MVF 3 Aps & Ors v Bestnet Europe Ltd & Ors

The judge dealt with this issue at paragraphs 101 to 113 of her judgment. She considered that, in cases of economic loss, it was incorrect invariably to award damages for all foreseeable loss subject only to causation and remoteness. Referring to the observations of Lord Oliver of Aylmerton in Caparo Industries plc v Dickman [1990] 1 AC 605 at 633, she held that the concept of foreseeability of harm as a single test of the existence of a duty of care had to be discarded if the law was to be kept within the bounds of common sense and practicality. On the facts of the present case, it was wrong to base the quantum of damages on the assumption that, having misused the confidential information, Bestnet had to compensate Vestergaard by making good their profit on lost sales and paying a royalty on other sales, unless and until they could point to some event which broke the causal chain. The proper approach was to award, as a first head of damage, a lump sum by way of a quasi-consultancy fee to reflect the extent to which the sales of the Later Formula nets were brought about by the use of the confidential information. The second head of damage would be the payment of compensation in respect of sales made in any period when Bestnet were on the market selling their nets when they would not have been on the market if they had not misused Vestergaard’s confidential information.

Mr Platts-Mills submitted that the judge’s departure from the General Tire approach in respect of the Later Formula nets was wrong in principle. This was particularly so in the light of what he submitted was the ongoing misuse of Vestergaard’s confidential information. Bestnet’s wrongful use was akin to the infringement of an intellectual property right, and damages for misuse should be calculated on the same basis, whether the products embodied the confidential information or were merely derived from it. A defendant in those circumstances is not entitled to argue that he could have inflicted the same or some of the damage by acting lawfully. He relied on the observations of Lord McNaghten in United Horse-Shoe and Nail Co. Ltd. v Stewart (1888) 5 RPC 260 at 268. The judge had identified no principled reason for departing from the approach in General Tire. The judge had failed to have regard to the proposition, which he submits is to be derived from the judgment of the House of Lords in South Australia Asset Management Corporation v. York Montague Ltd. [1997] AC 191 (“SAAMCO”), that the claimant should be compensated for the kind of loss in respect of which the duty was owed. If one asked that question in respect of the breach of confidence established in the present case, one would conclude that Vestergaard should be compensated for all the consequences of Bestnet having wrongfully developed a competitive net, at least until Bestnet could demonstrate that the nets no longer took advantage of the confidential information.

Mr Wilson submitted that, where products are merely derived from earlier misuse of confidential information, and do not embody it, the manufacture and sale of the products is not itself a wrongful act. In such circumstances it was contrary to common sense to award damages for every sale by Bestnet, merely because at an early stage of the development of their product there occurred a misuse of confidential information. The extent of the loss for which a defendant ought to be held liable involves a value judgment as to what is fair and just, given the reasons why the law has recognised that the cause of action should exist. He relies, in his written submissions, on the speech of Lord Nicholls of Birkenhead in Kuwait Airlines (No 6) [2002] UKHL 19 at 69-71.

The starting point in this area is the very well known passage from the speech of Lord Wilberforce in General Tire itself. It is to be found at [1976] RPC 197 at 212:

“As in the case of any other tort (leaving aside cases where exemplary damages can be given) the object of damages is to compensate for loss or injury. The general rule at any rate in relation to “economic” torts is that the measure of damages is to be, so far as possible, that sum of money which will put the injured party in the same position as he would have been in if he had not sustained the wrong. (Livingstone v Rawyards Coal Co (1880) 5 AC 25, 39 per Lord Blackburn.)”

Applying statements such as this, the courts have, at least in patent infringement cases, awarded damages for economic loss in a variety of different scenarios. Thus where a patentee exploits the patent by manufacturing, it can recover for the lost profit on sales which it could have made itself, but for the infringement. Also, where the patentee exploits the patent by licensing, it can recover the royalty that it would have charged the infringer, had he acted lawfully by seeking and obtaining a licence.

There are however two riders to be added to those basic propositions. In awarding lost manufacturing profits, the court does not allow the defendant to seek to establish that it could have caused the same damage without infringing the patent. Jacob J (as he was then) summarised the position in Gerber Garment Technology Inc v Lectra Systems Ltd and another [1995] RPC 383 at 394:

“Sometimes defendants have sought to evade substantial liability by contending that they could have avoided infringement, for instance by using some other equally efficacious but non-infringing device. They suggest that they could have inflicted the same economic “injury” by lawful competition. The courts have consistently rejected this approach. The rejection follows from the compensation principle. One is concerned with compensation for what the defendant has done by acting “improperly”. Thus Lord McNaghten in United Horse-Shoe and Nail Co. Ltd. v Stewart (1888) 5 RPC 260 at 268 said:

“It appears to be beside the mark to say that the Respondents might have arrived at the same result by lawful means and that, without infringing the appellants’ rights, they might have produced a nail which would have proved an equally dangerous rival to the Globe nail. The sole question is, what was the loss sustained by the Appellants by reason of the unlawful sale of the Respondents’ nails?””

For brevity I will refer to this rule as the Horse-Shoe rule. In applying the Horse-Shoe rule, the court is treating all the damage consequent on the defendant’s infringing act as being within what would now be called “the scope of the duty”. The law does not limit the damages to the added or incremental consequences of the act being an infringing, as compared to a non-infringing, act.

The second rider is that the court does not refuse to award damages for economic loss for infringement in a case where the patentee is neither manufacturer nor licensor. Damages, in the form of a reasonable royalty, are awarded on “the user principle”. As Lord Shaw explained in Watson, Laidlaw & Co. Ltd v Potts, Cassels & Williamson (1914) 31 RPC 104 at 119 and 120, the law allows recovery from the defendant of a reasonable price or hire where there has been “an abstraction or invasion of property”. There is an analogy here with the award of damages in Wrotham Park Estate Co v Parkside Homes [1974] 1 WLR 798, where damages were awarded for such sum as might have been reasonably demanded for relaxing a restrictive covenant over land. As the Watson, Laidlaw case shows, it is possible to award damages on both bases in the same case, so that the claimant manufacturer receives lost profits on his lost sales, as well as a reasonable royalty on those sales made by the infringer which he cannot establish that he would have made.

The correctness of these principles in their application by analogy to the case of breach of confidence against the First Formula nets was not in issue in this appeal. The question for us is whether they should be applied without modification to the case of the Later Formula nets, whose manufacture did not directly make use of Vestergaard’s secret information.

In Vercoe and others v Rutland Fund Management Ltd and others [2010] EWHC 424 (Ch), Sales J (as he then was) explained how the remedy for breach of confidence must vary according to the factual circumstances of the case:

“344.The law relating to breach of confidence covers a very wide range of different factual situations, and it is unsurprising that the strength of the arguments in favour of any particular remedy or set of remedies in respect of a particular breach of confidence varies across that range. Sometimes the nature of the obligation of confidence may be closely similar to a fiduciary obligation (as in the special context of obligations imposed on officers of the Secret Intelligence Service in Blake’s case), in which case it may be appropriate for remedies to be available similar to those in respect of a breach of fiduciary duty; sometimes the nature of the obligation may be closely similar to the obligations which protect forms of intellectual property (as in Peter Pan Manufacturing Corpn v Corsets Silhouette Ltd [1964] 1 WLR 96and Seager’s case), in which case it may be appropriate for remedies to be fashioned equivalent to those available in that context; sometimes (as observed by Lord Nicholls in Blake’s case) the obligation may spring from a contract, or arise in circumstances closely similar to a contractual relationship, in which case the appropriate remedy (in the absence of exceptional circumstances) is likely to be similar to those available for breach of contract; in yet other cases, e.g. where the law of confidence is used to address use of private information obtained by a stranger, a relevant analogy may be drawn from the law of tort.”

I agree with these observations. In the case where every sale of an LLIN makes use of, or embodies, Vestergaard’s confidential information, the analogy between breach of confidence and patent infringement is at its strongest. In a patent infringement case every sale of an infringing product is an invasion of the statutory monopoly, and it is entirely logical to award damages on the basis that the claimant should be placed in the position it would have been in if the sale had not been made. There is, however, a real difference between those types of case and cases where the sales take indirect advantage of a prior wrong, such as a prior breach of confidence, but are not in themselves wrongful. As Laddie J pointed out in Ocular Sciences Ltd and another v Aspect Vision Care [1997] RPC 289 at 404, when considering whether to grant an injunction in respect of derived products, it is not every derived product which should be treated as a camouflaged embodiment of the confidential information. It is a matter of degree whether the extent and importance of the use of the confidential information is such that continued exploitation of the derived matter should be viewed as continued use of the information.

When considering the damages which flow from sales of products which themselves misuse confidential information, or which are a camouflaged use of confidential information, it is legitimate to ask whether the defendant’s sales caused the claimant to lose sales, and to award lost profits in respect of the claimant’s lost sales. Similarly, given that such sales are to be treated as making use of confidential information, it is legitimate to award a reasonable royalty in respect of each such sale. That approach is not automatically legitimate, however, when considering derived products. The act which gives rise to the harm, and thus to the claimant’s right to be compensated in damages, is no longer the sale of the defendant’s product, because that sale is not itself a wrongful act. In such cases, one must seek to determine instead what recoverable harm can be traced back to the initial wrongful use of the confidential information in order to develop the product.

Mr Platts-Mills says that it was an entirely foreseeable consequence of developing a product which misused Vestergaard’s confidential information that the unlawfully developed product would reach the market and compete effectively with Vestergaard’s products, taking away sales. That argument does not however derive support from the judgment of the House of Lords in SAAMCO. As Lord Hoffmann pointed out at paragraph 18:

“Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful.”

Of course if a misuse of confidential information is the very thing which gives the wrongdoer the ability to compete with the claimant at all, then it might be said that the ensuing competition was a consequence which is attributable to that which made the act wrongful. Short of those rather extreme circumstances, however, where the misuse of confidential information has been a basis for developing a derived product which does not itself constitute a misuse, the consequences of the activity being wrongful are more limited. The consequences are likely to be the acceleration or facilitation of lawful competition. In such a case the proper measure of damages is the extent to which the claimant has been harmed by having to face such competition sooner, or to a greater extent than he otherwise might.

It is true that the judge’s approach departs from the Horse-Shoe rule. That rule is not, however, a rule of universal application. As Lord Hoffmann pointed out in SAAMCO, rules which award the injured party all the consequences of the wrongful act are exceptional, and need to be justified by some policy consideration.

Although Mr Platts-Mills stressed the extent of the misuse in the present case, by reference to the lengthy history which I have set out above, he was not able to satisfy me that this was a case in which the measure of damages should extend to cover all the foreseeable consequences of the defendant’s acts. The present case is one where the evidence showed that, although the information was not in the public domain, a team with the technical and other skills of Bestnet would have been able to produce a competing product.

As Mr Wilson explained, Bestnet had available to them the skills of Dr Skovmand. Dr Skovmand was not entitled to use Vestergaard’s trade secrets, but he was otherwise able to deploy his considerable skills in assisting Bestnet to develop a competing product. In Ocular Sciences (supra)Laddie J explained:

“An employer like anyone else is entitled (all usual defences aside) to restrain unauthorised disclosure of information which, in the Coco v Clark sense is confidential. On the other hand, for public policy reasons, an employee is entitled to use and put at the disposal of new employers all his acquired skill and knowledge. That is so, no matter where he acquired that skill and knowledge and whether it is secret or was so at the time he acquired it. Where the employer's right to restrain misuse of his confidential information collides with the public policy, it is the latter which prevails. The critical question is how to distinguish information which can be treated as an employee’s acquired skill and knowledge from that which is not. As the Court of Appeal pointed out in Lancashire Fires, that may be a difficult borderline to detect and where it lies will depend on the particular facts of the case.”

Later he said:

“If the information in question can fairly be regarded as a separate part of the employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with, then the court, if it thinks that there is a danger of the information being used or disclosed by the ex-employee to the detriment of the old employer, will do what it can to prevent that result by granting an injunction.”

The prohibited area in the present case did not extend to all uses of the three additives. As Mr Wilson demonstrated to my satisfaction, Vestergaard did not regard as confidential the functions of the three additives or the fact that they could be used in combination, along with deltamethrin, in a long-lasting insecticidal polymer product. They had published this information in the Zero-fly patent, albeit in connection with a tarpaulin rather than a net. Neither Dr Skovmand nor anyone else could be prevented from trying that idea in an LLIN. The secret information which he was not entitled to use was, in substance, the relative proportions and the performance of the tested samples. In such circumstances there could be nothing to prevent Dr Skovmand from assisting a competitor to start with a full grid of additives. What he did wrong was to start some distance down the track along which Vestergaard had already travelled, by going straight to the First Formula. Mr Howe, Vestergaard’s expert, accepted as much in cross examination.

On the basis of evidence such as this the judge was plainly entitled not to apply the General Tire measure to the breaches of confidence involved in developing the Later Formula. I would therefore reject this ground of appeal.

The judge explained her approach to accelerated entry at paragraphs 112 and 113 of her judgment:

“112.

What then is the proper approach? I consider that the two-fold approach put forward by the Defendants is a fair and proportionate approach. One head of damage should be a lump sum, quasi-consultancy fee to reflect the extent to which the sales of Later Formula nets were brought about by the use of the confidential information by the Defendants. In order to decide how much this should be, one needs to consider how closely linked the Later Formula is to the First Formula and in what other ways the Defendants made use of that information, beyond simply building on the experimental results in the Fence database to arrive at the Later Formula.

113.

The second head of damage is a payment of compensation in respect of sales made in any period when the Defendants were on the market selling Netprotect when they would not have been on the market if they had not misused VF's confidential information.”

The judge then dealt with accelerated entry at paragraphs 154to 176 of her judgment. She dealt with it in two stages. First, she asked herself how much time was saved in the development of Bestnet’s Later Formula Netprotect by their use of the confidential information at the start of the development process. Secondly, she asked how much of that time translated into accelerated sales of Later Formula Netprotect. On the first point she concluded that Bestnet saved themselves about six months of development work by using the information.

The judge also rejected a submission that, given that Mr Larsen was under a restrictive covenant until September 2005, there would have been a further delay of 17 months at the start of the development. This was because Vestergaard had already brought proceedings in Denmark against Mr Larsen for breach of his restrictive covenant, and been awarded damages for that breach in the Danish courts. To take into account the restrictive covenant in calculating damages in this action would have risked double recovery. She also rejected a submission that Bestnet’s financial position was so precarious at the start of the development that the delay incurred in having to develop the recipe for the Later Formula Netprotect would have caused the company to collapse.

On the second step of the analysis, the judge held that Later Formula Netprotect would not have arrived on the market any later if no use had been made of the confidential information.

In the events which happened, Bestnet lodged their application for WHOPES approval in April 2006. Thus the judge had to ascertain what would have happened if, instead, Bestnet had not been in a position to lodge that application until six months later. She declined to say that the approval would simply have been delayed by six months as well. She first considered (paragraph 172) when the Phase 1 WHOPES test report would have been received. She concluded that this would have been six months later, in March 2007 rather than September 2006. However, for detailed reasons which she gave, she concluded that in the counter-factual world there would have been no delay following the Phase I testing (as compared with a substantial delay in the real world). This was because the timing of a WHOPES evaluation can be affected by the mosquito seasons, given that it is carried out in the field and requires a good population of mosquitoes. If the WHOPES I test results had only been available in March or April 2007, there would still have been time to carry out WHOPES II testing in time for the 2007 season. In other words, the delay occasioned by not using the confidential information would have been absorbed by the need to wait for the mosquito season. There was therefore no acceleration of Bestnet’s entry into the market.

Mr Platts-Mills accepted that, if he is wrong on his first ground of appeal, the judge’s approach of awarding damages for accelerated entry plus a quasi-consultancy fee was appropriate. His submissions on accelerated entry were directed to the judge’s findings as to the amount of time which Bestnet had saved by using the confidential information, and as to the date on which they could have lawfully reached the market.

Mr Platts-Mills submitted that it was not established that Bestnet would have entered the market at all, absent misuse. He submits that Bestnet were only able to obtain backing for the project by representing that the product would be available quickly. Had Bestnet acted lawfully, and not made use of the confidential information, they would have had to have given their investors a much longer estimate of the time required to reach the market. Such an estimate would have deterred the investors, and killed off the project. The judge, says Mr Platts-Mills, wrongly took account of what happened subsequently, namely that the investors had stayed with the project. That was illegitimate hindsight if the project would never in fact have got off the ground.

Mr Platts-Mills also submits that the evidence before the judge was inadequate to allow the judge to assess the period that would have been taken to develop nets lawfully. He submits that the judge also fell into error in her conclusion that there would be no accelerated entry into the market. In particular he submits that she erred in principle in failing to take into account the period during which Mr Larsen was under a restrictive covenant. Had she taken this into account she should have held that there would have been a delay of 17 months at the start of the development.

Mr Platts-Mills next attacks the judge’s conclusion that Bestnet saved themselves only six months of development work by using the confidential information. He first draws attention to the fact that Mr Larsen started to interact with outside persons in May 2004, while he was still working for Vestergaard, and was thus able to have samples produced by October 2004, only shortly after he left. This would have added five months to the period. He submits that the judge’s conclusion of six months was based on an incorrect assumption that Bestnet were lawfully able to use the three additives plus deltamethrin. He submits that an additional six months should be added to the judge’s six months on this count. He relies further on Bestnet’s use of the LIN report, which he says enabled them to submit their application for WHOPES approval by January 2006, whereas an equivalently persuasive report in relation to a Later Formula net could not lawfully have been produced until June 2006.

Mr Platts-Mills submits that, if Bestnet are to be assumed to have been able to enter the market at all, they would not have obtained WHOPES interim approval until the December 2009 meeting, based only on Mr Larsen’s restrictive covenant. If one assumes an additional six months development time this would have been further delayed to the December 2010 meeting. This compares to the date on which approval was given in fact of December 2007.

Finally Mr Platts-Mills criticises paragraph 174 of the judge’s judgment where she said this:

“In the light of that I conclude that if the WHOPES I test results had only been available in March or April 2007, it is still likely that the WHOPES II testing would have occurred at the same time it occurred in the real world, during the mosquito seasons in Burkina Faso and Tanzania. There would have been no need for a pause of five or six months between the two phases of testing to await the 2007 mosquito season. I recognise that the period of delay in the real world between 13 September 2006 and March 2007 was used by the Defendants further to refine the recipe for Netprotect and that the samples submitted for WHOPES II testing in March 2007 were to a different formula from those subject to WHOPES I testing. But there is no reason to suppose that the WHOPES I version of the Later Formula would have performed less well in the field tests than the WHOPES II version of the Later Formula nets.”

Mr Platts-Mills submits that there was no basis in the evidence for the judge’s conclusion. The tests for WHOPES I and II are different. If Dr Skovmand carried out tests seeking to improve the recipes during the period of delay in the real world, there was no reason to suppose he would not have done so anyway.

Finally Mr Platts-Mills submits that Dr Skovmand’s concession that any delay in submission of the WHOPES I application would have led to delay because it would let other companies into the queue ahead of Bestnet, meant that even on the basis of a delay of six months found by the judge, the WHOPES approval would have been delayed by a year. Rose J had wrongly rejected this submission on the basis that only one net had in fact entered the market before 2009. This had nothing to do with the number of nets being tested, and was therefore an inadequate basis from which to infer that the net would still have been considered at the December 2007 meeting.

Mr Wilson supported the judge’s conclusion that Bestnet saved themselves about six months, which he submitted was amply supported by the evidence. He drew attention to the actual comparative timescales taken to bring nets to market. Thus Dr Skovmand joined Vestergaard in April 1999 and its PES net was launched in December 1999. The Bestnet database was started in October 2004 and the first sales of its product occurred in January 2006.

Mr Wilson submitted that it was not realistic to suppose that the financial backers would not have been prepared to support the project absent the use of Vestergaard’s information. The project would still have had the benefit of Dr Skovmand’s expertise and track record, which would be likely to prove sufficient to motivate the financiers. The financiers were also friends and relations of the participants in the project, who would be likely to be more tolerant of delays than conventional, arm’s length backers.

Mr Wilson submitted further that the additional five months to take account of the period between May 2004 and the production of the first samples in October was not justified, and was a new point. Mrs Sig had left the company in June, and Dr Skovmand had no exclusive obligations to the company. There was no reason why Dr Skovmand’s experiments could not have started exactly when they did.

There was likewise no justification for adding a further six months to the judge’s six months delay. The judge’s assumed starting point for the Bestnet development was correct, given the restricted nature of the confidential information on which Vestergaard could rely.

Mr Wilson also submits that the judge was right to exclude consideration of Mr Larsen’s restrictive covenant.

Mr Platts-Mills’ most extreme position was that the project would not have happened at all without breach of confidence. To the extent that this submission was based on the existence of a restrictive covenant excluding Mr Larsen’s participation until September 2005, it is flawed for the reasons I explain below. To the extent that it is based on the proposition that, in the lawful counterfactual scenario, Bestnet would have had to have given much longer estimates of the lead time to its financial backers, I accept Mr Wilson’s submission that this is not realistic. The judge was entitled to find that a project which had Dr Skovmand available to it would not lose the backing of the friends and relatives who supported it merely because a longer time estimate would have to be given.

It is convenient to deal next with the impact of Mr Larsen’s restrictive covenant. On Vestergaard’s case, this covenant would have prevented Bestnet’s project from commencing until September 2005 when the covenant expired.

With respect to the judge, I do not agree that it would be wrong in principle to take account of the restrictive covenant for the reason which she gave, i.e. that it would risk double recovery. Any danger of double recovery could be avoided by deducting any sum recovered in the Danish action from the damages awarded in this action. More fundamentally, however, there is the question of whether the restrictive covenant, in the counterfactual scenario in which Mr Larsen is assumed to be acting lawfully, prevented him from assisting Bestnet to develop LLINs.

The question of construction which faces us was not directly addressed by the Danish court. We were told that there was an agreement before the judge that these issues should be decided according to English law.

The restriction on Mr Larsen in clause 10 of his employment contract was against directly or indirectly carrying out any competing business or accepting any employment with or consultancy services to any competing business. The definition of “competing business” appears to have two limbs, but it is not entirely easy to disentangle them. In my judgment, the clause should be construed so that “competing business” means a business:

Limb (a) is designed to protect Vestergaard’s core business, whilst limb (b) extends to other businesses. Although limb (b) does not include the words “carrying on trade”, the sense of both limbs is that the competing business must be doing business, as opposed to merely preparing to do so. Thus Mr Larsen was free to make preparations to enter the prohibited field defined by limb (a) provided that the company he joined was not doing business in that field or any other field in which Vestergaard was doing business.

On the facts found by the Danish court, Intection A/S was a “competing business” because it was competing with Vestergaard for orders for water filters. The question before us is a different one: could Mr Larsen provide consultancy services in the LLIN field to a company which was not yet doing business in that field. On that question the decision of the Danish court is not determinative. In my judgment the clause is not wide enough to prevent him from doing so.

I was equally unimpressed by the remaining attacks on the judge’s analysis. I was not persuaded that five more months had to be added to the timescale to allow for the fact that Mr Larsen remained employed by Vestergaard. I accept Mr Wilson’s submissions that Mrs Sig and Dr Skovmand would be able to start the project without the full involvement of Mr Larsen. I can also see no basis on which this court could properly interfere with the judge’s multifactorial evaluation of the six months delay to the development project. Given my conclusion on the restrictive covenant, and my rejection of Mr Platts-Mills’ submission that Dr Skovmand was not entitled to start with the three additives, the judge’s analysis seems to me to be one which was properly open to her.

For completeness, I would also reject Mr Platts-Mills’ point that any delay would have caused Bestnet to lose its place in the queue for WHOPES approval. The foundation for the point is Dr Skovmand’s expressed concern to that effect. Mr Platts-Mills is right that one cannot necessarily deduce anything about the state of the queue from the fact that only one net obtained approval before 2009: the pass rate does not tell one how many candidates applied and failed. There was, however, no direct evidence that the WHOPES queue was in fact approaching capacity. The fact that Dr Skovmand was concerned about losing Bestnet’s place in the queue does not necessarily mean that the concern was justified. Mr Wilson showed us some contemporaneous material which was before the judge, which suggested that there were indeed relatively few companies in the queue. I am not persuaded that the judge’s rather more summary dismissal of this point means that she made a material error.

The judge dealt with this issue at paragraphs 79 to 99 of her judgment. She held that the correct basis for assessment was to consider what sum would have been arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that the notional negotiation should have taken place. She considered that, in such a notional negotiation, it was legitimate to take into account the fact, if it be so, that the party seeking a licence has an alternative “non-infringing” alternative.

As to the outcome of such hypothetical negotiations, the judge heard expert evidence from Dr Meyer for Bestnet and Mr Grantham for Vestergaard. Dr Meyer based the calculation on the anticipated economic benefit of the Fence database to Bestnet. She first calculated loss of profits based on delay in product launch. She next determined the outer limits of the royalty range, that is to say the highest royalty that Bestnet could pay and still be better off taking a licence, and the lowest royalty that Vestergaard could charge and still be better off granting a licence. So far as Vestergaard is concerned she considered that any royalty would be better than nothing for them, given that these sales are those which Vestergaard could not have made in any event. As both parties to the notional bargain had equal bargaining power, she calculated the reasonable royalty as half the profits or costs that Bestnet would have earned discounting it for early receipt in October 2004 by way of a lump sum.

Mr Grantham’s approach started from a range of royalty rates disclosed in licensing agreements entered into by Bestnet, other licensing agreements recorded in a database called “RoyaltySource”, as well as published studies of royalty rates. This led to a range of 3 to 8%. He then considered the profit expectations of Vestergaard and Bestnet, and concluded that a range of 3 to 8% was appropriate.

The judge did not find the approach of either expert particularly helpful. Dr Meyer’s approach was flawed because Bestnet would not have agreed to pay an upfront lump sum royalty. There was too much uncertainty. On the other hand Vestergaard would not have been prepared to licence the results of the Fence database for a very low, one-off, lump sum.

Mr Grantham’s approach covered a broad range. The judge declined to adopt the upper end of that range on the ground urged on her by Vestergaard, namely that Vestergaard would not in fact have been prepared to grant a licence to Bestnet or anyone else to make nets using their confidential information because there would be no benefit in assisting a competitor to enter the market. The negotiations were to be considered on the basis of a willing licensor. Moreover, she accepted that the nets which were to be licensed were those which it is to be assumed did not cause sales to be diverted from Vestergaard. Accordingly she set the royalty at 4%. This yielded damages of US$11,658.

Mr Platts-Mills submits that the judge was wrong in principle to assume that the parties would have known at the date of the notional negotiation that sales of the product would not have deprived Vestergaard of any sales. Further, he submits, the judge failed to take into account the commercial position as understood by the parties, in particular Bestnet’s belief in the value of the information to them, and the fact that Bestnet’s use would allow them to enter an established market and compete with Vestergaard.

Mr Wilson supports the judge’s decision as to royalty rate. The royalty rate should not be assessed on the basis that the nets sold by Bestnet would deprive Vestergaard of sales, because to do so ignores the basis of the licence being hypothetically negotiated. Moreover, if the true commercial significance is taken into account, the royalty would have been less, not more, because the information in issue could have been created in a very short time.

Given that “willingness” is not a binary concept, the principle that a royalty should be set on the basis of the outcome of a hypothetical negotiation between a willing licensor and willing licensee often throws up the question of how willing the two participants are to be assumed to be. The judge was plainly right to reject the proposition that the royalty should be set as high as possible because of Vestergaard’s position as manufacturer. The royalty is being set according to the user principle for those sales which Vestergaard cannot establish caused them to lose profits. It would be anomalous in those circumstances to take account of the special commercial position of Vestergaard. Equally, I do not think the judge was wrong to draw attention to the fact that the royalties were in respect of sales which Vestergaard would not have made. This is not to use hindsight: it merely gives effect to the basis on which the royalty is being assessed, namely the user principle. The judge did not adopt Dr Meyer’s approach, which proceeded on the basis that any royalty for Vestergaard was better than nothing. Rather she attempted to assess a going rate for use of the confidential information in issue: what was it worth? The judge’s choice of 4% was plainly within the range of percentages which she could properly award. I would not disturb her conclusion on this issue.

The judge dealt with this issue at paragraphs 114 to 153 of her judgment. She expressed her conclusions on the quasi-consultancy fee as follows:

“150.The history of the development of Netprotect and of the process by which the product attained WHOPES interim approval show, in my judgment, that substantial use was made by the Defendants of the First Formula which Arnold J [held] comprised misuse of VF's confidential information. This is not a situation where the initial research taken from the Fence database was rapidly superseded by Dr Skovmand's subsequent research. It is true that the Defendants had to arrange and pay for a great deal of testing of First Formula nets, Later Formula nets and nets made to other formulae over many months. There is also no doubt that Dr Skovmand had to bring his considerable expertise to bear in analysing the results of the tests and gradually determining which formulae would give improved performance. I bear in mind in particular:

a.

A significant step along the path from the First Formula to the Later Formula was the Statistix exercise carried out in July 2005. The data fed into the model to produce the result that prompted Dr Skovmand to try out samples 108 and 109 included results from field tests on First Formula samples. The recipes for samples 108 and 109, which in turn led directly to sample 114 and then to the Later Formula were therefore based more directly on the First Formula nets than had perhaps been appreciated from the evidence as it stood at the time of the Liability Trial.

b.

Samples made to the First Formula were not only made in October 2004 but on several subsequent occasions when other formulae were being devised and tested, as described by Dr Skovmand in his evidence. In the Liability Judgment, Arnold J noted that the First Formula was referred to by Dr Skovmand in a number of contemporaneous documents as the ‘standard’ or ‘reference’ formula or recipe. Dr Skovmand confirmed that that was the case.

c.

The Montpellier First Formula Net Report was used by the Defendants to support the WHOPES application. The Defendants tried to downplay the likely significance of this document in WHOPES' assessment of the application. However, I accept the evidence of Dr Pates Jamet that WHO takes into account all the evidence when doing an evaluation, albeit it will place greater weight on results of studies that comply with its protocols. Given the urgency surrounding the making of the application and the fact that there were no completed test results or reports on samples 108 and 109, let alone sample 114 at the time the application was made, I consider that the use of the Montpellier First Formula Net Report constitutes a significant further use of the First Formula nets.

d.

The Defendants accept that the results of the tests on First Formula nets were mentioned in the Finnish toxicology report that was provided by WHOPES to Dr Skovmand when they notified him that the nets had passed the WHOPES I testing.

e.

The Montpellier First Formula Nets report was used as promotional material on the Defendants' website for a considerable period.

151.

On the other hand, as I discussed earlier in relation to the royalty for some of the sales of First Formula nets, there was a substantial amount of work done by Dr Skovmand in pursuing possible changes to the recipe which turned out not to be fruitful and there were other aspects of the recipe, including other additives, changes to the polymer composition and to the extrusion temperatures which contributed to the success of the final product.

152.

I also bear in mind when considering an appropriate quasi-consultancy fee that VF paid Dr Skovmand approximately $1.8 million between 1999 and 2005, of which nearly $493,000 was paid in 2003 [329]. These figures show that companies in this sector expect to pay substantial fees for access to expertise for developing these products.

153.Taking all these factors into account I consider that a quasi-consultancy fee of US$150,000 is an appropriate reflection of the use made of the First Formula nets and of tests results on those nets, when balanced against the further work carried out and the expertise brought to bear when arriving at the approved Netprotect product.”

In his skeleton argument, Mr Platts-Mills submitted that the judge failed to take into account important matters and made erroneous findings and assumptions when arriving at the US$150,000 consultancy fee. Thus:

The majority of these submissions assume that the quasi-consultancy fee is being assessed after the event, or post hoc, that is to say when the extent of the misuse of confidential information is known. Mr Platts-Mills initially submitted that this was indeed the correct approach. In that respect it differed from the notional royalty under the General Tire principle. It was not to be assessed on the basis that it was to be negotiated between a willing consultant and consultee acting in 2004, prior to the commencement of the development work or sales. However, he later submitted that there was much to be said for the prospective approach, and that in applying that approach weight has to be given to the degree of commercial confidence which the information gave to Bestnet as to the likely success of the project.

Mr Wilson submitted that the quasi-consultancy fee was awarded to compensate Vestergaard for the use which Bestnet made of the First Formula and First Formula nets, and which was not compensated for under other heads. Thus, for example, Bestnet had used the First Formula net as a reference standard, and it had undoubtedly assisted them in the development of the Later Formula nets. It was right to compensate Vestergaard for this assistance, which was similar to the sort of assistance which a consultant could have given (and which Dr Skovmand did in fact give). Hence the term “quasi-consultancy fee” was appropriate. The extent of benefit to Bestnet was not a material consideration.

Turning to quantum, Mr Wilson submitted that the judge set the fee at too high a level. He does not dispute the judge’s findings concerning the extent of use of Vestergaard’s confidential information. He submits however that the evidence does not add up to more than the fundamental point that Dr Skovmand started his whole development process with the “infringing” formulation and that the infringing formulation was actually used for a while for manufacturing Bestnet’s nets. The judge’s conclusion (from the figures quoted in paragraph 152 of her judgment for sums paid to Dr Skovmand’s company) that “companies in this sector expect to pay substantial fees for access to expertise for developing these products” did not take account of the fact that Dr Skovmand was doing much more for Vestergaard than this.

There is also a dispute about whether the judge ought to have awarded interest on the quasi-consultancy fee. At a hearing on the form of order the judge characterised the award of the consultancy fee as a notional sum payable as of the date of judgment which already took interest into account. Mr Platts-Mills submitted in his skeleton argument that the notional consultancy fee was “due” in October 2004, and should carry interest from that date. However, he recognised that if it was appropriate to assess the fee post hoc, then his attack on the judge’s approach to interest on the fee would fail.

I would emphasise at the outset that the correctness in principle of the judge’s award of a quasi-consultancy fee was not in issue on this appeal in the event that we concluded that General Tire damages were not appropriate.

I think it is clear that the judge was applying a retrospective or post hoc approach to assessing the quasi-consultancy fee. Not only is this what she said at the subsequent hearing, but it is implicit in the route she took to assessing it. Mr Platts-Mills is not in a position to challenge the judge’s approach, despite succumbing to the temptation to do so during oral argument, because his grounds of appeal criticise the judge for not taking into account events which had happened. The judge was assessing how much Bestnet would have to pay for the sort of assistance which the First Formula in fact gave them in developing the Later Formula nets.

I consider that the judge was right to adopt a post hoc approach given the nature of the assessment exercise which she was conducting, namely to compensate Vestergaard for the use made of the confidential information in the development of the Later Formula nets. I do not see how that could be sensibly done without taking account of what was actually done.

I regard both sides’ attacks on the judge’s assessment of the quasi-consultancy fee as unsustainable. The fee was to compensate Vestergaard for the use made of their confidential information in developing the Later Formula, but was not intended to give them a share in the benefits derived by Bestnet from its use. Mr Platts-Mills did not expand in oral argument on how any of the other matters identified above would properly affect the level of the fee, and I do not think that they should. The judge was plainly aware of the background to the payment of Dr Skovmand’s fees by Vestergaard, and of the nature of the work which he did for them. There is, in my judgment, no basis at all for interfering with the judge’s assessment of this fee.

Because of the different approach which the judge adopted to damages for the First Formula nets and the Later Formula nets, the judge had to examine Bestnet’s production records produced on disclosure in order to determine the quantity of nets made to the First Formula and the Later Formula respectively.

The way in which Bestnet had responded to the court’s orders in respect of disclosure going to this issue was deeply unsatisfactory. Bestnet had first adopted an approach in which they used the invoice date associated with a particular supply to determine whether the net was made to the First Formula or the Later Formula. This proved to be a wholly unreliable guide, because large quantities of nets had been manufactured considerably earlier than the date of the invoice. Once this fact was appreciated, it became clear that a particularly large order of nets previously categorised as made to the Later Formula (“the large IDA order”) was in fact made to the First Formula.

The judge dealt with this issue in the following way:

“217.

I bear in mind the very unsatisfactory way in which the exercise of showing which nets were made to which recipe was carried out by the Defendants in purported compliance with the court's orders. Given my findings in relation to the large IDA order, I consider that it is likely that all the sales recorded on Mrs Sig's spread sheet up to and including the line recording IDA's order of 121,828 were of nets made to the First Formula. Thereafter they were nets made to the Later Formula or subsequent formulae.”

Mr Wilson took us on a tour of spreadsheets, invoices and other documents in an attempt to show that the judge’s conclusion was not justified, whilst Mr Platts-Mills did the same in order to show us that it was. In the end I remained wholly unpersuaded that the judge was wrong in making this finding of fact. She was entitled to have regard to the unsatisfactory way in which the necessary materials had been produced. The ground of appeal is no more than an attempt to have a second bite at persuading the court that some of the orders prior to the large IDA order were made to the First Formula. I reject it.

The judge awarded interest at 2% over Barclay’s Bank base lending rate. Mr Wilson criticised this on the basis that Vestergaard were profitable and ought to be able to borrow on more favourable rates. He drew our attention to authorities which suggest that the rate should be based on rates available to companies with the general attributes of the claimant.

I do not think there is any basis for challenging the judge’s decision to award interest at the rate she did. As the authors of the White Book observe at paragraph 9A-124 of the 2015 edition of the White Book:

“At one time it was common, but not inevitable, for interest under section 35A to be at a rate of 2% over base”.

Later the authors observed:

“A ‘broad-brush’ approach is taken to determine what rate of interest is just and appropriate; this policy is adopted in order to control the extent of the enquiry to ascertain an appropriate rate...”.

The judge had no evidence as to rates of interest which were available to companies having the general attributes of Vestergaard. Her choice of 2% above base was not at all unjustified, far less was it so far out of the norm as to justify this court in interfering with her decision. I would reject this ground of appeal.

For the reasons I have given, if my Lords agree, both the appeal and cross-appeal will be dismissed.