I Can't Tell You Who Told Me About Confidentiality And Relative Secrecy - Or Can I?

I once came across a complete 'dad' joke which was about secrecy and went something something like this:

There are two secrets to success in life:

1) Don't tell them everything you know

Whether there is proper humour in this or just a 'Christmas cracker joke' type obligation to acknowledge an attempt at humour is both for the individual to decide and, equal, besides the point of this blog article. In law, there are a surprising amount of intricacies to confidentiality and secrecy, not to mention how the laws on trademarks, patents and how far reaching they are. However, for this article I shall focus on one confidentiality case in particular. I read about this case about a year ago and ended up doing a case analysis on it, as I felt that there were many aspects which could be explored. References and a bibliography are provided, as this is a topic for which further reading is greatly beneficial. I hope you find the following analysis sagacious and interesting, and can learn as much about confidentiality and secrecy in law as I did during the process of researching and writing this piece.

EPI Environmental Technologies Inc and Another v Symphony Plastic Technologies Plc and Another [2004] EWHC 2945 (Ch), [2004] 12 WLUK 675, [2005] 1 W.L.R. 3456

Summary of Facts

The claimant companies (EPI & Another, henceforth known as E) have alleged a breach of confidence and of contract against Symphony Plastics and Another, henceforth known as S. E creates an additive for use in plastic products, such as carrier bags, as an aid for plastic degradation. They supplied S with this additive for use in their plastic products. This arrangement was by way of multiple agreements, starting with a basic license agreement and ending with some inconsequential trade mark rights and a manufacturing and know-how license. During this time period, S analysed the product provided to them by E to find out which ingredients were in the public domain. They then made their own additive product, which is not an exact copy but has similar characteristics. E alleges that the additive was provided to S in confidence, thus the information S gained during this period cannot be used by them. S disputes this, arguing that the components of the additive are in the public domain, thus allowing them to use them.

Summary of Judgment

Peter Smith J found S largely innocent of the alleged breach of contract and confidence. Other than a breach of clause for not ceasing to make and sell their product and hold themselves out to be licensee’s post agreement termination, and nominal damages for breaching a contractual clause requiring S to return copies of information, know-how, labels, EPI products etc after termination of agreement, Peter Smith J dismissed E’s claims entirely[1].

Analysis

The crux of E’s argument is that a confidentiality agreement was entered into by S with themselves, with clause 7 prohibiting any analysis, or attempt at such, of their product as well as prohibiting use of the additive outside of the agreed purposes, as listed in their agreement. Saltman[2], a case of similar chronology but regarding a leather pouch making tool instead of an additive for plastic, was used by E to give weight to this. Here, Lord Greene MR proclaimed that a breach of the plaintiffs (E) rights has been made if confidential information is obtained either directly or indirectly and then used “without the consent, express or implied”[3] of said plaintiff. He then goes on to say that confidential information must be exactly that, and is such as the maker has used their brain to arrive at such a product, method etc. As such, in his view, skipping such steps is committing a breach[4]. This choice of case is rather bizarre, however, as this latter deduction actually undermined E’s case. This is because the presiding Judge, Peter Smith J, relied on an argument set out in Dosen[5] to find E’s product and formula could not be seen as confidential. Atkin LJ explains that upon publication to the public of the construction and operation of the sewing machine (again factually a similar case, but substitute the sewing machine for the additive), from such a moment “that which might before have been a trade secret, was a trade secret no longer”[6]. This segment is a mirror image of E’s actions, as they actually advertised their additive ingredients and method (albeit in a vague format) on their website[7]. As such, Peter Smith J found that this information was in the public domain, and subsequentially is not confidential[8].

Also of particular interest in this case is that E and S entered into a variation of contract on 8th November 2002, the effect of which gave S the right to use know-how, patent information, IP etc., which they had obtained in the duration of their agreement with E to create a product which may compete with E’s. The only stipulation was to make E aware of this product before selling it. Despite this, E still tried to claim otherwise, arguing that it is illegitimate to dismember the body of information which has been put forward for protection. This stance originated in SA Lyons[9], with this argument[10] stating that it would be illegal for a document which is confidential, either by way of trade secret or patent, to be dissected either for scrutiny or investigation and analysis. Once again, however, the judge dismissed this argument. He did agree with them on one point though, citing Seager[11] to claim that in the event of information received being of a mixed format, i.e. a mixture of public domain and confidential information, then the defendant ought to get the information by use of public sources. Failing that, they must “not be in a better position than if he had gone to the public source……without paying for it”[12].

Peter Smith’s choice of case at this point in the proceedings is rather interesting. On the one hand, he has stated that S really ought to have gone through public sources for their investigation of the additive, and that S knew the information was confidential[13]. This point was proven by the House of Lords[14], but more importantly by Lord Nicholls in Campbell[15], where the law of confidence was summarised an imposition whereby “a person receives information he knows, or ought to know, is fairly and reasonably to be regarded as confidential”[16]. Of course, not only did S disagree with this, but E themselves and the Judge had to concede that this could not be applicable as E had made all this information available online, even on their own website[17]. Similarly, E conceded that S’s product is not an exact copy and neither the Judge, nor S, knew was antioxidant E used[18], meaning that S was simply satisfying the agreement allowing them to sell a similar product and had not in fact committed such a breach of confidentiality or confidence.

However, the springboard doctrine[19] as set out in Seager[20], seems to have been surprising underused by E, as a similar case[21] heavily relied on it to their benefit, making it a great opportunity missed by E. In this case, Cross J stated that “if relative secrecy remains, the plaintiff can still succeed”[22]. By this, Cross J meant that even in cases where a product/method/ingredient etc may be revealed by reverse engineering or by using public sources, said item may still possess a limited degree of confidentiality. By using this argument, E may have been able to claim more successfully that the information is confidential, thus being eligible for more compensation by way of damages. This would have also helped bolster their case when using Lord Greene’s comments in Saltman[23]. However, because of their Achilles heel, advertising their formula on their website and granting S the right to use know-how from their agreement as well as information laid out in their patent, such an argument was not sustainable. This resulted in the finding that the information does not possess such a confidential quality[24]. As Peter Smith J put it, he could not see how S could possibly be prevented from using information “they acquire as a result of that exercise which is in the public domain”[25], even in the case of examination and analysis of E’s product.

To explain arriving at such a decision, Peter Smith J used the analogy of making a special cake. What is meant by this is that regardless of the type of cake you are making (the cake being the additive), there are certain fundamental ingredients and steps which must be used and taken to be able to make a cake. Despite this being subject to a contractual provision to the contrary, it would be especially true if S’s formula (that being the ingredients and the methodology) was a copy, or largely a copy, of one provided by another source (this being E’s advertising of their formula on their website and the patent being available online for the public to view). To put it succinctly, regardless of the type of plastic degradation additive being made, there are bound to be multiple parts of the process and ingredient list which overlap, owing to the necessary components of such a product. As such, it would be wise to suspect and presume that such a product will thereby always be at least a partial copy of another product, as by its very nature certain parts at very least are not eligible to be protected by way of claiming confidential information. If this were not the case, then every company dealing with such products would be suing for a breach of confidentiality. This also disproves Lord Greene’s latter point[26], as whilst S did skip certain steps by using such information, the use of a brain isn’t necessarily needed when making a product which is bound to be similar to another product in its constituents. Not to mention, as highlighted earlier, E conceded that S’s product was not an exact copy[27] of their own, and that in any event, by advertising their formula, information which may have previously been able to be considered a trade secret, or otherwise confidential, can no longer[28][29].

Conclusion

In hearing this case, the court had to answer two main questions: How far reaching is the concept of confidentiality/relative secrecy? And secondly, can a breach of contract be committed by making and selling a product which is similar in nature to one which you have received as part of a confidential agreement? In answering the first question, Peter Smith J rightly divided the concept of confidential information/products into two requirements[30]. With ease, the second requirement was fulfilled, as S knew E regarded the information to be confidential[31]. However, it cannot be said that the information was in fact confidential, as the nature of confidentiality and relative secrecy demands such to not be widely known and to be looked after in such a way that any reasonable person would say that the claimant is taking steps to treat the information as confidential. As E was advertising their formula online and had a patent which was available for the public to view, the second requirement can therefore not be satisfied. Interestingly though, as mentioned earlier, E may have had more luck with arguing this point, had they relied more heavily on ‘relative secrecy’ and argued that despite information being available online, the exact quantities and step-by-step methodology was not, and as such it still held a level of secrecy about it.

In answering the second question, it is clear that no evidence of any attempt to copy could be found, with E having to concede this point themselves. Despite this, a later case saw E take the matter to the Court of Appeal[32], contesting the previous judgment. The argument was that there was sufficient evidence for an inference of copying trade secrets by S, and as such the burden of proof lay with S to disprove such and demonstrate an innocent reason for the similarities. Again, the judge dismissed this case, saying were no misdirection’s in the original judgment. This bolsters the previous point that there was no evidence of copying any confidential information in this earlier hearing.

Unfortunately for both parties, using common law was the only possibility in this case, as it took until 2018 for proper commercially facing legislation to be introduced[33]. Had this legislation been available for their use at the time, it may well have allowed E to receive greater compensation, as this is now worked out by way of fees and royalties owed, had the actions of the defendant not been a breach of contract[34]. Not only this, but it would have simplified the process with a checklist of considerations before making an order[35]. This would have benefitted S more so, as it would have easily highlighted their lack of wrong doing. Nevertheless, the importance of this case is apparent, with it being cited at least nineteen times since.

[1] EPI Environmental Technologies Inc and Another v Symphony Plastic Technologies Plc and Another [2004] EWHC 2945 (Ch), 78 [2] Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 [3] Ibid, p213 [4] Ibid, p215 [5] Mustad & Son v Dosen [1964] 1 WLR 109 [6] Ibid, 287-288 [7] EPI (n35), para 39. [8] Ibid, para 40. [9] Lancashire Fires Ltd v SA Lyons Co Ltd [1996] FSR 629 [10] Ibid, 688 [11] Seager v Copydex Ltd [1967] 1 WLR [12] Ibid, 931-932 [13] EPI (n35), 35 [14] Attorney General v Guardian Newspaper Ltd (No. 2) [1990] 1 AC 109 [15] Campbell v MGN Ltd [2004] 2 AC 457 [16] Ibid, 464-465, para 13-14 [17] EPI (n41) [18] EPI (n35), 64 [19] Bently, L, Sherman, B, Gangjee, D, and Johnson, P, Intellectual Property Law (5th edn), Oxford University Press, Sep 2018, CH 44, 5.2, 1227-1228 [20] Seager (n46) [21] Franchi v Franchi [1967] RPC 149 [22] Ibid, 153 [23] Saltman (n37) [24] EPI (n41) [25] EPI (n35), 52 [26] Saltman (n38) [27] EPI (n52) [28] Dosen (n40) [29] EPI (n41) [30] EPI (n35), 34 [31] Ibid, 35 [32] EPI Environmental Technologies Inc v Symphony Plastic Technologies Plc [2006] EWCA Civ 3, [2006] 1 W.L.R. 495, [2006] 1 WLUK 528 [33] The Trade Secrets (Enforcement, etc.) Regulations 2018, No. 597 [34] Ibid, 16(2)-17(4) [35] Ibid, 15(1)(a-h)

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