MVF 3 Aps & Ors v Bestnet Europe Ltd & Ors

This appeal raises some questions about the assessment of damages and interest in an action for breach of confidence. The claimants (collectively “Vestergaard”) established after a trial before Arnold J that certain long-lasting insecticidal mosquito nets (“LLINs”) were made by the defendants (collectively “Bestnet”) using Vestergaard’s confidential information. The manufacture and sale of other nets did not involve direct use of the confidential information, but was said to be derived from misuse of that information. At the subsequent enquiry as to damages, Rose J awarded damages in respect of both types of net, applying a different measure to each type. Both sides now appeal to this court against aspects of Rose J’s decision of 3 October 2014. We also have before us an application by Vestergaard to adduce fresh evidence in the form of a judgment of the Tribunal de Grande Instance de Montpellier dated 17 September 2015 (“the French judgment”).

On the appeal, Mr Mark Platts-Mills QC and Mr Thomas Moody-Stuart QC presented the case for Vestergaard. Mr Alastair Wilson QC and Mr George Hamer presented the case for Bestnet.

As the appeal concerns confidential information which is contended to be of continuing commercial value, we heard the appeal in private. The full judgment is private, but a redacted form for publication will be handed down.

Because we were taken to it in some detail by Mr Platts-Mills as a foundation for his arguments, it is necessary to refer to the factual background in rather more detail than would otherwise be necessary. What follows draws gratefully on the previous judgments at first instance.

The yarn from which LLINs are made contains embedded insecticide. In use, the insecticide migrates to the surface of the yarn and is picked up through the feet of the insect landing on the surface of the net. When the nets are washed, the insecticide on the surface is removed. Migration of insecticide is, however, continuous, and thus, once insecticide is removed by insects or washed off, more insecticide will come to the surface. This is referred to as “regeneration”. A means has to be found for controlling the rate of migration so that it is not too fast, thereby depleting the reservoir of insecticide too quickly, and not too slow, so that the net regenerates quickly after washing, when it is put back into use.

Control of the rate of the migration of insecticide is effected by the use of chemical additives mixed into the polymer in the course of manufacture of the nets. The secret information which was the subject of the action was concerned principally with the choice of additives, their relative proportions, together referred to as “recipes”, and the results of biological testing on nets made up to the recipes. The three principal additives with which the case was most concerned were:

[Additive A];

[Additive B]; and

[Additive C].

All three additives were manufactured by the chemical manufacturer Ciba. The primary function of [Additive A] is to [REDACTED]. [Additive B] is also used for [REDACTED]. [Additive C] is [REDACTED].

The World Health Organisation Pesticide Evaluation Scheme (“WHOPES”) is a scheme operated by the World Health Organisation (“WHO”) for granting approval for LLINs. In order to obtain WHOPES approval, a net must regenerate in not more than three days and must achieve a minimum insecticidal effect after twenty washes and three years of recommended use under field conditions. There are three stages to WHOPES approval:

WHOPES I involves laboratory tests to determine whether the net still functions after twenty washes. In these tests, it is necessary first to work out the regeneration time, so that the net can be allowed to regenerate fully between washes.

WHOPES II involves small scale field trials in experimental huts in countries where malaria is endemic.

WHOPES III involves nets that have been used in the field for up to three years.

Following the successful completion of WHOPES I and WHOPES II testing, an interim approval for the net will be issued. Interim approval is of commercial importance because many customers will only buy nets which have been so approved. The applicant for WHOPES approval must provide a data package including a draft technical specification, a risk assessment and a report of any laboratory or field tests on the proposed product. There is, in general, one meeting of the WHOPES approval committee each year, usually in December, at which the committee decides whether or not to grant interim approval. The periods of time when WHOPES II and III field testing can be carried out are limited in practice to certain times in the year.

Vestergaard are part of a group of companies founded in Denmark in 1957. In about 1993 to 1994 they began to manufacture and sell disease control products impregnated with the insecticide deltamethrin. The fifth defendant, Torben Holm Larsen (“Mr Larsen”) was Vestergaard’s Head of Production from 1 November 2000 until 31 August 2004. The sixth defendant Trine Sig (“Mrs Sig”) was employed by Vestergaard, initially as a sales and marketing assistant and later as Regional Sales Manager for Europe and Latin America from 1 November 2000 until 17 June 2004.

Mr Larsen’s contract of employment contained a restrictive covenant designed to limit the extent to which he could compete with Vestergaard for the first twelve months after termination of his employment. The extent to which that covenant restricted his actual activities after leaving is an issue to which I will have to return.

On 3 August 2004 Mr Larsen and Mrs Sig incorporated Intection A/S with the intention of competing with Vestergaard in the field of LLINs. Intection A/S ceased trading in October 2005 after Vestergaard brought proceedings against it in Denmark. The corporate defendants were all set up in England at about the time that Intection A/S ceased trading. Mr Larsen and Mrs Sig were appointed as directors of the first defendant in 2008.

Dr Ole Skovmand also played an important role in the events giving rise to these proceedings. After obtaining a PhD in neuro-acoustics he worked for six years for the Danish Pest Infestation Laboratory. His work included testing insecticides incorporated in polymers. From 1988 to 1995 he was employed by Novo Nordisk’s bio-control laboratory running bio-assays and developing pesticide products. In 1995 Dr Skovmand moved to Montpellier. There, from 1995 to 1998, he was employed in a research establishment (Institut de Recherche pour le Développement (“IRD”)) where he worked on a project involving the formulation of a sustained release product for mosquito larval control financed by the Danish International Development Agency. In 1998 Dr Skovmand left IRD and started his own consultancy. Thus Dr Skovmand was an eminent scientist in the field of insecticidal polymer products. On setting up his own consultancy, he started to advise Vestergaard, and by the end of 1998 was engaged by Vestergaard as a paid consultant.

Mosquito nets can be made from polyester (PES) or from polyethylene (PE). From April 1999 onwards Dr Skovmand worked on developing Vestergaard’s PES mosquito bed net called PermaNet. From that date until he resigned on 7 December 2004 he also spent a significant proportion of his time working for Vestergaard on PE based nets and other products. Dr Skovmand’s work for Vestergaard included developing an insecticidal PE tarpaulin comprising different layers of polymer each of which incorporated insecticide. This tarpaulin was the subject of a patent applied for by Vestergaard, referred to as the “Zero-fly patent”. The PE net project ran in parallel with the tarpaulin project. It was aimed at producing both a PE net for use as an agricultural fence and a PE mosquito bed net.

At an early point in the PE work, Dr Skovmand consulted Ciba about the use of additives sold by Ciba to control the migration and ultraviolet light stability of insecticides in polyethylene film. Dr Skovmand had a meeting with a Mr De Corte of Ciba in Ciba’s office in Basel in late 2000 or early 2001. Dr Skovmand told Mr De Corte about the proposed technical application and the performance he was looking for. Mr De Corte discussed a range of additives with Dr Skovmand. These included [Additives A, B and C] but also some others such as [Additive J] and [Additive G]. Mr De Corte and Dr Skovmand drew up a project memo proposing the testing of a range of about eight formulations of the PE tarpaulin using various combinations of the additives discussed with Ciba. Each PE layer would have [REDACTED] % of [Additive D]. Sample 1 would have in addition [REDACTED] % [Additive A]. Sample 4 would have in addition [REDACTED] % [Additive B] as well as the [REDACTED] % [Additive A].

Ciba’s published literature contains little useful information about the levels or combinations of additives. There was some mention of combinations of [Additive A] and [Additive C] in combination with other additives. There was no mention at all of combining [Additive A] with [Additive B]. This is because the recommendations made by Mr De Corte were directed to the specific technical application and requirements explained to him by Dr Skovmand. Even then, Mr De Corte was not able to recommend a specific recipe which he knew would work. Instead, he recommended a programme of testing by trial and error.

In the course of the work on PE nets, Dr Skovmand created a database for Vestergaard which became known as the Fence database. This was, in essence, a spreadsheet listing the formulation of the samples of nets and including the results of tests carried out on them. Samples 7 to 20 in the Fence database were made with various concentrations of deltamethrin, [Additives A, B and C]. By July 2002 results for bio-assays on these nets appeared sufficiently good to indicate that they would be suitable for use as a bed net. Work on these nets continued through the rest of 2002 and into the spring of 2003. On 15 August 2002, Dr Skovmand said (in an email copied to Mr Larsen):

Olyset was a rival product made by Sumitomo. On 16 August 2002 a minute of a meeting between Dr Skovmand and Mr Larsen recorded that the results on PE net with deltamethrin were very encouraging. By September 2002 it had been established that the only significant parameter for the survival of deltamethrin was [Additive A], whilst other ingredients had little or no impact.

By April 2003 Vestergaard were experimenting with polymer extrusion temperatures for the net, as well as introducing low-density PE (LDPE) for easing the extrusion by making the molten polymer softer. Later still Vestergaard experimented with the inclusion of [Additive M], a [REDACTED].

In January 2004 PermaNet, Vestergaard’s PES net, achieved WHOPES II approval. Although work on PE nets was not abandoned from that date, it was no longer a priority given that the PES net had achieved approval. Production and testing of PE yarn by Vestergaard was focused on producing a fence. That work included revising recipes and experimenting with different polymers and extrusion temperatures.

Sometime in the spring of 2004 Mr Larsen told Dr Skovmand of his plans to leave Vestergaard and set up in business with Mrs Sig. On 15 and 16 April 2004 Mr Larsen and Dr Skovmand met in Montpellier. Mr Larsen’s minute of the meeting included the following:

Scenario A seems to be based on the notion that a termination of Mr Larsen’s employment contract by Vestergaard might also discharge his restrictive covenant. However it was scenario B which, in the event, applied because Mr Larsen resigned his post.

Sometime in May 2004 Mr Larsen, Mrs Sig and Dr Skovmand met to discuss the business plan for the new LLIN business. During this meeting Dr Skovmand suggested that the new business should develop a PE bed net, and estimated that it would be ready to start selling by the beginning of December 2004. Funding was to be raised both by way of equity investment from Mrs Sig’s father and a friend or colleague of his and also by way of bank loans. The ability to be able to launch the net quickly was a relevant factor for the investors.

The timing of the launch of Bestnet’s PE net was discussed in an exchange of emails on 10 and 11 August 2004 between Mr Larsen and Dr Skovmand. Dr Skovmand explained that one could make good guesses as to how a formulation should be. He also said that he knew that the product they could make would be better than Sumitomo’s Olyset net in several regards, including efficiency and regeneration. The basis for Dr Skovmand’s view that one could make good guesses as to a formulation and the certainty that the product would be better than Olyset was the information in Vestergaard’s confidential Fence database, and in particular the bio-assay data in respect of samples 7 to 20.

When Dr Skovmand joined Bestnet he focused on producing a PE bed net. He set up a new database in broadly the same format as the Fence database. A number of samples of PE LLINs were created and tested by Bestnet in the course of 2004. In December 2004 Bestnet sent a sample of the product for testing to a laboratory in Montpellier called LIN. LIN tested the sample and produced a report, dated May 2005, which commented favourably on the product. The LIN report was submitted in support of the application for WHOPES approval. The LIN report was subsequently used to support Bestnet’s marketing of their product, including making it available on their website. The sample in question was made to a recipe which the judge called the First Formula.

Further tests were carried out by Bestnet in January 2005. Mr Platts-Mills submitted that these drew heavily on Vestergaard’s confidential information so as to be “within a gnat’s whisker” of a direct misuse. Neither the judge nor Rose J made a finding to this effect. In July 2005 Bestnet carried out an exercise using software called Statistix which uses linear regression analysis to identify which components in the recipes were having the greatest effect. This exercise led Dr Skovmand to conclude that [Additive C] concentration was more likely to affect the results than changing [Additive A]. This prompted him to conclude that two other recipes were likely to be an improvement on what had been produced so far. These became Bestnet’s sample 108 and sample 109.

Nets made up to the recipes of these samples were produced for Bestnet in July and August 2005 and sent out to Burkina Faso for more testing. At the same time, more samples using the First Formula were made up and sent for testing to provide a reference point against which to assess the new recipes. Dr Skovmand explained that he had further samples made up to the First Formula at the same time as making samples to recipes he thought would perform better because the First Formula had been tested by LIN and this was an important matter in the development of Netprotect.

The July/August 2005 samples were not only sent to Burkina Faso to start field trials but were also sent to LIN to assess the regeneration time for the nets under conditions more closely approximating to those that would be used by WHOPES. The results of the LIN tests on samples 108 and 109 were reported to Bestnet in about November 2005. These showed that the regeneration time for samples 108 and 109 was four to five days - longer than the three days that would be acceptable for WHOPES.

Meanwhile, in Burkina Faso the second series of tests was being carried out on a range of samples including those made to the First Formula and those made to the sample 108 and 109 recipes. This new set of tests had started in September 2005 and continued throughout the rest of 2005. The results of each bio-assay test were reported to Dr Skovmand. The results were not as Dr Skovmand had predicted and when he caused this to be investigated it became apparent that there was a problem with a breakdown of the mosquito colony being used for the tests. At the end of February 2006 therefore the tests were restarted. By March 2006 it had become apparent from the Burkina Faso results that the recipe of sample 109 was the best performing net.

By this time Dr Skovmand had already come to the provisional view that the formula for the nets to be sent for WHOPES evaluation should be a modified version of the recipe used for sample 109. The recipe for sample 109 had resulted, according to the LIN tests, in a net with a longer regeneration time than was ideal. Dr Skovmand decided that the best formula for the nets was likely to be that which the judge described as the Later Formula. He therefore directed that samples made to that recipe be produced.

The first sample made to a recipe containing the Later Formula proportions was sample 115 made in January 2006. Adjustments were made to the dose of deltamethrin and so a further sample, sample 114, was made in March 2006.

The Later Formula was the recipe for the nets that were sent to WHOPES for evaluation in April 2006. The recipe that was used for the samples sent to WHOPES was chosen before the results of tests on any samples made to that recipe had been received.

Dr Skovmand's evidence was that there was some urgency about submitting the samples for WHOPES evaluation and that is why the samples to the new Later Formula were sent off without waiting for testing. This was because of economic pressure on Bestnet due to the court cases against them, and because of the need to get in the queue for WHOPES testing. If one failed to get in the queue one could be delayed for a further year, as there was limited capacity to do the testing.

The judge summarised the information which Dr Skovmand had available to him at the time that the Later Formula nets were produced to be sent for WHOPES evaluation, as follows:

The nets that were submitted to WHOPES for Phase II of the testing in Spring 2007 were slightly different from the nets submitted for Phase I. It was still a Later Formula recipe in terms of the three main additives but it contained an additional additive and the formulation of the polymer was different.

The progress of Bestnet’s application for WHOPES approval was broadly as follows. I have already indicated that in May 2005 Bestnet sent WHOPES a copy of the LIN First Formula report. In August 2005, Bestnet wrote to WHO asking them to evaluate their new LLIN, Netprotect. At the same time, they wrote to the LIN forwarding them 15 nets. These nets had been made in the July 2005 production run and were therefore First Formula nets.

In October 2005 Bestnet wrote to WHO asking them to start evaluating Netprotect for WHOPES I and WHOPES II approval. They referred in this letter to the LIN tests that had been run on the product.

In December 2005 WHOPES wrote to Bestnet indicating that the application was not complete because further specification and risk assessment were needed. On 24 January 2006 Bestnet sent WHOPES the formal application for approval of the Netprotect product, enclosing a package of data including a specification, a toxicology evaluation and reports on the physical properties of the net samples (weight, tear strength and bursting strength). The specification enclosed described the net and made claims for the product which were based on the First Formula nets tested by LIN. There was nothing to alert WHOPES to the fact that the results being cited related to nets made to a different recipe from the ones to be sent for testing.

By 26 March 2006 Bestnet had received production nets made to the Later Formula and, at the direction of WHOPES, these were sent to LIN in April 2006. On 13 September 2006 WHOPES wrote to Bestnet enclosing the results of the WHOPES I final report by LIN and a risk assessment by the Finnish Institute of Occupational Health. The WHOPES I Report records that the nets had a regeneration time of three days and met the criteria to progress to WHOPES II testing.

In Spring 2007 more samples were submitted for Phase II testing. These samples were made using the Later Formula but were slightly different in other respects from the sample 114 net that had been sent to LIN in April 2006. The differences are not material for present purposes.

Between 10 and 13 December 2007 WHOPES held a meeting at which it considered the results of the Phase I and Phase II tests and decided to grant WHOPES interim approval. This decision was notified to Bestnet in March 2008.

Netprotect was launched at a conference in Kenya in October 2005, although it did not make any sales until January 2006. Since launch, Bestnet have sold about 57 million nets. In September 2013, however, WHOPES approval was withdrawn from Netprotect because it was shown that it was not sufficiently effective over a prolonged period of use in the field. Subsequently, since September 2013, Bestnet has sold a different bed net which it is licensed to sell by a third party. No complaint is made in the action about the licensed product.

Vestergaard brought an action in the Danish courts against Mr Larsen for breach of the restrictive covenant in his contract of employment. Clause 10 of the employment contract provided that:

Clause 10 goes on to explain that, as compensation for the non-competition clause, Mr Larsen was to receive a cash payment of 50% of his salary at termination. In the case of violation of the non-competition clause, Mr Larsen was, in addition to being liable in damages, to pay a fixed penalty of 100,000 Danish Kroner in respect of each act of violation.

The Danish action was brought in order to recover the amounts paid by way of compensation, and for payment of the agreed penalty. The decision of the Court of Esbjerg is dated 22 February 2007. The court held that Vestergaard were entitled to repayment of the compensation paid to Mr Larsen for the non-competition clause, as well as to payment of the agreed penalty of 100,000 Danish Kroner (we were told this was about £10,000), treating the proved breaches as a single act of violation of clause 10. In its judgment the court made reference to “the boundaries for preparation and future competing business as they are accepted in practice". Danish law appears to recognise that at least some such preparation is permissible. The court however concluded:

It had been part of Mr Larsen’s defence that Intection A/S was not a “competing business” within clause 10 because it had not made any sales within the relevant period. The Danish court appears to have rejected that argument on the basis that Intection A/S had tried to make such sales, in particular by joining the competitive tender for water filters referred to in the final part of the cited section above.

The principal finding made by Arnold J was that Dr Skovmand had misused the confidential information in Vestergaard’s Fence database as the starting point for his work on Netprotect for Bestnet.

In reaching his findings about the development of Netprotect, Arnold J explained that he had met three difficulties. These were that (a) the account of the development given by Bestnet by Dr Skovmand and Mr Larsen was inaccurate; (b) a number of the documents disclosed by Bestnet were “of doubtful provenance” and could not be relied on; and (c) counsel for Bestnet had been unable to give an account of their development of Netprotect. The judge therefore had to reconstruct the story as best he could, placing primary reliance upon the documentary evidence, but excluding the documents which he did not consider to be reliable. The judge also made damning findings about the reliability of Bestnet’s evidence. Dr Skovmand “was not a truthful witness, in particular with regard to the development of Netprotect.” The judge rejected the suggestion that Dr Skovmand had merely been mistaken.

Mr Larsen was also “not a truthful witness, in particular with regard to the development of Netprotect.” Again the judge was not prepared to accept that his incorrect evidence was innocently given. In one respect that evidence included an outright lie.

Arnold J considered that a number of factors were relevant to whether there had been a misuse of confidential information. These were: the nature of the work, the nature of the information itself, the attitude of the employer at the time, the steps taken to protect the information, the separability of the information, the commercial value of the information, the usage and practices of the trade.

As to the nature of the information, Arnold J identified it as:

Arnold J considered that the information in the Fence database was separable from Dr Skovmand’s general skill, knowledge and experience including the general skill, knowledge and experience gained during the course of his work for Vestergaard. This was particularly true of the recipes. He rejected a submission that samples 7 – 16 (and samples 17 – 20) were simply Dr Skovmand’s research proposals before any work had been done. This was partly because the recipes were based on the Ciba recommendations. Those recommendations were confidential to Vestergaard, and did not form part of Dr Skovmand’s stock of knowledge which he was free to use as he pleased. It was also because it was impossible to divorce the recipes from the experimental results. Whatever the position might have been had the samples remained mere paper proposals, they had in fact been the subject of bio-assays and a number of them had given promising results. As Arnold J said:

It was also not realistic to view the information relating to samples 7 – 16 in isolation from the information Dr Skovmand generated subsequently and which was also recorded in the Fence database. Thus Dr Skovmand had tested the suggestion made by Ciba that [Additive A] could be dispensed with and that [Additive G] should be included. Both these suggestions turned out to be incorrect.

Arnold J accepted, however, that Dr Skovmand’s approach in devising his grid of recipes employed an approach to experimental design which formed part of his own general skill and experience.

Arnold J concluded that Dr Skovmand had misused Vestergaard’s trade secrets. At paragraph 669 he expressed his conclusion in the following way:

Vestergaard made it clear during the trial on liability that they were seeking an injunction which extended to preventing the manufacture and sale of Bestnet’s current product, that is to say the Later Formula nets. Arnold J considered, rightly in my judgment, that the question of whether an injunction should be granted in such terms should be considered after the parties had had an opportunity to consider his findings of fact. He indicated, however, that it was not obvious to him that an injunction was an appropriate remedy or, if it was, that it should extend to preventing the manufacture and sale of Bestnet’s current product. He added at paragraph 672:

In a subsequent judgment dated 26 June 2009 (“the remedies judgment”) Arnold J concluded that Vestergaard were entitled to an injunction restraining Bestnet from using or disclosing the information contained in the Fence database, since that was the information which he had held constituted Vestergaard’s trade secrets. He declined as “wholly unjustifiable” an injunction to restrain Bestnet from using the services of Dr Skovmand in the development of any insecticidal PE product containing deltamethrin. So far as more specific injunctions were concerned he considered that a distinction should be drawn between an injunction to restrain use or disclosure of trade secrets and an injunction restraining Bestnet from benefiting from past misuse of confidential information. There was a danger that if an injunction of the second type was granted it had the potential to place Vestergaard in a better position than if there had been no misuse.

Applying this distinction, the judge declined to grant an injunction to restrain Bestnet from selling products under and by reference to the WHOPES recommendations gained for Netprotect. This was an example of taking advantage of a past misuse of confidential information.

At paragraphs 107-109 Arnold J, drawing on paragraph 672 of his liability judgment which I have set out at paragraph 56 above, drew an important distinction between the [REDACTED] formulation i.e. the First Formula, and the [REDACTED] formulation i.e. the Later Formula:

In a separate short judgment Arnold J also found that the samples submitted for WHOPES I evaluation did not themselves amount to misuse of Vestergaard’s trade secrets either. In the light of these findings Arnold J considered that an injunction (other than one in respect of [the First Formula]) was a disproportionate remedy.

Arnold J’s liability and remedies judgments were appealed by both parties to this court. With one exception, in a judgment handed down on 20 April 2011, all the appeals were dismissed. The one exception was the personal liability of Mrs Sig. A subsequent appeal to the Supreme Court on that issue was also dismissed.

Vestergaard’s appeal to the Court of Appeal concerned the refusal of the injunction in relation to the Later Formula. The court declined to interfere with the judge’s decision to refuse such an injunction. Jacob LJ, with whom Jackson LJ and Sir John Chadwick agreed, characterised the case as one involving the cutting of corners and a head start. Jacob LJ said this at paragraph 57:

Vestergaard accordingly commenced an enquiry as to damages. They claimed lost profit damages on all the sales made by Bestnet. Bestnet applied to strike out the claim for lost profit damages insofar as it related to products which were merely derived from use of the confidential information. Arnold J refused to strike out the pleading, and Bestnet’s appeal to this court was dismissed. By the time it reached this court, Vestergaard had amended their claim to include damages for the effect of the head start or accelerated entry which use of the confidential information had given to Bestnet. This court considered (per Floyd LJ at [29] to [30]) that the distinction that Arnold J had drawn in the remedies judgment between the two classes of product for the purposes of injunctive relief did not necessarily apply in the field of damages.

Rose J first set out the relevant factual and procedural background. She then proceeded to make findings about the witnesses who had been called to give evidence at the hearing of the enquiry. She rejected all the criticisms made by Bestnet of Vestergaard’s factual witnesses. The factual witnesses for the defendants were once again Dr Skovmand, Mr Larsen and Mrs Sig. Like Arnold J, Rose J formed a very unfavourable impression of these witnesses. Two features of their evidence concerned her. Firstly, they were prepared to give very firm evidence as to a particular fact which they later had to accept was untrue or mistaken when they were shown a document which contradicted the conclusion they had arrived at. She gave examples. She considered that each of the witnesses had approached the task of reconstructing the events by starting with the end result they wanted to achieve and arguing back from that. She concluded that it was better to form her own view than to rely on the rather selective memories of these three witnesses and their partial analysis of the documents.

So far as expert evidence was concerned Bestnet had instructed Dr Christine Meyer, whilst Vestergaard had instructed Mr Andrew Grantham. The usefulness of Dr Meyer’s work was undermined by the fact that she had been given the wrong instructions as to the exercise she ought to be undertaking in respect of important aspects of her work. For that reason Rose J generally preferred Mr Grantham’s evidence. Mr Grantham, a chartered accountant, was a partner in Alix Partners LLP.

The next issue addressed by Rose J was the measure of damages in respect of the First Formula nets. It was common ground that the appropriate measure of damages was what she called “the General Tire measure”, after the well-known patent infringement case, General Tire & Rubber Company v Firestone Tyre & Rubber Company[1975] 1 WLR 819. The General Tire measure was to award lost profits on sales of Bestnet’s First Formula nets to the extent that those sales replaced sales that Vestergaard would otherwise have made. On the remaining sales, that is to say on those of Bestnet’s sales which Vestergaard could not establish they would have made, Vestergaard were entitled to a royalty on the “user principle”: see Watson, Laidlaw v Potts, Cassels & Williamson(1914) 31 RPC 104 at 119-120. Whilst I will use the convenient description “General Tire measure” to describe these combined concepts, it was not until later cases, as Mr Wilson pointed out, that they were applied in the context of the same infringing product.

There is no appeal from the judge’s decision to adopt the General Tire measure for the First Formula nets. That approach is very well-established in cases where each sale by a defendant constitutes an independent wrongful act. Given that Arnold J had held that the manufacture and sale of the First Formula nets involved a misuse of information in the Fence database, it seems to me that the parties’ decision to adopt that measure in the present case was correct.

The judge calculated that the quantum of Vestergaard’s lost profits and the notional royalty in respect of the First Formula nets was US$ 335,419. In her calculation she utilised a notional royalty rate of 4%. Vestergaard do not challenge the lost profit calculation, but say that the judge used too low a royalty rate. The royalty rate should have been closer to the upper end of the range proposed by their expert, Mr Grantham, not at the lower end (which is where the figure of 4% lay).

It will be more convenient to refer to other passages from the judgment of Rose J in the context of the issues which fall for decision on this appeal. It is sufficient to note here that the judge declined to award damages on the General Tire basis in respect of the Later Formula nets. Instead, she decided that the correct measure of damages was the accelerated entry or head start basis, coupled with the award of a “quasi-consultancy” fee. It is this aspect of her decision which Vestergaard principally challenges on this appeal. Before turning to the issues which arise on the appeal, I must deal with Vestergaard’s application to adduce further evidence.

The French judgment was given in an action between Vestergaard on the one hand and a French company, S.A.R.L. Intelligent Insect Control and Mr Ole Skovmand on the other. Given that it was delivered more than a year after the judgment of Rose J, it obviously could not have been made available for use at the trial. We were invited to read the judgment de bene esse as part of our preparation for the hearing.

Mr Platts Mills did not refer us in the course of his submissions to any particular passage in the French judgment. He said that the purpose of the application was to bring the court up to date as to the position in the French proceedings. He noted that the French court had granted an injunction in terms which were wide enough to cover the Later Formula nets. We were told that the French judgment is under appeal.

This court will not normally admit further evidence which would not have an important bearing on the outcome of the appeal. I do not consider that the French judgment has an important or indeed any bearing on the outcome of this appeal. The French court, in deciding to grant an injunction, was applying French procedural law. We do not know what criteria it was applying when deciding to grant an injunction. We do not know what conclusions the French court came to as to the possibility of arriving at commercial formulations without misuse of Vestergaard’s confidential information, or indeed whether this fact would be material as a matter of French law to the grant or refusal of an injunction. Even if the French court had similar evidence to that which was before Rose J – something about which we cannot be certain – the evidence was not subject to cross-examination, as it was here.

To my mind, the fresh evidence simply raises questions. It has no bearing on the specific issues which arise in this appeal. I would refuse permission to adduce it in evidence on this appeal.

The following principal issues arise on the appeal:

Issue 1: the approach to damages in respect of Later Formula products. Are these products to be treated as products which Bestnet should not have sold, so that damages are to be calculated on the General Tire basis, or on a different, accelerated entry basis?

Issue 2: accelerated entry. If the judge was right only to award damages on the accelerated entry basis, did she identify the correct counter-factual scenario, and was she correct to decide that there was no accelerated entry?

Issue 3: royalty rate. Was the judge’s assessment of the royalty rate in respect of those sales to which the General Tire measure applies correct?

Issue 4: the quasi consultancy fee. Was the judge’s assessment of the quasi consultancy fee correct?

Issue 5: incorrect categorisation of nets. Did the judge wrongly categorise certain nets as made to the First Formula?

Issue 6: interest rate. Should the judge have awarded a lower interest rate than 2% above base rate?

I now turn to consider each of these issues in turn.

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:

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:

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:

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:

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:

Later he said:

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:

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:

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:

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 judge had not taken account of the close proximity of the Later Formula to the First Formula;

the judge had not taken account of the fact that prior to any relevant development work Bestnet believed it would be able to develop a successful product in a very short time and with little effort due to the proposed use of Vestergaard’s secrets;

the judge wrongly assumed that Dr Skovmand was entitled to start from the position that the identity of the three principal additives was known to him;

the judge had not appreciated that there was no or no substantial relevant development work of Bestnet in arriving at the Later Formula. In particular, the judge had wrongly held that changes to the polymer composition and extrusion temperatures contributed to the success of the final product;

the judge had not taken account of her own conclusions as to the repeated manufacture and use of nets made to the First Formula, and thus the continuing use of Vestergaard’s trade secrets, in the development of and obtaining of WHOPES approval for the Later Formula nets, and in the marketing of such nets;

the judge had not taken account of the fact that Bestnet regarded themselves as being entitled to use whatever part of the Vestergaard secrets they thought would be useful to them; and

the very substantial benefit gained by Bestnet from the development and sale of the Later Formula nets amounting to a turnover in excess of US$240 million, a benefit which was anticipated prior to any development work in respect of the Netprotect product; the loss suffered by Vestergaard as a result of competition with the Later Formula nets.

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:

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:

Later the authors observed:

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.

I agree.

I also agree.