Case No. IP-2018-000134

11.It is well settled that an employee owes a duty of fidelity and good faith to his employer. The duty has been characterised as contractual, being an implied term of the contract of employment. 12.Included within that duty is an obligation not to misuse the employer’s confidential information, see for example Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm); [2017] FSR 36, per Leggatt J: “[111] The law implies into a contract of employment an undertaking by the employee to carry out the employment with fidelity and good faith. It is long established that this duty of fidelity includes an obligation on the employee to use information which is confidential to the employer solely for the purposes of the employment relationship and not for any other purpose: see Merryweather v Moore [1892] 2 Ch 518, 524 and Robb v Green [1895] 2 QB 315, 317, 318-319, 320.” Three classes of information 13.Faccenda Chicken Ltd v Fowler [1985] FSR 105 concerned an action against former employees for breach of an implied term in their contracts of employment not to use sales information acquired in the course of their employment. In his judgment Goulding J divided information to which an employee may have gained access into three classes (at 114-116). The first class was information which is not confidential. The second was confidential information acquired during the normal course of employment which remains in the employee’s head and becomes part of his own experience and skills. The third was confidential information in the form of specific trade secrets. 14.It should be noted that in Faccenda Chicken and later judgments ‘trade secrets’ is a term which has been used narrowly to mean information having a high degree of confidentiality. Directive 2016/943 uses the term ‘trade secrets’ broadly, covering any sort of confidential information and thus both of Goulding J’s classes 2 and 3. To avoid confusion, I will use Goulding J’s class numbers rather than referring to trade secrets. 15.Goulding J ruled that the general duty of good faith restrains an employee from misusing his employer’s confidential information, both classes 2 and 3, during the course of his or her employment. Such misuse would include the disclosure of the information to the employer’s competitor. The duty of good faith comes to an end upon the termination of employment and with it the end of any restraint on the use of class 2 information. There is a further, narrower implied term, biting on class 3 only, not to disclose or otherwise misuse class 3 information even after the end of the employment. 16.On appeal, the Court of Appeal ([1987] Ch 117) agreed with the application of two different implied terms to two classes of confidential information. Neill LJ (giving the judgment of the Court) said (at 135-7): “(3) While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee. For the purposes of the present appeal it is not necessary to consider the precise limits of this implied term, but it may be noted: (a) that the extent of the duty of good faith will vary according to the nature of the contract (see Vokes Ltd. v. Heather, 62 R.P.C. 135); (b) that the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list, even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer: see Robb v. Green [1895] 2 Q.B. 315 and Wessex Dairies Ltd. v. Smith [1935] 2 K.B. 80. (4) The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (Amber Size and Chemical Co. Ltd. v. Menzel [1913] 2 Ch. 239), or designs or special methods of construction (Reid & Sigrist Ltd. v. Moss and Mechanism Ltd. (1932) 49 R.P.C. 461), and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret. The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only ‘confidential’ in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith. This distinction is clearly set out in the judgment of Cross J. in Printers & Finishers Ltd. v. Holloway [1965] 1 W.L.R. 1; [1965] R.P.C. 239 where he had to consider whether an ex-employee should be restrained by injunction from making use of his recollection of the contents of certain written printing instructions which had been made available to him when he was working in his former employers' flock printing factory. In his judgment, delivered on 29 April 1964 (not reported on this point in [1965] 1 W.L.R. 1), he said [1965] R.P.C. 239, 253: ‘In this connection one must bear in mind that not all information which is given to a servant in confidence and which it would be a breach of his duty for him to disclose to another person during his employment is a trade secret which he can be prevented from using for his own advantage after the employment is over, even though he has entered into no express covenant with regard to the matter in hand. For example, the printing instructions were handed to Holloway to be used by him during his employment exclusively for the plaintiffs' benefit. It would have been a breach of duty on his part to divulge any of the contents to a stranger while he was employed, but many of these instructions are not really ‘trade secrets’ at all. Holloway was not, indeed, entitled to take a copy of the instructions away with him; but in so far as the instructions cannot be called ‘trade secrets’ and he carried them in his head, he is entitled to use them for his own benefit or the benefit of any future employer.’ The same distinction is to be found in E. Worsley & Co. Ltd. v. Cooper [1939] 1 All E.R. 290 where it was held that the defendant was entitled, after he had ceased to be employed, to make use of his knowledge of the source of the paper supplied to his previous employer. In our view it is quite plain that this knowledge was nevertheless ‘confidential’ in the sense that it would have been a breach of the duty of good faith for the employee, while the employment subsisted, to have used it for his own purposes or to have disclosed it to a competitor of his employer.” 17.The Court of Appeal differed with Goulding J’s analysis as to where the line was to be drawn between classes 2 and 3. Goulding J seems to have started with class 2, i.e. information carried in the employee’s head as part of his working skill; all other confidential information fell within class 3. The Court of Appeal in effect started with class 3, setting out a non-exhaustive list of four characteristics by which it can be recognised. If confidential information is not within class 3, it falls within class 2. 18.By drawing the distinction in this way the Court of Appeal appears to have contemplated the possibility (which must exist) that a former employee can carry in their head information which was not deliberately memorised but which is class 3 information and therefore subject to an implied term restraining its use or disclosure after the end of the employment. 19.The characteristics likely to confer upon information the status of class 3 were set out by the Court of Appeal at pp.137-8. In summary they are: (a)The nature of the employment. Employment in a capacity where confidential material is habitually handled may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature. (b)The nature of the information itself. A secret process of manufacture was given as an obvious example of class 3 information. The fact that the circulation of certain information is restricted to a limited number of individuals may throw light on the status of the information and its degree of confidentiality. (c)Whether the employer impressed on the employee the confidentiality of the information. Though an employer cannot prevent the use or disclosure merely by telling the employee that certain information is confidential, the attitude of the employer towards the information may assist in determining whether or not the information can properly be regarded as within class 3. (d)Whether the relevant information can be easily isolated from other information which the employee is free to use or disclose. 20.This was discussed further by the Court of Appeal in Lancashire Fires Ltd v S.A. Lyons & Co Ltd [1996] FSR 629 (CA), at 668-9. 21.I would therefore summarise the effect of the Court of Appeal’s judgment in Faccenda Chicken in this way. If the information in issue falls within class 3, an implied term in the employee’s contract of employment restrains the use or disclosure of the trade secret without the employer’s consent, both during and after the period of employment. If the information is confidential but is not within class 3, it falls within class 2. The general duty of good faith restrains misuse of class 2 information during the period of employment, such as by disclosing it to a competitor of the employer, but that duty terminates when the employment ends. 22.It does not follow, however, that class 2 information can always be freely used or disclosed after the end of the relevant employment. This is for two reasons. Continuing liability for misuse of class 2 information during employment 23.First, if the class 2 information was not part of the employee’s experience and skills carried in the head of the employee when they left employment, in practice the former employee is likely to have retained this information by a means such as copying a document while still employed or by deliberately memorising the information. Although a breach of confidence in relation to class 2 information can only be consequent upon acts done during the individual’s employment, the Court of Appeal in Faccenda Chicken expressly approved earlier authorities in which it was found that copying or making a list of the employer’s customers for use after the end of the employment, or deliberately memorising the list for such use, is liable to constitute an act in breach of confidence, in particular Robb v Green [1895] 2QB 315 (CA) (copying a list of the names and addresses of customers). See also Universal Thermosensors Ltd v Hibben [1992] FSR 361, at 372-3 (employees taking lists of customers’ product requirements, prices and contacts during their employment for use in their own business). 24.It follows that while a defendant will not be in breach of an implied term in his contract of employment for anything done in relation to class 2 information postemployment, he or she will remain liable for their acts in breach done during the employment, such as copying down customer information or deliberately memorising it for use or disclosure afterwards. If that information is or threatens to be used or disclosed afterwards, the copying or memorising is liable to give rise to a claim for an injunction and/or damages. Selling acquired knowledge and experience 25.The second reason why the use or disclosure of class 2 information might be restricted after the end of the relevant employment is that the Court of Appeal expressly left open the possibility that even if class 2 information is part of the employee’s experience and skills and therefore could be used by the employee for their benefit and the benefit of a new employer, it may be that the information cannot just be sold off. Neill LJ said (at 138-9): “We would wish to leave open, however, for further examination on some other occasion the question whether additional protection should be afforded to an employer where the former employee is not seeking to earn his living by making use of the body of skill, knowledge and experience which he has acquired in the course of his career, but is merely selling to a third party information which he acquired in confidence in the course of his former employment.” Public policy 26.The judgment in Faccenda Chicken with regard to experience and skills reflects a consistent reluctance by courts to allow a term which has the effect of preventing an individual from using information acquired in the normal course of their job when subsequently employed elsewhere. It could be viewed as the application of public policy to this area of the law. In the parallel context of an equitable duty of confidence, the Supreme Court spelt this out in Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] UKSC 31; [2013] 1 WLR 1556. Lord Neuberger PSC (with whom the remainder of their Lordships agreed) said (at [44]): “Particularly in a modern economy, the law has to maintain a realistic and fair balance between (i) effectively protecting trade secrets (and other intellectual property rights) and (ii) not unreasonably inhibiting competition in the market place. The importance to the economic prosperity of the country of research and development in the commercial world is self-evident, and the protection of intellectual property, including trade secrets, is one of the vital contributions of the law to that end. On the other hand, the law should not discourage former employees from benefiting society and advancing themselves by imposing unfair potential difficulties on their honest attempts to compete with their former employers.” 27.The balance referred to by Lord Neuberger is reflected in Directive 2016/943, including art.1(3) (see above). The distinction between Goulding J’s classes 1 and 2 28.In Faccenda Chicken the Court of Appeal did not discuss information which has no relevant quality of confidence and why that would be the case, i.e. Goulding J’s class 1. 29.The best guide to the distinction between information which is confidential and that which is not is now to be found in the definition of ‘trade secret’ in art.2(1) of Directive 2016/943 (always bearing in mind the broad interpretation of ‘trade secret’ in the Directive). The relevance of the employee’s knowledge as to confidentiality 30.The Court of Appeal in Faccenda Chicken did not directly address the question whether it was necessary for the employees to have known that the information in question was confidential for an implied term of confidence to bite, whether in the context of class 2 or 3, although generally this would be self-evident in relation to class 3. 31.In the context of an equitable obligation of confidence, the obligation arises where the recipient of the information appreciated, or ought to have appreciated that it was confidential, see below. It seems to me that consistently with this, an implied contractual obligation of confidence binds the employee only where the employee knew, or a reasonable person in his or her position would have known, that the information was confidential. Information taken which also forms part of the individual’s experience and skills 32.Class 2 information may have been, for instance, contained in a document which was taken by an employee during their employment for use afterwards, yet some of the information in the document is within his or her experience and skills, held in mind. After the end of the employment can the employee still use that part of their experience and skills? 33.In Roger Bullivant Ltd v Ellis [1987] FSR 172, Nourse LJ (with whom May LJ agreed) said (at p.181): “The value of the card index to Mr. Ellis and the other defendants was that it contained a ready and finite compilation of the name and addresses of those who had brought or might bring business to the plaintiffs and who might bring business to them. Most of the cards carried the name or names of particular individuals to be contacted. While I recognise that it would have been possible for Mr. Ellis to contact some, perhaps many, of the people concerned without using the card index, I am far from convinced that he would have been able to contact anywhere near all of those whom he did contact between February and April 1985. Having made deliberate and unlawful use of the plaintiffs’ property, he cannot complain if he finds that the eye of the law is unable to distinguish between those whom, had he so chosen, he could have contacted lawfully and those whom he could not. In my judgment it is of the highest importance that the principle of Robb v. Green which, let it be said, is one of no more than fair and honourable dealing, should be steadfastly maintained.” 34.The penultimate sentence in that passage was explained by Nicholls V-C in Universal Thermosensors at 373-4: “The one point of disagreement on the law concerned a contention by the plaintiff to the effect that once it is shown that the defendants had stolen documents containing confidential information, and that they had used those documents in soliciting orders, there arises an irrebuttable presumption that any business resulting from the orders derives from the wrongful use of the confidential information and the defendants are liable in damages accordingly. The court will not inquire at all into whether the defendants knew the name of the particular customer or contact anyway. I am not able to accept a proposition expressed in such comprehensive and rigid terms. In assessing and awarding damages here the object of the law is to award fair compensation to a plaintiff, for the wrong done to him by a defendant's misuse of his confidential information. Whether particular business obtained by a defendant was obtained as a result of misuse by him of a plaintiff's confidential information is essentially a question of fact in each case. In seeking to answer that question, the court will inquire into the facts and surrounding circumstances as much in this case as in any other. In doing so, of course, a court will not take leave of commonsense. It will view with considerable circumspection, even scepticism, a contention by a defendant, who has chosen to use a list, that he already carried some of the information in his own head and that looking at the list for any particular name or names was quite superfluous and unnecessary. Moreover, any doubts and obscurities arising from the evidence are likely to be resolved against the defendant. So that, in practice, such a defendant will have a difficult row to hoe. But such an approach by the court is far removed from saying that in no circumstances will the court look further once user of the list is proved. That would be altogether too sweeping, and it could easily result in a plaintiff being awarded more than fair compensation for the loss suffered by him from the misuse of his confidential information. I do not understand Nourse L.J. to have said otherwise in Roger Bullivant Ltd. v. Ellis [1987] I.C.R. 464 at 475, when he observed that, having made deliberate and unlawful use of the plaintiff's property, a defendant cannot complain if he finds that the eye of the law is unable to distinguish between the potential customers whom, had he so chosen, he could have contacted lawfully and those whom he could not.” The relevance of class 2 information being publicly available 35.Lewison LJ observed in Force India Formula One Team Ltd v Aerolab Srl [2013] EWCA Civ 780; [2013] RPC 36 (with whom Briggs LJ and Sir Stanley Burton agreed): “It is certainly not a defence [to an allegation of breach of confidence] that the person in breach of confidence could have obtained the information elsewhere if he did not in fact do so.” (at [72]) 36.Lewison LJ referred to Saltman Engineering Co Ltd Campbell Engineering Co Ltd (1948) 65 RPC 203 in which the rationale for that proposition was explained by the Court of Appeal: “In that case, the plaintiffs instructed the defendant to make tools for the manufacture of leather punches in accordance with drawings which the plaintiffs provided to the defendant for this purpose. The defendant used the drawings to make tools, and the tools to make leather punches, on their own account. The finished product (i.e. the leather punches) were readily available to buy in the shops; and the defendants could have bought one and reverse engineered it. But they did not. Lord Greene M.R. said at p.215: ‘What the defendants did in this case was to dispense in certain material respects with the necessity of going through the process which had been gone through in compiling these drawings, and thereby to save themselves a great deal of labour and calculation and careful draughtsmanship. No doubt, if they had taken the finished article, namely, the leather punch, which they might have bought in a shop, and given it to an expert draughtsman, that draughtsman could have produced the necessary drawings for the manufacture of machine tools required for making that particular finished article. In at any rate a very material respect they saved themselves that trouble by obtaining the necessary information either from the original drawings or from the tools made in accordance with them. That, in my opinion, was a breach of confidence.’” 37.Although Lord Greene spoke of the defendants saving themselves a great deal of labour and calculation and careful draughtsmanship, it seems to me that the same reasoning will apply whenever the defendant saves himself a significant amount of trouble after his employment by obtaining information from documents taken or made during his employment, instead of sourcing the information from public sources. In Seager v Copydex (No. 1) [1967] 1 WLR 923 Lord Denning said (at p.931): “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. It may not be a case for injunction or even for an account, but only for damages, depending on the worth of the confidential information to him in saving him time and trouble.” 38.Seager was concerned with an equitable duty of confidence but I think the same principles apply in the context of an implied term of confidence in a contract.