Cray Valley Ltd v Deltech Europe Limited

Mr Justice Jacob:

1. In this action the main claim is for breach of confidence. A claim for infringement of copyright is tacked on. It is not suggested the copyright claim adds anything if the breach of confidence claim succeeds. If it fails, it is said it does. Originally there was also a claim for civil conspiracy, but Miss Vitoria QC for the claimants abandoned this at the close of the evidence. Before final submissions a claim for breach of a database right was also abandoned.

2. The claimant, Cray Valley Ltd. (“Cray”) is ultimately a subsidiary of the Total-Elf-Fina group. It is the largest UK company in the solvent-based resins business. It makes both coating (alkyd) resins and structural (polyester) resins, the former at its site in South Wales, the latter at Stallingborough.

3. The first defendant, Deltech Europe Ltd. (“Deltech”), is the UK subsidiary of a US corporation, Deltech Corporation whose business is manufacture of resins. Deltech’s moving spirit and principal owner is Mr Elefante whose initial training was in accountancy. He established Deltech Corporation in 1989. Its primary business was in the US (though there were some European sales) until the first defendant bought an existing resin factory at Haverhill in Suffolk in August 2000. This case is concerned with Deltech’s manufacture at Haverhill of a number of coating resins and a particular structural resin.

4. Resin manufacture at the Haverhill site goes back a long way. In the 1960’s a US company called Cargill entered into a joint venture with a company called Blagden and introduced much of the technology with which this case is concerned via that joint venture. The Haverhill resin plant was opened in about 1970 to exploit that technology. In 1981 Cargill sold its interest to Blagden. There may have been some form of ongoing licence for a few years, though there are no details of this in evidence. There were a number of transfers of the business from company to company within the Blagden group. In 1999 a company called Borden bought Blagden and carried on the manufacture at Haverhill.

5. The business in the types of resin concerned is what Mr Geary, the managing director of Cray, called “mature”. There is, he says, over-capacity in the market place. Cray’s policy in recent years has therefore been one of acquisition of the businesses of other companies. The aim is that, following such an acquisition, a good proportion of the former customers of the purchased business will buy an existing Cray equivalent of the product formerly made by the purchased business. The defendants characterise this as merely buying up the competition to close it down. In riposte the claimants say this is all just a question of efficient plant utilisation. I am not, however, concerned with any competition law aspect of the case so it does not matter who is right.

6. Following that policy, in April 2000 Cray bought the Borden coating and structural resin business. At the same time Cray sold its French phenolic resin business to Borden. Cray also entered into an agreement (which went by the strange, at least to me, name “tolling”) under which Borden would, on behalf of Cray, continue to make the resins at Haverhill for a three-month transitional period. There was a similar agreement (but for a longer period) the other way round in France. At Haverhill the Borden employees were told they would be made redundant at the end of the period. Cray did not buy either the Haverhill site or the resin making equipment on it.

7. During the tolling period, Cray personnel came to Haverhill. A full inventory of stocks of raw and finished materials was made. Copies of all manufacturing formulations and ingredients and all the business documentation about ongoing contracts and customers were supplied to Cray. At the end of the period Cray took away all unused raw materials for which they paid Borden separately. It seems that anything useable, down to the paper cups, was taken. No one was interested in stocks of samples of the various products which were left on site. During the tolling period, notwithstanding their impending redundancy, the Borden employees assisted Cray in all ways they were asked.

8. Left on the site in two obvious places (the production manager’s office and the manufacturing control room) were copies of the batch records of past manufacture and copies of the manufacturing instructions. How this came about I go into in more detail later – it is sufficient to say here that it evinces a marked degree of laxity in view of Cray’s current contention that the documents contained important trade secrets. The degree of laxity is all the more remarkable given that, prior to the end of the tolling period, Cray learned that Borden were proposing to sell Haverhill, complete with all its manufacturing equipment, to Deltech, a company they knew to be in the resin business. Borden asked Cray whether they wanted to buy the equipment. Cray, concerned about possible competition from Haverhill, made an attempt to prevent or hinder use of the site by offering to buy the plant at scrap value, an offer which was turned down.

9. Deltech took over the site in early August a few weeks after the tolling period ended. It engaged the services of many of the ex-Borden employees, though none of the salesmen – something one would have expected a competitor intending deliberately to target Borden’s old customers to do. I list those of the ex-Borden employees who gave evidence. There were Mr Knox (Production Manager), Mr Korb (a polyester technologist), Mr Cattle (Operations Manager), Mr Wheeler (Stock Controller), and Mr Charlton (Engineering Manager). The following very experienced operatives (those who actually operated the plant and cooked or mixed the products) were also engaged: Messrs Roche, Osborne, Andrews, and Peck. Of particular importance in this case are Mr Scanlan (the 2^nd defendant), Dr Riley (the 3^rd defendant) and Dr Bryan Brown. Mr Scanlan was previously Borden’s operations director for its European Forest Business and responsible for 5 Borden factories. He became Deltech’s General Manager at Haverhill. Dr Riley has a very successful academic record and worked for International Paint, BP and Croda Resins before joining Blagden in 1997. There he was concerned with formaldehyde initially but his responsibilities widened in 1999 to cover the kinds of coating resin in suit. Dr Bryan Brown is a distinguished resin chemist with a particular specialisation in polyester resins. An independent witness, Mr Sharpe (who had worked as Works Manager at Blagden until February 2000 and who had an MSC in Chemistry), described Dr Brown as one of the leading experts in polyesters in the UK. Although Dr Brown is not a defendant, an allegation that he acted in breach of confidence is implicit in the claims made here. There were other ex-Borden employees (who did not give evidence) taken on too. In all there were about 15.

10. Not one of these people, whilst they worked at Blagden or Borden or its predecessors (when their employment went back that far) had any restrictive covenants in their contracts of employment precluding any activities post-employment. Nor did any such contract (save for an irrelevant temporary short-term contract given to Mr Korb after he had been made redundant) contain any express provision relating to confidentiality or trade secrets. Somewhat oddly in 1999 Borden asked some of the operatives, but none of the key chemists, to sign contracts containing a confidentiality clause, but they did not. The real point of these proposed contracts was nothing to do with confidentiality.

11. Moreover none of these people was ever told that any of the recipes being used at Blagden and then Borden were trade secrets or confidential. None of the documents said to embody confidential information were so marked. No attempts were made to limit access to them. No attempt at control was exercised over who had copies or what they did with them. No attempt was made at concealing the nature of any of the ingredients. Nor was any ingredient special or unusual. Nor was there any special or unusual “tweak” in any of the recipes or manufacturing instructions.

12. By way of contrast, there are instances in the industry of recipes and formulations being expressly treated as confidential and of express confidentiality clauses:

(a) Dr Whitehouse (of the Paint Research Association) who gave expert evidence for Cray spoke of being formulations being supplied to him to solve a problem and of the supply being under an express confidentiality clause. But there is no evidence that any of those formulations are like the common-or-garden formulations with which this case is concerned. One would think there was something special for the services of the PRA to be called upon.

(b) A Mr O’Conchuir (a senior man from the Borden phenolics business) gave evidence of some of the circumstances by which Borden “swapped” its UK alkyds/ polyester business for Cray’s French phenolic resin business. He said that Borden’s formulations and manufacturing instructions in their phenolics business were all marked “confidential,” (Day 2 p.39). So Borden itself drew a distinction in practice between formulations and recipes used in that business and those used at Haverhill for alkyds and polyesters.

(c) A Mr Stembridge was called by Cray with a view to proving an industry practice of treating recipes as confidential. He was employed for many years by RCL, a competitor of Blagden and Cray Valley, ending up as managing director. His hands on experience was not that recent, but he had been a resin formulator in his time. He spoke of some kinds of resins being “commodity” resins – those sold on a large scale and in competition with similar products made by others. The import of his witness statement before cross-examination was that within the industry as a whole all formulations and manufacturing instructions were treated as confidential. But his experience was only with RCL. And at RCL all the employees had express confidentiality clauses in their contracts. Moreover at RCL there were controls in place as to the security of the documents concerned. RCL employees would know that they were to be treated as confidential. Nothing of the sort applied at Blagden/Borden.

13. And even at RCL the position turned out to be different for some of their resins – resins which had Blagden/Borden equivalents. This is because RCL themselves had effectively published the formulations in what is known as the ERMA (European Resin Manufacturers Association) guide. Mr Stembridge was asked about these and accepted of some of them that RCL did not keep the recipe secret “sometimes you virtually give the whole thing away”, Day 3 p.133). I asked him about one of the RCL products (Day 3 p.134):

Mr Justice Jacob: So this AS621 which you put in [the ERMA guide]?

A. Very standard long oil alkyd which is used in the paint industry basically.

Mr Justice Jacob: So if somebody secretly broke into your factory and stole the recipe for AS621, right, they would not actually find anything out that they did not know from this document, is that right?

A. No, they would be wasting their time. All right.

14. The formulations sued upon here are similar to RCL’s AS621 – they too are standard alkyds used in the paint industry. And the basic information about them is in ERMA and/or in the product information sheets.

15. Not all the detail of each formulation appears in the ERMA Guide or product information sheet. In some cases details may be withheld for reasons of confidentiality but in others simply for space reasons or lack of significance (Sharpe Day 7 p.134). In relation to all the resins sued upon which were listed by Blagden/Borden in the ERMA guide there is no evidence that any ingredient was withheld from the ERMA guide because it was in any way special or “magic” or regarded as confidential. This is not surprising since there is no suggestion that any distinction is to be made between any of the resins sued upon, that any of them are other than “very standard.” In this connection I note that Cray called a Mr Arriss (now retired) who had been with Blagden from the early Cargill days and who had risen to be a director via being a technical manager in the resin department. He would surely have known of any policy to keep back some information (from ERMA or a product information sheet) because it was confidential. Yet he gave no evidence of this.

16. I turn to say something about the technology involved. The claim is in respect of 20 resins made by Deltech. 19 of these are surface coating resins and one a structural polyester. The surface coating resins are supplied to paint and varnish manufacturers as ingredients for their paints. They are not end products in themselves. They fall into three classes, the alkyds (both “long” and “short”), the polyurethane alkyds and the silicone alkyds. The basic recipes for making all of the resins concerned are old – going back many years. By at least the 1960’s resins of the general type in suit were widely available.

17. The alkyds are made by first reacting a vegetable oil (here soya or linseed) with an alcohol (the monoglyceride stage). The reaction is promoted by the use of a well-known catalyst (lithium hydroxide). There is then the addition of an acid which results in the well-known esterification reaction: acid + alcohol = ester + water. The more ester that is made (i.e. acid added) the bigger the resin molecules become with a resulting greater viscosity and stickiness. The stickier (more viscous) the resin the faster the paint made with it will dry. The esterification step is promoted by the use of a solvent. This is boiled off during the reaction and takes the water with it.

18. An alkyd is said to be “long” or “short” or “medium” depending on the amount of oil content (›55% long, 45-55% medium, ‹45% short). A polyurethane alkyd is made by adding toluene di-isocyanate (TDI). A silicone resin (which has improved heat and wear resistance) is made by adding a silicone additive.

19. The effect of all the additives used in the coating resins in this case is well-known and predictable. I am satisfied that it forms part of the common general knowledge of an alkyd chemist.

20. Customers’ requirements of course depend on their intended use of the resin. Resins have specifications published by their manufacturers and the products (given various numbers) are sold as being with the specification. The specification consists of ranges of viscosity, solid content and acid number. It is very important to understand that the specifications for the coating resins in this case are wide – there is a wide range of narrow tolerance. The resins here are not high-performance, high tolerance products. And in some cases it would seem even that compliance with a wide tolerance is not critical to a customer – in one instance Dr Riley tested a sample of a Cray product and found it to be outside Cray’s own specification.

21. Competition between manufacturers is essentially on price and delivery – rather than on the differences between their resins. That is why Mr Geary spoke of the market being mature and of the products being “commodity” resins. There is no premium to be had because by and large these products are interchangeable. That is not to say that they each have exactly the same specifications – they do not. But because the specifications are broad, for the product of one manufacturer there is a product of another which will do. One way this is borne out is to appreciate that after the take-over of Borden’s business, Cray did not make the Borden formulations. What they did was to persuade the customers, so far as they could, to take a corresponding Cray product. Actually some customers just went to other manufacturers. Indeed Cray never expected to get all the former Borden business – its original business plan expected to get no more than 50%. There was one customer, Rustins, for which Cray had no equivalent. But this was not because Borden had anything particularly special about their resin – it was just another resin diluted a little more in accordance with Rustin’s requirements.

22. That is not to say that customers do not test the resins themselves – they do – a point to which I will return. Very rarely a product, although within specification, does not perform to a customer’s satisfaction. There is an instance of that here: following transfer of the business to Cray, Cray made a resin for Rustins using the Borden formulation. The first batch was all right, but the second not. It was a bit too glossy with the result that Rustins had to use a bit more matting agent. No one knows why it was too glossy. Rustins thereafter went to Deltech – which is hardly surprising given the circumstances. Rustins had a further reason for going to Deltech rather than Cray: in earlier years Rustins had sometimes bought a Cray equivalent for a Borden product but had subsequently discovered (or thought they had discovered) that they had been overcharged. So they were not keen on Cray.

23. Not only are the specifications wide, but also the manufacturing process – aptly called by the operatives, and others, “cooking,” is not precise. For a given resin specification there are of course set initial ingredients and their amounts. You have to know what you are going to order from stores and what to put into the “kettle.” At Borden and subsequently Deltech these ingredients and their amounts are set out on standard batch forms. But the operators do not stick rigidly to these. What they have to do is to make a product within specification. To do that involves testing the product (viscosity and acid level) on the way – just as a winemaker (with a more sophisticated product than these resins) tests for sugar and alcohol on the run. For instance in the case of the polyurethane resins the last amount of the thickening agent TDI to bring the viscosity into specification is judged by the viscosity measurements, not any pre-ordained amount. Departure from the standard amounts is routine in manufacture. The system allows and expects that. For it is the duty of the operatives to record the departures on each batch sheet. This is primarily in order that the exact quantities of materials actually used are recorded for stock control purposes.

24. One of the reasons for the departures from the amounts set out on the batch record forms is of course that the starting oils themselves are somewhat variable – they are natural products. The operatives are well aware that the starting materials can vary. They exploit that sometimes by making deliberate departures from the recipe at the very outset. Sometimes the departure is in order to use up a small quantity of another oil – moreover if, in the rare event of a batch not ending up within specification, it is stored and mixed in, in small proportions, for a new batch. The operative knows that by adjustment in due course the reaction mixture can be brought into specification.

25. Sometimes the operatives departed from the written recipe in other ways too. I have in mind particularly the written requirement as to when to start testing the viscosity of the reaction mixture. In their view the requirement is at too early a stage. So they just wait until the acid level reaches what their experience teaches them is the right level to start testing – when the acid value is about 5. There are other examples of departure too. This again shows that the “recipe” is not particularly critical.

26. I make the above findings primarily on the evidence of Mr Vivian, Cray’s “Decorative Key Account Technical Manager,” but also upon the evidence of Dr Riley, the operatives, and the independent Messrs Sharpe and Stembridge. Although Mr Vivian’s level of academic achievement falls far short of Dr Riley’s (HNC as compared with first class degree and doctorate from Imperial College) he had years of hands on experience with alkyd resins. What he lacked, compared with Dr Riley, was an ability to use these to assist in formulations, including reverse engineering. For reasons I will refer to briefly below I did not get any assistance as to the significance or otherwise of formulation recipes from Dr Whitehouse, the expert witness called by Cray.

27. I must go to some detail as to the technical and commercial significance or otherwise of the ingredient and recipe information said to amount to confidential information. The Defendants’ closing submissions deal with the matters in more detail and it is not necessary to set everything out here.

(i) Process temperatures and times

Dr Whitehouse had suggested that it was “precise temperatures (or narrow temperature ranges) processing times and the phased addition of raw materials which adds value and determines success.” Dr Riley disputed that. He pointed out that the temperature range over which the mono reaction occurred should be above 250º otherwise the resin stays cloudy. The esterification stage is a simmering stage and happens at whatever temperature the simmering takes place. The TDI stage runs between about 90-120º - below that it is too slow, above that too fast. Mr Vivian (Day 2 pp.56-56, 58,62, 73-74) confirmed all that. Mr Stembridge accepted the basic steps for making an alkyd “are going to be the same wherever you make it” and that the variations will depend on the reactor, or the way you have always done it – he accepted the word “habit”.

(ii) Levels of phthalic acid and TDI

The acid used for the esterification stage is phthalic. Dr Whitehouse had suggested that Dr Riley, in showing that the amount could be worked out by simple calculation, had used hindsight – the words used were “somewhat selectively”. That was wrong. And Mr Vivian confirmed that a simple laboratory experiment would give you the rough figure for TDI. There is no exact figure – you put in a bit less than you need to bring the product into specification and add small amounts thereafter, testing on the way (Vivian Day 2 pp.81-2). Mr Vivian also confirmed that the method of analysis of TDI levels (the Kjeldhal method – which measures N content) effectively tells you how much TDI is in the product.

(iii) Phased addition of TDI

TDI is used in making the polyurethane alkyds. Some of the Blagden/Borden recipes indicate addition in two or more stages. This was suggested to amount to a trade secret or part of one. But addition in stages makes no difference to the ultimate chemistry or product. The point is simply that the reaction is exothermic. If you add all (or nearly all) at once, the mixture will get too hot. In any event not all is added at once, for the final amount is added only after testing for viscosity. As to proportions of the shots (essentially two, apart from the last adjustment addition) they do not matter greatly. Dr Riley explained why and Mr Vivian agreed (Day 2 82-3, 87 and Day 3 65-66).

(iv) Phased addition of pentaerythritol

Mr Vivian’s evidence (Day 2 62-3, 70-71) establishes that anyone experienced in alkyd manufacture would know that if all the penta (the alcohol) was put in at once for the monoglyceride stage, it may produce an unwanted cloudiness. They would also know the solution: charge only sufficient to form the monoglyceride. There is nothing in the phased addition point.

(v) Reverse engineering from sample

If one has a sample of a product, Dr Riley showed that it was a comparatively trivial exercise to match it sufficiently for a customer’s requirements. He did so for one example and the criticisms of the exercise came to naught. Of course it is to be expected that a customer would be willing to provide such a sample if it was interested in getting a quote (and customers like competition between suppliers). In any event Cray not only left documents on site but also a large number of samples of products.

(vi) Tests by customers

Cray suggested that even if a product was made to specification, a customer taking it for the first time would want to carry out other tests on it and that this would take time – three months was suggested. No direct evidence from a customer in support of this was adduced. However some customers did test the product before accepting it. However I am satisfied that the three month period is significantly exaggerated for the kinds of product I am concerned with. Where customers did test a Deltech product, the test was done in short order (for instance 2 weeks in the case of Deltech’s supply to Ronseal in 2000). A lot depends on how much the customer wants the product – if he wants it soon he tests it sooner. I am also satisfied that, as one would expect, a well-established customer of Blagden/Borden would much more readily accept a product from the old “team” and factory, than he would from a total newcomer. Finally no time could have been gained at all in any of the cases where a customer did test the Deltech product.

28. This is only one polyester product in the case. It was sold to a single customer, UPOL, a very large supplier of resins used, for instance, in patching car bodywork. Dr Brown had been making this type of resin for years both with Blagden and former employers. He had made product for UPOL for years. He was evidently a master at his craft. He gave convincing evidence of how he could re-formulate this resin from scratch – he used his chemical knowledge rather than actual weights. Cray had an equivalent resin – and so also did at least one other party. For although Deltech made sales of the resin to UPOL in the first few month, thereafter UPOL stopped buying their requirements from either side. According to Dr Darby (Cray’s witness on this point) there were in fact two other suppliers to UPOL. So a suitable “formula” for the product is hardly a special secret – those in the trade know how to make this basic product and have done so for years.

29. The evidence of Cray’s expert, Dr Whitehouse, was intended to establish that the formulations and instruction had the necessary quality of confidence. This was in part by attempting to prove an industry practice (which failed) and in part by attempting to prove that the information was special and was far from readily reproduceable. The evidence was also firmly intended to attack Dr Riley’s credibility. It failed in all this. In the end Dr Whitehouse’s evidence was of no value. His first report suggested that the information was not only not in the public domain, but would be almost impossible to reconstruct. He made many detailed criticisms of Dr Riley’s evidence. Dr Riley in response put in a third report which set out in even more detail his position and how he had gone about reformulation and so on. On the basis of that, Dr Whitehouse put in a further report which retreated to some extent. But he still maintained that Dr Riley could not have done what he did without using the allegedly confidential information. I suggested that it would be better if Dr Whitehouse gave his evidence at the end of all the factual evidence and this happened. By then Dr Whitehouse had retreated even further. He produced a short statement which still indicated, if he was right, that the information was confidential and significant and had been used.

30. Under cross-examination it emerged that he did not really have any direct experience of the formulation on a day to day basis of resins and working with resins of the type in issue in this case. Likewise he had nowhere near the experience of Dr Brown in the case of polyester resins.

31. Cross-examination on detailed points again revealed that Dr Whitehouse did not have sufficient expertise. For example, he was asked about a product shown in the ERMA guide. The guide did not mention the use of maleic acid. What Dr Whitehouse did not know is that maleic acid was the self evident choice for thickening the product. His cross-examination in relation to this point went, in part:

Q. So from your experience your correct comment in relation to the maleic anhydryde is that you do not know whether or not a man in his field would ordinarily select maleic for this purpose, it is not part of your knowledge?

A. It is not part of my experience My Lord.

Q. Or how a man experienced in this field would solve the problem if he did not include the maleic which he actually thought he should include?

A. No My Lord but I have indicated the options which occur to me.

Q. Which occur to you because you have been taught them during the proceedings?

A. I have not been taught them during these proceedings My Lord, I have become aware of them from reading in.

32. Likewise Dr Whitehouse did not know that 2-poise oil (his suggested alternative to maleic acid), which can also be used for thickening, is more expensive than maleic acid and is only used for a paint which is intended to be fast drying.

33. Again, Dr Whitehouse by way of criticism challenged Dr Riley’s use of a calculation. He misread what Dr Riley wrote, something he perhaps would not have done if he had approached the evidence in a less critical spirit. For Dr Whitehouse made it clear that his instructions were to review Dr Riley’s evidence critically. A revealing question and answer about this point went like this:

Q. Do you not think it would have been useful to have drawn attention in your report to the fact that Dr Riley appeared to have a totally independent means of confirming the number that he also saw in the ERMA guide?

A. With hindsight, and with the additional information which I now have, it was perhaps ill considered.

Q. That has been your approach, to be critical that you have avoided opportunities of being uncritical, either through ignorance because you simply do not know or from selection, as in this case?

A. My instruction was to be critical, My Lord, and that was what I did until such time as further information was made available. My supplemental reports have recognised that as things have been made more clear.

34. Further, Dr Whitehouse suggested that Dr Riley had been using some parts of confidential information when talking about the addition of TDI. He suggested that Dr Riley was wrong in indicating that the phased addition in a ratio of 2 to 1 did not matter. But in due course he accepted that these are the sorts of process considerations that people experienced in dealing with polyurethanes would know and understand to be able to deal with.

35. Similarly, Dr Whitehouse indicated that he did not have sufficient experience to say how flexible the numbers in the formulations actually were. Nor as to the degree of variation was acceptable to a customer:

Q. But you are not able to comment as to how great a change could or could not be accommodated by the customers in any particular case?

A. Not from personal experience, My Lord, but I would have thought that – it depends first of all on the weight of the raw material we are talking about. If it is a very large weight then the kind of adjustments which we see in addition 192 would not cause any difficulty. If we are looking at much smaller weights then I think additions would be significant.

Q. But you have no personal knowledge or experience upon which to draw to form an opinion as to how just how great a degree of flexibility there is in these sorts of resin formulations for the sort of customers to whom my clients applied these resins?

A. I have not worked for a resin [manufacturer]. My experience is limited by that.

36. Dr Whitehouse wrongly suggested that where the operatives had made a mistake and put in too much of an oil to start with, they would conceal that fact:

A. I would have imagine, My Lord, that if you overcharged [that is to say put too much in the reactor] at this rate the last thing you would want to do is to draw attention to the technical department that the problem existed…

Q. And of course they write it all down on the batch sheet.

A. I hope they do.

Q. So Mr Knox [their superior] knows when he has a look at it, he sees it has happened.

…..

A No they are not concealing it from the technical department …

37. Again on the question of temperatures as specified in the manufacturing processes, Dr Whitehouse had nothing useful to say though at the outset he had suggested they were critical.

Q. What I suggest is that from you, from your knowledge and experience, are unable to say that in the context of these sorts of resins and the context of the sort of manufacturing processes that we are concerned with, that variations in the time it takes to get up to the reflux temperature you cannot say that they will make a material difference to the end product. The best you can say is, well it may make a difference, you cannot say it would make a material difference, can you?

A. I cannot say from my experience what difference it would make. I have not worked in a resin manufacturing plant, but it does occur to me that it will make a difference.

38. What then is the upshot of all this? It is that the recipes in issue here, although not published to the world in full, are, to those skilled in the art of resin manufacture and design, very ordinary. I accept Dr Riley’s view that, even if Deltech had had no access to them it would have made very little difference to Deltech’s ability to make the resins complained of or their equivalents.

39. I turn back to what happened. Deltech’s primary aim was not to make these commodity resins. It was to develop and make speciality resins and to make, for an American company called AOC, polyester resins under contract. That indeed was the focus from the beginning. But Mr Scanlan saw no reason why Deltech should not make some standard resin products too. It was decided to target customers who would be friendly to Deltech. These included Rustins and Ronseal who were known to be unhappy with Cray.

40. Dr Riley had on his computer at home a mass of material about the Blagden/Borden resins. This had been loaded for perfectly lawful purposes back in 1999. The material included much actually published information (product information sheets, safety information and so on). It also included the recipes and formulations of the resins in issue here. When it was decided to make these commodity resins, Dr Riley saw no reason why he should not use the recipes and formulations. At the heart of this case is his decision to do so. But before I come to that I will recount the rest of the events.

41. It was not until about late September that manufacture at Haverhill really recommenced, with the products in suit being a minor proportion of that manufacture. Prior to then there was some site clear-up work (including demolition of a formaldehyde facility) and work on the AOC tolling arrangement. By September Cray were fairly sure that Deltech would be taking over the site (in fact it had done so). Cray made a further attempt to sterilise Haverhill by asking Borden to ensure that the appropriate environmental licences for resin manufacture had been cancelled – something which by then Borden were not in a position to do.

42. When manufacture of the resins complained of commenced it was for the most popular resins – principally for UPOL, Rustins and Ronseal. I have to say that when I learned of the quantities of contested products actually being made by Deltech I was astonished – by their near trivial value compared with the size and scale of this litigation. In the first three months the total relevant amount invoiced was about £140,000 (£83,000 UPOL, £14,500 Ronseal, £10,000 Rustins plus a few others). Mr Scanlan told me that the figures up until a “re-formulation exercise” (i.e. about May/June next year) brought the total up to about £350,000. These are sales prices. Although I do not know what the profitability was, it cannot have been much. These are, after all, commodity products commanding no price premium. Customers are free to go elsewhere for a better price, as indeed happened with the UPOL business. Mr Scanlan told me that the work was done almost at cost – more as a way of covering overheads than making a profit. I have to say that given these numbers and the minor value (taking the most positive view of Cray’s case – 3 months or springboard) of the alleged confidential information, I am at a loss as to know what this litigation has really been about.

43. Cray first complained of alleged misuse of confidential information in about April 2001. Mr Scanlan, following (I assume) legal advice, organised a search for all information left behind by Cray and had that delivered up to Deltech’s then solicitors. He also initiated what was called the “re-formulation” exercise. The idea was to re-create a product specification for each product using only the recollections of the experienced operatives and Dr Riley’s input based on theory. I heard from all those involved in this exercise. Miss Vitoria probed to check that the job was done fairly (e.g. without prompting from documents). It was. By and large the operatives could remember most of the formulations for the commoner resins, those they had been making on a weekly or even more frequent basis, for years. Dr Riley’s theoretical check remained only a background tool.

44. Miss Vitoria made two criticisms of the exercise. First that it was artificial and contrived. She accepted that an employee is allowed to use remembered information to some extent – as where he remembers the names of customers without either having taken a list or made a special pre-leaving memory effort. But this, she said, went further because it was a team effort. That is not a valid criticism in my view. If you sack a man who is under no or no valid restrictive covenant, you cannot stop him using remembered details of his former work which have become part of his ordinary skill and knowledge. It seems to me that the same applies to a sacked team.

45. Miss Vitoria’s second point is that the whole exercise was tainted because, when the employees were asked to remember in June 2001, they had until then been using the old Borden recipes at Deltech. If they had not made the products since the end of the tolling period (i.e. for nearly a year) they would have remembered much less. They of course agreed with that. But I am not convinced that is an answer. For the continued use of the “old” Borden formulae merely displaced the operation in time. If Deltech had started from scratch in September 2000 then the operatives would most likely have remembered as much about the products then as they did in June 2001.

46. One thing to my mind became clear as a result of the re-formulation exercise. It is that the injunction sought by Cray would be unworkable and oppressive. Miss Vitoria formulated the injunctions she sought. The key (I put aside those about disclosure) injunctions were to restrain the defendants from:

(i) using any of the formulations for the ex-Borden resin code nos. …, and

(ii) using any of the formulations for the Deltech resin Nos …. to make resins and/or formulations for resins.

47. Given that so much of the formulations are remembered, that in any event the formulations in practice have much flexibility, that product specifications are wide and largely (but not wholly) published in ERMA and product information leaflets, and that reverse engineering is to some extent bound to be affected by past knowledge, I do not see how those at Deltech could obey the injunctions unless they stopped making these commodity products. If you remember that you thicken a certain resin type with maleic acid (a fact not actually published in ERMA, though a self-evident thing to do) how do you obey the injunction except by not using that fact? For these reasons, even if there had been some minor breach of confidence giving Deltech a short head-start, I would have thought it quite wrong to grant an injunction. It would be a damages only case. This is the sort of problem considered by Megarry J in Coco v Clark [1969] RPC 41 at pp.48-9:

“Salmon, L.J. in the Seager case on page 933 also states: ‘The law does not allow the use of such information even as a spring-board for activities detrimental to the plaintiff’.

Quite apart from authority, I would recognise the principle enshrined in those words as being salutary. Nevertheless, I am not entirely clear how it is to be put into practical effect in every case. Suppose a case where there is a confidential communication of information which is partly public and partly private; suppose that the recipient of the information adds in confidence ideas of his own, improving the initial scheme; and suppose that the parties then part, with no agreement concluded between them. How is a conscientious recipient of the ideas to comply with the requirements that equity lays upon him? For in the words of Lord Denning at page 931 in the Seager case, he

“must take special care to use only the material which is in the public domain. He should go the public source and get it: or, at any rate, not be in a better position than if he had gone to the public source. He should not get a start over others by using the information which he received in confidence.”

Suppose that the only confidential information communicated is that some important component should be made of aluminium instead of steel and with significant variations in its design and dimensions. The recipient knows that this change will transform a failure into a success. He knows that, if he had persevered himself, he might have come upon the solution in a week or in a year. Yet he is under a duty not to use the confidential information as a spring-board or as giving him a start.

What puzzles me is how, as a law-abiding citizen, he is to perform that duty. He could, I suppose, commission someone else to make the discovery anew, carefully abstaining from saying anything to him about aluminium or the design and dimensions which will achieve success; but this seems to me to be artificial in the extreme. Yet until this step is taken and the discovery made anew, he cannot make use of his own added ideas for the further improvement of the design which he had already communicated in confidence to the original communicator, ideas which would perhaps make a success into a triumph. He cannot build his super-structure as long as he is forbidden to use the foundations. Nor is the original communicator in a much better case. He is free to use his own original idea, which converted failure into success; but he cannot take advantage of the original recipient’s further ideas, of which he knows, until such time as he or someone commissioned by him would, unaided by any confidence, have discovered them.

For those who are not law-abiding and conscientious citizens there is, I suppose, a simple answer: ignore the duty, use the information, and then pay damages. This may be the course which Lord Denning envisaged in the Seager case: for after stating that the recipient should not get a start over others by using the confidential information, he continued on page 932: “At any rate, he should not get a start without paying for it. It may not be a case for injunction or even for an account, but only for damages, depending on the worth of the confidential information to him in saving him time and trouble.” I also recognise that a conscientious and law-abiding citizen, having received confidential information in confidence, may accept that when negotiations break down the only honourable course is to withdraw altogether from the field in question until his informant or someone else has put the information into the public domain and he can no longer be said to have any start. Communication thus imposes on him a unique disability. He alone of all men must for an uncertain time abjure this field of endeavour, however great his interest. I find this scarcely more reasonable than the artificiality and uncertainty of postponing the use of the information until others would have discovered it.”

48. In this case, even if (contrary to my opinion) the information should be regarded as confidential I am quite satisfied that its worth is low, that the “time and trouble” saved was of the order of a few days or perhaps at most a couple of weeks in the case of one or two resins. Given Deltech’s slow entry into the market (only a few customers in the first three months) this was insignificant. Miss Vitoria suggested that if there was a breach of confidence Cray would be entitled to damages for all of Deltech’s production using the trade secrets concerned – as if they were a kind of patent. I very much doubt that. Such damages would be wholly disproportionate to the wrong. However I do not have to decide the point.

49. I turn now to the key questions, whether the information should be treated as confidential. Did the information have the “necessary quality of confidence” and was it “imparted in circumstances importing an obligation of confidence” (Megarry J’s first two tests in Coco)?

50. I begin by considering Dr Riley and his evidence. I say at the outset that he gave his evidence honestly. I think he was an honest man. Miss Vitoria did not really submit otherwise – the furthest she went was to submit that he was giving his evidence with hindsight. But I do not see what that is supposed to amount to. Normally such a submission is made when counsel wishes to say that, although a witness is not actually lying, his evidence should not be accepted. That does not apply here. Dr Riley’s evidence about the confidentiality or otherwise of these formulations seems to me in no way altered or diminished with time. When he used the information on his computer he did not regard it as special or confidential. He knew that Cray had left the information on site and had never showed any concern about it. He knew that the formulae were for what his previous employer had called “bog standard alkyds and polyurethanes.” He had never been told anything was or was supposed to be confidential. He knew that the recipes and formulations were in any event not precision instructions. He knew the products had wide specifications and that they were made by “steering” them into specification. He knew that the products concerned had equivalents sold by others. He knew he could readily reverse engineer from samples and that samples had been left on site. He had no duty of fidelity to, or any other direct relationship with, Cray. Lastly I accept his evidence that he had heard Mr Geary say on the telephone “anybody could buy the site and simply carry on”. Mr Geary says he could not have said this – but I think he was much less likely to remember such a conversation than Dr Riley – who was about to be made redundant and was on a special visit to Cray.

51. Given that she could make no direct attack on Dr Riley’s integrity, Miss Vitoria resorted to the reasonable man. She submitted that the confidence adhered to the documents when Dr Riley downloaded them for the first time in the course of his duties as an employee of Borden. What, she asked, was there to suggest that that information was not confidential? What was there to suggest to a person in Dr Riley's position at that time that that information should not be treated as confidential? What he would know is that some of the information he had downloaded was clearly not confidential, because it was in the public domain. But a lot of that information was not in the public domain in the sense of having been published. He may have realised that it would be possible to formulate something which might do the same job, with more or with less difficulty. But Dr Riley had downloaded at least 44 of the resins. A reasonable man as an employee of Borden would have realised that information was confidential. It remained confidential when Borden sold the business to Cray. The reasonable man would have appreciated that Cray had paid for the information. And so he would have not used the information as Dr Riley did – he would have not saved himself the time and trouble that he did.

52. Miss Vitoria further submits that there is a low threshold to be crossed before information passes from the unprotectable public property and public knowledge to the protectable trade secret, that inaccessibility by the public is a particular touchstone. With that in general I agree and the authorities bear her out. But even so I do not think the information here is properly to be regarded as confidential for reasons to which I will come.

53. Before going to the main point I am by no means satisfied that, even if the information just passes the threshold, Cray have any right to restrain its use. Borden had, so far as Dr Riley was concerned, abandoned the resin business. He knew that there was some arrangement with Cray. He had no real idea at to what that was. I do not see why he should have assumed that Cray had “bought” the information as opposed to simply buying the business with a view to closing it down. Normally a breach of confidence involves an activity which is detrimental to the imparter of the information. But it is not suggested that Deltech’s activities harm Borden at all. Putting it another way I do not see what, from Dr Riley’s perspective, could touch his conscience vis-à-vis Cray.

54. Putting that reservation on one side, however, normally if one finds an employee or ex-employee using unpublished formulae to the detriment of his former employer it is an open and shut case. Cross J, for instance, specifically instanced to a specifically remembered chemical formula as subject of protection ( Printers & Finishers v Holloway [1965] RPC 239 at p.255). Indeed before I heard the evidence I thought this was going to be such a case. And the well-established rule of thumb used to test whether information is to be regarded as confidential - “given for one purpose, not to be used for another” - seemed well in point. But the more I heard the evidence the more I became satisfied that the information here, in the hands of the ex-Borden team, could not be regarded as confidential. So much was published, so much was second nature to the team, so much of the recipes were not critical and were so easy to reverse engineer, that a man of conscience would not say “here is a specific trade secret which I may not use.”

55. His belief would have been reinforced by all the surrounding circumstances which I have recounted. Of particular importance is the fact that no one ever suggested there was anything confidential about these formulae for commodity products. It is not of course essential for success in every claim for breach of confidence that the defendant should have been expressly told that the information is confidential. There are some cases too self-evident for words. But this is not that sort of case – too much is in the public domain or within the general knowledge of the skilled ex-Borden man. The authorities bear out the fact that in marginal cases it is critical to liability for “mis-use” that the recipient of information be told it is secret. The point is that unless information is obviously confidential (e.g. because it is obviously likely to be of significant value to a competitor) the law does not step in where the “owner” of the alleged trade secret himself does not bother to protect it.

56. Mr Gurry in his book Breach of Confidence (1984) puts it thus:

“Secondly, the courts have been specially concerned in this area to ensure that the employer’s own attitude to information which he alleges is confidential was such that it can ‘properly be said that the conscience of the employee has been affected so as to place him under a restriction that he has not contractually accepted’ (United Sterling Corporation Ltd v Felton and Mannion [1974] RPC 162, 172 per Brightman J). Thus, if the employer has allowed all his employees access to allegedly confidential information without discrimination according to position or status (Bjorlow (Great Britain) Ltd v Minter (1954) 71 RPC 321, 322 per Vaisey J; United Indigo Chemical Co Ltd v Robinson (1932) 49 RPC 178, 186-7 per Bennett J)., or has permitted visitors to inspect his plant without any restrictions on their capacity to examine allegedly confidential material, and has further failed to warn employees that information was secret (Aveley/Cybervox Ltd v Boman [1975] FSR 139, 144 per Plowman V-C; Bjorlow (Great Britain) Ltd v Minter [1954] 71 RPC 321, 322 per Vaisey J; Searle & Co Ltd v Celltech Ltd [1982] FSR 92, 99-101 per Cumming-Bruce LJ; United Indigo Chemical Co Ltd v Robinson (1932) 49 RPC 178, 186 per Bennett J; Worsley & Co Ltd v Cooper [1939] 1 All ER 290, 307 per Morton J; Yates Circuit Foil Co v Electrofoils Ltd [1976] FSR 345, 379 per Whitford J), it cannot be said that the information is ‘distinguished’ by any particular badge of confidence’ (United Sterling Corporation Ltd v Felton and Mannion [1974] RPC 162, 172 per Brightman J). The information will therefore be regarded as part of the employee’s ordinary stock of acquired skill and experience which he is free to use for his own purposes after the termination of his employment.”

57. I have incorporated Mr Gurry’s footnotes in the above. The cited cases bear him out. But one footnote is worthy of separate quotation:

“Conversely, the existence of elaborate security precautions for the protection of confidential information will be persuasive in determining that the information was part of the employer’s special trade secrets which he is entitled to protect: Standex International Ltd v C B Blades [1976] FSR 114, 117-8 per Buckley LJ; New Zealand Needle Manufacturers Ltd v Taylor [1975] 2 NZLR 33, 36 per McMullin J)”.

58. As I have indicated above, there are cases in the industry where formulations are subject of express seals of confidence – the contrast with those and the formulations in issue is marked.

59. In the US the position is essentially the same. In 1939 the American Law Institute’s Restatement of the Laws of Torts dealt with the topic of trade secrets. One of the factors identified to be considered in deciding whether information is a protectable trade secret is:

“(3) the extent of the measures taken by him to guard the secrecy of the information”

60. The work of ALI led to a codification in the Uniform Trade Secrets Act 1979. The majority of States has adopted this. Section 1(4) of this defines trade secret:

“information, including a formula, pattern, compilation, program device, method, technique or process that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable in the circumstances to maintain its secrecy.”

61. In this case no efforts were made by Blagden or Borden to maintain secrecy. As far as Cray is concerned, the efforts can be described as, at best, desultory. And on the evidence the economic value of the information in the hands of Deltech was at best slight. I do not think that what Dr Riley did in all the circumstances can fairly be described as taking trade secrets or misusing confidential information. With that the claim against him and Deltech fails. The same goes for the claim in respect of the polyester – Dr Brown made it clear that its formulation was essentially routine for a man skilled in the art. There is no reason why anyone at Deltech should have regarded such a mundane product as confidential – something they owed a duty to Cray, a stranger, not to make.

62. I should elaborate a little on Cray’s desultory efforts regarding protection of the information. A Mr Baker of Cray had the intention of clearing the Haverhill site of all formulations. But he never carried this through – and no one at Cray checked with him to ensure that this had been done. The formulations were left at Haverhill even though anything of value, down to paper cups, was taken. The “efforts” relied upon are those of Borden. When the sale of the business occurred, Mr Scanlan was in charge of Haverhill (and four other Borden factories). A Borden lawyer, Mr Jones, had asked Mr Scanlan to clear the documents. There is no doubt that he agreed to see that was done and did not in the end do so. That was in no way deliberate – he had many responsibilities at the time (indeed Haverhill was only a minor aspect of his work). No one at Borden checked with Mr Scanlan to see that it had been done. The fact is that no one at the time behaved as though the documents had any real significance.

63. In the event Mr Scanlan did not even know that the documents were on site at Haverhill until he was told so in about October. And he did not know that Dr Riley had taken the formulations from his computer until shortly after the letter before action in the following April. Miss Vitoria invited me to disbelieve Mr Scanlan. I see no reason so to do. If I thought the formulations were technically and commercially important, then I might well have disbelieved him. But once one gets the true perspective – that they are not of great value – then his (and everyone else’s) actions are understandable. The details of how these basic commodities were made were not within Mr Scanlan’s personal knowledge or responsibility. So there is no reason why he should have known exactly how the products were being made.

64. Accordingly I acquit Mr Scanlan of any personal liability for breach of confidence. Nor can I see any joint and several liability with Deltech as is suggested by Miss Vitoria. For any such liability it would have to be shown that Mr Scanlan had personally directed or authorized a breach of confidence. He did not do so. Accordingly the action for breach of confidence fails against all three defendants.

65. I turn to the question of copyright in the formulation and manufacturing instructions (including batch production record sheets, QC product specification sheets and product specifications sheets). It is common ground that if Cray owns the copyright in these, there was unlicensed copying until the re-formulation exercise. Also, in the case of the polyester product, thereafter (Dr Brown having borrowed from his earlier instructions). It has all stopped now – indeed save for the polyester, it stopped soon after the letter before action when Mr Scanlan gave all the materials to Deltech’s solicitors and Dr Riley in part destroyed some floppies and in part handed them over.

66. So the real question is whether Cray own these copyrights. It is clear that the original contract between them and Borden did not assign copyright. That had to be done by a later assignment. Although this took place after the action is started, no point is now taken that it was ineffective for the purposes of this action. Thus the question becomes whether Borden acquired copyright from Blagden. And that in turn depends on whether Blagden had or acquired copyright. Mr Platts-Mills submitted that the documents were essentially in their final form by 1989 when Blagden set about organizing their documentation via the efforts of a Dr Binns. He accepted, by comparison with an early (1970’s or 1960’s) Cargill document that enough work had been done to create a new copyright at some time. But did Blagden get that copyright assigned to it? He submitted that the work was probably done some time in the 1970’s. It would have belonged to the relevant company at the time, Cargill Blagden. There were two inter-company transactions between associated company thereafter and it is not shown that copyright was transferred by them.

67. Now the inter-company transfer documents have been lost in the mists of time. The best evidence of what they said is contained in Company House records. These say that the “assets and liabilities” were transferred. It is evident that on each transfer the transferee company continued the business formerly carried on by the transferor. Is that good enough to say that the copyright was transferred? I think it is and turn to explain why.

68. By s. 90(3) of the Copyright Patents and Designs Act 1988 and its predecessor, s.36(3) of the Copyright Act 1956 an assignment of legal title to copyright is not effective unless it is in writing. That does not mean that a written document of transfer must refer to copyright explicitly to be effective: words which would include copyright, such as “assets” may do. The Modern Law of Copyright (3 ^rd Edn., 2000, Laddie, Prescott, Vitoria, Speck and Lane) put it this way in paragraph 23.2:

“An assignment of the right (whether total or partial) must be in writing and signed by or behalf of the assignor. There does not seem to be any requirement that the assignment should specifically mention the right. Thus the transfer of ‘all the assets’ of one business to another, if in writing and signed by the assignor, may be effective to transfer the copyrights and other rights used in that business to the transferee.”

69. They go on to give examples. Of course a word such as “assets” will take its meaning in any written agreement not from its acontextual or mere dictionary meaning but from its context. In the present case where the evident commercial intention behind the lost agreements was to transfer everything to the assignee I see no reason to suppose if the assignment used the words “assets” there would or could have been any intention to hold anything, and specifically copyright, back. The best evidence I have as to what the documents said is that they did assign “assets.” That is what someone, almost certainly with knowledge of the documents, said they said when making returns to Companies House. So the balance of probabilities is that the underlying documents referred to “assets” meaning thereby all assets owned by the transferor. These would have included copyrights.

70. It follows that there was copyright infringement. I do not know what the consequence of this should be. In particular I am not satisfied that Cray should be entitled to pursue financial remedies. If it does, I wish to hear further argument on the point. I will hear counsel as to the appropriate order I should make.