What can you do if a competitor obtains your confidential information through a third party and uses it in their business? A recent English High Court case[1] reviewed your rights against a competitor in this situation:
When is your competitor liable?
The competitor will normally be liable for breach of confidence if they knew that the information was confidential but they still went ahead and used it. This is a situation that often arises where an employee moves to work for a competitor taking confidential information with them. The new employer will be liable if they use the information when they know that it is confidential and that they do not have permission to use it. Knowledge here may include a situation where the competitor ought to have appreciated that the information was confidential and unauthorised.
Can you claim damages?
Provided that they had the required knowledge as described above, the competitor will normally have to pay you damages in respect of the period during which they used your confidential information. By contrast, if they were not aware that the information belonged to you or believed that you had permitted them to use it then they would not have to pay damages in respect of this period. Despite this, you might still be entitled to an injunction preventing the competitor from using the information in the future. You should also be able to obtain damages in respect of any use after you notify them of your rights in the information.
The competitor may profit
The ability to claim against a person who knowingly obtains your confidential information indirectly from another party is an important protection for the owner of confidential information. It is well-established in English common law. As a result of the implementation of the EU Trade Secrets Directive[2] in 2018 we can also expect similar protection to be available throughout the European Union. However, the inability to obtain damages if the party receiving the information uses the information, but is not aware of your rights, may allow a competitor to profit from the information without paying for it. This can in some instances result in substantial losses. It will, therefore, often be in your interest to raise the matter with the competitor as soon as possible in order to fix them with knowledge. Speed will also be important if you wish to obtain an injunction, as delay may prejudice your ability to obtain the injunction. A practical consideration is, however, that notification can sometimes lead to the destruction of evidence so that it can be prudent to “get your ducks in a row” on the evidence so far as possible before making an approach.
How did this play out in the case in question?
The case involved a rather unclear and murky scenario. The claimant company, Media Entertainment, ran an online betting service and had an extensive computer system, information and data. In connection with a possible acquisition, the company’s system administrator disclosed passwords to the defendants. These appear to have enabled them to access confidential information stored on the claimant’s IT systems, hijack the systems and lock the claimant out. The claimant argued that that its system administrator was not authorised to disclose the information. It claimed damages against the defendants for misuse of confidential information and also an injunction requiring the defendants to stop using the information. The defendants countered that they could not be liable for misuse of the information as they did not know that the system administrator was not authorised to disclose the passwords. This prompted a review of the law by the Court, which focused on the distinction between damages, which would only be available if the defendants knew the information was not authorised by the claimant, and an injunction which might be available in any event (as explained above). But there was a sting in the tail for the claimant: the court struck out its claim for damages on a technicality because it had not included enough information about the defendants’ lack of knowledge in its pleadings.
Tom Lingard