Update: Kerry Ingredients v Bakkavor Group Ltd [2016] EWHC 2448 (Ch)

11 November 2016

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It is often necessary for businesses to disclose confidential information for limited purposes. This however opens up the possibility of misuse, and harm to the business. This recent decision in the English High Court demonstrates that the law will not stand idly by in such circumstances but it is also a reminder that businesses who regularly disclose confidential information for limited purposes would be well advised to have a standard confidentiality agreement; it likely would have saved the claimant considerable time and expense here.

 

Parties and Background

 

The claimant, Kerry Ingredients (UK) Limited (“Kerry”), is a subsidiary of Kerry Group plc and a producer of edible infused oils. The defendants were part of the Bakkavor group (“Bakkavor”), a provider of prepared foods for grocery retailers and foodservice operators.

 

For many years Kerry supplied oils to Bakkavor, however in 2012 Bakkavor decided to produce its own. In 2015 Kerry discovered details of the plans which lead them to believe that their confidential information was being misused. Kerry therefore sought an injunction to prevent the defendants from selling or marketing infused oils the making of which was enabled or assisted by information supplied by Kerry.

 

Judgment

 

Newey J referred to the three elements identified in Coco v A.N. Clark (Engineers) Ltd as required, apart from contract, for a breach of confidence case to succeed, namely that the information must have, the necessary quality of confidence, been imparted in circumstances importing an obligation of confidence, and have been used in an unauthorised manner.

 

The defendants stressed that Kerry’s method drew on a small number of food safety techniques and that therefore one would inevitably end up discovering it. Newey J however found that the method contained in the information had the ‘necessary quality of confidence’ as it included ‘a clever feature’ which would require ‘special labours’ to replicate. Thus, the possibility of reverse engineering does not prevent information having the ‘necessary quality of confidence’ where ‘special labours’ would be required to get the information.

 

Given that the information was given for health and safety purposes and that it was understood in the industry that it should not therefore be used for product development, the judge found that a reasonable person would have realised that it was not to be so used and as such had been given in ‘circumstances importing an obligation of confidence’. The key question in this part of the inquiry is whether the recipient of the information knew or had notice (assessed by reference to a reasonable person) that the information was confidential.

 

Finally, it was held that the obligation had been breached. Bakkavor had used the information for product development and it was irrelevant that they may not have been trying to replicate Kerry's process exactly as the information still influenced their thinking throughout. Thus, a party can make ‘unauthorised use’ of confidential information where they do not precisely replicate it but instead use it as a starting point for a new product.

 

When considering the appropriate remedy, Newey J held that an injunction was appropriate as it was not apparent that Kerry would suffer no more than small loss if no injunction was granted, whilst quantification could also be problematic. He did however accept that because the information had limited confidentiality, if he were to grant a permanent injunction it would put Kerry in a better position than if there had been no misuse. It would have been possible for Bakkavor to replicate Kerry's oils using public sources. This meant that the duration of the injunction should be calculated by reference to the time it would take to reverse engineer the product from public sources. It was held that the misuse of the information gave Bakkavor a one year head start and therefore they were restrained from selling or marketing their infused oils until June 2017. There is thus a degree of flexibility in the length of injunction granted in misuse of confidential information cases.

Comment

This case highlights the benefit of confidentiality agreements to parties who disclose confidential information. Had the information been subject to a term in the parties’ supply contract or to a separate confidentiality agreement it may well have deterred Bakkavor from making use of it in the first place, and certainly would have been a useful tool in Kerry’s hands when they first sought to dissuade Bakkavor from using the information.

For parties in receipt of confidential information it is a warning that even if no confidentiality agreement is in place the court has tools with which to prevent it being misused. For such parties, confidentiality terms or a confidentiality agreement would give the comfort of greater clarity from the outset as to what they can and cannot do with the information received.

The European Union recently adopted the Trade Secrets Directive, which has to be implemented before 9 June 2018. That will probably prove to be before the UK’s withdrawal from the EU and as such may provide, albeit for a limited period of time, further means of protecting parties against unauthorised use of their confidential information and a further incentive for those in receipt of such information to be careful in how they put it to use.

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