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A fishy business

13 December 10

A recent Scottish case on seeking interim orders against using a former employer's confidential information or knowhow is instructive

by Robert Buchan, Susan Snedden

In unstable employment markets, ex-employees often set up in competition with their former employer, using confidential information or knowhow. A recent Scottish decision (EFH Technologies Ltd and Xyrex Ltd v Rytium Technology FZC and TR Bonnyman, Son & Co Ltd [2010] CSOH 143) demonstrates that the court is prepared to take interim steps to prevent use or disclosure of such information.

Background

The pursuers (EFH) manufacture and sell a commercially successful product called Prawnfresh. It comprises a compound called 4-HR which prevents prawns becoming discoloured after catch. EFH claimed that they owned the confidential knowhow in a process to create soluble 4-HR (devised in 2006), pursuant to a series of company sales and IPR assignations. The managing director of the first defender Rytium, Mr McGregor, was an employee of the company which invented the process (as sold to EFH) from 2004 until his dismissal in 2008. By late 2008, Mr McGregor was the managing director and owner of Rytium and in early 2009, Shrimp Treat was on the market.

EFH argued that Shrimp Treat was a copy of Prawnfresh that could only be made using their confidential knowhow (relying on an expert report to establish this), and sought interim interdict to prevent Rytium from manufacturing, distributing or selling Shrimp Treat. They also argued that as a former employee, Mr McGregor was bound by a confidentiality obligation not to disclose or use the information for his own benefit.

Rytium argued that Mr McGregor (despite having no scientific background) developed the process before 2004, and that the information was in the public domain so there was no confidential knowhow to protect. They also pointed out that EFH had been aware of Shrimp Treat since late 2008 and had delayed in taking action. As there were no written agreements in place with Mr McGregor, they claimed there were no confidentiality obligations.

The court’s analysis and decision

Lord Turnbull considered that the first defender’s claim to have invented the process did not sit easily with the content of the expert report, which stated that there was no information in the public domain indicating how to produce solubilised 4-HR and that scientific knowledge equivalent to an honours degree would have been needed to create it. Reliance on a section in Mr McGregor’s affidavit to support a claim that such information and studies were publicly available was withdrawn. At the time of the assignation of the relevant intellectual property to EFH, Mr McGregor had stressed that Prawnfresh was confidential information of EFH’s predecessor, which did not support the claim of ownership now advanced.

Lord Turnbull granted the interim interdict. EFH had demonstrated a prima facie case that (i) the process was created by a former director of EFH when Mr McGregor was an employee there; (ii) Shrimp Treat was a copy of Prawnfresh; (iii) the process was a trade secret belonging to EFH; and (iv) as a former employee Mr McGregor owed an implied duty of confidentiality and there was evidence to support a breach of that duty.

In addition, the balance of convenience favoured granting the interim interdict. Shrimp Treat and Prawnfresh were the only products on the market using soluble 4-HR and a considerable number of EFH’s customers were being supplied with Shrimp Treat. Although Shrimp Treat accounted for 75% of the defenders’ turnover, they had a range of other products which they could sell. Mr McGregor (a UK citizen) had incorporated Rytium in the United Arab Emirates, which would make it difficult to enforce any damages award. As far as the delay in taking action was concerned (allegedly almost two years), the court decided there were good reasons for such delay – including the length of time it took to find a suitable expert to analyse and report on the products.

Commentary

It is relatively unusual for such a detailed factual and legal analysis to be carried out at an interim stage, and expert reports would not normally be available. It is also interesting to note that Lord Turnbull was prepared to grant interim relief despite the delay in taking action.

The court did appear to accept that in complex technological/scientific cases, obtaining suitable evidence to support an application for interim interdict, and in particular clearly identifying confidential information, can take time. While an assessment of the balance of convenience will always be case specific, delay may not necessarily prevent an interim interdict being granted.

Robert Buchan, partner, and Susan Snedden, associate, IP and Technology, MMS

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