Trade Secrets - Trailfinders Ltd v Travel Counsellors Ltd. and Others
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Jane Lambert
Intellectual Property Enterprise Court (Judge Hacon) Trailfinders Ltd v Travel Counsellors Ltd and others [2020] EWHC 591 (IPEC) (12 March 2020)
This is the first case that I have seen in which the Trade Secrets Directive (Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1) has been considered by an English judge. I have written quite a lot about that Directive and I have always taken the view that it creates new rights and obligations while leaving the law of confidence more or less intact (see Jane Lambert The Trade Secrets Directive 7 July 2020 NIPC Law).
In Trailfinders Ltd v Travel Counsellors Ltd and others [2020] EWHC 591 His Honour Judge Hacon quoted in full the first 7 articles of the Directive. Citing the Explanatory Note to The Trade Secrets (Enforcement, etc.) Regulations 2018 SI 2018 No 597 which opined that the laws of the UK already complied with arts 6, 7 and 16, His Honour observed:
"It is therefore to be assumed that the substantive principles governing the protection of confidential information under English law, including that afforded by terms implied into contracts of employment and by equitable obligations of confidence, are unaffected by the Directive."
He added:
"However, the Directive shines an occasional light on those principles".
Of course, as Judge Hacon has observed in his judgments on other directives, it is the opinion of the Court of Justice of the European Union and not that of the implementing member states' governments that counts - at least for the duration of the implementation period. Even after that ends, the judgments of that court and indeed the courts of the 27 remaining member states will probably continue to be of high persuasive authority on the interpretation of this and other directives unless and until Parliament decides otherwise.
Save for a few interjections here and there, that was the sum total of the judge's observations on the Directive. In all fairness, unless a right or defence deriving from the legislation had been pleaded, that was probably all he could say. The Directive has been in force for nearly two years and I have always taken it into account when drafting or reviewing confidentiality agreements and other commercial contracts (see Jane Lambert Trade Secrecy Law changes Tomorrow - check your NDA, Standard Terms and other Agreement 8 June 2018 NIPC Inventors Club). I have not had a case about trade secrets since the Directive came into force, but I would be tempted to plead it had I been instructed in a case like this one.
The second to fifth defendants in Trailfinders were former employees of the claimant travel company. In 2016 they left the company together with some 40 other members of the claimant's staff and became franchisees of the first defendant, Travel Counsellors Ltd. ("TCL"). Trailfinders complained that those defendants took the names, contact details and other information about its clients. The claimant further alleged that those defendants accessed its customer database to obtain further information after they had left.
Trailfinders's case against the second to fifth defendants was that they were in breach of implied terms of their contracts of employment and/or in breach of confidence. Its case against TCL was that TCL owed Trailfinders an obligation of confidence because it had received confidential customer information from Trailfinder's former employees. Trailfinders alleged that TCL had breached that obligation by allowing the second to fifth defendants to exploit that information for their own and TCL's benefit. Alternatively, the claimant contended that TCL was vicariously liable for the wrongdoing of the second and fifth defendants in that it had employed them. In the further alternative argument, Trailfinders said that the second to fifth defendants had acted as agents of TCL and that TCL was liable for the second to fifth defendants' acts as their principal.
In order for the action to be tried in two days and also to save costs, the proceedings were stayed against the third and fourth defendants but continued against the others, That enabled the claim to remain in the Intellectual Property Enterprise Court since paragraph 31.2 of the Part 63 Practice Direction requires that Court to endeavour to ensure that a trial lasts no more than 2 days.
The judge considered an employees' duty of good faith and fidelity first. Referring to Mr Justice Leggatt's judgment in Marathon Asset Management LLP and another v Seddon and others [2017] 2 CLC 182, [2017] WLR(D) 138, [2017] FSR 36, [2017] ICR 791, [2017] IRLR 503, [2017] EWHC 300 (Comm), he noted that the duty of good faith and fidelity connoted an obligation not to misuse the employer's confidential information. In Faccenda Chicken Ltd v Fowler [1985] FSR 105, Mr Justice Goulding had divided the information that an employee might gain in the course of his employment into three categories:
Surprisingly, neither party seems to have drawn Judge Hacon's attention to Mr Justice Laddie's decision in Ocular Sciences Ltd and another v Aspect Vision Care Ltd. and others (No.2) [1996] EWHC Patents 1, (1997) 20(3) IPD 20022, [1997] RPC 289. Mr Justice Laddie neatly drew a distinction between information that can never be used or disclosed and information that cannot be used or disclosed while employment continues. After referring to the decisions of the Court of Appeal in Faccenda Chicken and Lancashire Fires Ltd. v Lyons and Co. Ltd. [1996] FSR 629, Mr Justice Laddie said:
"I think that it sometimes may be a bit misleading to think in terms of confidence or quasi-confidence when considering an employee's skill and expertise. An employee is entitled to deploy his skill and expertise for any employer. It may be a skill and expertise which is held by many others so that, as a practical matter, it is readily available to all competitors in the trade or he may be one of a select band. When an employee works for his employer he is bound by an implied obligation of good faith. Generally, he is expected to work for his employer not for his employer's competitors. He is expected not to put his skills at the service of one person while his salary is being paid by another. This has nothing to do with the confidentiality of his skills and expertise. Similarly when he learns new things during his employment which become part of his skills and expertise, the employer can insist that, while he is employed, he uses those things only for the purpose of his employment. Whether or not those new things are confidential, in the Coco v. Clark sense, is largely irrelevant to the restraint on his ability to use it to his employer's detriment while he is still employed by him. The significance of this is that there is risk of slipping into thinking that what an employee can be restrained from using while in employment is likely to be secret when, in truth, that restraint has little to do with secrecy but a lot to do with the employee's obligation to act in the interests of his employer. Once one slips into thinking that because a piece of information cannot be disclosed to a competitor during employment, therefore it is secret, it is but a little step to assuming that it is secret for the purposes of the law of confidence."
He added:
"In the end, it seems to me that the law as expounded in Faccenda and reviewed by the Court of Appeal in Lancashire Fires comes down to this. An employer, like anyone else, is entitled (all other usual defences aside) to restrain unauthorised disclosure or use of information which, in the Coco v. Clark sense, is confidential. On the other hand, for public policy reasons, an employee is entitled to use and put at the disposal of new employers all his acquired skill and knowledge. That is so, no matter where he acquired that skill and knowledge and whether it is secret or was so at the time he acquired it. Where the employer's right to restrain misuse of his confidential information collides with the public policy, it is the latter which prevails. The critical question is how to distinguish information which can be treated as an employee's acquired skill and knowledge from that which is not. As the Court of Appeal pointed out in Lancashire Fires, that may be a difficult borderline to detect and where it lies will depend on the particular facts of the case."
Next, Judge Hacon considered the equitable duty of confidence. He noted that it was based on conscience and that it could arise in classic situations like Coco v A N Clark (Engineers) Ltd. [1969] RPC 41 or in circumstances where a confidante who had received information without at first appreciating that it was confidential learns that it is.
Finally, the judge held that an employer can be vicariously liable for his employees' wrongdoing even if he had no actual knowledge of it.
His Honour had no doubt that the client information that the claimant had taken was confidential. He said at [72] that it fell within art 2 (1) of the Trade Secrets Directive and the second category of Mr Justice Goulding's categories in Faccenda. The judge found that the 2nd and fifth defendants had breached their obligations of good faith and fidelity by accessing that information with a view to using it after their employment had terminated. Their liability for those breaches did not cease upon their departure from the claimant company The databases that they accessed after they had left Trailfinders was confidential information within Mr Jsutice Goulding's third category. By accessing those databases they breached their obligations of confidence. As for TCL, Judge Hacon held that equity and art 4 (4) of the Directive imposed a duty of confidence on TCL in that it received information that it knew or ought to have known was fairly and reasonably regarded as confidential. The judge considered but rejected the claim that TCL was vicariously liable for the former employees' wrongdoing as their principal or employer. There was nothing in TCL's franchise agreements that bound TCL in relation to the franchisees' business dealings with their clients. Nor could it be said that the franchisees were TCL's employees. The judge concluded at [137] that the former employees were in breach of both their contractual and equitable duties to Trailfinders and that TCL was in breach of an equitable duty of confidence to Trailfinders.
During the Covid-19 emergency, chambers will be clerked remotely. If you want to discuss this article or trade secrets generally send me a message through my contact page.
- The first category is information that is not confidential.
- The second is confidential information which remains in the employee's head and becomes part of his knowledge and experience.
- The third is trade secrets.
Surprisingly, neither party seems to have drawn Judge Hacon's attention to Mr Justice Laddie's decision in Ocular Sciences Ltd and another v Aspect Vision Care Ltd. and others (No.2) [1996] EWHC Patents 1, (1997) 20(3) IPD 20022, [1997] RPC 289. Mr Justice Laddie neatly drew a distinction between information that can never be used or disclosed and information that cannot be used or disclosed while employment continues. After referring to the decisions of the Court of Appeal in Faccenda Chicken and Lancashire Fires Ltd. v Lyons and Co. Ltd. [1996] FSR 629, Mr Justice Laddie said:
"I think that it sometimes may be a bit misleading to think in terms of confidence or quasi-confidence when considering an employee's skill and expertise. An employee is entitled to deploy his skill and expertise for any employer. It may be a skill and expertise which is held by many others so that, as a practical matter, it is readily available to all competitors in the trade or he may be one of a select band. When an employee works for his employer he is bound by an implied obligation of good faith. Generally, he is expected to work for his employer not for his employer's competitors. He is expected not to put his skills at the service of one person while his salary is being paid by another. This has nothing to do with the confidentiality of his skills and expertise. Similarly when he learns new things during his employment which become part of his skills and expertise, the employer can insist that, while he is employed, he uses those things only for the purpose of his employment. Whether or not those new things are confidential, in the Coco v. Clark sense, is largely irrelevant to the restraint on his ability to use it to his employer's detriment while he is still employed by him. The significance of this is that there is risk of slipping into thinking that what an employee can be restrained from using while in employment is likely to be secret when, in truth, that restraint has little to do with secrecy but a lot to do with the employee's obligation to act in the interests of his employer. Once one slips into thinking that because a piece of information cannot be disclosed to a competitor during employment, therefore it is secret, it is but a little step to assuming that it is secret for the purposes of the law of confidence."
He added:
"In the end, it seems to me that the law as expounded in Faccenda and reviewed by the Court of Appeal in Lancashire Fires comes down to this. An employer, like anyone else, is entitled (all other usual defences aside) to restrain unauthorised disclosure or use of information which, in the Coco v. Clark sense, is confidential. On the other hand, for public policy reasons, an employee is entitled to use and put at the disposal of new employers all his acquired skill and knowledge. That is so, no matter where he acquired that skill and knowledge and whether it is secret or was so at the time he acquired it. Where the employer's right to restrain misuse of his confidential information collides with the public policy, it is the latter which prevails. The critical question is how to distinguish information which can be treated as an employee's acquired skill and knowledge from that which is not. As the Court of Appeal pointed out in Lancashire Fires, that may be a difficult borderline to detect and where it lies will depend on the particular facts of the case."
Next, Judge Hacon considered the equitable duty of confidence. He noted that it was based on conscience and that it could arise in classic situations like Coco v A N Clark (Engineers) Ltd. [1969] RPC 41 or in circumstances where a confidante who had received information without at first appreciating that it was confidential learns that it is.
Finally, the judge held that an employer can be vicariously liable for his employees' wrongdoing even if he had no actual knowledge of it.
His Honour had no doubt that the client information that the claimant had taken was confidential. He said at [72] that it fell within art 2 (1) of the Trade Secrets Directive and the second category of Mr Justice Goulding's categories in Faccenda. The judge found that the 2nd and fifth defendants had breached their obligations of good faith and fidelity by accessing that information with a view to using it after their employment had terminated. Their liability for those breaches did not cease upon their departure from the claimant company The databases that they accessed after they had left Trailfinders was confidential information within Mr Jsutice Goulding's third category. By accessing those databases they breached their obligations of confidence. As for TCL, Judge Hacon held that equity and art 4 (4) of the Directive imposed a duty of confidence on TCL in that it received information that it knew or ought to have known was fairly and reasonably regarded as confidential. The judge considered but rejected the claim that TCL was vicariously liable for the former employees' wrongdoing as their principal or employer. There was nothing in TCL's franchise agreements that bound TCL in relation to the franchisees' business dealings with their clients. Nor could it be said that the franchisees were TCL's employees. The judge concluded at [137] that the former employees were in breach of both their contractual and equitable duties to Trailfinders and that TCL was in breach of an equitable duty of confidence to Trailfinders.
During the Covid-19 emergency, chambers will be clerked remotely. If you want to discuss this article or trade secrets generally send me a message through my contact page.
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