Confidentiality clauses: commercial agreements and employment contracts distinguished in Force India

By Patricia Wade

The Court of Appeal - dismissing the appeal in Force India Formula One -v- Aerolab ¹ - confirmed that courts should be very slow to intervene in respect of a confidentiality clause which has been drafted carefully to balance the parties' rights and obligations. Also, where confidential information becomes bound up in an individual employee's own skills, experience and knowledge, a distinction can still be made between information and personal experience - and where the "information" can be traced to a particular source it can potentially amount to confidential information capable of protection.

Development services

On 3 April 2008, the parties entered into a contract, supposedly on an exclusive basis, under which Aerolab would perform development services for Force India's Formula 1 racing team. On 3 August 2008, Aerolab started work for Team Lotus, which it argued it was entitled to do following its acceptance of Force India's repudiatory breach. At first instance it was held that Aerolab was in breach of its contract as it had copied confidential material belonging to Force India - although the award of damages was only €25,000 which was less than the unpaid fees owed to Aerolab by Force India. Force India appealed.

Court of Appeal's decision

Confidentiality: look at the wording, but keep context in mind. The contract between Force India and Aerolab included a confidentiality clause with a very broad definition of "Information" (not limited to trade secrets, or indeed to information not in the public domain) which Aerolab was obliged to keep confidential. There were what the Court of Appeal described as "safeguards": disclosure was permitted only with Force India's prior written approval; where the information was already in the public domain; or where the information was already known by Aerolab or developed by their employees independently. It seemed clear that the parties had carefully balanced their respective rights and obligations under the clause and this, in Lewison LJ's views, "...is the sort of case in which the court should be very slow to substitute its own perception of what is reasonable for that of the parties to the contract". However, the trial judge had hardly referred to the words of the clause. He had also discussed employment contracts in some depth, whereas this was a commercial agreement negotiated between commercial parties of equal bargaining power at arm's length. A final point made by the Court of Appeal was that the court's focus should be on the meaning of the clause during the relationship, not post-termination.

"Memorable" information may still be confidential. At first instance, one of the court's main concerns was that the clause should not unduly restrict the ability of Aerolab's employees to make use of their skill and knowledge, even where it had been enhanced by information acquired in the course of working on the Force India project. However, this approach shed no light on the key question of what the confidentiality clause actually meant. In the Court of Appeal's analysis of the position of Aerolab's employees, it was important to distinguish between the general skill and experience of an employee, and particular pieces of knowledge which could be traced back to confidential information. The clause in question was concerned with "Information", as defined, and not skill or experience; and primarily with information in tangible form (consistent with the requirement to destroy it when the contract ended). A sensible approach in interpreting this clause would be to draw a distinction between something which could be traced to a particular source and something which had become so completely merged in the mind of an employee that it was impossible to identify its origin. The judge was wrong to take the view that any item which was "memorable" was part of the employee's skill, knowledge and experience. "An identified piece of confidential information does not cease to be confidential simply because it is memorable." However, he had been right as to quantum, as he had assessed damages on the basis of the benefit which Aerolab had obtained from the misuse of the information, namely a time saving in producing a model for Lotus. There was no claim that Force India had suffered any actual loss.

Careful drafting

The decision helps to identify where an employee's skills and knowhow end and confidentiality begins. In practice, however, it is not always possible to demonstrate that information flowed from a confidential source. Practical steps should be taken to clearly highlight confidential material, identifying its provenance, encrypting it when appropriate and ensuring that it is shared under set procedures and with only limited personnel on a "need to know" basis.

Please click on the links below for the other articles in the November 2013 Technology & IP newsletter

• gTLDs: a new domain for legal disputes
• Topshop toppled by Rihanna over unauthorised use of her image
• ECJ demonstrates clear vision on question of colour in Specsavers v Asda
• No dice for Cadbury and Mattel as colour mark and SCRABBLE fail for lack of certainty
• Security breaches: a 24 hour notification race

Notes:

_{^1.Force India Formula One Team Ltd -v- Aerolab SRL and another [2013] EWCA Civ 780.}