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(Trail)finders keepers: High Court considers interplay of Trade Secrets Directive and breach of confidence for the first time

24/04/2020

In a recent decision from the Intellectual Property Enterprise Court (IPEC), the court considered the impact of the Trade Secrets Directive (2016/943) on the law of breach of confidence, in particular in the context of ex-employees who sought to franchise their services.

Background

The law setting out what type of information can be taken by an ex-employee to a new role was established in the well-known case Faccenda Chicken v Fowler [1987] Ch 117, in which it was confirmed that:

  • Employees are subject to implied contractual obligations of confidence in addition to any equitable duty of confidence.
  • There are three classes of information an employee can obtain in the course of their employment: (1) non-confidential information; (2) confidential information acquired during the normal course of employment which remains in the employee's head and becomes part of their own experience and skills; and (3) confidential information in the form of specific trade secrets (because of the nature of employment, the nature of the information, the employer's attitude towards the information, etc).

  • An ex-employee is able to take Class 1 and Class 2 information with them to a new employer, but will still be liable for any breaches in respect of Class 2 information which took place during their employment ((e.g.) deliberately memorising or copying down confidential information for later use).


In this case, two ex-employees of Trailfinders, (Mr La Guette and Mr Bishop) left to become franchisee travel consultants for TCL. In the course of doing so, they took a number of client details with them (contact information, details of previous trips, etc) both during and after their employment. Trailfinders sued TCL and their former employees for breach of confidence.

Judgment

Impact of Trade Secrets Directive

This is the first UK case to consider the impact of the Trade Secrets Directive, which was implemented in the UK through the Trade Secrets (Enforcement, etc.) Regulations 2018 (SI 2018/597).

Hacon J confirmed that "the substantive principles governing the protection of confidential information under English law are unaffected by the Directive." However, he also commented that "the Directive shines an occasional light on those principles." In particular, the definition of 'trade secret' in Art 2(1) of the Directive can be used as a guide in distinguishing between Class 1 and Class 2 information.

Liability of ex-employees

The client details taken by the two ex-employees were found to be Class 2 confidential information. The fact that the protection placed over this information by Trailfinders "may not have been as rigorous as it should have been" did not preclude the information from being classified as confidential as Trailfinders had clearly taken steps to ensure that the client information was not openly available.

The court found that both ex-employees' manual copying of contact details from the Trailfinders' system (which took place during their employment) was both a contractual and equitable breach of confidence. It was not a defence for Mr La Gette and Mr Bishop to argue that this information was also publicly available.

The fact that both ex-employees had also accessed a Trailfinders database to access client information after their employment had terminated was however not found to be a breach of confidence in respect of Mr La Gette, as he had obtained the relevant clients' permissions to access this information and put sufficient evidence forward to this effect. On the other hand, as Mr Bishop was unable to provide the court with satisfactory evidence of his conversations with clients (in which he purportedly obtained their permission to view their information on the database), his accessing of the database was found to be an equitable breach of confidence.

Liability of TCL

The court found that TCL was under an equitable duty of confidence to Trailfinders as it had received information from the ex-employees which it knew or ought to have known was fairly and reasonably regarded as confidential. TCL had breached this duty by using this information for the benefit of its business.

In deciding that TCL was subject to an equitable duty of confidence, the court relied on evidence of TCL's franchising model, which encouraged potential franchisees to bring across their old customer contact lists, as well as TCL's own franchise agreements with Mr La Gette and Mr Bishop (which clearly treated TCL's own equivalent information as confidential). However, TCL was not vicariously liable for the acts of Mr La Gette and Mr Bishop, as its franchising model did not suggest an employer-employee or agent-principal relationship. 

Comment

This case confirms the limited impact of the Trade Secrets Directive on the pre-existing law on breach of confidence. However, it also indicates that the Trade Secrets Directive can be useful in helping to tease out the distinctions between confidential and non-confidential information.

This case also highlights the need for employers to take adequate and appropriate steps to ascertain whether sensitive information brought across by new employees is confidential in nature (such as client lists), to avoid being subject to an equitable duty of confidence. It will be very difficult to negate the existence of such a duty where an employer treats its own equivalent information as confidential, or where an employer – despite encouraging new employees to bring across potentially confidential information – does not specifically make enquiries of a new employee about such information (or at least warn them about the risks of breach of confidence).

Franchisors may be particularly at risk in this regard. Individuals often pursue a career in the franchise sector, and during that time they will work with a number of different systems. In addition, the sector trend for more units through fewer operators has given rise to the multi-unit, multi-brand operator, who may have porous internal walls when it comes to protecting franchisor confidential information.  Franchisors or operators may expressly or tacitly require or encourage potential franchisees or employees to bring across client details, contact information and system information. Such parties would be advised to carefully review their advertising material, franchise agreements and practices to ensure that these do not actively encourage breach of confidence, and to have procedures in place to warn new employees or franchisees of the potential legal risks of bringing across client information and other forms of confidential information.

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