Information Matters: How to work out how strong your trade secrets case might be

Cases about secret formulae and recipes are actually quite rare, but one has recently been reported which tells us not so much about the recipe in question (the judgment was heavily redacted to conceal the recipe and manufacturing process) but much more about how cases like this are dealt with by the courts.

The case is an object lesson in two things. First, how to analyse a trade secrets case and second, how a trial court decision in the late 1960's has come to define this method and has stood the test of time.

The case is Kerry Ingredients (UK) Limited v Bakkavor Group Limited [2016] EWHC 2448 (Ch). It dealt with Bakkavor's attempt to replicate Kerry's successful blending of oils and herbs and spices to create infused oils for cooking and flavouring. The blending of herbs and oils is clearly a complex business, owing much to trial and error and to making sure that toxins in the resulting product are eliminated.

Kerry supplied these oils to Bakkavor but also had to supply product and ingredient descriptions to allow Bakkavor to test them to ensure compliance with food regulations. The evidence showed that Bakkavor decided to use these details to make its own oils in part because Bakkavor thought that Kerry's prices were too high. But in doing so they used the information provided to them for food safety purposes to create their own copycat product. The court found that this was a breach of confidence and, in a rare example of a time limited or "springboard" injunction, stopped Bakkavor from using the secret details for about nine months, that being the period of time they in effect, saved themselves by using Kerry's recipes.

The court went about its task by using a method defined in a case which occupies a central place in English trade secrets law - Coco v A N Clark (Engineers) Limited [1968] FSR 415. For a trial court decision, Coco v Clark has had disproportionate influence on the development of the law and has been endorsed at the highest level in the UK, in both the House of Lords and the Supreme Court, and in other countries such as Australia and Canada.

Coco v A N Clark identified the three hurdles a claimant would have to surmount to succeed in a breach of confidence case:

"First, the information itself...must have the "necessary quality of confidence about it". Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly there must be an unauthorised use of that information to the detriment of the party communicating it."

Let us consider each briefly in turn:

• "The necessary quality of confidence". In short, the alleged secret really has to be a secret. UK courts have resisted the temptation to define what a secret is. (Contrast the new Trade Secrets Directive which will come into effect before the UK leaves the EU but which does contain a lengthy definition of a trade secret). The boundary of a trade secret is the "public domain", and "accessibility" is the key to understanding this. If the information is easily accessible from existing sources then it is in the public domain. If it can only be obtained by using substantial time and effort then it is not "accessible".
  
  To this first hurdle can be added an additional but important gloss. The secret must be capable of being defined with precision. A court will expect a claimant to point to some document or other clearly-defined corpus of information particularly if the remedy sought is an injunction.
• An "obligation of confidence". This is the most important of the three tests. There has to be some link between a disclosing party and a recipient. It might be a non disclosure agreement or an employer – employee relationship or the confidential relationship which exists between a professional adviser and his client. But in other less clear circumstances, how do we recognise when an "obligation of confidence" exists? One useful yardstick is to ask why the information was disclosed in the first place? What was the discloser's intention or purpose? So if, for example, an inventor shows a prototype of his invention to a potential business partner to test the latter's interest in taking a licence to manufacture the product, the purpose is one of evaluation.
  
  Not all cases are as easy as that to classify. Sometimes it is necessary to ask: how can you tell whether someone receiving information has an "obligation of confidence" imposed on them? One useful yardstick is to use the "reasonable man" standard. Would a reasonable man in the position of the recipient have understood he was being given the information for a limited purpose? If so then the obligation will bite.
• Unauthorised use. This is the easiest of the three tests. It is a question of evidence. What has the recipient done with the information disclosed to him? If he has used it or disclosed it "without consent", that is usually enough to trigger the right to a remedy of some sort for the secret's owner. The "detriment" element is set at a low level and if often satisfied by showing that the information has been disclosed to someone – a new employer for example – that the owner would prefer not to see it.

Lawyers are fond of saying that all cases are fact-specific and that of course is true. But having a template like this is beneficial to trade secret owners and their lawyers. It has the potential to make complex cases easier to analyse and if that is right it also has the potential to make them easier and cheaper to resolve.

If you require further information on anything covered in this briefing please contact John Hull or your usual contact at the firm on 020 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, November 2016