian.com/media/2015/jan/15/mam-mosley-google-court-
action-sex-party
Reading List.
Essential Reading
Bently Chapters 44.45 and 46

Additional Reading.
Prince Albert v. Strange [1849] 1 H & T 1
Saltman Engineering v. Campbell Engineering [1948] 65 RPC 203.
Seager v. Copydex [1967] FSR 211.
Coco v. Clark [1969] RPC 41
Faccenda Chicken v. Fowler [1986] 3 WLR 288
A.G. v. Guardian Newspapers (No. 2) [1988] 3 All E.R. 545 (“Spycatcher”)
Von Hannover v Germany (40660/08 and 60641/08) [2012] E.M.L.R. 16 (ECHR
Douglass v. Hello [2003] EWCA Civ 332.
Campbell v Mirror Group Newspapers Ltd. [2004] UKHL 22.