Bestnet Bested Over Bug-Net Boosted from the Fence

Entomophobes, among others, will recall the clutch of cases that form the backdrop to this morning’s judgment of the Court of Appeal (Jacob & Jackson LJJ and Sir John Chadwick) in Vestergaard Frandsen & Ors v Bestnet Europe & Ors [2011] EWCA Civ 424. Mr Justice Arnold had originally decided the case in April 2009 (the “main judgment” – [2009] EWHC 657 (Ch), noted by tytoc collie here), but there followed three further decisions on remedies (the “remedies judgment” - [2009] EWHC 1456), liability for subsequent versions of the defendant’s products (“WHOPES I” - [2009] EWHC 1623 (Pat)) and, more recently, a judgment following remittal to consider additional questions of fact (the “remittal judgment” - [2011] EWHC 477 (Ch)).

Like the interconnected strands of a cobweb, the first instance judgments (all 1,007 paragraphs of them) disclose a complex tale of scandal and intrigue in the world of insecticidal fabrics manufacture. The Kat will attempt to summarise:

Vestergaard owned the rights to some technical trade secrets which, for the purposes of this tale, resided in a database called Fence. Fence was an extensive repository of ingredients and their proportions used to make long-lasting insecticidal nets (LLINs). It also contained the results of various tests that had been carried out on the nets. LLINs, as the name would suggest, are formulated so as to retain relatively long-term insecticidal properties. The insecticides are not simply sprayed on, or infused into, pre-made fabrics, they are incorporated into the plastic itself before it is extruded into filaments used to form the nets. The idea being that the insecticide gradually leaches out of the filaments ensuring an insecticidal surface remains over a protracted period even if the net is repeatedly washed.

In the summer of 2004 two of the individual defendants, Mr Larsen and Mrs Sig [Merpel notes that if you put them together you’re only a few letters and a typewriter away from a Swedish crime trilogy], left the employment of Vestergaard and entered into competition therewith. They did so in association with a scientist, Dr Skovmand, who was experienced in the field and who, although not previously employed by Vestergaard, had been engaged as a consultant by the company for a long time. As noted in the Court’s judgment (at [5]): he was, in effect, Vestergaard’s head of development.

As is typical in cases such as this, Mr Larson, Mrs Sig and Dr Skovmand were not entirely above board when disengaging themselves from Vestergaard – indeed, the Court of Appeal refers to their dishonesty and lack of truthfulness on more than one occasion (although it must be said that Mrs Sig attracts less criticism than the others – a point that becomes more relevant later). Vestergaard accordingly claimed that the defendants’ product, NetProtect – a long-lasting anti-mosquito bed net – had been developed using confidential information derived from Fence. Mr Justice Arnold, at first instance in the main judgment had held that Vestergaard was correct, and ordered an injunction. Thereafter, in the remedies judgment and in WHOPES I the Judge concluded that later variants of the NetProtect product should not be injuncted. He noted that despite their formulation being derived from misuse of the confidential information, the products in question differed in particular respects (see the remedies judgment at [107] to [110]). Moreover, they owed a lot to independent work carried out after the defendants’ disengagement from Vestergaard, and so an injunction would have been a disproportionate remedy in the circumstances.

Before the Court of Appeal, the defendants alleged that the Judge had been wrong to conclude that the Fence database had been used in the creation of NetProtect. Rather than extracting recipes from Fence, Dr Skovmand had simply relied on his general skill and knowledge which he was perfectly free to use for the benefit of a competing enterprise following his severance from Vestergaard. The Court of Appeal did not agree. Upholding the decision of the Judge, Jacob LJ (with whom the others agreed) explained (at [19] to [24]) that there were various “odd numbers” in the defendant’s formulation that bore a striking similarity to figures in the database: these needed explanation. The Judge had, “with considerable care and detail”, addressed these “odd numbers”, and concluded that Dr Skovmand had not just used his general skill and knowledge or matter in the public domain to arrive at the formulation for NetProtect:
[23] “It was a case of his using the detailed results in the Fence database so as to choose recipes for NetProtect which, based on those results, were likely to be successful, as indeed they were and were predicted to be from the outset. Indeed I cannot imagine any good reason why the defendants should have lied and forged to cover their tracks if the Fence database had not been used.”
Just because the defendants could have arrived at the formulation for NetProtect by their own research did not mean that they had done so. They had taken a short cut. The Judge had been correct in his finding.

The Court also upheld the Judge’s findings in the remittal judgment concerning the relative irrelevance of difference in the levels of LDPE (low-density polyethylene) in the NetProtect product when compared to the Fence database recipes. The Court noted that even though increasing the proportion of LDPE would have increased the migration rate of the insecticide in the nets, making it leach out more rapidly, there was no evidence that the differences were such that this would have a material effect in the current case.

The point of most interest, however, arose in the context of the third issue on appeal – the liability of Mrs Sig. An obligation of confidence had been imposed upon her by her contract of employment with Vertergaard. This obligation explicitly continued after termination, but was limited to Vestergaard’s trade secrets. The Judge had concluded that:
[23 of the remedies judgment] “…Although Mrs Sig was not personally involved in devising the initial NetProtect recipes or carrying out the trials, she was closely involved in setting up both Intection and Bestnet and in the commercial side of the development of NetProtect.”
He continued:
[24 of the remedies judgment] …A person can be liable for breach of confidence even if he is not conscious of the fact that what he is doing amounts to misuse of confidential information: see Seager v Copydex Ltd [1967] 1 WLR 923…. [Therefore, whilst] a person who is not otherwise subject to an obligation of confidence (e.g. by contract) will not come under an equitable obligation of confidence purely as a result of the receipt of confidential information unless and until he or she has notice (objectively assessed by reference to a reasonable person standing in the shoes of the recipient) that the information is confidential… [This does not apply where an obligation already exists].”
Accordingly, the Judge considered that Mrs Sig could be found liable for breach of confidence absent a finding that she knew that NetProtect was derived from the Fence database.

The Court of Appeal did not agree. Jacob LJ explicitly rejected Vestergaard’s argument that “once the law imposes an obligation of confidence, whether in equity or as a matter of contract, the obligation is broken where the obligee uses the information, even if unknowingly”. He explained that this argument was:
[47] “…far reaching. An obligation of strict liability is itself very serious. When one considers that the court can grant (and in the case of Mrs Sig has) grant an injunction restraining the individual from using confidential information which the individual does not have and never had, the extent of the suggested obligation is exposed with even greater effect.”
Seager v Copydex, relied upon by Vestergaard and the Judge, was distinguished on the basis that there the defendants were actually using the information, albeit unconsciously. Jacob LJ concluding that:
[50] “…the Judge was wrong to hold that Mrs Sig was guilty of breach of confidence. She behaved reprehensibly in a number of ways. But breach of confidence was not one of them.”
Vestergaard’s cross-appeal against the Judge’s findings that the defendant’s newer variants (WHOPES I and II) did not infringe was dismissed. The Court noted that proportionality was certainly a relevant consideration when deciding whether to grant an injunction to restrain a breach of confidence:
[57] “The passage of time is likewise relevant. After all what the defendants did was to cut a corner, getting on the market earlier than if they had not misused confidential information. Mr Gary Howe, in cross-examination, had accepted that scientifically the defendants could have developed their product independently – time was saved and perhaps not a very great deal of it. By the time of the WHOPES I product the head start had much less significance. That was a matter which the Judge was properly entitled to take into account.”
Mosquitoes here
Mojitos here