Client Alert

(Trail)Finders Keepers: The English Courts Shine a Light on the UK Trade Secrets Laws

25 Mar 2020

Trade secrets in the UK are protected by both a longstanding equitable duty of confidence and, only very recently, a specific set of regulations. Since the 2018 Trade Secrets Regulations came into force, the question has been whether the UK courts might use the historic rules to pick holes in the new rules – or, as now seems to be the case, potentially cherry-pick the best parts of the two regimes.

We look at a recent trade secrets case in the UK in which a court upheld trade secret protection under both sets of principles – and stressed that the new regulations “shine a light” on the historic rules.

Background

For decades – if not centuries – the UK has allowed trade secrets to be protected by contract law and by laws of equity where a duty of confidence existed. These laws evolved over years and there was no statutory legislation. In 2016, the EU implemented a Trade Secrets Directive – which the UK (pre-Brexit) adopted into the Trade Secrets Regulations. 

There were differences between the historic and new legal trade secrets regime – for example, with respect to what constituted a trade secret that could be protected.  But, in practice, the general view was that the EU-derived rules would be unlikely to dramatically change UK law. The first test would come when the UK courts started to consider claims which, inevitably, would be based on both regimes to give claimants the best chance of success.

And, in the first key case, the High Court ruled decisively that the claimant’s trade secrets were protected under both regimes. Of particular interest were statements by the court that:

  • The Trade Secrets Directive does not affect the underlying principles of the law of confidence; and
  • The definition of “trade secret” in the Trade Secrets Directive is now the best guide to what sort of information is protected by the equitable laws of confidence.

Trailfinders case

The case concerned – as these cases so often do – employees leaving one employer (Trailfinders, a travel agency) to join another (Travel Counsellors (TCL), a competitor).

Trailfinders claimed that the ex-employees and their new employer were in breach of the equitable obligation of confidence and the Trade Secrets Regulations, as well as the ex-employees’ implied terms of confidentiality in their employment contracts.

In brief, the defendant ex-employees, during or after their employment with Trailfinders, accessed and obtained varying degrees of client information, including names, nationalities, dates of birth, passport numbers, contact details, details of past trips, budgets, interests, preferences and special requirements (Client Information). The Client Information was available on a system called “Superfacts”. Certain information could also be accessed by clients; each client could view its own data (but not other clients’ data) on a system called “Viewtrail”. Some Client Information was subsequently used by the ex-employees during the course of their work for the new employer. Interestingly, Trailfinders did not explicitly claim that the Client Information contained trade secrets; its argument was only that the Client Information was confidential.

Defining the two concepts

Trade secrets

Trade secrets can be protected under the common law of confidentiality or by statute (i.e., by the Trade Secrets Regulations). Under the Trade Secrets Regulations, a trade secret is information that meets the following criteria (the New Definition):

(a) It is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) It has commercial value because it is secret; and

(c) It has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

Confidentiality under common law

An equitable obligation of confidence is separate from, and parallel to, any contractual implied obligation of confidence. An action arises where a defendant (i) agreed, or ought to have appreciated, that the confidential information in question was confidential (e.g., trade secret) and (ii) used it in a manner that was inconsistent with its confidential nature. When considering such an obligation of confidence, there is a balance to be struck between the protection of trade secrets and the unreasonable prevention of competition (e.g., making it difficult for employees to seek new employment). For example, an employer can use the equitable obligation of confidence to protect its confidential information, but not information that “forms part of the experience and skills acquired by the former employee during the normal course of doing his or her job, held in mind at the time of leaving employment”; this exception does not apply where information is “deliberately memorised for use or disclosure after the conclusion of employment”.

How did the courts categorise the Client Information?

The Client Information was held to be highly characteristic of information capable of being “confidential and thus liable to be subject both to an implied term of confidence in a contract of employment and to an equitable obligation of confidence”. The Client Information was stored on Superfacts, which was only accessible by certain employees using an individual ID and alphanumeric password. The judge held that there was no doubt that the Client Information was confidential; it satisfied all of the criteria of the New Definition.

And were the defendants in breach of the common law obligation of confidence?

The equitable obligation of confidence owed by the ex-employees to Trailfinders existed during and after the end of their employment. One of the ex-employees compiled a list of contacts to be uploaded to TCL’s database; the list was compiled using some Client Information taken from Superfacts, public sources, and the ex-employee’s personal devices, skills and knowledge. The judge found that the Client Information taken from Superfacts was confidential information, which was “at least in part beyond his experience and skill”. In disclosing that information to TCL, the ex-employee had breached his equitable obligation of confidence to Trailfinders. The other ex-employee accessed and obtained certain Client Information of 32 clients using Viewtrail, after leaving the company. The judge found that the affected clients had not provided permission to the ex-employee to access their information on Viewtrail. In accessing and obtaining the information after his employment, the ex-employee was in breach of his equitable obligation of confidence.

Additionally, the ex-employees had also committed unlawful acts under the Trade Secrets Regulations.

The interplay between the two concepts

The court recognised that the Trade Secrets Regulations do not affect the substantive principles governing the protection of confidential information under English law, including those provided for by the common law of confidentiality. Instead, the Trade Secrets Directive acts as guidance shining “an occasional light on those principles”. The court described the interpretation of the term “trade secrets” under the Trade Secrets Directive as broad, covering any sort of confidential information. Accordingly, the New Definition serves as the best guide for determining whether or not information will be considered confidential.

London Trainee Solicitor, Jai Mudhar, contributed to the writing of this article.

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