Case law on Trade Secrets in United Kingdom

Relevant topics related to the 2016 Trade Secret Directive (EU 2016/943)

1. Requirement to undertake reasonable steps to keep the information secret - art. 2(1)(c)

Background

The Trade Secrets Regulations include a requirement for a business to take "reasonable steps" to protect its trade secrets to fall within the statutory definition of "trade secret". However, if a trade secret holder cannot evidence that it has taken such reasonable steps (and therefore cannot rely on the Trade Secrets Regulations), it may still be protected by the common law cause of action of breach of confidence.  

Case Law

As of yet, there has been little court analysis on what is meant by ‘reasonable steps’. Although, it is worth noting that the "reasonable steps" requirement appears similar to the US federal Defend Trade Secrets Act’s requirement that data owners take "reasonable measures" to keep the information secret.

There is currently no judicial authority or government guidance on what constitutes reasonable steps under the Trade Secrets Regulations. However, there is a common law test set out in Faccenda Chicken Limited v Fowler [1986] 1 All ER 617) with regard to relevant steps which may be taken to ensure that information remains confidential. The case states that access to information should be restricted and information should only be disseminated on a need-to-know basis by, for example, limiting the number of copies made and the persons who may have access to them, and marking each page "Confidential". 

However, the indiscriminate marking of materials as "Confidential" should be guarded against because this may devalue the term. In the Faccenda Chicken case the relevant material was apparently not marked "Confidential" but the indiscriminate assertions of confidentiality in the proceedings themselves damaged the claimant's case.

Confidential material should be marked with the word "Confidential" or the words "Highly confidential" or "Trade secret". The latter two expressions will not afford the material any extra protection, but may be more appropriate in view of a business' internal systems for the grading and dissemination of sensitive information.

2. Reverse Engineering - e.g. art. 3(1)(b)

Background

Reverse engineering involves starting with a publicly available product or set of information and taking it apart to understand its parts and how it was created. 

Case Law 

In September 2016 the High Court found in the case of Kerry Ingredients v Bakkavor that there had been misuse of confidential information relating to the method of production of edible infused oils. This decision was made despite the fact it was possible to obtain confidential information through the process of reverse engineering or, by process of trial and error. The judge in this case said that he did not think that the information could be considered to be capable of being reverse-engineered without considerable work or ‘special labours’ or to be second nature to a developer. The court adiditonally stated that the confidential information had been imparted in circumstances of confidence because the claimant and its predecessors supplied the confidential information to the defendant for safety and regulatory purposes. The court held that the defendant’s use of the confidential information amounted to a breach of confidence and granted a springboard injunction.

This decision highlights and strengthens the English Courts' understanding that confidential information does not only include highly classified information but, can include information that is  obtained through reverse engineering or by trial and error.

Another key case on reverse engineering is Mars UK Ltd v Teknowledge. The court decided in this case that coin machines which contained encrypted information did not have the necessary quality of confidence since the product was on the open market and anyone with decryption skills would be able to access the information. The coin machine creators had argued that an obligation of confidence must exist, implied by the fact the information had been encrypted in the first place. The court accepted that encryption might mean the encrypter did not want the person who finds it to have that information, but that does not mean the information is confidential; the breach of confidence claim therefore failed.

3. Infringing products - e.g. art. 2(4) and 4(5)

Background 

‘Infringing goods’ means goods, the design, functioning, production process, marketing or a characteristic of which significantly benefits from a trade secret unlawfully acquired, used or disclosed. The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully. 

Case Law

Where a court finds on the merits of the case that there has been an unlawful acquisition, use or disclosure of a trade secret, the court may, on application by the trade secret holder, order one of the below remedies: 

  • recall of the infringing goods from the market;
  • depriving the infringing goods of their infringing quality (ie modifications to the goods); and 
  • destruction of the infringing goods or their withdrawal from the market, provided that the withdrawal does not undermine the protection of the trade secret in question. 

There are currently no cases with positive judicial treatment as to the specifics of art 2(4) and 4(5) of the Trade Secrets Regulation.  

4. The (IP-like) catalogue of remedies - e.g. art. 10 and 12

Injunctions

Injunctions are an essential remedy for trade secret disputes. An injunction requires a party to either do a specified act (mandatory injunction) or refrain from doing a specified act (prohibitory injunction). Failure to comply with an injunction can lead to fines, confiscation of assets or imprisonment. Injunctions can either be interim (meaning they are made at the beginning of a case) or final (meaning they are made at the end of a case, following assessment at trial). 

When assessing whether to grant an interim injunction, the court is required to consider (1) whether there is a serious question to be tried, (2) whether damages would be an adequate remedy, and (3) who the balance of convenience favours (American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1). 

Usually, the potential damage caused by the release of trade secrets outweighs the inconvenience to the defendant in refraining from releasing or making use of that information. For example, the courts have been willing to grant injunctions to prevent ex-employees misusing confidential information (Sectrack NV v Satamatics Ltd (1) and Jan Leemans (2) [2007] EWHC 3003), and to restrain solicitors from acting against their client in which confidential information was relevant (Western Avenue Properties Ltd and another v Soni and another [2017] EWHC 2650 (QB)). 

Damages

Damages are the most common remedy, the goal of which is to compensate the claimant for the loss they have suffered due to the defendant’s acts. How damages are calculated in a trade secrets case will depend on how the trade secret is monetised. If the claimant uses the information themselves to earn profits, damage should reflect fair compensation for what they have lost ( Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840). However, if the claimant would have licensed or sold the information to others, damages should reflect the value of sale or licence of the information between a willing seller and a willing buyer (Seager v Copydex (No 2) [1969] 1 WLR 809).

A further category of “negotiated damages” is also available in trade secret disputes, based on the court assessed value of a “hypothetical bargain” for release of the defendant’s obligations. This approach requires the court to examine what the defendant would have paid had he, before breaching the contract, negotiated a release of the obligations to the claimant (Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798). 

Account of profits

An alternative to damages is an account of the Defendant’s profits. This allows a Claimant to claim for the Defendant’s profits instead of traditional damages. This remedy is restricted to cases where claimant’s interest in performance of the obligation makes it just and equitable that the defendant should retain no benefit from their breach of that obligation (Attorney General v Blake [2001] 1 A.C. 268, [2000] 7 WLUK 824). The courts tend to use this remedy sparingly. It usually requires the infringement to be in relation to the Claimant’s proprietary information, failing which “negotiated damages” for a reasonable buy-out fee for the obligation would be appropriate (Vercoe & others v Rutland Fund Management Ltd & others [2010] EWHC 424 (Ch)).

Destruction or return of items in Defendant’s possession
In some circumstances, the court can order the destruction of confidential information, particularly where the court considers the defendant cannot be trusted to seek out and delete the confidential material itself (Arthur J Gallagher (UK) Ltd and others v Skriptchenko and others [2016] EWHC 603 (QB)).

The court can also order the destruction of any goods that infringe a trade secret under the Trade Secret Regulation 14(1)(iii).

5. Exceptions / allowed uses (and their relationship to contractual secrecy provisions) - art. 1 and 5

In the UK, confidential information relating to criminality and fraud are excluded from the law of confidence (Gartside v Outram [1857] 26 LJ Ch (NS) 113), meaning that one cannot rely on trade secret law to prevent disclosure of illegal acts.

There is also a long history excluding public interest disclosures from the law of confidentiality. In practice, the courts will weigh the public interest consideration against the harm to the company, to establish whether the public interest duty to disclose overrides the duty of confidentiality (Lion Laboratories Ltd v Evans [1984] 2 All ER 417). This exception has usually only been found to apply where there is wrongdoing, but judicial commentary (Lion Laboratories) confirms this is not necessary.

There are also limitations to the law of confidentiality in respect of Freedom of information requests. Under the Freedom of Information Act 2000, a public authority can be required to disclose commercially sensitive information to a private sector entity if the court deems it in the public interest. Whilst trade secrets are generally exempt from the scope of Freedom of Information requests under the act, whether that exemption actually applies is dependent on the nature of the trade secret. Technical secrets, such as manufacturing processes or technical data, are more likely to be exempt than business secrets, such as future commercial plans (only case on this issue is a tribunal case, so potentially of limited persuasive value: London Borough of Southwark v The Information Commissioner and Lend Lease (Elephant and Castle) Limited and Adrian Glasspool (EA/2013/0163) (9 May 2014)). 

6. Secrecy in court proceedings (“confidentiality club”) - art. 9

Under Regulation 10 of the Trade Secrets Regulations 2018, parties to trade secrets proceedings are prohibited from using or disclosing a trade secret or information that is alleged to be a trade secret. This prohibition continues until the court finds that the information is in fact not a trade secret or where it enters into the public domain. The court can also issue an order to restrict access to a document or hearing or redact its judgment under Regulation 10(5).

However, the general principle is that justice is to be open, which means the court will use their power sparingly and only where it is necessary for justice to be done (Scott v Scott [1913] UKHL 2 , CPR 39.2(1)). When considering whether to derogate from the general principle of open justice, the court must have regard to all the circumstances of the case, including whether there are any competing rights under the European Court of Human Rights (Ntuli v Donald [2010] EWCA Civ 1276). For instance, the Employment Tribunal has held that the protection of trade secrets, namely a confidential client list, had to be considered against an employee’s right to name persons involved in legal proceedings (Frewer v Google UK Ltd and others [2022] EAT 34).

The fact that business information is sensitive does not mean it can provide justification for it to be confidential (McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 1158 (Ch) (26 April 2012). Furthermore, the court may resist ordering a private hearing where trade secrets may be mentioned, particularly if such mentioning is likely to be incidental ( Warren v Marsden [2014] EWHC 4410 (Comm)). However, the court may order for a hearing to be held publicly, but direct for the information relating to the trade secret to be withheld from the public (Advertising Standards Authority Limited v Robert Neil Whyte Mitchell [2019] EWHC 1469 (QB).