Vestergaard Frandsen A/S & Ors v Bestnet Europe Ltd & Ors

In these proceedings I gave a judgment finding that the Defendants had misused the Claimants' confidential information as long ago as 3 April 2009 ([2009] EWHC 657 (Ch)). Subsequently, I held in a judgment dated 2 June 2009 ([2009] EWHC 1456 (Ch)) that the Claimants (“VF”) were entitled to an injunction to restrain further use or disclosure of VF’s trade secrets. For the reasons given in that judgment, I held that the injunction should bite upon the NetProtect product launched by the Defendants in October 2005. I also held, however, that the injunction should not bite upon the product that was subsequently submitted for WHOPES II evaluation by the Defendants. In a supplemental judgment given on 2 July 2009 ([2009] EWHC 1623 (Ch)), I reached the same conclusion in relation to the product submitted by the Defendants for WHOPES I approval in March 2006.

My conclusions with regard to the scope of the injunction were upheld by the Court of Appeal in a judgment given on 20 April 2011 ([2011] EWCA Civ 424).

By the order which I made on 2 July 2009, I not only granted an injunction in accordance with the rulings which I have described, but in addition ordered that there be taken an inquiry as to damages (or equitable compensation), alternatively (at VF's option) an accounts of profits attributable to the Defendants' acts of breach of confidence.

Subsequently, VF have elected for an inquiry as to damages (or equitable compensation). On the inquiry as to damages, VF have served Points of Claim which were amended on 11 July 2012. In the Amended Points of Claim VF set out their case that they are entitled to recover compensation consisting of loss of profit resulting from the Defendants' manufacture and sale of five categories of product. The five categories of product in question are as follows: first, products made to the formulation of the NetProtect product launched by the Defendants in October 2005; secondly, products made to the formulation of the NetProtect product in respect of which the Defendants obtained WHOPES I recommendation in December 2007; thirdly, products made to the formulation of the NetProtect product in respect of which the defendants obtained WHOPES II recommendation in December 2007; fourthly, products sold under or by reference to or in reliance upon the WHOPES I and WHOPES II evaluations obtained by the defendants; and fifthly, products manufactured in accordance with any formulation derived in whole or in part from the misuse by the Defendants of VF's trade secrets as held at trial.

VF go on to plead that their primary case is that they have lost sales, and hence profits, as a result of the manufacture and sale of those five categories of products. In the alternative, they seek a notional royalty where they would not have lost any profits. In the further alternative they plead a case under Article 13(b) of the EC Intellectual Property Enforcement Directive.

On the present application the Defendants seek to strike out part of VF's Amended Points of Claim. In essence, the application is to strike out the claim in respect of the second, third, fourth and fifth categories of products. The basis for the application is simply stated. In the remedies judgment which I gave on 26 June 2009, as I have already related, I refused to grant an injunction in respect of the product submitted for WHOPES II evaluation. In that judgment I held that, as I put it in paragraph [108] of that judgment:

Counsel for the Defendants submits that, since the court has explicitly held that the manufacture and sale of the WHOPES I and WHOPES II products does not constitute misuse of VF's trade secrets, it follows that VF cannot claim damages (or equitable compensation) in respect of such acts. Furthermore, he submits that, a fortiori, no damages can be claimed in respect of the manufacture and sale of more remote products such as the fourth and fifth categories which are the subject of VF's pleaded claim.

Counsel for the Defendants says that he accepts it does not necessarily follow that VF is not entitled to any damages (or equitable compensation) in respect of the WHOPES I and WHOPES II products. His submission is that it would be open to VF to formulate a case to the effect that, in developing those products, the Defendants obtained a head start as a result of the misuse of VF's trade secrets. He acknowledges that a properly formulated case might perhaps lead to some quantum of damages (or equitable compensation) being awarded, albeit that the Defendants would say that any such amount would be small. His point is that no such case is presently pleaded. To the contrary, the basis upon which VF's Amended Points of Claim presently proceeds is to make essentially no distinction between the products made according to the original NetProtect formulation in October 2005 and the later products.

Accordingly, in those circumstances, he submits that VF's claim in respect of the second, third, fourth and fifth categories of products is simply unsustainable and should be struck out, leaving it to VF to reformulate its case along the lines indicated if it so wishes.

Before proceeding further, I am bound to say that I find it remarkable that in their skeleton arguments for today's hearing neither counsel cited any authority whatsoever, and the only authority that has been drawn to my attention in the course of argument by counsel for the Defendants is the decision of the Court of Appeal in Dowson & Mason Ltd v Potter [1986] 1 WLR 1419. The reason why I find that remarkable is that I have surveyed the law as to damages (or equitable compensation) for breach of confidence at some length in my recent judgment in Force India Formula One Team Ltd v 1 Malaysia Racing Team Snd Bhd [2012] EWHC 616 (Ch). One might have thought that that would be the start of the discussion. Be that as it may, and despite the length and detail of the discussion in that judgment, I do not regard the question of law raised by the present application as an easy one or one that can be regarded as having been decided in that case.

The essential question, as I see it, that the present application poses is this: if a product is manufactured and sold in circumstances where the manufacture and sale of the product in and of itself is not a misuse of the claimant's confidential information, but the formulation of the product has been derived from such a misuse, upon what basis can the claimant claim damages (or equitable compensation)?

As I have already observed, in VF's Amended Points of Claim no distinction is drawn between the five different categories of products. I am bound to say that I regard that as surprising. It seems to me that, on the face of the main judgment and the remedies judgment, there is a plain distinction to be drawn between the position in respect of the original NetProtect product launched by the Defendants in October 2005, the manufacture and sale of which was held to amount to a misuse of confidential information, on the one hand and the later products on the other hand.

Nevertheless, it seems to me that it cannot possibly be said at this stage that VF's claim to lost profits, alternatively a notional royalty, in respect of the later products is unsustainable. The law with respect to products, the formulation of which has been derived from a misuse of confidential information, seems to me to be unclear and in a state of development. In those circumstances, it seems to me clear that it would not be proper to strike out VF's Points of Claim at this stage. Rather, the matter should proceed to an inquiry so that the remaining necessary facts can be found and the law properly considered.

For those reasons, I decline to strike out the relevant paragraphs of VF's Amended Points of Claim.

I do not think it would be right to part from this application, however, without making one further observation, which is this. I have already commented on the fact that VF's Amended Points of Claim do not distinguish between the five categories of product. In addition, the Amended Points of Claim, as it seems to me, are expressed at a very high level of generality. Furthermore, as the evidence served on the present application makes clear, they do not in fact contain all the factual matters upon which VF are proposing to rely. In those circumstances, it seems to me there is room, to put it no higher, for the Defendants to serve a request for further information seeking greater particularisation of VF's claim. But that is not an application which is presently before me.