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||Neutral Citation Number:  EWPCC 30
||Case No: CC11P02043
IN THE PATENTS COUNTY COURT
7 Rolls Buildings
London EC4A 1NL
||12 June 2013
B e f o r e :
Miss Recorder Amanda Michaels
||(1) FRANCIS ORR-ADAMS
(2) ELIZABETH ORR-ADAMS
(together t/a APPLIED CONCRETE SYSTEMS, a partnership)
(3) APPLIED CONCRETE SYSTEMS LIMITED
||- and –
||(1) GEORGE BAILEY (t/a G BAILEY SERVICES)
(2) G BAILEY SERVICES LIMITED
Mr Henry Ward (instructed by Birkett Long LLP) for the Claimants
Ms Denise McFarland (instructed by Palmers) for the Defendants
Hearing dates: 23 and 24 April 2013
HTML VERSION OF JUDGMENT
Crown Copyright ©
Miss Recorder Amanda Michaels:
- The central issues to be decided in this action are whether, following the breakdown of a long-standing contractual relationship between the parties, the Defendants breached the contract or the confidence (if any) in certain formulations for particular cement products by continuing to make use of the formulations without payment to the Claimants. In addition, there is a claim for infringement of the copyright in a number of related documents.
- The First Claimant is Mr Francis Orr-Adams who, as described below, was the original contracting party to an oral agreement with Mr George Bailey, the First Defendant. Mr Orr-Adams subsequently fulfilled his obligations under the agreement in partnership with his wife Elizabeth, who is the Second Claimant, and later still they incorporated the Third Claimant company which from July 2010 carried on the same business. Rather in the same way, Mr Bailey originally traded as G Bailey Services and in February 2010 he incorporated the Second Defendant company. Apart from a small issue as to costs, no issue arises as to the identity of the parties, as the contractual relationship continued after the partnership took over and after incorporation of each company. In this judgment I have not sought (save where strictly necessary) to distinguish between the various Claimants on the one hand, or the two Defendants on the other.
The issues and a summary of my findings
- On the first morning of the trial I asked counsel to identify the live issues in the case. Those issues and a summary of my findings on each of them are as follows:
a. Do or did the cement formulations in issue ("the Disputed Formulations") have the necessary quality of confidence? This has two elements:
i. Is the content of the Disputed Formulations inherently the sort of information to which confidence may attach?
The experts agreed that specialist building product formulations such as these are generally of a confidential nature and formulators treat them as confidential information. Mr Bailey too emphasised the need to keep this sort of information confidential, to avoid unfair competition. In my judgment, it is right to conclude that the Disputed Formulations were indeed the sort of information to which confidence might attach.
ii. Are or were the Disputed Formulations ;
(a) so well-known that no confidence ever attached to them, because they were in the public domain before Mr Orr-Adams made them,
(b) incapable of now being considered confidential in nature because they have subsequently been put into the public domain?
In my judgment, the Defendants did not show that any formulations which were identical to the Disputed Formulations were in the public domain at any relevant date. There may well have been similar or even very similar formulations in the public domain, but for the reasons explained below, that seems to me to be insufficient to prevent confidence subsisting in the Disputed Formulations. They were capable of protection as confidential information, and I find that they were initially so protected.
Equally, in my view, that initial confidential status was not lost as a result of any use or disclosure of the Disputed Formulations relied upon by the Defendants during the currency of the contract between the parties (e.g. disclosure to the blender of the products).
An additional element of this point is that the Defendants relied on the fact that some pages setting out the Disputed Formulations found in the Confidential Schedule to the Particulars of Claim had (plainly by mistake) also been included in Annex A to the Particulars of Claim, which was an open document. For the reasons which I give below, it does not seem to me that the inclusion of parts of the Disputed Formulations in the Annex to the Particulars of Claim put them into the public domain.
b. Was the information relied on disclosed in circumstances which imposed obligations of confidence?
As I explain further below, it seems to me very clear that the commercial relationship between the parties from 1996 to 2010 was such that each of them was under an obligation to maintain the confidentiality of the information contained in the Disputed Formulations.
c. Has there been unauthorised disclosure and/or misuse of the confidential information by the Defendants? In particular, after the determination of the contract between the parties, were the Disputed Formulations used by the Defendants or did they only use formulations independently made by a third party?
The Claimants had difficulty in providing direct evidence of such use, but the Defendants also had difficulties with their evidence, especially due to significant lacunae in Mr Bailey's evidence and the confused recollections of the new formulator, Mr Parker. For the reasons set out in more detail below, I have concluded that the Defendants must have made at least some use of the Disputed Formulations after August 2010, and that the new formulations made by the Defendants were not wholly independently produced.
d. Who was the author of the Copyright Works - Mr Orr Adams alone or was he a joint author with Mr Bailey and/or Mrs Bailey?
I do not accept that any input made by Mr Bailey (and none was proved) was at a level to make him a joint author of the Copyright Works.
e. Was the relationship between the parties such as to imply an assignment of the copyright to the Defendants? I do not find that the relationship between the parties was such that an assignment was to be implied, but I do consider that the Defendants had a licence (subject to making the appropriate payment) to use the Works in connection with the Disputed Formulations.
f. Have the Defendants breached the terms of the contract with the Claimants, in particular relating to payment for use of the Disputed Formulations?
In my judgment, the contract has been breached, either as breach of an express term as to payment, or an implied term as to payment for post-termination use of the Disputed Formulations and Copyright Works.
- Prior to 1996, Mr Orr-Adams was working as a technical manager for Adomast Building Chemicals Ltd ("Adomast"). By that date he had many years of experience in the cement industry and had the technical knowledge necessary to develop cement formulations for particular applications. He had become acquainted with Mr Bailey, who was a distributor of Adomast products (including a fast setting concrete known as "BOF") and was supplying cement products to end users. His main customer was London Underground ("LUL") (and its contractors), for particular sorts of cement products for the repair and maintenance of the Underground system.
- Mr Orr-Adams and Mr Bailey reached an oral agreement in about July 1996 for Mr Orr-Adams to leave Adomast and develop cement formulations for Mr Bailey. The essential terms of the express oral agreement were said by the Claimants to be:
a. in consideration of the development and provision of the cement formulations, and ancillary paperwork, Mr Orr Adams would be paid 40% of the profit made by Mr Bailey on sales of those formulations, after Mr Bailey received payment in full from his clients; and
b. Mr Orr Adams agreed not to supply the same formulations to a third party in the same industry (in other words Mr Bailey was to have exclusive use of the formulations in the rail industry).
No additional express or implied terms were pleaded, although in his witness statement Mr Orr-Adams gave evidence that further terms were discussed by the parties at the outset, such as his additional services to Mr Bailey and the intention that each party would bear his own overheads.
- There were a number of differences between the parties on the pleadings as to the terms of that oral agreement, or indeed whether there had been an agreement at all or just 'custom and practice' between the parties, but as matters developed in the witness statements and in court, those differences all but disappeared; the Defendants broadly accepted the Claimants' case as to what had been agreed in 1996, and there was a consensus as to how they had operated their agreement from then until August 2010. In the circumstances, it was accepted that from about early 1997 onwards Mr Orr-Adams developed a number of formulations for cement products suitable for Mr Bailey to offer to his customers, and those formulations were indeed supplied to Mr Bailey's customers for many years. The three Disputed Formulations were, according to Mr Orr-Adams, the last in a series of products devised by him and sold by Mr Bailey pursuant to the contract over the 13 years during which it operated. It was also common ground that Mr Orr-Adams had carried out a number of additional tasks for Mr Bailey in the nature of 'manufacturing support': writing technical documents relating to the use of the cement products, attending meetings with end-users or their contractors, quality control testing etc. Mr Orr Adams also carried out some work for third parties in other industrial sectors during the term of the contract with the Defendants.
- Significantly, it was also common ground that the parties had agreed that Mr Orr-Adams would be paid ongoing fees for the work which he was going to do and did for Mr Bailey. Those fees were to be calculated as a 40% share of the gross profits made by Mr Bailey's sales of the products made to Mr Orr-Adams' formulations. Substantial sums were paid on that basis between 1996 and 2010. During the course of the trial, the parties accepted that it was not necessary for me to consider whether the arrangement was properly to be described as a royalty or some other type of payment.
- The Claimants developed a number of different formulations over the years but in these proceedings wished to protect three particular cement formulations which they claimed were confidential. Copies of the Disputed Formulations were annexed in a Confidential Schedule 1 to the Particulars of Claim. The three formulations are known as (a) GBS XTRA BOF (b) ULTRA GROUT and (c) ULTRA FLOWFILL. The Confidential Schedule contained not only pages strictly setting out the Disputed Formulations but also, as the Defendants' counsel rightly pointed out in her skeleton argument, a number of other documents which could not conceivably be described as confidential information and some of which the Claimants accepted had been provided on an open basis to customers. The claim to confidence was therefore restricted to the information in just a few pages of the Confidential Schedule. In addition, a number of explanatory documents, quality manuals, etc ("the Copyright Works") were produced in connection with the use of the Disputed Formulations and those works were annexed at Annex A to the Particulars of Claim.
- The Claimants did not claim that there was an express contractual obligation of confidence, but claimed that the Defendants were at all material times aware or ought reasonably to have known that the Disputed Formulations were confidential in particular because
a. the formulations provided to the Defendants were marked confidential;
b. when dealing with third parties such as manufacturers the Defendants at all times sought to put into place confidentiality agreements; and
c. the confidentiality of formulations was well known in the industry.
Furthermore, it was claimed that the Defendants were bound by an obligation of confidence arising by reason of the nature of the business relationship between the parties and again reflecting the common knowledge in the industry as to the confidentiality of such information. Each of those factual claims was denied by the Defendants and a positive case was raised that the Disputed Formulations were in the public domain.
- The contract ran on to August 2010. The reasons for its termination at that point (which are hotly disputed) are not, it seems to me, relevant to any of the issues which I have to decide. The Claimants' case was that Mr Bailey indicated that although he did not intend doing any further business with the Claimants, he did intend to continue making use of the Disputed Formulations. On 20 August 2010, the Claimant's solicitors wrote to Mr Bailey, seeking assurances that the Defendants would not use the Disputed Formulations or the Copyright Works. His response of 23 August denied that the Claimants owned the formulations, denied that they were held in confidence and refused to give any of the assurances sought. A similar exchange of letters followed in early September 2010. The Defendants' solicitors then wrote on 15 October 2010, confirming that the Defendants would no longer challenge the assertion of copyright, that they would destroy any product formulations and had no interest in continuing to make further use of the Disputed Formulations. The Claimants allege that the Defendants nevertheless continued to use the Disputed Formulations, and that cement products supplied by the Defendants after termination of the agreement were supplied in breach of confidence, as well as in breach of contract, because no payment was made to the Claimants in respect of the profits generated by such sales made after August 2010. In addition, it is alleged that the Defendants infringed the Claimants' copyright in the Copyright Works by continuing to supply copies of them to their customers after August 2010. A pleaded passing off claim was, however, not pursued.
- The Defendants' case was that after Mr Orr-Adams left Adomast he was commissioned by Mr Bailey to develop the cement formulations to be supplied by Mr Bailey (and then by the Defendant company) to his customers, and (although this was not expressly pleaded) the implication was that any rights in the Disputed Formulations belonged to the Defendants. The commission or 'commission-like' arrangements were said to be a fundamental part of the agreement between the parties, and the Defendants claimed that this was reflected by the 'GBS' names given to the products, and they did not owe the Claimants any obligation to keep the Disputed Formulations confidential. However, Mr Bailey said in his 4th witness statement that he expected Mr Orr-Adams to keep the Disputed Formulations confidential, and it would have made no business sense for him (Mr Bailey) to make them public, as his business would suffer. Despite Mr Bailey's evidence that he would have wished to keep the Disputed Formulations confidential, in the Defence the Defendants claimed that any confidence in them had been lost, by Mr Orr-Adams having sent the Disputed Formulations to third parties such as the Defendants' blender, CJ Enterprises, without any express attempt to maintain confidentiality in them. Furthermore, the Defendants submitted that the Disputed Formulations were 'to a great extent' drawn on formulations and information already in the public domain, and so had not ever had the necessary quality of confidence.
- A suggestion in the Defendants' pleadings that the Copyright Works lacked sufficient originality for copyright to subsist in them was sensibly not pursued at the trial, but the Defendants did pursue a claim that Mr and/or Mrs Bailey had been the joint author(s) of the Copyright Works with Mr Orr-Adams. The Defendants also claimed that the Copyright Works were commissioned and that it was obvious that any copyright in those works would vest (at least in equity) in the Defendants.
- The Defendants' pleaded response to the allegation that they had continued to make use of the Disputed Formulations and the Works after termination of the agreement with the Claimants in August 2010 was less than clear. The paragraphs of the Particulars of Claim alleging such use were not admitted rather than denied. On the one hand, the Defendants claimed in paragraph 42 of the Defence that they had a right to make use of any material commissioned by them, and said that they had done so and intended to do so at least until the issue of the proceedings in November 2010. On the other, in paragraph 44 of the Defence, the Defendants claimed "as a matter of commercial prudence" to have ensured that they had "now" obtained all new formulations from an independent source. This was what the Claimants referred to as the "clean room" defence and a good deal of the time at the trial was spent in examining the Defendants' claim to have produced independent replacement formulations.
- Mr Bailey complained in his various witness statements about Mr Orr-Adams' intention to be "a deadly serious competitor" and suggested that Mr Orr-Adams had disparaged him and his business reputation in letters written to Kerneos and to the Defendants' customers. Ms McFarland in her skeleton argument queried whether Mr Orr-Adams was seeking equitable relief with "clean hands." That point was not, however, based upon Mr Bailey's complaints about unfair competition, but upon the Defendants' allegation that at least one of the Disputed Formulations was based upon or identical to a formulation belonging to Adomast, Mr Orr-Adams' previous employer. Whilst the allegation that Mr Orr-Adams did not keep the formulations of others confidential was pleaded in paragraph 32 of the Defence, no allegation that he sought equity without clean hands was pleaded, whether for that or any other reason. I do not consider that the Defendants can take that point further. Moreover, I have no reason to think that these proceedings were brought other than out of the Claimants' genuine belief that the Defendants used the Disputed Formulations and the Copyright Works after August 2010, and thereby breached their confidence and the contract and infringed copyright.
- The directions given in this matter did not include an order that the statements of case should stand as evidence in chief. Instead, witness statements of fact were filed on each side, plus witness statements in reply by Mr Orr-Adams and Mr Bailey. In addition, an Order was made on 26 September 2012 giving permission for each side to call one expert to deal with 2 specific issues: (a) the claims made as to the alleged confidentiality of the Disputed Formulations and (b) the claims made by the Defendants as to the independent derivation and creation of the new formulations referred to at paragraph 44 of the Amended Defence ("the expert issues"). Both experts filed reports which went wider than the expert issues. Shortly before the trial the experts produced a helpful Joint Statement setting out the issues on which they agreed and those on which they disagreed (this again dealt with matters wider than the expert issues, such as reverse engineering).
- The sole witness of fact on behalf of the Claimants was Mr Orr-Adams. He had provided a detailed witness statement and was cross-examined at some length by Ms McFarland on behalf of the Defendants. I found him to be a frank and truthful witness. The only aspect of his evidence which I did not accept was when he suggested that Mr Jakes would have kept the Disputed Formulations confidential because confidentiality formed part of his quality assurance obligations based upon a British Standard. Mr Jakes subsequently produced a copy of the relevant document, which did not support Mr Orr-Adams' evidence on this point. However, as Mr Jakes had said in his own witness statement that his company does maintain the confidentiality of its customers' formulations, Mr Orr-Adams' belief that the company treats formulations as confidential was correct. I came to the conclusion that Mr Orr-Adams was simply mistaken in attributing Mr Jakes' company's position to quality assurance obligations; in my view he was not seeking to mislead the court, and his evidence in this regard did not cause me to doubt the veracity of his evidence on the more significant matters which I have to decide.
- The Claimants' only other witness was their expert, Dr Roland Harbron. He was clearly well-qualified to help the court on the expert issues. I comment on his evidence below.
- The witnesses for the Defendants were (in the order in which they were called) Dr Fentiman, their expert, who had produced an initial report for the Defendants at an early stage in the proceedings, as well as a second report produced pursuant to the Court's order. I comment on Dr Fentiman's evidence below. Dr Fentiman was an old friend of Mr Orr-Adams, although they have become estranged since this dispute arose. In any event, no suggestion was made by the Claimants that Dr Fentiman lacked appropriate objectivity and he too is certainly well-qualified to provide an opinion on the expert issues.
- The Defendants also called Mr Barry Parker, who developed the new formulations for the Defendants, Mr Anthony Newton, a business development manager for Kerneos familiar with the Defendants' business and with cement formulations in general, Mr Ron Jakes, whose company CJ Enterprises blends the cement mixes for the Defendants, and lastly Mr Bailey himself. He had made 2 witness statements for the trial, as well as two earlier witness statements for interim applications, which I have also read. Both Mr Newton and Mr Jakes were straightforward and credible witnesses although I think that the Claimants were right to suggest that Mr Jakes purported to give some evidence about particular formulations which he was not fully qualified to give. Mr Parker, however, was unfortunately a most unsatisfactory witness, with little or no recall of important facts. He was extremely confused on some central matters, changed his answers to some important questions a number of times, and was unable to explain how his evidence tied in with a number of documents, as I explain further below. I therefore feel that I must treat his evidence with the greatest of circumspection. Mr Bailey came over as direct and forthright, but I do have some concerns, set out below, as to the reliability of his evidence, as it was not in all respects consistent with the contemporaneous documents. More significantly, however, his evidence failed to deal with a number of central matters and, where he did deal with such matters, was at times inconsistent.
The law on breach of confidence
- The parties were broadly in agreement as to the relevant legal principles applicable to the protection of confidential information and both referred me to the helpful judgments of Arnold J in Vestergaard Frandsen A/S v Bestnet Europe  EWHC 657 and Force India Formula One Team Ltd. v 1 Malaysia Racing Team  EWHC 616,  RPC 29, which I have considered in detail, together with the further authorities mentioned below. Given the level of agreement between the parties, I shall set out the main principles relevant to this dispute only briefly. In Force One at  Arnold J said
"The clearest statement of the elements necessary to found an action for breach of confidence remains that of Megarry J. in Coco v A.N. Clark (Engineers) Ltd  F.S.R. 415,  R.P.C. 41 at 47:
"First, the information itself … must 'have the necessary quality of confidence about it'. Secondly, that information must have been communicated in circumstances importing an obligation of confidence. Thirdly, there must have been an unauthorised use of the information to the detriment of the party communicating it."
In Verstergaard on appeal to the Supreme Court at  Lord Neuberger said
"The classic case of breach of confidence involves the claimant's confidential information, such as a trade secret, being used inconsistently with its confidential nature by a defendant, who received it in circumstances where she had agreed, or ought to have appreciated, that it was confidential – see e.g. per Lord Goff in Attorney-General v Guardian Newspapers Ltd (No 2)  1 AC 109, 281. Thus, in order for the conscience of the recipient to be affected, she must have agreed, or must know, that the information is confidential."
- Gurry on Breach of Confidence (2nd ed) says, at 5-14:
"The basic attribute which information must possess before it can be considered confidential is inaccessibility. Information must not be common knowledge, i.e. in the public domain. This attribute is fundamental to the action for breach of confidence."
This goes back to the decision of Lord Greene M.R. in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 R.P.C. 203, CA at 215 in which he said:
"The information, to be confidential must … have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process."
22. Similarly, in Coco v AN Clark (supra) also at 47, Megarry J said:
"Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts."
- The Defendants' case was, in part, that the Dispute Formulations were banal, being the same as or similar to existing formulations in the public domain. In Ocular Sciences Ltd v Aspect Vision Care Ltd  RPC 289 at 374, Laddie J said:
"I have great doubts as to whether it is right that a claim to confidentiality can be maintained in a mere mechanical collection of data which is in the public domain."
Having referred to the passages set out above from Saltman and Coco, Laddie J went on at page 375:
"In my view the emphasis in Saltman should be on the words "it is perfectly possible" and in Coco on the word "may". It is a commonplace that valuable and novel ideas may be produced by the judicious selection and combination of a number of items which, separately, are in the public domain. No one would suggest that such ideas are incapable of being the subject of an obligation of confidence. But, to adopt Megarry J's words, there must be some product of the skill of the human brain. A mere non-selective list of publicly available information should not be treated as confidential even if putting it together involves some time and effort. No relevant skill is employed."
- In Force India at , Arnold J also cited the decision of Sir Robert Megarry V.C. in Thomas Marshall (Exports) Ltd v Guinle  Ch 227 at 248E–H:
"… four elements may be discerned which may be of some assistance in identifying confidential information or trade secrets which the court will protect. I speak of such information or secrets only in an industrial or trade setting. First, I think that the information must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others. Second, I think the owner must believe that the information is confidential or secret, i.e., that it is not already in the public domain. It may be that some or all of his rivals already have the information: but as long as the owner believes it to be confidential I think he is entitled to try and protect it. Third, I think that the owner's belief under the two previous heads must be reasonable. Fourth, I think that the information must be judged in the light of the usage and practices of the particular industry or trade concerned. It may be that information which does not satisfy all these requirements may be entitled to protection as confidential information or trade secrets: but I think that any information which does satisfy them must be of a type which is entitled to protection."
- If the information is so entitled to protection, the next issue is whether it was communicated to the Defendant in circumstances which impose an obligation of confidence upon him, because he knows or has notice (objectively assessed by reference to a reasonable person standing in his shoes) that the information was confidential (see Force India at ). In Coco (supra) Megarry J said at 47-8:
"… the information must have been communicated in circumstances importing an obligation of confidence. However secret and confidential the information, there can be no binding obligation of confidence if that information is blurted out in public or is communicated in other circumstances which negative any duty of holding it confidential. … It may be that that hard-worked creature, the reasonable man, may be pressed into service once more; for I do not see why he should not labour in equity as well as at law. It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence. In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party for the other, I would regard the recipient as carrying a heavy burden if he seeks to repel a contention that he was bound by an obligation of confidence."
- The major area of disagreement between the parties as to the applicable law related to the issue of whether the law of breach of confidence is based upon proprietorship of the information. The Claimants contended that it is not, whilst the Defendants contended that it is, it being their case that if the Disputed Formulations were confidential, that confidence 'belonged' to the Defendants, not the Claimants. The lengthy discussion of this point in Chapter 4 of Gurry on Breach of Confidence shows that this is indeed a difficult issue. However, in the light of my findings, I do not consider that I need to deal with this point.
- As to proving whether there has been use in breach of confidence, Mr Ward referred me to CMI-Centres v Phytopharm  FSR 235, in which Laddie J said at , in the context of assessing the merits of a claim for interim relief:
"When a plaintiff asserts that a defendant has used confidential information there are a number of ways of proving it. The first is to produce direct evidence of use, for example from an employee of the defendant who has seen the information being put into practice or by finding documents showing what the defendant has done. Secondly, it may be possible to prove use indirectly by demonstrating the existence of some significant fingerprint. For example the defendant's product may have dimensions, a design, composition, or behaviour which is only to be found in the plaintiff's and which is consistent with the use of the information and inconsistent with use of non-contaminated sources. Similarly, it may be possible to show that the defendant has gone to all the same suppliers and customers as the plaintiff and that it would be highly unlikely that the same group would have been approached had the defendant been working from uncontaminated sources. Thirdly, it may be possible to persuade the court that the defendant could not have got to the position he has with the speed he has had he simply started from legitimate sources and worked everything out for himself. This last is particularly difficult. It depends on comparing how far the defendant has gone with an assessment of how long it would have taken him to reach that stage deploying the resources he has put into the endeavour without cutting corners. Whether the defendant's progress suggests misuse of confidential information therefore involves assessing (a) how far he has got, (b) how long it took him to get there, (c) what resources he put into the development and (d) the quality of the personnel he used for the development work."
Issue a) 1: Is the content of the Formulations inherently the sort of information to which confidence may attach?
- The Defendants maintained that cement formulations such as the Disputed Formulations are not the type of information to which confidence may attach. That claim was made despite the statements made in the experts' Joint Statement which seem to me clearly to state the opposite. The Joint Statement said:
"1. The experts agree that specialist building product formulations are generally of a confidential nature and that some manufacturers will go to great lengths to maintain secrecy of their formulation.
2. The experts agree that specialist building product formulations are generally treated by formulators as confidential information and will not transmit this information in the industry."
- That agreed statement in my judgment disposes of the Defendants' point. Moreover, it was supported by a number of points made by Mr Bailey, as to his wish to maintain the confidentiality of his formulations, for sensible business reasons and (to a lesser extent) by Dr Fentiman's evidence that he would expect anyone working in the industry to keep formulations confidential as a matter of 'professional courtesy.'
Issue a) ii: Are or were the Disputed Formulations
(a) so well-known that no confidence ever attached to them, because they were in the public domain before Mr Orr-Adams made them?
(b) incapable of now being considered confidential in nature because they have subsequently been put into the public domain?
(A) Never confidential:
- The Defendants' pleaded case on the first limb of this issue was not altogether clear. Paragraph 18 of the Amended Defence alleged that the Disputed Formulations drew to "a great extent" on pre-existing formulations, and information which were in the public domain. In a response (No.16) to a Part 18 Request to state whether it was alleged that the entirety of the Claimant's Formulations was in the public domain, the Defendants' response was "No. Basic formulations are available as well as technical information …" Nevertheless, the evidence put forward on behalf of the Defendants suggested that their case was that the entirety of the Disputed Formulations was identical to publicly available information. Mr Bailey repeated in cross-examination that his standpoint was that the formulations he had were not private or confidential in any way. However, in his very next answer he accepted that he had probably not shown the formulations even to Kerneos, whilst the assertion that he did not see the formulations as confidential was inconsistent with his 4th witness statement in which he had said that it made no sense for him to "tell the world about the Disputed Formulations because once the world at large knew about them my business would suffer."
- Mr Orr-Adams gave detailed evidence in his witness statement as to the steps which he had carried out in order to develop, test and amend the Disputed Formulations. That evidence showed how Mr Orr-Adams used his own knowledge of existing formulations and information in the public domain and his own skill and brainpower in order to come up with formulations suitable for the particular needs of Mr Bailey and his customers. Even so, he had to experiment and change the formulations in the light of the results of tests which were carried out or, on other occasions, in order to achieve costs savings. None of that evidence was directly challenged at the trial. I conclude that producing the Disputed Formulations involved skill and creative input on the part of Mr Orr-Adams. Otherwise, bluntly, there would have been no need for Mr Bailey to employ him, and subsequently to employ Mr Parker, to produce new formulations appropriate to his customers' needs. It seems to me, therefore, that Mr Orr-Adams' evidence showed that the Disputed Formulations were the "product of the skill of the human brain" and were capable as a matter of law of being protected as confidential information.
- However, as indicated above, it was suggested to Mr Orr-Adams that the Disputed Formulations were identical to earlier formulations which were in the public domain. First, it was suggested to Mr Orr-Adams on the basis of Dr Fentiman's expert report dated 17 April 2013 (itself based on evidence from Mr Jakes) that the disputed GBS Xtra Bof Formulation was the same as or very similar to a formulation which had been put into the public domain by Mr Orr-Adams himself at a conference in 2008. Mr Orr-Adams denied that the two formulations were the same and explained, to my mind convincingly, why that was so, for example the formulation referred to in the paper included steel fibres which Mr Orr-Adams said would never be included in a LUL application like the Xtra Bof.
- Mr Jakes had suggested in his witness statement that the GBS Xtra Bof formulation replicated a pre-mix formulation provided to CJ Enterprises by Adomast two years earlier. In cross-examination, he said that he had spotted what he thought were similarities between the two formulations, and that he thought that one had been derived from the other. However, it was clear he was not an expert chemist and he was not able to help the court as to the specific purposes of additives in the mixes. As a result, I think it fair to say that his views as to the identity of the two products cannot stand. Dr Fentiman had compared the formulations in his report and concluded that the similarity between them was "striking." When cross-examined on the point, Dr Fentiman reiterated that the formulations had much in common but accepted that he could not challenge Mr Orr-Adams' evidence about the use of different additives. He conceded that they were similar, rather than the same. In my view, this disposes of the Defendants' claim that the Xtra Bof product was the same as the Adomast product.
- Equally, when it was put to Mr Orr-Adams that another third party formulation (the "Estienne formulation") was similar or identical to his Ultra Grout formulation, he accepted that there was some similarity between them, but denied that they were identical or that he had copied the Estienne formula. He said that his formulations had been completed before he had any knowledge of the Estienne formulation and I found his explanation of the time-line on this point convincing. Mr Newton, when asked, said that he had not personally compared the formulations, and the exhibit to his Witness Statement appeared to show that the technical details of the Estienne formula had been marked and kept confidential. Moreover, when this point was put to Mr Bailey in cross-examination he could not contradict the evidence which Mr Orr-Adams had given as to the timing of his development of the Ultra Grout product. On the contrary, Mr Bailey very sensibly accepted that the documents showed the Ultra Grout formulation being sent to CJ Enterprises in October 2000, so that it could not have been copied from the Estienne formula. Any similarity between the formulations must, therefore, have been coincidental and I do not find that Mr Orr-Adams copied the Ultra Grout from the Estienne formulation, nor do I find that the formulation was in the public domain at the time that it was created by him.
- Mr Bailey had similarly suggested in his 3rd witness statement that the Ultra Flowfill product was copied or derived from product called 'Flashway' originating from Kerneos (under its previous name of Lafarge Aluminates). It became clear in cross-examination, however, that Mr Bailey had not got any definite knowledge of the Flashway formulation so as to be able to make good that assertion. He had not seen the formulation for Flashway, but was only relying on some conversations he had with unnamed people at Kerneos about it; he had not shown the Ultra Flowfill formulation to those people. Indeed, he was constrained to accept that his evidence was only that the Ultra Flowfill formulation was the same type of product as Flashway.
- I therefore reject the Defendants' argument that the three Disputed Formulations simply replicate pre-existing formulations which are in the public domain and so were never liable to be protected as confidential information.
(B) Were the Disputed Formulations subsequently put into the public domain?
- The Defendants next relied upon the Claimants' failure to ensure that all documents containing details of the Disputed Formulations were marked "Confidential." Only a few such documents were produced in evidence and the Defendants plainly doubted whether even these documents had been marked "confidential" when sent, as opposed to when copied for the proceedings. There was no evidence before me on which I could resolve such an issue and I saw no evidence to suggest that the Defendants' suspicion was correct. In any event, it was conceded by Mr Orr-Adams that documents including the confidential information were sent by the Claimants to the Defendants without being marked confidential at the time. This does not, in my judgment, mean that the contents of the documents would not have been known and understood to be confidential, and to be treated as such, by both parties.
- In my judgment, the parties had a shared interest in maintaining the confidentiality of the Disputed Formulations, which they had invested time and effort into developing, and which they hoped to exploit through sales to the Defendants' customers. The need to maintain confidentiality in formulations produced by Mr Orr-Adams for Mr Bailey was acknowledged by Mr Orr-Adams in response to questions put to him in cross-examination. The point was also made by Mr Bailey in several of his witness statements, notably when opposing the Claimant's application for disclosure on confidential terms of documents relating to the Defendant's new formulations, on the grounds that if a competitor had the details of current formulations it would be easy for them to compete unfairly with the Defendants. Despite Mr Bailey's assertion in the witness box that formulations were not confidential, I conclude that any disclosure of the Disputed Formulations to the Defendants by the Claimants was made on the basis of that the confidentiality of those formulations would be maintained by the Defendants. It does not seem to me that my conclusion is affected by the fact that base formulations may be in the public domain and, as Mr Newton said, may be advertised by producers or formulations essentially as marketing material, to show what they are capable of doing. Mr Orr-Adams explained that base formulations are expected to be amended and then tested by formulators before a final product is devised. This commercial reality is clearly that no supplier of cement products would wish all of his detailed formulations to be made publicly available, as that would be commercially undesirable.
- Mr Ward argued on behalf of the Claimants that it is possible for mutual obligations of confidentiality to arise and, for example, both parties to a joint venture are likely to have an obligation to keep trade secrets confidential. He put a number of points to Mr Bailey in cross-examination seeking to establish whether it was Mr Bailey's evidence that Mr Orr-Adams could have sold goods made to the Disputed Formulations to third parties outside the rail industry. Mr Bailey's answers to those questions were rather confused, but I think that his evidence was that he thought that Mr Orr-Adams could work for other people, but any use of the Disputed Formulations in other industries would have had to be agreed between the parties, with an appropriate agreement as to their respective profit shares. That seems to me to reflect the fact that these parties had obligations of confidentiality to each other. Whilst they may not have been sufficiently alert to the dangers of a loss of confidentiality in 1996 to have expressly agreed to keep any new formulations confidential, or entered into a non-disclosure agreement, this seems to me to be a term which would have been implied as a matter of business necessity into their oral agreement. Mr Orr-Adams was to be remunerated on a 'per bag' basis, so that the amount which he would earn for his work on the Disputed Formulations depended upon the commercial success of the products sold by Mr Bailey. Equally, Mr Bailey's own income would depend upon his ability to supply those formulations to his customers and it would have been in his interests to maintain confidentiality in the formulations in order to maximise his potential revenues. I note the comment by Megarry J in Coco set out at paragraph  above, that the recipient of commercial information given on a business-like basis and with a common object in mind bears a heavy burden if he seeks to contend that he was not bound by an obligation of confidence. I conclude that it was the mutual understanding of Mr Orr-Adams and Mr Bailey in 1996 and during the course of their business dealings that it was in the commercial interests of both of them to keep the details of the Disputed Formulations confidential.
- The Defendants also alleged that the Disputed Formulations had been disclosed to third parties on an open basis, first when they were sent to the blender, CJ Enterprises, to be made up, and secondly when the Disputed Formulations were tested at the Kerneos works. Mr Orr-Adams had found a confidentiality agreement which he thought had been signed by Mr Jakes. It seems it never was signed but for the reasons set out below this does not seem of any consequence. Mr Jakes, who is one of the three directors of CJ Enterprises, stated in his witness statement that in order for him to sustain his business it was his strict policy to maintain total confidentiality with all of his customers. Indeed, he stated that he initially he had refused a request by Mr Bailey to provide information about the Adomast formulation mentioned in paragraph  above, because he had been concerned about maintaining the confidentiality in that formulation. He later took the view that it was acceptable to release that information in the context of these proceedings. It seems to me that the position adopted by CJ Enterprises to maintain the confidentiality of formulations sent to it by its customers is wholly predictable. It would be quite extraordinary, in my view, if a company in its position failed to maintain the confidentiality of its customers' commercial information and any company which failed to do so would, I think, go out of business in short order. In other words, it seems to me that the circumstances in which formulations were sent to CJ Enterprises imposed an obligation of confidence upon that company and I do not consider that any confidence in the Formulations was thereby lost.
- It was suggested to Mr Orr-Adams that any confidentiality in the Formulations had been lost when they were tested at premises owned by Kerneos. That was denied by Mr Orr-Adams, who said that Kerneos would not have known what was in the formulations, and said in his witness statement that he kept the formulations locked in his briefcase to protect their confidentiality. I found his answer convincing. Moreover, Mr Bailey also accepted in cross-examination that Kerneos would probably not have had access to the formulations from Mr Orr-Adams. I also consider that anyone who had become privy to any details of the formulations simply because they were present when testing was carried out would have been subject to an implied duty of confidence, because it would be very plain that the formulations were commercially valuable and were not being released into the public domain. For all these reasons, I find that there was no evidence that the Disputed Formulations were put into the public domain through testing carried on in the presence of third parties.
- I conclude that the Defendants have not shown that any open disclosure of the Disputed Formulations was made to any third party whilst the parties' contractual relationship continued.
Disclosure in the Annex to the Particulars of Claim?
- It is clear to me, as I think it would be clear to any person reading the Particulars of Claim, that the inclusion of parts of the Disputed Formulations in Annex A was a mistake. This was not an intentional publication or released into the public domain by the Claimants. Indeed, it seems to me quite possible that even the Defendants did not notice the mistake at the outset, as I presume that if they had done so they would have pleaded the point as to loss of confidentiality in the Defence or the Amended Defence. Instead, the point was only raised in Ms McFarland's skeleton argument for the trial. The question, therefore, is whether that mistake nevertheless put those parts of the Formulations into the public domain, as the Defendants claim. The Defendants did not adduce any evidence that the Annex to the Particulars of Claim was seen by anyone other than the Defendants and their legal team, or possibly their witnesses, but all of them would, in my view, have appreciated that the inclusion of the formulations was a mistake on the part of the Claimants.
- The Particulars of Claim, as a statement of case, will have been placed in the court file, and will have been open to public inspection pursuant to 5.4C— 5.4C There was, however, no evidence before me which showed that anyone unconnected with this case had made an application to inspect the file or, if someone had done so and the application been successful, that they would have seen Annex A to the Particulars of Claim as well as the body of that document.
- Ms McFarland, in closing, suggested that the pages had fallen into the public domain by reason of CPR 31.22, as having been read to or by the court or referred to at a hearing held in public. However, the particular pages in Annex A were (very properly) not read out. CPR 31.22 provides:
"(1) A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where –
(a) the document has been read to or by the court, or referred to, at a hearing which has been held in public;…
(2) The court may make an order restricting or prohibiting the use of a document which has been disclosed, even where the document has been read to or by the court, or referred to, at a hearing which has been held in public."
- According to the authors of Gurry, supra, the law does not require information to be "absolutely inaccessible before it can be characterised as confidential" (see 5.21 ff. and also the Spycatcher case, Attorney General v Guardian Newspapers Ltd (No 2) 1 AC 109 at page 281). On the contrary, information will enter the public domain only where it is widely disseminated. Whether the publication of the information is extensive enough to destroy confidentiality is a question of degree depending on the facts of the particular case. Gurry cites Attorney General v Greater Manchester Newspapers Limited  EWHC QB 451, in which neither the inclusion of the information in a Government publication available in libraries, nor its inclusion in information on the website of a Government Department, had put the information into the public domain, for a member of the public would have required some degree of background knowledge and persistence to become aware of it. Mr Ward also referred me to a decision of Norris J in Burrows v Emmett Smith  EWHC 22, an action for infringement of copyright and breach of confidential information, in which he had submitted on behalf of the defendant that the confidential information relied upon had fallen into the public domain when it was set out in the body of the Particulars of Claim. Mr Justice Norris dismissed that argument summarily on the facts of the case.
- On the facts of this case, it seems to me that there was no sufficient dissemination of this information to destroy its confidentiality. It must have been clear to the Defendants that the reproduction of parts of the Disputed Formulations in the Annex was a mistake and did not constitute a deliberate decision by the Claimants to put them into the public domain. I do not think, therefore, that this would have terminated the Defendants' obligation to maintain the confidence of those Formulations. Equally, in the absence of any evidence that the Particulars of Claim and Annex A have been made generally available to the public in a real sense, or that any member of the public would have had the background knowledge and persistence to learn of it, in my judgment the confidence in the information in those pages in the Annex has not been lost. The pages were not read out in the course of the trial, and I consider that it will be appropriate, in the circumstances, to make an order under CPR 31.22 (2) to maintain the confidentiality in them.
Issue C. Has there been unauthorised disclosure and/or misuse of the confidential information by the Defendants?
- On the basis of my findings above, I must decide whether the Defendants made use of the Disputed Formulations after termination of the contract between the parties in about the second week of August 2010.
- The Claimants have been in some difficulty in showing how such use is alleged to have been made. They do not have any direct knowledge as to whether the Defendants have supplied products made according to the Disputed Formulations since termination of the contract in mid-August 2010 (save for the matters mentioned in paragraph  below); instead they rely upon Mr Bailey's assertion that he would continue to supply them, and upon the pleading in paragraph 42 of the Amended Defence mentioned above. They also rely upon the reasonable inference that the Defendants would not have been able to supply products made to an alternative formulation immediately upon termination of the contract, because producing, developing and testing a new formulation takes time, whilst (Mr Orr-Adams said) there had been no break in the supply of products to LUL.
- The Defendants put forward no clear evidence about the following significant matters:
a. whether they had continued to make and/or sell products made according to the Disputed Formulations for any period after termination of the contract, despite the fact that it was their primary case that they were entitled to do what they wished with them, and that paragraph 42 of the Amended Defence suggested that they had continued to make and sell the products after August 2010;
b. whether, and if so when and why, Mr Bailey had told CJ Enterprises to stop making products according to the Disputed Formulations, although Mr Jakes said that he had been told to stop doing so in August 2010;
c. when sales of products made according to the Disputed Formulations ceased;
d. how the Defendants' new formulations were developed (as to which see further below); and
e. when the Defendants commenced making and supplying products made to those new formulations.
- It was not possible to tell from any of the evidence before me on what date the Defendants ceased using the Disputed Formulations, either in terms of using them to have cement mixes blended by CJ Enterprises or indeed anybody else, or in terms of cessation of sales of such products to the Defendants' customers. Mr Jakes stated that he had been asked to discontinue production of the formulations in August 2010, but he did not say exactly when that was, and he did not give any information as to whether he continued to supply any existing stocks of the products after that date. Mr Parker said in his witness statement that the majority of the reformulation work was done by 1 October. Mr Bailey referred to their evidence but did not elaborate upon it. He just said that the allegation that there had been use of the Disputed Formulations after termination of the contract was "groundless."
- If all use of the Disputed Formulations had ceased upon termination of the contract, it seems to me that the Defendants would have said so in clear terms, and would have denied continuing use in the Defence. The fact that they did not do so to my mind supports the conclusion that they continued to make use of the Disputed Formulations after mid-August 2010. It is also supported by the Defendants' solicitors' letter of 15 October 2010 in which they stated that the Defendant had products in storage which were produced prior to the date of termination and "remained available throughout September" to satisfy existing customer orders. They said that the Claimants would be paid for sales of such products on the usual terms. A request of 5 November 2010 from the Claimants' solicitors for information as to stock levels remained unanswered.
- Nothing in the evidence shows whether there was a hiatus in supplies of products to the Defendants' customers between August or September 2010 and the date when the new formulations were accepted by LUL or any other customer. In a witness statement of the Claimants' solicitor, Mr Thurlow, filed in support of an application for disclosure, it was alleged that the Claimants had documents showing an unbroken chain of supply of products to LUL. Mr Bailey's witness statement in response, dated 15 December 2011, identified "the salient question" as to what products the Defendants had been supplying, but did not answer it. That omission was plainly deliberate. Mr Bailey asserted that he had been supplying products made to the new formulations, but did not say when such supplies began. The Defendants were ordered to disclose all correspondence or other documentation with LUL relating to the supply of all products based on the new formulations, but the single email disclosed (found in the Defendants' confidential trial bundle 6) gave no indication of when such supplies commenced, nor of when sales of the old products ceased. However, Mr Bailey stated that the new formulations were approved by LUL at a meeting on 5 November 2010.
- I deal further below with details of how the new formulations were arrived at, but it seems that there was discussion about the new formulations as early as 19 August 2010, and a first alternative formulation was put to Mr Bailey on 6 September 2010. The Defendants' confidential documents appear to me to show that after 3 days' work by Mr Parker in September, the formulations were tested and amended in October, and further changes were made in December 2010 and January 2011. Mr Parker's witness statement also indicated that there had been significant testing of the new products. These facts, together with Mr Bailey's evidence about the approval granted by LUL, suggest that the Defendants would not have been in a position to supply the new formulations to LUL until after 5 November 2010. If so, then I think it is right in the absence of any other explanation to infer that any products supplied to LUL from the date of termination of the contract in August to at least 5 November were made according to the Disputed Formulations.
- This brings me, at length, to the issue of whether the Defendants were entitled to make of the Disputed Formulations during that period, and if so, whether they were entitled to do so without making any payment to the Claimants? The Claimants' position was that this was both a breach of confidence and a breach of contract. The Defendants' back-up position, if I found that the Disputed Formulations were and remained confidential, was that they were the property of the Defendants and/or that the Defendants did not need to pay the Claimants after determination of the agreement. They relied upon the draft NDA for Mr Jakes, but the mention in that draft of the information belonging to Mr Bailey does not seem to me to resolve the issue as between the parties to these proceedings as the NDA would have protected both parties' interests.
- Mr Ward cross-examined Mr Bailey as to whether he considered that Mr Orr-Adams would have been entitled to supply the Disputed Formulations to third parties without any payment to Mr Bailey. Mr Bailey appeared initially to accept that he could do so, as long as he was not supplying the Formulations to LUL. On further questioning, Mr Bailey first said (in answer to my question) that his view was that Mr Orr-Adams could work for third parties but could not offer the Disputed Formulations to them regardless of the sector in which they operated, and then (in answer to a further question from Mr Ward) suggested that if Mr Orr-Adams had found an alternative market for the formulations, he would not have objected to them being sold to them, but would have expected to have agreed a profit share (not necessarily still at 60/40) with him. I found it difficult to understand which of those partly inconsistent answers really represented Mr Bailey's view of the arrangement he had entered into with Mr Orr-Adams and it does not seem to me that his answers resolved the question of whether the Defendants could continue with use of the Disputed Formulations after termination of the contract, and, if so, whether they could do so without paying the Claimants. I think that the fact that Mr Bailey brought in Mr Parker as early as 19 August 2010 to reformulate the products may have been indicative of his view that he was not entitled to continue using the Disputed Formulations, especially as the Claimants' solicitors' first letter was only sent to him on 20 August.
- For the reasons set out above, I have concluded that the Disputed Formulations remained confidential information and that the parties owed each other a duty of confidentiality in relation to them. As a result, it seems to me that the Defendants would not in principle have been entitled to exploit them after determination (I consider this point below in the context of breach of contract). Ms McFarland's main argument in favour of that point was, I think, that the information belonged to the Defendants, because they had paid for it. The difficulty with that argument is, in my view, that the Defendants did not make a one-off payment for the work which Mr Orr-Adams did, but agreed to continue making payments on a royalty or similar basis. The result, in my view, is either that the Defendants should not have made use of the information at all, in which case they should pay damages for any unauthorised use which they made, or, if they were entitled to use it, they remained obliged to make continuing payments for such use. The result is, I think, the same.
The new formulations and the 'clean-room' defence
- As explained above, the Defendants put forward a 'clean room' defence, and pleaded that the decision to change to new formulations arose in the light of a threat from the Claimants to issue these proceedings. In Mr Bailey's witness statement of 15 December 2011, he stated that the decision to engage a third party to devise some new formulations was taken following receipt of a letter from the Claimants' solicitors in October 2010. However, it was clear both from the confidential documents disclosed by the Defendants and the evidence of the witnesses at the trial that he was wrong about that: the decision to produce new formulations had been taken in August 2010, immediately after termination of the contractual relationship between the parties.
- Given the positive case which the Defendants sought to run based upon the use of the new formulations, they were in my view surprisingly reticent about the details of what steps had been taken, when, and by whom, to create the new formulations. The Defence did not plead any such details, and the Claimants had to apply for an Order for disclosure (subject to confidentiality conditions) of documents describing the Defendants' new formulations and showing the instructions given to the formulator, Mr Parker.
- The Defendants' witness statements for trial showed that Mr Bailey held a meeting on 19 August with Mr Barry Parker and Mr Newton. The full scope of the discussions which took place at that meeting and the question of whether Mr Parker was then shown or given copies of Disputed Formulations were matters which were, again, simply not addressed in the Defendants' evidence. Mr Bailey said that they met "to outline what that part of my business consisted of (i.e. primarily the supply of XTRA BOF, Ultra Grout & Ultra Flowfill) who my main customers were and could he please help …. I asked Barry Parker to come up with new formulations to replace the Disputed Formulations." Crucially, in my view, Mr Bailey did not say what explanation was given or documentation was provided to Mr Parker for the purposes of making the new formulations necessary to continue supplying LUL. Paragraph 112 of his 4th witness statement, in which he summarised the Defendants' evidence about the new formulations, showed but did not fill the gaps in that evidence, both as to use of the Disputed Formulations after termination of the contract and as to the development of the new formulations. Mr Newton did not deal with the meeting of 19 August 2010. Mr Parker merely said that he had been asked by Mr Bailey to help and added "I knew from the nature of the products sold by [the Defendants] that everything there was very similar to technology I had worked on throughout my career …" so he agreed "to take on the task of reformulating the GBS products." He went on to say that Mr Bailey had supplied him with a list of the existing additives used on the products and he was asked to develop new formulations which could match or exceed the performance of those products. He added that many mixes and hundreds of tests had been made to ensure that the new formulations exceeded the performance of the Disputed Formulations. Hence, there was no denial in the Defendant's witness statements that Mr Parker had been given copies or details of any of the Disputed Formulations when he was asked to produce the new formulations.
- The Claimants submitted that Defendants' documents suggested that there had been disclosure of the Disputed Formulations to Mr Parker. They relied in particular upon
a. an e-mail dated 21 August 2010 sent by Mr Bailey to Mr Parker in which Mr Bailey included a "List of additives that I want to change soonest. As per our discussion" above a list of the names (but not the quantities or ratios) of the additives used in the Disputed Formulations (Mr Ward accepted that this was not disclosure of the whole of the Disputed Formulations);
b. a Confidentiality Agreement signed by Mr Parker on 3 September 2010, which stated that the Second Defendant owned the Disputed Formulations, and stated that Mr Parker accepted that information and agreed to keep it confidential together with any developments or formulation changes; and
c. comparative tables of the ingredients of the Disputed and new formulations.
- The disclosure point was explored at some length with Mr Parker in cross-examination. His answers to a series of questions about his knowledge of the Disputed Formulations were far from satisfactory, indeed, contradictory. After giving a variety of confused answers, he eventually accepted that he had no recollection of when he had first been given the Disputed Formulations, either in hard or soft copy. He said that he had been given "the specification" for the products by Mr Bailey on 19 August but had not kept any records of what he was told because he had not anticipated being in this position.
- Mr Parker's evidence about the comparative tables was equally unreliable. His suggestion in cross-examination that he had been asked to produce the comparative tables by the Defendants' solicitors took the Claimants by surprise, in particular as the tables had simply been included in the confidential disclosure without any explanation of that sort, and without disclosure of any connected documents showing when/by whom Mr Parker was asked to produce them, or, more significantly, when or by whom Mr Parker was sent/given the Disputed Formulations to permit him to make the comparisons. Unhelpfully, Mr Parker could not recall those details, and indeed then suggested that he could not recall whether he or Mr Bailey had done the comparison. It was not clear to me why the Defendants needed Mr Parker to do the comparison in any event. Another confusing element of Mr Parker's evidence was that he did not seem to understand that he had been asked to avoid using particular additives in the new formulations for a specific reason, and it seems that he used many of the same additives because he thought that there was no problem in doing so, even though there were alternative products that he could have used.
- I was concerned that Mr Parker, when asked when he first saw the Disputed Formulations, responded as if he had been asked when he first saw a document signed by Mr Orr-Adams. However, on balance I do not think that Mr Parker was being deliberately evasive - he may genuinely have had little recall of the relevant facts - but he appeared to be both nervous and confused. I regret to say that I did not find his evidence at all convincing. He appeared to me to have no recollection of when he first was given the details of the Disputed Formulations, which may not have been helped by his evidence (if correct) that he had never discussed that point with the Defendants' solicitors. It certainly was not helped by the fact that he had, he said, kept no records, although he knew that there was a dispute between Mr Bailey and his previous formulator.
- The experts were asked to consider whether the new formulations appeared to be based on the Disputed Formulations. Dr Harbron in his report stated that the initial mixes made by Mr Parker made "small changes and tweaks" to the Disputed Formulations, the formulation made on 6 September was almost identical to the Xtra formulation and that made on 20 September almost identical to the Ultra Grout. He pointed to the email of 21 August as indicating that the Disputed Formulations had been given to Mr Parker to be changed, and to Mr Parker's request to be paid for only 3 days' work in September as showing far less time than would have been necessary to work up formulations "from scratch". It was put to Dr Harbron that he could not provide any positive evidence to suggest that Mr Parker's evidence was to be disbelieved, which he accepted, but he said that the use of almost identical ratios in each formulation suggested to him that the starting point was the Claimants' formulations.
- Dr Fentiman stated that he had known Mr Parker for many years and knew him to have the necessary skills to produce new formulations in just one month. He did not comment on the fact that he appears to have charged for only 3 days' work, probably because it seems that he had not seen any of the Defendant's confidential disclosure documents from which that fact appears, although they were mentioned by Dr Harbron in his report. He concluded in  of his report that he could not rule out Mr Parker having been supplied with the Disputed Formulations, but his detailed analysis of the formulations led him to be convinced that "the Barry Parker formulations were independently derived, irrespective of whether he has [sic] sight of any Francis Orr-Adams claimed formulations." I have some difficulty with this last comment, because I do not see how it could be said that Mr Parker's formulations were independently derived if he had seen Mr Orr-Adams' formulations. Dr Fentiman relied upon his initial report (made for the Defendants and without an order of the court) in which he had compared the formulations and concluded that they were different. That does not, however, deal with the issue which I have to decide, which is whether Mr Parker used the Disputed Formulations as a basis from which to devise his new formulations. To that important extent, I prefer the evidence of Dr Harbron.
- There are a number of factors which lead me to conclude that the new formulations were not derived without some reference to the Disputed Formulations, they are:
a. Mr Bailey struck me as an intelligent and commercially minded person who understood very well what the issues were in this case. By 19 August 2010 he was planning to produce new formulations following the determination of his agreement with Mr Orr-Adams. The Claimants' solicitors' letters of 20 August and 3 September 2010 would have alerted him at that early stage to the likelihood that there would be a dispute with Mr Orr-Adams if he carried on using the Disputed Formulations. In those circumstances, if the Defendants wanted Mr Parker to work independently of the Disputed Formulations, I would have expected Mr Bailey to take the precautions of ensuring that he kept a record of the information that he gave to Mr Parker and that Mr Parker kept proper records of what he did, to enable the Defendants to demonstrate that the new formulations were independently derived. He did not do so, nor did he provide the Court with any clear explanation of what had been done in order to ensure that the new formulations were independent of the old.
b. The documents disclosed by the Defendants on a confidential basis described above appear to me to indicate that Mr Parker was given either the whole of the Disputed Formulations or relevant parts of the formulations on or before 3 September 2010.
c. Mr Parker's inability to recall when he first saw the Disputed Formulations may have been down to mere confusion, but may also show that he had been given at least relevant parts of the Disputed Formulations before he made his own reformulations.
d. The time taken by Mr Parker to formulate 3 products was apparently a mere 3 days. This appears even on Dr Fentiman's evidence to be too short a period to produce 3 formulations without having had the benefit of seeing the Disputed Formulations, in whole or in part. Accordingly, it seems to me that the Defendants could not have got to the position they did at that speed had they started from legitimate sources and worked everything out for themselves.
For all these reasons, I reject the 'clean-room' defence.
Issue e): issues as to copyright
- The Defendants claimed that the Copyright Works were works of joint authorship. This was pleaded on the basis that Mr and Mrs Bailey spell-checked the documents, but I do not think that this claim was supported by any evidence. If such work was done, it would not in my view render Mr or Mrs Bailey a joint author of the Copyright Works within the meaning of s. 10(1) of the Copyright, Designs & Patents Act 1988: see Lightman J in Robin Ray v Classic FM  FSR 622 at page 636: "what is required is something which approximates to penmanship. What is essential is a direct responsibility for what actually appears on the paper."
- Next, the Defendants claimed to have commissioned the Copyright Works, and therefore to be equitable owners, entitled to call for an assignment of the copyright. In her skeleton argument, Ms McFarland claimed in the alternative that the Defendants were entitled to a licence to use the Copyright Works. It was common ground between the parties that the factors relevant to the implied grant of title or a licence were to be found in the judgment of Lightman J in Robin Ray (supra). He held at page 640-643:
"The general principles governing the respective rights of the contractor and client in the copyright in a work commissioned by the client appear to me to be as follows:
(1) the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;
(3) the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright … the client has to establish the entitlement under some express or implied term of the contract;
(4) the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v. Irwin  AC 239 …
(5) … in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances …
(6) accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;
(7) circumstances may exist when the necessity for an assignment of copyright may be established. … these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. … In each case it is necessary to consider the price paid, the impact on the contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;
(8) if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to contract must have intended to confer upon him. …
(9) the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of a new unexpected profitable opportunity …"
- In my view, in this case, the Defendants did not need an assignment of the copyright in the Copyright Works. All that they required was a licence to use them in conjunction with their sales of the Disputed Formulations. I do not think that they would have needed to be able to exclude Mr Orr-Adams from using the works, as in my view his only possible use of them would have been if he had found a way to exploit the Disputed Formulations in a separate industry, which use would, for the reasons I have given above, have been subject to his own obligation of confidentiality to the Defendants.
- I do find, however, that the Defendants would have had a licence to use the Copyright Works in conjunction with the Disputed Formulations, subject to paying the appropriate licence fee. That fee, in my view, was wrapped up in the 'per bag' payment agreed to be made by the Defendants. If copies of the Copyright Works were supplied with products made to the Disputed Formulations for which no payment has been made, then those copies will, in my view, have been made or issued to the public in breach of the terms of the licence. If I am wrong about there having been an assignment rather than a licence, in my judgment, the Defendants would nevertheless still have remained obliged to pay the Claimants for use of the Works, as had been agreed at the outset.
Issue f): was there a breach of contract?
- There was some discussion before me as to whether an obligation to continue paying fees to the Claimants for use of the Disputed Formulations and/or Copyright Works was an implied term of the contract and survived its determination in August 2010. The obligation to pay fees was one of the few express terms of the contract made in 1996 and it seems to me highly arguable that the obligation to continue paying the fees was part of that express term. However, arguably the question of the position after determination of the contract would have to be seen as an implied term, in particular because the parties did not expressly contemplate what should happen upon determination.
- There are a variety of criteria which may be useful guidelines in indicating that a particular term should be implied into a contract, and they may overlap. Lord Hoffmann in Attorney General of Belize v Belize Telecom Limited (PC)  UKPC 10,  1 WLR 1988 said (of implying terms into a written agreement)
"… in every case in which it is said that some provision ought to be implied into an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background would reasonably be understood to mean. ... This question can be reformulated in various ways which court may find helpful in providing an answer - the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on - but these are not ... to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean? "
- Bearing that guidance in mind, I accept that the Defendants' contention that they remained able to exploit the Disputed Formulations after determination of the agreement made some commercial sense, as otherwise they could have been faced with the difficulty of not having products to sell after determination. Therefore, there would have been an implied term of the agreement for the Defendants to have the right to continue to sell products made to the Disputed Formulations for a limited period after determination. Or, it may have been reasonable for there to be an implied term that they could carry on exploiting them generally after termination. However, in either case I can see no basis for the Defendants' contention that such post-termination sales did not carry with them an obligation to continue making payments to the Claimants. That seems to me to be the obvious corollary of any implied right to continue making such sales.
- If I am wrong on the question of the "ownership" of the confidential information, and the true position was that Mr Bailey, having "commissioned" Mr Orr-Adams to produce the Disputed Formulations was the only person entitled to that confidential information, with the result that the Defendants were entitled to continue to make use of it after termination of the contract, it nevertheless seems to me axiomatic that the contractual right to payment for such use would have continued, whether as an express or implied term of the contract, as set out above.
- The Defendants relied upon the fact that the payments which the Defendants were to make to the Claimants were for the provision of services by Mr Orr-Adams going further than merely the formulation of products, as indicating that payments did not have to be made by the Defendants. The obligation to provide such services appears from Mr Orr-Adams' witness statement to have been one of the terms expressly discussed (though not pleaded as being agreed) in 1996, but the fact that the payment may have related to more than just use of the Formulations, does not seem to me to entitle the Defendants not to pay anything at all for such use once those other services have ceased.
- In my judgment, therefore, the Defendants were not entitled to exploit the Disputed Formulations without continuing to make payment to the Claimants. Their use of them without payment was a breach of contract.
- For all these reasons, the claim succeeds, and I will hear counsel as to the relief to be granted.
Note 1 Vestergaard was appealed to the Supreme Court: see 20 April 2011,  EWCA Civ 424 and 22 May 2013,  UKSC 31. Neither of those decisions reversed Arnold J’s general findings as to the law of confidence and breach: see e.g. [23-24] Jacob LJ’s judgment in the CA. The successful element of the appeal to the CA (upheld by the SupCt) is irrelevant to the case before me. [Back]
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