Confidential information

Introduction

Confidential Information

Introduction

If you tell someone a secret, you don’t expect them to tell it to the whole world. You probably don’t want them to tell anyone. If that secret is valuable commercial information, you will also be concerned that they don’t use the information themselves, and if it is private information you won’t want to see it in the newspapers.

The courts have long recognised that the right sort of information can be protected against disclosure and unauthorised use. There is no statute law on the subject (although the Law Commission produced a draft Bill on the subject as long ago as 19811), so there are few hard and fast rules. Confidence and trust are closely related, and duties of confidentiality have usually been analysed as equitable obligations, and in (fairly) ordinary speech you might talk about entrusting a secret to someone – though only if that person were trustworthy. It is an idea that has been around for centuries: Sir Thomas More, Henry VIII’s Lord Chancellor from October 1529 to 16 May 1532, who later suffered the double misfortune of being beheaded (1535) and having a ghastly modern extension to the Royal Courts of Justice named after him (1989), is credited with coining the couplet

Three things are to be help’d in Conscience,
Fraud, Accident and Things of Confidence

While older cases, such as Morison v Moat2 (concerning patent medicines) and Prince Albert v Strange3 (concerning unauthorised reproductions of etchings made by Queen Victoria and her husband) approach the subject as a contractual or property matter, the action for breach of confidence is nowadays more usually treated as a matter of conscience, which is the preserve of equity. The subject matter of this area of law demands protection by injunction: if you wanted to keep something to yourself you will not be satisfied with financial compensation if it is wrongly disclosed or used, and an injunction is an equitable remedy. Still, obligations of confidence may arise in several ways:

  • under contract, expressly or by implication;

  • in tort;

  • by recognition of a proprietary right in confidential information; and

  • (to a very limited extent) under statute (the Official Secrets Act 1989, the Data Protection Act 1998, the Human Rights Act 1998)

The existence of these different possibilities makes the right a flexible one. The courts can, for example, enforce an equitable obligation where there is no privity of contract between the parties. The equitable obligation of confidence may run alongside contractual obligations; and the employee’s fiduciary duty may supplement an implied term prohibiting disclosure, the result being that the employee may not use the information either: see Thomas Marshall (Exports) v Guinle4. Particularly where the subject of the confidence is property, the courts may treat the information as property too: see for example the Canadian Supreme Court case, Lac Minerals v International Corona Resources5.

The courts seek to balance the rights of the proprietor of confidential information against the rights of those who have an interest in using it. It has been said that the courts apply broad equitable notions to ensure that the confidence is respected to the fullest possible extent, whether by reference to equitable principles or to implied terms.6 Since 1998 the Human Rights Act has added a further gloss, importing into our law the European Convention on Human Rights. The emerging right of privacy, or at least the newish action for misuse of personal information, will be explored in detail in another chapter.

The European Convention on Human Rights

Article 8 protects the individual’s right to a private life, while Article 10 protects freedom of expression, and the two go uneasily together. Together, they set parameters within which the courts must decide breach of confidence cases. Section 6 of the Act requires the courts (and other ‘public authorities’) not to act ‘in a way which is incompatible with a Convention right’. As Lord Woolf CJ put it in A v B & C [2002] EWCA Civ 337 (11th March, 2002), ‘The court is able to achieve this by absorbing the rights which articles 8 and 10 protect into the long-established action for breach of confidence. This involves giving a new strength and breadth to the action so that it accommodates the requirements of those articles.’

Different policy considerations inform different situations. The public interest will be of vital importance in determining the extent to which government secrets are protected. In an employment relationship the important consideration is the doctrine of restraint of trade, which prevents the courts from enforcing any contract that is unreasonable restraint of trade. That doctrine applies to an employment contract that unreasonably restricts what an employee (or, often, an ex-employee) may do, and also to a commercial agreement that unreasonably restricts competition.

Confidential information and intellectual property

If confidential information is not a type of property, what is it doing in a book on intellectual property? It belongs here because the action for breach of confidence is often an important alternative or supplement to protection by real IP rights, giving protection:

  • To inventions, as patents do: for example, Seager v Copydex (no. 1) which concerned a new type of carpet grip;

  • To creations that copyright might also protect, before they reach a sufficient stage of development for copyright to kick in, as in Fraser v Thames Television (an idea for a television series, too vague for copyright: see note 13 below);

  • Against publication, even though there is no copyright infringement, as in Creation Records v News Group7 (an arrangement of objects to form an album cover photograph, not protected by copyright: see Error: Reference source not found), Shelley Films v Rex Features8 (film sets, costumes and latex prostheses, which were protected by copyright: see Error: Reference source not found);

  • To preserve the novelty of an invention or design, before an application for a patent or a registered design is filed; and

  • To commercially valuable information, or “know-how”, which is not of itself patentable or which the owner of a patent prefers to keep secret (for example, the best way to make the product which the patent protects), which can be licensed either on its own or in conjunction with a patent.

Subject Matter

The law of breach of confidence can cover a wide variety of different types of information, including technical information and business intelligence such as customer lists as well as private information. The scope of the right to protect confidential information depends more on the effort involved in duplication than on the nature of the material. So, like other forms of intellectual property, this area of the law is concerned above all with money. In Douglas and Zeta Jones v Hello! [2007] UKHL 21 (2 May 2007) Lord Hoffmann made a telling comment (at para 117 ):

The point of which one should never lose sight is that OK! had paid £1m for the benefit of the obligation of confidence imposed upon all those present at the wedding in respect of any photographs of the wedding. That was quite clear. Unless there is some conceptual or policy reason why they should not have the benefit of that obligation, I cannot see why they were not entitled to enforce it. And in my opinion there are no such reasons. Provided that one keeps one's eye firmly on the money and why it was paid, the case is, as Lindsay J held, quite straightforward.

Although his Lordship did not use the phrase, it can be said that the law will follow the money – and this theme crops up several times in this chapter, and throughout the book. The whole reason that intellectual property is so highly valued is that it has often been created at considerable expense, or traded for substantial sums of money.

The mere fact that the information is simple is no bar to its being protected: all that is needed is that its availability is limited (see BBC v Harper Collins [2010].EWHC 2424 (Ch)). Whether the availability of the information be sufficiently limited is relative (per Lord Goff in A-G v Guardian Newspapers (No 2)9, referred to from here on as the Spycatcher case, p 282, and see also Vestergard Frandzen v BestNet [2013] UKSC 31 where the information was known to a select few and the “springboard” doctrine (on which see para ) was also important). Information which is publicly available cannot be protected, though a particular selection of publicly available information may be. Deciding what information is public is frequently the key issue for the courts.

The information must be specific and well-defined. In Bailey and Williams v Graham (aka Levi Roots) [2012] EWCA Civ 1469 the evidence of all the parties was unreliable but there was nothing to show that the recipes involved were secret, and the recipes themselves were vague.

Contrast Maudesley v De Palumbo, where the preliminary ideas for the Ministry of Sound nightclub were considered too vague to be protected, with Fraser v Thames Television where the information, though too vague for copyright to be engaged, was protected.

As well as vagueness being a disqualification, the law will not protect information if it is trivial (per Lord Goff in Spycatcher), useless, or immoral (which Mosley v News Group Newspapers Ltd. [2008] EWHC 1777 (QB) (24 July 2008) makes clear must involve a breach of the criminal law, and not just be distasteful to some people).

Although the law on breach of confidence has been around for centuries, it has enjoyed a revival in the last fifty or so years. Its value as a means of protecting industrial property at the pre-patent (or pre-registered design) stage, as well as its ability to protect trade secrets and other matter that was not the stuff of patents at all, has become recognised since the Second World War. the modern law of breach of confidence is largely a post-war phenomenon.

The foundations of the modern law

Two cases laid the foundations of the modern law in this area: Saltman Engineering Co Ltd v Campbell Engineering Ltd10 and Coco v A N Clark (Engineers) Ltd.11 Before then the courts had relied on contractual principles (the parties to a dispute often being, or having previously been, in a contractual relationship), or treated confidential information as a type of property. Since 1945 they have tended to base their decisions on notions of conscience, good faith and equity.

Saltman is a decision of the Court of Appeal and involved drawings for tools which were given to the defendant to enable the tools to be made. The plaintiff owned the copyright in the drawings, and the defendant was a subcontractor. When the defendant, having made the tools it was contracted to produce, used the drawings for its own purposes there was no privity of contract between the plaintiff and defendant. Lord Greene MR said (at 415):

The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and pubic knowledge. On the other hand. it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process.

Provided that others would have to spend time and effort in deriving the information for themselves, it makes no difference that there is nothing special about the information. Nor is it necessary for the parties to be in a contractual relationship: the courts will restrain the use of confidential information where it is unfair and lies outside the use contemplated by the person entrusting the other party with that information.

The Court of Appeal’s approach in Saltman is reiterated in such cases as Fraser v Evans [1969] 1 QB 349, 361, where Lord Denning said the action “is based not so much on property or on contract as on a duty of good faith”, which certainly does not exclude those alternatives, and AG v Guardian Newspapers (No 2) [1990] AC 109 (“Spycatcher”) where Lord Keith said:

The obligation may be imposed by an express or implied term in a contract but it may also exist independently of any contract on the basis of an independent equitable principle of confidence.

In Coco v Clark the plaintiff had designed a moped engine. He negotiated with the defendants with a view to their manufacturing engines to the design but negotiations broke down before a contract was made, and the defendant started making an engine which closely resembled the plaintiff’s. The case came to court on the plaintiff’s application for an interlocutory injunction, to restrain the manufacture of the engine pending a trial of the issues. He did not get his injunction, as Megarry J (as he then was12) did not consider it an appropriate remedy where the disclosure had been made in the expectation that the plaintiff would be paid for his technology. The defendant had undertaken to pay a royalty (five shillings per engine, which for the benefit of readers with no knowledge of pre-decimalisation currency equates to 25p, enough at the time for a round of drinks) into a joint account pending trial, and that was enough to ensure no injunction was granted. However, the trial never happened, and the moped (the Clark “Scamp”) ceased production shortly afterwards after only a few thousand had been made. A receiver was appointed, and Clark’s original business – mast-making – was revived under a slightly different name.

More importantly (for posterity at least) the judge laid down three elements that must be present in a breach of confidence case, which every student of the subject must be able to recite:

  • The information must have the necessary quality of confidence about it;

  • It must have been imparted in circumstances importing an obligation of confidence (a requirement that has been somewhat modified as a result of the Spycatcher litigation (on which, see infra., paragraph .); and

  • There must be an unauthorised use of that information to the detriment of the party who communicated it.

To this list might now be added:

  • It must be reasonable to impose the obligation; and

  • The information must be clearly identifiable.13

This “trinity” of factors is the starting point, even now, for every judgment in the area of confidential information, including Douglas v Hello! [2007] UKHL 21 – a rare distinction for a judgment on an unsuccessful interlocutory application. The application of this area of law is not restricted to commercial situations; the law of breach of confidence can protect private, even marital, secrets: see Duchess of Argyll v Duke of Argyll14 and Stephens v Avery15 It is therefore apt, up to a point, to protect a person’s privacy a matter discussed further in chapter Error: Reference source not found.

The quality of confidence

The first requirement identified by Megarry J was that the information should have the necessary quality of confidence about it, a requirement that had earlier been identified in the Saltman case by Greene MR. An objective standard must be applied, and whether the discloser of the information designates it as confidential is immaterial.

The information does not have to be special to be protected. The law protects the time and effort invested in the compilation of the information. A list of customers, consisting of commonplace information, may be regarded as confidential: the compilation of the list has involved effort and the result is commercially valuable. A combination of information may be considered confidential: its status must be taken in context (see Indata Equipment Supplies Ltd v ACL Ltd16). Ease of access is the key: if someone would have to go to considerable trouble to recreate the information, even though its elements are all available, the finished compilation will be confidential. In Saltman the judge said:

Something that has been constructed from materials in the public domain may possess the necessary quality of confidentiality, for something new and confidential may have been brought into being by the application of the skill and generosity of the human brain.

In Thomas Marshall (Exports) v Guinle (above) Megarry V-C suggested four elements to look for in deciding whether information had the necessary quality of confidence about it:

  • It must be such that the owner believes its release would be injurious to him, or would be advantageous to his rivals or to others;

  • The owner of the information must believe it to be confidential or secret and not already in the public domain;

  • The owner’s belief in these matters must be reasonable; and

  • The information must be judged in the light of the usages and practices of the particular trade or industry concerned. In Ibcos Computers Ltd v Barclays Mercantile Finance Ltd 17 the source code of a computer program was confidential because it was not usually given to clients. (In addition, the licence will usually contain terms imposing an obligation of confidence on the licensee.)

However, the introduction of a degree of subjectivity in the tests has been criticised. In the Lancashire Fires case18 Carnwath J considered that it arose because of the particular facts of Guinle, where the managing director had resigned and then tried to argue that not only could he not be ordered to perform the contract of employment (it is well-established that specific performance of a contract of employment will never be ordered, because the two parties will not have sufficient trust in each other for an employment relationship to exist), but even the confidentiality clause was unenforceable.

Trade secrets are often the sort of thing that the law of breach of confidence is called upon to protect, although there is no single definition of what may be protected under this head. In Herbert Morris v Saxelby19 Lord Atkinson spoke of ‘trade secrets, such as prices &c. or any secret process or things of a nature which the man was not entitled to reveal.’ Lord Parker in that case suggested a distinction to be drawn between information too detailed to be carried in the head and less detailed information that could be committed to memory.

Secret industrial processes involving an inventive step will readily be considered trade secrets. The ability to protect such matter before a patent application is made is essential to the preservation of the novelty of an invention. However, trade secrets go much further than this, covering also price lists and customer information. In Faccenda Chicken Ltd v Fowler20 the judge, Goulding J, divided information into three classes:

  • information that, because of its trivial character or its easy accessibility from public sources, cannot be regarded as confidential;

  • information that an employee must treat as confidential, but which, once learned, reasonably remains in the employee’s head and becomes part of his skill and experience; and

  • specific trade secrets so confidential that a continuing duty of confidence applies even beyond the termination of the employment or the service contract.

Note that the law will give different levels of protection to these classes of information. The second class is protected while the employee remains an employee, but post-employment – often the most important time to protect confidential information, when the employee has just left with a head full of the stuff to work for a competitor or set up in competition – it can only be protected by an express obligation.

The classification was used in the Lancashire Fires case, though Bingham MR said that it may be hard to distinguish between the second and third categories; and in Ocular Sciences Ltd v Aspect Vision Care Ltd21 Laddie J found the first category problematical too, arguing that it seemed to have little to do with confidence and more to do with the employee’s duty of fidelity. The classification also fails to take into account the relative ease with which an invention may be memorised compared with a list of customers.

In Lansing Linde v Kerr22 Staughton LJ spoke of trade secrets in terms of information that would be liable to cause real harm were it disclosed to a competitor, provided that it was used in a trade or business and the owner had limited its dissemination or at least neither encouraged nor permitted widespread publication.

Vestergaard Frandsen v Bestnet and others23 concerned information about insect repellents with which mosquito nets were impregnated. At first instance Arnold J said there were several factors to be taken into account in determining whether information should be regarded as confidential:

  • the nature of the work: the recipient of the information was employed in a role which was likely to produce inventions, which would belong to the claimants;

  • the nature of the information: this comprised experimental results and deductions from them, which should be protected as trade secrets in the same way that formulas and manufacturing processes are;

  • the attitude of the employer: the company was shown to regard the information in the database as confidential;

  • steps taken to protect the information: there was abundant evidence that extensive steps were taken to keep the information secret;

  • the separability of the information: the information in the database could be separated from the recipient’s general store of knowledge and skill;

  • the commercial value of the information; and

  • the usage and practices of the trade: the little evidence available on this point suggested that the trade would treat information such as that on the database as being a trade secret.

Information no longer confidential

Once information becomes public, no confidentiality agreement can restore its confidential status. Any disclosure is fatal to its confidentiality, unless that disclosure is made in circumstances of confidentiality. Unless the recipient’s conscience is fixed by equity, she is free to use the information

Confidential information has to be disclosed in the course of a patent application: because novelty is of the essence of a patentable invention, it must be something which is not already in the public domain, but in the course of the patenting process the specification is published and protection moves from the sphere of breach of confidence to the patent, when it is granted. In Mustad & Son v Dosen24 the employee’s duty of confidence towards his employer’s information was destroyed by the publication of the patent application, although if the published patent were applied for by a third party the employee’s duty to his employer regarding information in his possession concerning the patent would remain (Cranleigh Precision Engineering Ltd v Bryant25).

Springboard

What happens when confidential information is mixed with information that is in the public domain? The courts have extended the protection given by the law of breach of confidence in such cases by what is called the springboard doctrine. Someone who is obliged to respect a confidence cannot use the information for his own purposes even after it has entered the public domain if that would be harmful to the person to whom he owed the duty. The classic case is Terrapin v Builders Supply Co (Hayes) Ltd26 in which Roxburgh J said (at 392):.

... a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to [the owner of the information] and springboard it remains even when all the features have been published ...

The obligation will not continue for ever (Potters Ballatoni v Weston Baker [1977] RPC 222): it lasts merely as long as the unfair advantage to be derived from the use of the material would reasonably be expected to remain – usually the time it would take to reverse-engineer the information. In Roger Bullivant Ltd v Ellis27, the obligation applied to a card index system notwithstanding that the ex-employee would have been able to use the information in it had he committed it to memory. In Cadbury Schweepes v FBI Foods Ltd [2000] FSR 491 (Supreme Court of Canda) the information, a secret recipe for a drink, was protected for as long as it would take to work out what the drink contained.

If the information is already available to the public through no fault of the defendant, the springboard doctrine will not apply: Vestergaard Frandsen. In the Spycatcher case, Lord Goff took the view that a confidant who disclosed information to the world could not be prevented from further disclosing it: such a result would be absurd. Laddie J followed this reasoning in Ocular Sciences, casting doubt on the validity of the springboard doctrine: any unfair advantage obtained by the confidant could be dealt with by financial awards or by the creation of a constructive trust. On the other hand, Spycatcher was a publication case, and to apply its reasoning to other types of misuse of confidential information might not always work.

Reverse engineering

The law of breach of confidence cannot give protection against reverse engineering or analysis, which may reveal the information to the third party which carries it out. In 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, Jacob J 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. On the other hand, in a much earlier case, KS Paul (Printing Machinery) Ltd v Southern Instruments Ltd28, the court granted an injunction against the defendant using confidential information obtained by an unlawful examination of a machine, such examination being prohibited under the supply contract (which is the big difference between this case and Mars).

More recently, Volkswagen Aktiengesellschaft v Garcia & Ors [2013] EWHC 1832 (Ch) (25 June 2013) concerned a reverse-engineered cryptography algorithm used in vehicle security. Both parties accepted that Mars had been correctly decided, and the case tells us a lot more about when an interim injunction might be granted than it does about breach of confidence: but the judge (Birss J) was swayed by the “murky” origins of the software used by the defendants (although he conceded ‘[j]ust because it comes from Bulgaria does not mean it is illegitimate’) and the lack of effort on the part of the defendants, academics who had attacked the algorithm and found deficiencies in it, to check that it was legitimate.

Obligation of confidence

The obligation of confidence that is essential for a breach of confidence action to lie may arise in a number of ways: by contract, express or implied, by prior notice, or by implication of law. The bottom line is that it depends on the parties’ relationship. An implied obligation of confidence may arise in a fiduciary relationship or by general equitable principles.

It also depends on the circumstances of the disclosure, assessed objectively. Guinle and Schering suggested that it was a subjective question, depending on the state of mind of the recipient of the information, but more recent cases have overwhelmingly favoured an objective approach – as taken by Megarry J in Coco:

It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence.

Lords Goff and Keith implicitly approved this objective approach in Spycatcher, and the House of Lords endorsed it in Campbell v Mirror Group Newspapers.

Stephens v Avery [1988] Ch 449 illustrates how the objective test works. A woman disclosed to a friend that she was in a lesbian relationship with another friend. The recipient of the information should, the court held, have realised that this information was not to be disclosed to anyone, and certainly not to a tabloid newspaper.

Implied obligations

The courts are reluctant to interfere with commercial relationships, and will therefore only imply terms into contracts where necessary to give commercial efficacy to them – often by reference to whether the hypothetical officious bystander, if asked whether the parties had intended something to form part of their arrangement, would answer “of course!”. If you wish to impose a duty of confidentiality on the other party to a contract, you are strongly advised to do so expressly. In Carflow Products (UK) Ltd v Linwood Securities (Birmingham) Ltd29 (which concerned a prototype steering lock shown to a buyer for Argos) Jacob J considered whether an objective or subjective approach was appropriate. Subjectively, there was no evidence that the parties thought obligations were being created: objectively, the officious bystander would know that there are different ways to protect designs for articles and would not expect that an obligation of confidentiality would arise by showing a prototype to a buyer. The claim therefore failed.

In Vestergaard Frandsen v Bestnet and others30 at first instance the judge was satisfied that there was an express oral contract (a difficult thing to prove, though), but added that if there had not been one, an obligation of confidence would have been implied: but the relationship between the parties in that case was somewhat unusual – the defendant company had been set up by a group including an ex-employee of the claimant, who unknown to his business partners had confidential information in his possession.

Express terms

There are many situations in which confidential information may be disclosed, many of which will be regulated by contracts. The contracts themselves may impose obligations of confidence, or there might be a prior non-disclosure agreement (or ‘Silicon Valley Handshake’), commonly encountered as a prelude to commercial discussions. This makes a breach of confidence a breach of contract, which will give the complainant access to contractual remedies as well as overcoming some of the difficulties of launching an action for breach of confidence alone. However, the rights given by a contract (and the obligations created under it) will not normally lie against a stranger to the contract: the doctrine of privity will usually limit the usefulness of contractual confidentiality obligations (Fraser v Evans31).

There is no such thing as a standard confidentiality agreement. Although there are precedents, each agreement should be individually tailored and take account of the particular features of the situation. Is the information private or commercial? What is the purpose of the disclosure? Is the main threat that the information might be disclosed or used without authorisation, or both?

The duration of a confidentiality obligation is a matter for the parties, though they are limited to what the law would consider reasonable in each case.

The proprietor of the information should usually ensure that the recipient undertakes to impose a similar obligation on its employees (and as appropriate others such as professional advisers and agents), and to disclose it only to those employees who need to know it.

The agreement will usually provide for the return of all documents at the end of the transaction for which they are used. Thus, for example, tender documents usually have to be sent back at the end of the tendering process.

The agreement must normally prohibit both the disclosure and the use of the information. In most cases, either could damage the interests of the proprietor.

Third party recipients

If a third party comes by information not knowing that it is confidential she is generally free to use it unless a confidentiality obligation is imposed: but if there were no protection when a third party acquires confidential information, that information would be worthless. So clearly there is a problem here, and the courts have made a number of contradictory decision – stemming in part from differences in their understanding of the rationale for protecting confidential information.

One thing we can say with some certainty, though: if the information is already in the public domain, then there can be no restriction on its use or disclosure.

Beyond that simple proposition, though, and unless there is a contractual relationship, there is confusion. Some of the cases treat confidential information as property, so the third party’s conduct is treated in a similar way to theft. In other cases the conscience of the third party is examined, which requires consideration of the appropriate level of knowledge. In Spycatcher, Lord Goff gave the example of a confidential document left lying on a desk in an office. A third party might come into possession of it by stealing it from the desk, acquiring it from a thief, or finding it in the street after it had been blown off the desk through an open window.

There is no longer a need for an initial relationship of confidence: Lord Goff of Chievely recognised this in his judgment in the Spycatcher case, at p 281. Whenever a person receives information they know to be confidential, a duty of confidence arises. So too where they ought to know it to be fairly and reasonably to be regarded as confidential.

What if the recipient of the information later becomes aware that it is confidential? In Fraser v Evans (above) Lord Denning MR said that even if the information was received innocently, once the recipient became aware that it was originally given in confidence she can be restrained from breaking that confidence. In the Lancashire Fires case the Court of Appeal confirmed that the third defendant could be restrained from using the confidential information given him by the second defendant in breach of confidence. The court considered that there was a public interest in the maintenance of confidences.

Equity fastens on a person’s conscience, so once the confidential nature of the information is discovered the obligation applies. However, the courts will not use their discretion to give injunctive relief where it could cause hardship, for example where the person to whom the information had been given had done something in reliance on that information.

The issue of the innocent third party recipient was addressed in Valeo Vision SA v Flexible Lamps Ltd32. The defendant was a bona fide purchaser without notice of the information - ‘equity’s darling’. Normally the equitable rule is that such a purchaser will escape sanctions but Aldous J took the view that this was too narrow. Equity would still only provide a remedy in damages where a person’s conscience is fixed, but the court could grant an injunction against further misuse of the information – although an injunction is largely ineffective once the information is in the public domain. As for awarding damages, Aldous J considered that it was sufficient that the defendant had constructive knowledge of the status of the information: several earlier cases, including the Rock Follies case, had indicated that actual knowledge was necessary.

Where the third party is not innocent, different considerations will apply. Confidential information may be obtained without the consent, or even the knowledge, of the person disclosing it. Telephones may be tapped (an activity controlled by the Regulation of Investigatory Powers Act 2000 and previous legislation) and other communications may be intercepted. In Malone v Commissioner of Metropolitan Police33 Megarry V-C considered that an eavesdropper would owe no duty of confidence, stressing that the telephone is an inherently insecure means of communication and one’s conversations might be overheard at any time. The same could presumably now be said of electronic mail. In Francombe v Mirror Group Newspapers Ltd34, another telephone tapping case, the telephone tap was illegal, unlike in Malone, and the court considered that there was a serious case to try. An obligation of confidentiality arose when a private investigator overheard something. However, because of changes in the law (the Data Protection Act 1998, the Human Rights Act 1998 and the Regulation of Investigatory Powers Act 2001, for example) the courts would take a different view of the legality of the defendants’ conduct.

In Valeo, as we saw, Aldous J took a constructive approach to remedies. In A v B and C [2002] EWCA Civ 337 (11th March, 2002) Lord Woolf CJ took the view that whether the information had been obtained illegally was a matter to be taken into account when considering whether to grant an injunction. Otherwise, we must look at the conscience of the defendant – their knowledge: whether, in Lord Goff’s example, they have stolen it, or they have actual notice, or receive it with constructive notice and turned a blind eye to it (as was suggested in Vestergaard Frandsen), or receive it quite innocently.

Whether the defendant should in conscience be bound is a matter to be decided objectively: Lindsay J in Douglas at para 198.

Professional advisers

Professional advisers, such as lawyers, are under a duty of confidentiality. Solicitors’ obligations of confidentiality are set out in Chapter 4 of the the SRA Code of Conduct. Doctors’ obligations are set out in Confidentiality (2009) (and the Hippocratic Oath is also very specific: ‘All that may come to my knowledge in the exercise of my profession or in daily commerce with men, which ought not to be spread abroad, I will keep secret and will never reveal.’). In Roman Catholic canon law, it is absolutely forbidden to break the Seal of the Confessional, and in the Church of England, Canon 113 protects the confidentiality of matters confessed to a priest. Information revealed in business meetings will also be subject to confidentiality if a reasonable person would realise that it was not just being given away.

Employees

Employees owe to their employer a duty of fidelity which requires them to further the interests of the employer’s business. This means that they must not disclose their employer’s confidential information (Printers & Finishers Ltd v Holloway35) and not compete with their employer (Hivac v Park Royal [1964] 1 All ER 350). These obligations are often reinforced by the contract of employment, and will vary according to the seniority and skill of the employee. Very senior employees (including directors) will owe a fiduciary duty to the employer. There is no requirement to spell out what confidential information is covered if it is likely to be regarded by employees as a trade secret (see Lancashire Fires) but to avoid doubt it is as well to be explicit.

However, the employer has no right to control the employee’s skill and dexterity, manual or mental ability. Departing employees can be required to keep information confidential for a reasonable time after they leave. In Printers & Finishers Ltd v Holloway Cross J drew the distinction by referring to information which ‘... a man of ordinary honesty and intelligence would recognise as the property of his old employer, and not his to do as he likes with ...’. In Faccenda Chicken v Fowler three categories of information were postulated by the judge at first instance, as we have seen. In the Ocular Science case, Laddie J stressed the public interest in allowing ex-employees to use their acquired skill and knowledge, and to put it at the disposal of new employers: but this does not extend to category 3 information. The obligation to keep these specific trade secrets confidential continues after the termination of the employment.

In Vestergaard Frandsen v Bestnet Arnold J enumerated no fewer than 11 reasons why there was a duty of confidence (paras 631 to 641), including:

  • That Dr Skovmand, the consultant who had taken the information to the defendants when he went to work with them, was engaged to develop new products;

  • That he was subject to the company’s direction;

  • That much of the work was done by employees of the company;

  • That advice was taken from others (including chemical companies) as well as Dr Skovmand;

  • That the claimants paid for the raw materials used in the development work;

  • That most of the information in the database was paid for one way or another by the claimants;

  • That the claimants paid for the compilation of the database itself;

  • That Dr Skovmand handed over the database to the claimants when he left, and recognised in his goodbye letter to them that he should only use the information in the copy he retained for a limited purpose; and

  • That it was clearly recognised that inventions made by Dr Skovmand in the course of his work for the claimants would belong to them.

Like an employee, Dr Skovmand would be entitled to use his own skill, knowledge and experience gained while working for the claimants for his own benefit or that of anyone else: but he could not use the claimant’s trade secrets.  The judge noted that this might not be true of all consultants.

In Poeton Industries v Horton36 the Court of Appeal held that confidential apparatus was not a trade secret that an employee could be prevented from using after termination of his employment. The defendant’s contract of employment contained no relevant restriction on what he could do when his employment terminated. He set up in business in competition as an electo-plater and his former employer sued, relying on the implied duty of good faith, claiming that he was using confidential information relating to the electrolyte, apparatus and a list of customers. There was nothing in the defendant’s contract of employment concerning secret or confidential information to heighten his awareness of the allegedly confidential nature of the information, nor was his position such that this should have been appreciated. The concept behind the apparatus was well-known and the features of the apparatus were to some extent at least merely the result of adopting that concept. The claimant had impressed on the defendant the confidentiality of the apparatus, but made unjustifiably wide claims to it. The information could not readily be isolated from other information which he ex-employee could freely use and disclose. It therefore did not satisfy the Faccenda criteria.

The court observed finally that the claimant should have protected itself with an express covenant rather than relying as it had to, on the implied obligation of good faith. See also Dranez Anstalt v Zamir Hayek37, where a restrictive covenant was held to be unreasonable. In FSS Travel and Leisure Systems Ltd v. Johnson38 the Court of Appeal again held a covenant invalid, as there were no trade secrets of the employer that could legitimately be protected by one.

Employers also owe a duty of confidentiality to their employees, though it is less frequently in dispute. As an illustration, see Prout v British Gas plc39 which concerned the preservation of the novelty of an invention made by the employee which the employer did not wish to patent.

Unauthorised use and disclosure

For an action for breach of confidence to lie, there must be unauthorised use of the information. The use must also be related to the nature of the obligation of confidence. The defendant must have gone beyond the purpose of the original disclosure – to have used it for another purpose, or disclosed it to another person. More than one person may be jointly liable, though it is not necessarily the case that all joint tortfeasors must have played an active role in the breach: see Lancashire Fires.

More than one person may own a piece of confidential information, in which case there is no breach of confidence if the information is used by one in a way that one or more of the others does not approve. If their relationship is regulated by contract, of course, the use by some of the joint owners without the consent of all might be a breach of that contract.

The use that amounts to a breach may also involve the use of non-confidential information, as in Seager v Copydex (No 1)40 where despite the innocence of the defendant’s actions Lord Denning MR upheld the claim. The state of mind of the user of the information therefore appears to be irrelevant in considering liability, though it may sound in damages.

Where information has economic value, it is clear that its disclosure or use could cause detriment to the party communicating the information. However, it is not certain that detriment must be shown. The matter was left open in Coco, and the House of Lords left it still open in Spycatcher. It is clearly easier to recognise a detriment in the case of commercial information, where is likely to be financial loss arising from the breach (lost sales, perhaps). Where the information is personal, it has been suggested (see the Argyll case and Barrymore v News Group [1997] FSR 600) that disclosure by itself suffices. But Douglas suggests that tangible detriment is necessary. One solution is to consider detriment when assessing damages, not liability: if the detriment is small, the damages will be nominal. In Douglas, Lindsay J awarded Mr and Mrs Douglas a small amount, the magazine publishers who had the exclusive rights to the wedding photographs a great deal more. The House of Lords agreed with this approach: another example, perhaps, of the application of the doctrine ‘follow the money.’

Duration

Release

The obligation of confidentiality is extinguished once the information no longer has the quality of confidence about it, or until the confidant is released expressly or impliedly from the obligation. The latter requires that the confider accepts the intention of the confidant to use the information or to disclose it or do something else in breach of the obligation: it is not enough that the confider knows that the confidence is about to be breached.41 For example, in X Ltd v Nowacki and another (trading as Lynton Porcelain Co)42 the Chancery Division held that an equitable duty of confidence survived termination of the contract under which the information was disclosed.

Springboard

The springboard doctrine (discussed above, para ) may justify restrictions on the use of the information by the confidant after it has ceased to be confidential.

Public interest

Disclosure may be in the public interest, and this is the principal defence employed in confidentiality cases (pleas of consent by the claimant or lack of confidential character not really counting as defences). Even the public interest could be analysed not as a defence but as a factor going to the protectability of the information, but because breach of confidence questions are often linked to copyright claims, and public interest is definitely a defence in a copyright infringement action, there is sense in treating public interest pleas as a defence in both actions. Hyde Park Residence v Yelland [2000] EWCA Civ 37 (10 February 2000) and Ashdown v Telegraph Group [2001] EWCA Civ 1142 (18 July, 2001), for example, both involved the two claims.

The defence is called the public interest defence, but just because the public is interested in something does not mean that anyone can disclose it with impunity – it turns on the difference between ‘in the interests of the public’ and ‘of interest to the public’. However interesting gossip may be, the defence will not apply. The defence seeks to justify the disclosure by reference to the interests of society as a whole, which means that disclosure is necessary for the rule of law to be upheld. In Gartside v Outram (1857) 26 LJ Ch 113 the plaintiff alleged that a clerk had copied confidential docs. The defendant said they disclosed fraud, but when the defendant filed interrogatories the plaintiff refused to answer. Page-Wood VC ordered him to answer, saying:

The true doctrine is that there is no confidence as to the disclosure of an iniquity. You cannot make me the confidant of a crime or fraud…

The public interest will be weighed by the court in determining whether the information should still be protected. Exposing crime and wrongdoing overrides any obligation of confidentiality (as in Malone) and in Initial Services v Putterill [1968] 1 QB 396 (CA) the defence was limited to serious breaches of the law (there, a breach of competition rules: nowadays, the competition authorities have highly-developed whistleblower schemes to encourage such disclosures) though the public interest is wider than just that. Public safety and the administration of justice may demand disclosure: see Lion Laboratories v Evans43 where the Court of Appeal considered it in the public interest that information about the unreliability of the Lion Intoximeter should be made public and lifted an injunction preventing a newspaper from publishing it. Disclosure should however , be only to the proper authorities: in Francombe, it might have been appropriate to disclose details of the claimant’s tax affairs to the authorities, but that did not justify publishing them to the whole world.

Since Initial the defence has been raised many times. In Hellewell v Chief Constable of Derbyshire [1995] 1 WLR 804 the police were justified in using posters whoing a wanted suspect. In Hyde Park Residence, on the other hand, the information could have been disclosed without copying CCTV images, so the justification failed (and the defendants had infringed copyright in the images). In Ashdown, too, the information (which concerned negotiations between the Liberal Democrat and Labour parties during the 1997 general election)could have been made public without infringing copyright, so publication of private diaries was not justified. But in A v B & C the court held that publication was in the public interest, although Lord Woolf’s approach is not easily reconciled with Von Hannover v Germany (2004) 40 EHHR 1.

More recently, the defence succeeded in Goodwin v News Group Newspapers Ltd [2011] EWHC 1309 (QB) (23 May 2011) because the collapse of RBS was a matter of considerable public interest, and in Ferdinand v MGN Ltd [2011] EWHC 2454 (QB) (29 September 2011) because the England football captain had previously falsely denied being unfaithful, and was a role model.

The protection of government secrets is a special case: in the Crossman Diaries case44, the court approached the matter from the other direction – there was no public interest justification for keeping it secret. Following the Spycatcher case, the Crown has to show not only that the information is confidential but also that it is in the public interest that it not be published.

Confidential information as property

The courts have been prepared to go beyond the personal obligations of the initial recipient of confidential information, and hold subsequent recipients responsible for what they do with it. This is consistent with regarding confidential information as a form of property, and property is a concept that English law has always been fairly flexible about. But in Boardman v Phipps45 Lord Upjohn was unequivocal, denying that confidential information was “property in any normal sense, but equity will restrain its transmission to another if in breach of some confidential relationship”. And there are good reasons, however flexible the idea of property might be, for treating confidential information differently.

  • First, the owner of property has the power to licence others to use it and to transfer ownership. Confidential information cannot be dealt with in this way – although know-how is frequently assigned or licensed, at least on the face of the documents that purport to effect those transactions. In Mustad v Alcock46 the assignee of manufacturing secrets was held entitled to use for breach of confidence – though it is probably important that the know-how had come to him in a business acquisition.

  • The origin of all liability for breach of confidence is the initial personal obligation of the confidant. Information obtained by other means is not protected, even if it is supposed to be private. The obligation does not attach to the information but to the person who receives it, by whom it is transmitted to later recipients.

  • Misuse of confidential information to make a profit would, if it were treated as a form of property, give rise not only to personal remedies (account or damages) but also to proprietary remedies (constructive trust over traceable assets). In Lac Minerals (above) the Supreme Court of Canada did indeed grant such relief, but a majority of the court considered that there was no fiduciary relationship between the parties and a different majority thought a constructive trust was the right remedy. It is not a good precedent.

  • If information is property, that argues for restricting a second (or subsequent) use of it. But in Source Informatics Ltd, Re An Application for Judicial Review47 the Court of Appeal held that the Department of Health could authorise GPs and pharmacists to pass information about prescribing of drugs to pharmaceutical companies (consistent with the Australian case of Smith Kline & French v Department of Health48).

  • No theft is committed if someone deliberately extracts information and gains an advantage from it – in Oxford v Moss49 the information being in an examination paper. It is, after all, impossible to show an intention to deprive the person entitled to the information permanently of the information – which is not what happens when the paper is memorised and returned.

Remedies

As we have already seen, many of the problems with breach of confidence actions have been addressed by adjusting the remedies. The doubt over whether the claimant needs to show detriment, for example, can be dealt with by a nominal award of damages.

Injunctions

But breaches of confidence are not usually apt to be dealt with by monetary awards. The point of taking legal action is often to prevent the disclosure of information, and that is remedied by an injunction. Injunctions are equitable remedies, which is why it is appropriate that breach of confidence should be based on equitable principles: but equity will not compel a court to do a vain and useless thing, and an injunction is pretty vain and useless if the confidential information has been made public. Certainly, if it has been made public by the confider (as in Mustad & Sons Ltd v Allcock & Dosen (1928) [1964] 1 WLR 109, HL, where the information was published in a patent application) no injunction will then be granted to stop the defendant making further disclosures.

Where the information becomes public through the actions of the confidant or a third party, which of course is much more frequently the way it happens, the position is less settled. Despite equity’s reluctance to do anything in vain, injunctions have been granted. In Cranleigh Precision Engineering v Bryant [1966] RPC 81 the court did apply the maxim, refusing to give a post-publication injunction. In Schering Chemicals v Falkman [1982] 1 QB 1 (CA) on the other hand, despite the side-effects of the plaintiff’s products being known, and a powerful dissent from Lord Denning MR, an injunction was granted. An injunction was also granted in Speed Seal v Paddington [1986] 1 All ER 91, where the defendant set up in competition against his former employers. He argued that the information he had used was not confidential: it had been disclosed in brochures and in a patent application which he had filed. The case, which closely follows Cranleigh, is not a significant development50, and in Vestergaard Frandsen the court concluded that it was wrongly decided.

A word needs to be added about Spycatcher. The book was widely available outside the UK (I bought my copy, which remains unread, on a trip to the USA), so could publication here be stopped? Their Lordships clearly did not like the author profiting from his own wrong, but concluded that there was no point in granting an injunction.

Compensation

The law on injunctions in breach of confidence cases is contradictory, but the law on damages is no better. But at least if there is a contractual relationship the courts have something firm to grab onto, because the calculation of damages for breach of contract is well-understood. Exceptionally, an account of profits may be ordered, as in AG v Blake [2001] AC 268, another case involving the memoirs of a member of the security services. In this case, though, he had defected to the Soviet Union (the case came many years after the defection) rather than retired to Tasmania. His duties were held to be analogous to a fiduciary obligation, and an account is the normal remedy. This seems to open the door to a similar approach for others who have fiduciary obligations, such as company directors.

When there is no breach of contract, damages may be awarded in two ways. Section 50 of the Senior Courts Act 1981 provides for damages to be awarded in lieu of or in addition to equitable relief (an injunction), although it provides no further guidance, for example about how damages should be calculated. Alternatively, damages can be awarded on a quasi-tortious basis, which again leaves the question of calculation hanging. In Seager v Copydex (No 2) the Court of Appeal used the same approach as in the tort of conversion, which in those days (1969) was common in the copyright part of the intellectual property world: the court worked on the basis that the plaintiff was entitled to all the money the defendants had made from their actions, without deduction for manufacturing costs and the like. Such damages were often enormous, and acted as a major disincentive to defendants to risk defending an infringement action, especially in the field of designs (protected at that time largely by copyright), which is just a little off-piste for this chapter: conversion damages were abolished for copyright infringements in the Copyright, Designs and Patents Act 1988, although they remain an appropriate remedy in other cases. For example, if someone takes your property – your car, perhaps – you would be able to sue for the tort of conversion, and it would be absurd if your damages were not assessed on the value of what had been stolen.

Nowadays, damages in copyright actions are commonly calculated on the basis of a reasonable royalty. Certainly if the copyright owner is interested in exploiting their work by licensing, this is a handy measure (a) of what the copyright owner has lost and (b) of the infringer’s unjust enrichment – what they have saved having to spend. With confidential information, though, it is much less likely that you have a willing licensor: the point of the law of confidence is to keep the information to yourself. However, in Dawson & Mason v Potter [1986] 2 All ER 418 the plaintiff was awarded a reasonable licence fee: so clearly it is possibility in the right case.

Constructive trusts

If the defendant has used confidential information to make a gain, can the court make that subject to a constructive trust? In Lac Minerals the Canadian courts did just that, but in the later Cadbury Schweppes case the Canadian Supreme Court decided that a proprietary remedy would not be appropriate (even, it seems, in a case like Lac Minerals). In that later case, the correct measure of damages was the lost profits during the time, set at one year, that it would take to reverse-engineer the recipe for the drink concerned.

The House of Lords’ decision in Blake came after those two Canadian cases, and their Lordships decided that a constructive trust should not be imposed there. They reasoned that there was no proprietary interest to protect, although it is worth noting that Lac Minerals did involve such an interest (mineral prospecting rights).

1Law Comm No 110, Breach of Confidence, Cmnd 8388.

2 (1851) 9 Hare 241.

3(1849) 1 Mac & G 25.

4[1976] FSR 248.

5(1989) 61 DLR (4th) 14 (SC Canada).

6See Gurry, Breach of Confidence, Oxford: Clarendon Press, 1982.

7[1997] EMLR 444.

8[1994] EMLR 134.

9[1990] 1 AC 109.

10(1948) 65 RPC 203, [1963] 3 All ER 413.

11[1969] RPC 41.

12He went to to become the Vice Chancellor, in which capacity he decided the Guinle case too, was well-known as the author of Megarry’s Manual of the Law of Real Property and several legal miscellanies, including Miscellany-at-law (1955), and died in 2006.

13See Dunford & Elliot Ltd v Johnson & Firth Brown [1978] FSR 143, 148 (CA), Fraser v Thames Television [1984] 1 QB 44 (the ROCK FOLLIES case); and Lancashire Fires Ltd v S A Lyons & Co Ltd [1996] FSR 629.

14[1967] Ch 303

15[1988]1 Ch 449.

16[1988] FSR 248.

17[1994] FSR 275

18[1996] FSR 629

19 [1916] 1 AC 688, 705 .

20[1985] 1 All ER 724 .

21[1997] RPC 289, [1996] EWHC Pat 1..

22[1991] 1 WLR 251.

23[2009] EWHC 657 (Ch). The case went on to the Court of Appeal and the Supreme Court.

24[1964] 1 WLR 109.

25[1965] 1 WLR 1293.

26[1967] RPC 375.

27[1967] FSR 172.

28[1964] RPC 118.

29[1996] FSR 424 .

30[2009] EWHC 657 (Ch); on appeal, [2011] EWCA Civ 424 and on further appeal [2013] UKSC 31 (22 May 2013).

31[1969] 1 QB 349.

32[1995] RPC 205.

33[1979] 2 All ER 620.

34[1984] 2 All ER 408.

35[1965] RPC 239.

36[2000] EWCA Civ 180.

37[2002] EWCA Civ 1729.

38[1997] EWCA Civ 2759 , [1999] FSR 505.

39[1992] FSR 478.

40[1967] 2 All ER 415.

41See Attorney General v Jonathan Cape Ltd [1976] QB 752, 768, [1975] 3 All ER 484, 491 (the Crossman Diaries case); Triplex Safety Glass v Scorah [1938] Ch 211, [1937] 4 All ER 693.

42[2003] EWHC 1928.

43[1984] 2 All ER 417.

44See supra, footnote 13.

45[1967] 2 AC 46, 128.

46(1928) [1963] 3 All ER 416n., HL.

47[1999] EWCA Civ 3011

48[1990] FSR 617.

49(1979) 68 Cr App R 183.

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