When it rains it pours. As if Kingfisher’s woes weren’t enough, Mallya’s Force India lost their IP design battle against Aerolab last week, which is set to cost them about 850,000 euros plus legal fees which could amount to millions. The Chancery Division of the High Court of Justice last week finally gave its verdict in this long running dispute. The judgement which runs to over 300 pages and involved 14 days of hearing is finally out. The full decision can be found here.
Background
Force India and Aerolab entered into an aerodynamic development contract in 2008. The contract specifically mentioned that all IP rights would vest with Force India. However the contract was terminated in 2009 by Aerolab due to non payment of dues. At the time of termination Aerolab held a number of CAD files containing designs for Force India’s parts. This was allowed so that the aerodynamicists and draftsmen could transfer personal files from this folder to their personal areas. Aerolab subsequently began working for Lotus (now Caterham). Force India alleged that Aerolab copied the CAD designs of the Force India car and used them in the Lotus car.
Issues
The two important issues in this case relate to breach of confidence and infringement of copyright.
Held
Confidential Information
With respect to breach of confidential information, there was an interesting discussion about trade secrets, and whether information that an employee gained from his employer during a contract of employment would amount to a trade secret even though it would not fall within the category of trade secret in the traditional sense. The court relied on Faccenda Chicken Ltd v Fowler [1987] Ch 177 at 135G-138H where it was held:
“It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae… or designs or special methods of construction… and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret. The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment…”
“…Not all information which is given to a servant in confidence and which would be a breach of his duty for him to disclose to another person during his employment is a trade secret.”
Further, in E. Worsley & Co. Ltd v Cooper [1939] 1 All ER 290 it was held that the defendant was entitled, after he had ceased to be employed, to make use of his knowledge which had been supplied by his previous employer.
It was held that, information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine.
The court thus ruled that a covenant against post-employment use of confidential information is unenforceable as being in restraint of trade in so far as it purports to prevent the ex-employee from using for his own benefit or that of subsequent employer information which has become part of his general skill, knowledge and experience. Aerolab’s employees thus could not be stopped from using information which had become a part of their own skills, knowledge and experience.
Trade Secret
The court then went on to determine what exactly constituted a trade secret or the equivalent of a trade secret. A few criteria were identified:
- It must be information the release of which the owner believes would be injurious to him or of advantage to his rivals or others.
- The owner must believe that the information is confidential or secret.
- The information must be judged in the light of the usage and practices of the particular industry or trade concerned.
- The steps (if any) taken by the employer to impress on the employee the confidentiality of the information.
- Difficulty of isolating the information in question from other information which the employee is free to use or disclose.
- Ultimately the court must judge whether an ex-employee has illegitimately used the confidential information which forms part of the stock-in-trade of his former employer either for his own benefit or to the detriment of the former employer, or whether he has simply used his own professional expertise, gained in whole or in part during his former employment.
Copyright Claims
Force India claimed that each of its CAD files is a copyright work and that Aerolab had created CAD files which reproduced substantial parts of its CAD files and electronic copies of the CAD files were made, thereby infringing Force India’s UK copyrights.
It was held that Aerolab’s files did reproduce a substantial part of the corresponding Force India CAD files for certain parts i.e. the vortex generator, rear brake duct lower element and rear view mirror. To that extent the copyright claim succeeded.
Damages
The court compared each part of the aerodynamic parts which were installed on the Force India car with their equivalents in the Lotus car and found that Force India’s claims succeeded to a limited extent. For both breach of confidence and copyright infringement Force India was awarded 25,000 euros as compensation. However since Force India owed Aerolab 846,230 euros under an earlier contract, their compensation was to be set off against this amount.
This is a major blow to force India who had been hoping for 15 million as damages. Aerolab had earlier offered to settle at 250,000 euros which had been turned down.
Next Steps
Force India has already announced that they plan to file a complaint with the FIA, Formula 1’s governing body. They feel that the damages awarded are not representative of the cost of development of a F1 car. Funnily enough both sides have gone to town claiming victory in this case. One wonders whether the appeal to the FIA is another strategy to delay earlier contractual payments to Aerolab?
