US company Celgard, LLC has secured an interim injunction against its rival, Chinese company Shenzhen Senior Technology Material Co Ltd (“Senior”), that prevents Senior from importing or supplying its battery accessory products into the UK. The Court found there was a likelihood that Senior had misused Celgard’s confidential information and trade secrets, and that the UK was the most appropriate forum to try the dispute. This is the first injunction under the relatively new UK Trade Secrets Regulations 2018 based on the EU Trade Secrets Directive. The judgment, which has now been confirmed on appeal to the Court of Appeal, contains a number of helpful clarifications on the approach that the UK courts will take to the protection of confidential information, particularly on a cross-border basis.
Celgard is an established manufacturer of battery separators, a permeable membrane used in a range of batteries. Senior is a more recent entrant into this rapidly expanding market.
Dr Zhang, a scientist and expert in battery separator technology, was previously employed by Celgard and in 2017 moved to become the CTO at Senior. During the litigation, Senior made efforts to hide this fact. Senior also did not disclose the fact that a shipment of products was on its way to the UK at the time of an earlier hearing in the dispute.
Celgard applied for an interim injunction in the UK to prevent Senior from supplying competitive products to a key UK customer. Senior was poised to supply its rival products to such customer at an “unfeasibly low price.”
Celgard argued that Dr Zhang had taken its trade secrets in the battery technology and used them to help Senior’s product development. Celgard said that Senior was in breach of the common law duty of confidence and also the new Trade Secrets Regulations.
Regulation 3 of the Regulations 2018 provides that
the acquisition, use, or disclosure of a trade secret is unlawful where the acquisition use or disclosure constitutes a breach of confidence in confidential information.
Similarly, infringing goods are ones which benefit significantly from the misuse of confidential information.
The stated intention of the Directive (codified in its recitals) is to prohibit “the importation of… goods into the Union or their storage for the purposes of… placing them on the market” where a misuse of trade secrets occurs from abroad.
The high court judgment
In determining whether an interim injunction should be issued, the court had to deal with two key issues.
Firstly, was the UK the appropriate jurisdiction to hear such an international dispute? The court dealt quickly with this issue. Although the dispute was between an American claimant and a Chinese defendant, the court said that the UK was an appropriate place to determine the dispute because the damage to Celgard would be a loss of a key customer in the UK.
Secondly, was it appropriate to grant an interim injunction under the well-known American Cyanamid test? The court assessed the American Cyanamid criteria as follows:
Is there a serious issue to be tried?
Although Celgard did not have the benefit of disclosure to prove its allegations at the interim stage, Mr Justice Trower found that there was enough evidence against Senior to show that there was a serious issue to be tried. The court outlined the following issues:
Senior’s share of the market for these ‘dry separator’ products increased materially on Dr Zhang’s arrival from Celgard. Celgard argued that this was due to “an improvement in the range and quality of Senior’s product.”
Celgard said that the improvements were obtained through Dr Zhang, not Senior’s own independent research or collaborations with other 3rd
Dr Zhang had informed Celgard that he was going to work for a non-competing company and was required to work under a different name whilst at Senior.
Would damages be an adequate remedy?
The court determined that damages would not be an adequate remedy, as Celgard was the incumbent supplier to a specific UK customer and the developments to Senior’s product meant that Celgard was at risk of losing its position as the company’s supplier, particularly because of the cheap price at which Senior marketed its product and undercut its competitors. Although the loss of a single contract could be compensated by damages, the impact on Celgard’s ability to contract elsewhere and the downward pressure on prices for the product if an injunction were not granted would be a type of loss that is be difficult to quantify.
What is the balance of convenience?
All things considered, the court held that the balance of convenience was tipped in favour of granting the injunction.
The Court of Appeal’s review
Senior appealed the interim injunction to the Court of Appeal. The appeal was dismissed and the Court (per Lord Justice Arnold) provided some useful clarifications on these (until recently) untested waters:
The doctrine of misuse of confidential information is all about the control of information. The Court of Appeal rejected Senior’s submission that confidential information was property – consistent with the Directive, which indicates that it is not creating a species of intellectual property but, rather, a species of unfair competition. The same is true with respect to the equitable doctrine of confidence.
The UK was the place where the damage occurred, being the place where the location of the act of unfair competition would take place (i.e. importing the cheaper infringing products). The Court rejected Senior’s argument that the location of damage to Celgard was where the confidentiality of the information was compromised (which was in China), as the sale in the UK would affect Celgard’s market in the UK.
The level of specificity required in the allegations is not high. The Court was sympathetic to Celgard’s situations and said that while the claim may need to be particularised later in the proceedings, the level of detail pleaded at this stage was sufficient.
In a number of respects, the Trade Secrets Regulations codify principles which were already established in English law. However, the judgment makes clear that claimants retain their equitable rights in confidential information and have additional rights under the Trade Secrets Regulations. Further, the confirmation that the UK is an appropriate forum in which to hear major international disputes is welcome news to many doing business in the UK, particularly in light of Brexit.
Squire Patton Boggs is an international law firm with a team specialising in the protection and exploitation of confidential information and trade secrets. If you need any advice on these issues please contact Carlton Daniel (Partner, London) or Jack Blakey (Associate, London).
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