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Court of Appeal decision highlights the importance of clarity of definitions of confidential information and trade secrets


In Shenzen Senior Technology Material Co Ltd v Celgard LLC [2020] EWCA Civ 1293, Celgard LLC (“Celgard“) applied for an interim injunction to restrain Shenzhen Senior Technology Material Co Ltd (“Senior“) from placing its battery separators onto the UK market on the grounds that it would infringe Celgard’s rights under the Trade Secrets Directive (Directive (EU) 2016/943).  

Celgard claimed that Senior had used Celgard’s confidential information (and trade secrets) to produce battery separators which were being marketed in the United Kingdom. Senior had allegedly obtained this confidential information from a former Celgard scientist who had taken employment at Senior as Chief Technology Officer. 

Celgard argued that the misuse of its trade secrets by Senior had enabled Senior to develop a competing product which could significantly undercut the price of Celgard’s product in the UK battery separator market. Celgard maintained that if this occurred, it would suffer damage that would be extremely difficult to quantify.

The claims against Senior were twofold: (i) direct claims against Senior for selling battery separators in the UK market which had benefitted significantly from the unlawful use of Celgard’s trade secrets and confidential information, and (ii) vicarious claims against Senior regarding the Chief Technology Officer’s breaches of confidence.

 

High Court Decision

At first instance, the High Court agreed with Celgard and held that damages would be extremely difficult to assess and quantify, and so granted an interim injunction to Celgard.

 

Court of Appeal Arguments

On Senior’s appeal, Senior claimed that Celgard had not adequately identified the trade secrets Senior had supposedly relied upon (and which had enabled them to rapidly infiltrate the UK market, undercutting Celgard’s prices) as they had failed to properly particularise them (by citing recipes and including copies) in the Confidentiality Annexe.

Celgard argued that (i) they had provided as much detail of the trade secrets as they could and as much as was necessary at this stage to establish there was a serious issue to be tried; (ii) they were to provide more in-depth particulars at a later stage; and (iii) they were prevented from providing more details because Senior refused Celgard permission to inspect Senior’s shipping documents and so, Celgard was unable to be specific about which particular trade secrets Senior had relied upon.

Senior’s Counsel insisted that the burden lay on Celgard to show there was an issue; it was not for Senior to show that there was not.

 

Court of Appeal Decision

The Court of Appeal upheld the High Court’s decision to grant Celgard an interim injunction, stating that Celgard had adequately particularised the trade secrets at this stage.

 

Takeaway Point

Whilst every case turns on its facts, it is important to give thought to and properly define confidential information and trade secrets in non-disclosure agreements to ensure that they are sufficiently protected in case of any breach of the agreement. 

Guidance as to setting out trade secrets is very subjective but as to confidential information generally, if you are the party disclosing confidential information, it is beneficial to try and widen the scope of the confidential information definition as much as possible to ensure adequate protection. Conversely, if you are the party receiving confidential information, it will be in your interests to seek a narrower definition to minimise your burden and potential liability for any breach.

Ways to narrow the definition of confidential information include:

  • ensuring that the confidential information is always in connection with a specific transaction or purpose;
  • ensuring that the disclosing party’s confidential information only includes information which is marked as ‘confidential’; 
  • requiring the disclosing party to confirm in writing any oral confidential information they provide you with within a reasonable timeframe after disclosing it; and
  • including exceptions to confidential information, for example, as to (i) public domain information; information already known by the receiving party or which becomes known to it from a third party; and (iii) information independently created by you or your permitted disclosees.

If you have any queries about your confidentiality agreements, please get in touch.

This piece is an overview of the law and is not a substitute for legal advice suited to your specific circumstances.

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