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The secret life of batteries – Court of Appeal confirms injunction

Sheena Brown
09/12/2020

Locations

United Kingdom

In a rare dispute concerning allegations of misuse of trade secrets, the UK Court of Appeal has applied well established law to interesting circumstances in deciding to dismiss an appeal against an interim injunction. For anybody looking to how the English Courts will be applying the substantive provisions of the partially implemented Trade Secrets Directive into UK law – this case is probably not it.
 
What this decision in Shenzhen Senior Technology Material Co Ltd v Celgard LLC [2020] EWCA Civ 1293 is useful for is:

(a) A tidy summary of the law on the  protection of trade secrets prior to the Trade Secrets Directive together with the key provisions of that statute; and

(b) An illustration of the court's pragmatic application of the Civil Procedure Rules on service out of the jurisdiction – specifically Practice Direction 6B paragraph 3.1.

The decision is very much focused on the latter.

First the key and banal facts: This was an appeal by a Chinese company, Shenzhen Senior Technology Material Co Limited, against an order granting a US company, Celgard LLC, permission to serve its claim outside the jurisdiction and an interim injunction restraining Shenzhen from importing or marketing battery separator film in the UK. Celgard alleged that the importation and marketing by Shenzhen of the battery separator film involved misuse of Celgard's trade secrets.
  
The more apparently sinister facts: For over 10 years Dr Zhang was employed by Celgard as an engineer under terms that included confidentiality clauses. As part of his role, Dr Zhang had access to trade secrets concerning Celgard's battery separators.  Dr Zhang left Celgard in 2016. There is a fair bit of evidence that will surely need to be untangled at the trial of the underlying dispute as to where Dr Zhang said he was going, but what is certain is that Dr Zhang did in fact join Shenzhen in China. Prior to commencing proceedings, Celgard believed that it was on the point of concluding a contract with a UK manufacturer ("UK Customer") of lithium-ion batteries for the supply of battery separators to that UK Customer. During those negotiations, Celgard learned that the UK Customer might be starting the process of evaluating the suitability of a battery separator manufactured by Shenzhen. Celgard is concerned that Shenzhen is misusing its trade secrets and has applied these in developing its own battery separators and that it intends to enter the UK market by undercutting Celgard. Celgard claims that the damage to its business if this were to happen would be difficult to quantify.

The underlying claims: Celgard claims that Shenzhen is liable for:

(a) "The Direct Claim": breach of equitable obligation of confidence and / or breach of regulation 3 of the Trade Secrets (Enforcement, etc) Regulations 2018 (lawful acquisition, use and disclosure of trade secrets); and

(b) "The Vicarious Claim": vicariously liable for the wrongdoing of Dr Zhang in disclosing Celgard's trade secrets to Shenzhen.

Celgard does not allege breach of the NDA by Dr Zhang. Shenzhen disputes the allegations and claims that it is exploiting its own technology developed largely before Dr Zhang arrived.

Serious issue to be tried?

Shenzhen argued that Celgard had not identified the trade secrets which it alleges have been misused and therefore that the High Court judge was wrong to conclude that there was a serious issue to be tried.

Lord Justice Arnold (who gave the principal judgment in the Court of Appeal) recognised that it is well established that when claiming misuse of trade secrets, it is important to properly particularise the information which has allegedly been misused. The fact that proceedings are at an interlocutory stage does not justify less precision. He then looked at the confidential annex, which set out Celgard's purportedly misused trade secrets. They set out the specific combinations of properties required to achieve the manufacture of its battery separators; the production of those separators i.e. the specific recipes; and the nature of the "recipes" was particularised in detail. Celgard accepted that it had not for the most part pleaded the actual recipes.

Shenzen didn't dispute that the recipes of the kind described in the confidential annex could in principle constitute trade secrets.

Amongst a number of arguments, Celgard claimed that its abilities to provide further particulars were hampered by the Shenzhen's obstructiveness/ non-cooperation to investigate the allegedly infringing products.

Arnold LJ pointed out that Shenzhen's counsel had rightly accepted that he could not ask the Court of Appeal to review the High Court judge's assessment of the evidence and so there was no basis for impeaching his conclusion that it established serious issues to be tried. He also accepted that it was relevant to take into account Shenzhen's obstructiveness / non-cooperation.

Applicable law

This was debated in the context of the assessment of the proper forum.

The Direct Claim

Analysing the interplay between Article 6(2) and 4(1) of the Rome II Regulation, Arnold LJ concluded that the applicable law is the law of the country in which the damage occurs. He went on to note that confidential information is not a species of intellectual property but a particular species of unfair competition. That is why Article 6 and 4 of the Rome II Regulations applied.

Finally he held that the act of unfair competition alleged was the importation into and marketing in the UK of infringing goods. The direct damage therefore was sustained in the UK. Although this analysis only applies to the Direct Claim, that is the main claim. He therefore concluded that applicable law was "probably" English law.

The Vicarious Claim

As Celgard did not rely on a breach of the contract with Dr Zhang (which was governed by the law of South Carolina), but instead that he acted in breach of an equitable obligation, and because the direct damage caused by Dr Zhang's disclosure of trade secrets to Shenzhen was sustained in China, it was "difficult to escape" the conclusion that Chinese law applied. Arnold LJ recognised the oddity of different laws applying to Dr Zhang's disclosure of the trade secrets on the one hand and Shenzhen's acquisition of those secrets on the other, but considered this to be a consequences of the way the claims were drafted.

Proper forum

Permission to serve a claim out of the jurisdiction will only be given if the court is satisfied that England is the proper place in which to bring the claim.

Arnold LJ considered that the High Court had conducted the correct analysis – it had not mischaracterised the claim – it had in fact focussed on the substance of the dispute raised by Celgard's main claim i.e. the Direct Claim. That claim was concerned with whether Celard's UK market for its products would be damaged by importation into, and marketing in, the UK of the alleged infringing goods. The location of the wrongful acts and loss and "probable applicability" of English law pointed to England as the proper forum.  

A possible question for the CJEU?   

The outstanding question was what law is to be applied to determine whether the trade secret was acquired "unlawfully" (Article 4(5) of the Trade Secrets Directive)?
Arnold LJ stated that in his view this was a "very difficult question" and may need to be determined for the member states of the EU by the CJEU. Of course whenever that may be, the UK will probably no longer be bound by the decision.

Comment

This case provides a useful summary for applying the test for permission to serve out a claim generally. It also provides a reminder of the importance of particularising any claim for misuse of trade secrets. Had Shenzhen been more cooperative, would Celgard have struggled to persuade the judge that it had provided enough information to conclude that there was a serious issue to be tried? Perhaps.

The case is also a good illustration of the court's willingness to adopt a pragmatic approach to the hurdles to obtaining permission – the framing of the Vicarious Claim looked like a spanner in the works but the court nicely stepped around it. Arnold LJ did not appear to be entirely convinced as to the applicable law – it is "probably" English law – but he considered itself sufficiently satisfied on the issue.
 
 
 
 
 

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