Travel Counsellors Ltd v Trailfinders Ltd: breach of confidence and the reasonable person

What happens when ex-employees of a competitor bring client information with them when they go to work with a new employer? In Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38, the Court of Appeal held that an equitable duty of confidence on the new employer arises if a reasonable person would make enquiries about whether it is confidential, but the recipient fails to do so. 

The appellant argued that the judge had applied the wrong legal test in holding that the appellant owed an obligation of confidence to its rival in respect of the relevant information. According to the appellant, the equitable obligation would only arise if the recipient knew or had notice that the information was confidential. Whether it had notice of the confidential nature of the information has to be assessed objectively, by reference to a reasonable person standing in the recipient's position. And just because a reasonable person would make enquiries about whether the information (or some of it) was confidential was insufficient for an obligation of confidence to arise.

Arnold LJ, with whom Lewison LJ and Asplin LJ agreed, noted that there was surprisingly little authority. He cited his own judgment in Primary Group (UK) Ltd v Royal Bank of Scotland plc [2014] EWHC 1082 (Ch), as well as the Court of Appeal's decision in Racing Partnership Ltd v Done Brothers (Cash Betting) Ltd [2020] EWCA Civ 1300. On the basis of these cases he decided that:

... if the circumstances are such as to bring it to the notice of a reasonable person in the position of the recipient that the information, or some of it, may be confidential to another, then the reasonable person’s response may be to make enquiries. Whether the reasonable person would make enquiries, and if so what enquiries, is inevitably context- and fact-dependent. If the reasonable person would make enquiries, but the recipient abstains from doing so, then an obligation of confidentiality will arise

On the other hand, where the issue is accessory liability for misuse by another person rather than primary liability for misuse of confidential information, it may be necessary to show actual knowledge or turning a blind eye.

Cases like this are always fact-dependent, but the decision seems to place a significant burden on the recipient of information - although it does seem from the judgment that anyone offered information about clients in these circumstances really ought to sense that something is not quite right.

No implied duty of confidence in standards-setting body

A European Patents Office board of appeal has decided, on the face of it surprisingly, that there is no implied obligation of confidence on members of a standards-setting committee. Because there was no implied duty, the claimed invention was anticipated by documents available to the committee and therefore (within the broad definition in the Convention) available to the public. The invention therefore lacked novelty so could not be protected by a patent.

The consequences clearly follow the board's finding that there was no implied duty (and no express duty either, of course - one lesson from the decision must be that more use needs to be made of appropriate confidentiality or non-disclosure agreements). But why was there no implied duty?

The answer is that the process of devising standards is a collaborative one, involving extensive consultation among interested parties. At least, that's what the board said, and it sounds convincing. 'The evidence points to a system designed to guarantee a certain "privacy" of its data while at the same time being sufficiently pragmatic and flexible to allow consultation with other parties in order for it satisfactorily to fulfil its mission', it stated. Whether a document or other carrier of information be confidential or no is relative, to some extent, and 'a certain "privacy'" does not amount to confidentiality.

So the lesson is that if you are involved in standards-setting, you need to make use of appropriate agreements and undertakings. They might make the standards-setting harder work, but they will preserve the possibility of gaining patent protection. ALthough you could always file the application earlier.

T 2239/15T MPEG INPUT DOCUMENTS/Fraunhofer – Dolby 

Protecting trade secrets: Max Planck Institute on Commission's proposals

I still haven't got my head round the proposed directive on the protection of trade secrets. I thought there wouldn't be much exciting in it - but whether that turns out to be a fair assessment or not, there is a lot in Max Planck's comments on it to excite me. (Yes, I know they are not actually Max Planck's comments - see the entry in my Dictionary about the institute, or more accurately institutes as there are as many as 80 of them under the auspices of the Max Panck Gesselschaft) named after the man, and indeed the entry in it for the man himself.) What excites me is the suggestion that the directive should extend protection to prevent reverse engineering.
What? This is the most outrageously protectionist idea I can recall ever hearing of. The MPI has often struck me as viewing intellectual property as a Good Thing without considering whether a lack of protection might be a better thing. So the Institute says:

The use without restrictions of trade secrets obtained through reverse engineering appears problematic, in particular in sectors where – other than in the case of software – no intellectual property protection is available, although considerable investments are made in the development of new products. Notable examples include the cosmetic industry, which regularly invests quite heavily in the development of perfumes, but where the know-how generated thereby can be decoded with relative ease through reverse engineering.

The unrestricted use of such know-how raises concerns that it could pose a substantial threat to the companies concerned, eventually leading to market failure whereby such goods would no longer be produced. Accordingly, it must be assessed whether the existing (quite problematic) prohibition on advertising such products as imitations or replicas should be replaced by other measures that are directly aimed at protecting the relevant interests.

Perfumes? What a lousy example to use. As Ian Connor of Pinsent Mason says in Out-Law's commentary on the MPI paper, the evidence in the smell-alike cases showed that it was impossible to achieve an identical fragrance by reverse-engineering (and the fact that a cheap imitation couldn't use the expensive ingredients no doubt contributes to that). If there is an element of unfair competition in imitating fragrances, then it has to be dealt with as unfair competition: for goodness sake, don't try to bring trade secrets law to bear on it. In so far as trade mark law is part of the law of unfair competition, that approach has been tried, but just because it has failed doesn't mean that we need to try something else. And just because something isn't protected doesn't mean that there is a hole in the system that needs to be repaired.

I first encountered the idea of reverse-engineering in the context of the good old Morris Marina exhaust pipe - in other words, in the dispute that eventually gave us BL v Armstrong. Copyright was used to try to stop reverse engineering, because (unlike a smell-alike) you could  make a perfectly serviceable and accurate copy of an exhaust pipe by measuring the relevant dimensions. Did the House of Lords say "oh, here's something that isn't protected, let's see if we can find a way to make the law apply?" Not at all. In fact the starting point was the opposite: here was something that copyright did protect, even against reverse engineering, and their Lordships were pretty clear that they thought this was wrong. (Lord Templemann and Lord Bridge, as I recall, to the fore: two judges who for several years resisted every attempt to expand the scope of intellectual property protection, whether in exhaust pipes, bottle shapes (as trade marks: Re Coca-Cola), sound recordings (CBS Songs v Amstrad), plastic toy bricks (Lego v Tyco), or television show formats (Green v Broadcasting Corporation of New Zealand). The majority in the House of Lords (Lord Griffith going about it in a different way, if I remember correctly) resolved the problem in the consumer's favour by reference to the "non-derogation from grant" principle known to landlord and tenant law - an even more egregious example, it has to be said, of using one law to solve a deficiency in another than the MPI's wish to use trade secrets law to solve an unfair competition problem.

The law should only give protection where there is a good reason for it. That, I think, is the "evidence-based policy-making" that Hargreaves was so keen on, and which the government seems to have forgotten about even before the ink was dry on the Professor's work (hence the increase in copyright term for sound recordings, and perhaps likewise the latest bunch of copyright "exceptions", or permitted acts as they ought properly to be called). There are limits to intellectual property protection for good reason. Some matter remains unprotected deliberately - for the simple reason that there is no justification for protecting it. There would be no incentive for anyone to do anything that they were not already doing, just a supernormal profit to be taken at the expense of the consumer. Consumer welfare in the strict economic sense is not the be-all and end-all of the matter: when you analyse this stuff as property, human rights become engaged, and a property owner should not lightly be deprived of it. But in the case of reverse engineering we are talking about matter which is not protected by property rights, and which is in the public domain where anyone can use it. It is not confidential, and to impose a confidentiality-style obligation on would-be users would be a huge retrograde step and one that takes absolutism in intellectual property to new heights.

Volkswagen Aktiengesellschaft v Garcia & Ors [2013] EWHC 1832 (Ch) (25 June 2013)

Car security isn't what it was when I was young. Leaving aside the fact that my old Frogeye didn't even have door locks (although there was a lock on the bonnet, so that might have foiled a thief, who'd have had to be pretty mad to go for a bright orange car in the first place)  let alone an immobiliser, even the locks on cars of that era left a lot to be desired. On a camping holiday with a schoolfriend and his family, he locked the keys to his Cortina GT in the boot, but his father (who ran a Ford dealership, although he himself drove a very exotic BMW 3.0CSi) opened it with the key to his caravan.

Nowadays, although there are still mechanical aspects to vehicle security, it's an area which has a great deal more to do with electronics. It was to protect the algorithm that lies at the heart of the security system it uses (along with several other manufacturers), the Magamos Crytpo chip, that Volkswagen found itself in court last week (Volkswagen Aktiengesellschaft v Garcia & Ors [2013] EWHC 1832 (Ch) (25 June 2013)).

The facts were quite simple. A handful of academics had "attacked" (as they say in the field) that security system, and discovered some flaws. The vehicle manufacturers who stood to be embarrassed by those flaws might, you'd think, be grateful, but the academics proposed to deliver a paper at a conference, and in doing so would reveal the key algorithm to the world. In the name of "responsible disclosure" they had not simply gone ahead and done this: they had talked to the proprietor of the confidential information concerned. But they hadn't talked to VW, not until much nearer the date of the conference (which was last week, hence VW's need to seek an interim injunction).

To do this, the academics used a program called Tango Programmer, produced by an organisation called Scorpio, which is based in Bulgaria, and purchased by the academics for €1,000. There is some discussion in the judgment of how the program was devised, and where its authors found the Megamos Algorithm, which they might have arrived at by "chip-slicing" - cutting open the chip and examining the gates under a microscope. The important question was whether the software was legitimate or not. As the judge observed, "Just because it comes from Bulgaria does not mean it is illegitimate." And the fact that the website (not available when I went looking for it the other day, but back on line now) was written in "broken English" did not persuade him. In fact the website looks plausible, and the products shown on suggest that this is a business of some substance; it appears to be a limited company, and the strangest thing about it is its location bang in the middle of Bulgaria.

There was an issue about VW's right to sue. The algorithm was devised by Thales, who were not initially a party to the action, but the judge added them as a "proper and necessary" party, saying that it was likely within the meaning of Cream Holdings Ltd & Ors v. Banerjee & Ors [2004] UKHL 44 (14 October 2004) that "the confidentiality in the Megamos Crypto algorithm belongs to them", which is an interesting way to express it. This point did not stand in the way of an injunction being granted: Thales had standing to sue, but the judge held that VW did too, as they had a legitimate interest in being a co-claimant.

There is an old Jacob J case, Mars UK Ltd v Teknowledge Ltd [1999] EWHC 226 (Pat) (11 June 1999), [1999] 2 Costs LR 44, [1999] EWHC 226 (Pat), [2000] FSR 138, on reverse engineering, in which he held that it was not a misuse of confidential information to reverse engineer a product you had bought even to obtain information encrypted for security. The present case was argued on the basis that that case had been correctly decided, though that is in dispute, and (of course) it was the claimants' submission that it did not apply because the Scorpio Programmer software was not legitimate. The judge ended up relying on the "murky" origins of the program and the lack of effort on the part of the defendants to ascertain whether it had been produced by legitimate reverse-engineering or otherwise, and on that basis he held that there would be a breach of confidence. Should an injunction be granted to prevent publication? Not merely to save VW's blushes, said Mr Justice Birss, considering Article 10 of the European Convention, section 12(3) of the Human Rights Act, and the Cream Holdings judgment (but not American Cyanamid, which he said was clearly not the right test in the circumstances), which gave the guidance that the standard for not allowing publication is a flexible one, and that the court should be "exceedingly slow" to make interim orders if it is not satisfied that the claimant will probably succeed at trial.

Thales or VW would, he thought, probably succeed at trial, so that hurdle was cleared. Then the balance of public interest and the public interest defence fell to be considered. Freedom of expression and academic freedom were very important, but the epidemic of car crime that would be unleashed if the algorithm were published was more important. The software is sold by someone who understands that it can facilitate crime: there's a disclaimer that says (sic)

All devices and software developed by Scorpio-LK Ltd. are designed and sold with legal purpose to enchance and help people working in the sphere of car repairs and maintenance. The company doesn't take responsibility for any misuse of our products for illegal purpuses. Hence persons misusing our products for illegal purpuses bear their own responsebility for such acts.

And elsewhere:

Scorpio-lk Ltd accepts no responsibility for misuse of software for illegal purposes. The purchased softawre can only be used to repair vehicle immobilisers. On purchase of software client accepts responsibility for software use rendering Scorpio-lk Ltd unaccountable for illegal use.

The English, incidentally, seems no more broken than that of many native speakers. But the judge concluded that the claimants would probably be able to show that the software was not legitimate, and the defendants should have appreciated that.

The judge granted the injunction sought by VW, requiring "redaction" (the trendy alternative to "editing") of the paper they had written. They could still impress their peers by showing that they had derived the algorithm, and the claimants could remedy the problem identified with it: win win. The judge clearly came to the view that the defendants' protestations about "reasonable disclosure"  were nothing more than self-justification, and not the actions of responsible academics - a harsh view, but consistent with their reluctance to take even a few simple steps to ascertain where Scorpio-Lk Ltd had found the algorithm.

Protecting trade secrets - to the maximum

An interesting piece from the FT about Cosworth, the racing engine manufacturers (inter alia). Once upon a time they supplied engines to most of the teams taking part in the World Championship, and indeed so long as you had a Cosworth DFV engine, a Hewland gearbox and some fabrication skills you could build yourself a Formula 1 car - as Peter Connew did. How scathing we who learned about motor racing by reading Denis Jenkinson's reports in Motor Sport used to be about "Cosworth kit-cars". But Cosworth are still going, albeit not under the same ownership, while the other Formula One engine manufacturers from back in the DFV days have all gone, except for the perennial Ferrari.

Followers of Formula 1 motor racing are familiar with the teams' efforts to keep their technical secrets to themselves. They try to get a peek at each others' machines on the grid, and if a stricken car has to be lifted by crane to be recovered, there's a rush to see the underside. As for the engines, the FT story tells us that Cosworth don't sell their products, only hire them out, and they are fitted and maintained not by the constructors' mechanics but by the engine maker's. A far cry from the old days, when the team probably had about half-a-dozen people at a race.

The engines are sent back to the Cosworth factory for servicing and repair (which was also the case 40 years ago), and when they are finished with secrecy is preserved by casting all 4,000 individual parts (maybe more parts than in a cooking road car, although I remember that Rolls-Royce used to assemble their products, back in the Crewe days when I had friends there, visited the factory, and even counted them among my clients, from 20,000 individual bits and pieces) into a furnace. The ultimate in recycling, perhaps.

Australia considers a statutory right to privacy

Since we can't get away from the subject of privacy, which threatens to take over the law on breach of confidence (which perhaps will eventually be sub-divided into privacy and trade secrets law so we can focus on the interesting part and leave the spoilt "celebrities" to their own devices), I was interested to learn that a statutory right to privacy was under consideration in Australia. Thanks to Ashley Tsacalos of Norton Rose, which after its pioneering work creating a national law firm - I somehow thought that the M5 group wasn't such ancient history as it actually is - is now a global one.