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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Poeton Industries Ltd & Anor v Michael Ikem Horton & Anor [2000] EWCA Civ 180 (26 May 2000) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/180.html Cite as: [2000] ICR 1208, [2000] EWCA Civ 180

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Case No: 1999/0150

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday, 26th May 2000

6. No notes or drawings were disclosed by Aptec by which to trace the application and subsequent development of the process by Aptec from what was acquired from Blasberg. The judge was surprised that there were no laboratory records of any development work or drawings of the apparatus. As he described it

"The central idea is that the cylinder is not plated immersed in a tank of electrolyte, which is conventional. Instead, the anode is mounted in the cylinder and electrolyte is circulated from a storage tank so as to pass through the space between the anode and the tank. At the trial, this was referred to as out-of-tank processing....
The central feature is the fixture for holding the anode and the cylinder to be plated....
[i.e.] in having an anode which is fixed at the bottom of the cell. This is manifestly a significant development, since it permits the cylinder to be more conveniently mounted."
The judge then described a feature ("X") of the Aptec cell to which, for reasons which will become apparent, I have described in the Appendix to this judgment which is and is to remain confidential. He continued
"The Aptec cell embodies a number of other ideas. These are that the electroplating process should take place out of the tank, so that effectively only the surface to be coated should be exposed to the electrolyte; that the electrolyte should circulate upwards through the cell, to which the cylinder to be plated should be attached by simple adaptor plates, and that the cell should have a central insoluble anode."
Thus, in summary, the relevant features of the Aptec apparatus at the time Mr Horton joined Aptec were (i) out of tank plating, (ii) upward circulation of the electrolyte, (iii) a central insoluble anode, (iv) attachment of the cylinder by simple adaptor plates and (v) X.
7. As I have indicated Mr Horton was employed as a sales engineer from January 1993 to September 1994 by a company in the Aptec group. During the period of his employment the employer had only three or four other employees. The set up, as described by the judge, was that
"Mr John managed [the business] but he did not have an office at the premises where the plating work was carried out, his office being elsewhere. Mr Horton shared the office with him. The plating itself was carried on by a plating technician. There was a production supervisor, Miss Joanne Dunford, who gave evidence to me, and Mr Horton. Thus at the material time the workforce appears to have been Mr John, Mr Horton, Miss Dunford and the technician, who was initially Mr Perry, who also gave evidence. Mr Hutchinson took over from Mr Perry at a later date The plating work was carried on in a workshop which it is necessary to describe. It is a large shed, slightly larger in floor area than the court, one wall of which is occupied by a roller blind, which I was told was left open in hot weather. To one side of the roller blind is a door marked `No Admittance'. The plating equipment occupies part of the shed, and is located behind some screens. The chemicals for use in the process are stored in wall racks...Mr Horton pretreated the cylinders from time to time. He also signed for goods inwards and because he had some workshop skills he turned components on the lathe from time to time, and he also cleaned up cylinders after they had been coated. In effect, he did everything one would expect in a small company where everybody who had the ability lent a hand from time to time. In particular I accept Miss Dunford's and Mr Hutchinson's evidence that Mr Horton carried out the plating from time to time, but I have no doubt that his plating activities were only occasional. He was in no sense a regular operator of the plating process."
8. Mr Horton's contract of employment contained no relevant restriction on his activities after his employment ceased. But the judge considered that Mr Horton
"...knew that Aptec wanted their process to be treated as confidential. In the end, I am not sure that he really disputed this. He accepted that he was told before trade shows that if some member of the public asked too many questions the inquirer was to be passed on to Mr John (647 - 648). His explanation, that the intention was to create an impression of something particularly special, did not ring true. He accepted that there were screens in position, and he accepted that he had been reluctant to have Mr Homer in the plating shop (see page 651-2)."
Later he added
"I have already indicated that I think that Mr Horton himself was aware that the apparatus was considered to be confidential. Mr Homer visited Aptec when he was contemplating going into business with Mr Horton. He was told by Mr Horton not to go into the plating area (transcript page 311-2, and the corresponding cross-examination of Mr Horton at page 651). Mr Horton's rationalisation is far from convincing. I am satisfied that the apparatus was kept confidential."
9. It is not disputed that the plating cell used by Mr Horton after he left Aptec incorporated all the features of the Aptec cell except X, that is to say all those described in sub-paragraphs (i) to (iv), but not (v), in paragraph 6 above. The judge considered that Mr Horton had "copied these basic ideas".
10. Before referring to the judge's conclusions regarding the plating cell it is necessary to describe their context in the judgment as a whole. The judge heard evidence from Mr Horton and Mr John. He regarded the former as
"not a truthful witness, and I only accept his evidence when it is corroborated by other evidence not open to challenge or where it coincides with what I consider for other reasons to be most likely."
In the case of Mr John the judge considered that he had not told the truth about the Blasberg Note and the development of the specification of the electrolyte. The judge also heard evidence from two experts, Professor Gabe, called by Mr Horton and Dr Hart, who gave evidence on behalf of Aptec. He described the former as "a careful and helpful witness, with a clear and authoritative knowledge of his subject". The latter he found to be "combative...and too inclined to argue his clients' case". In the case of a difference of opinion between them he preferred the evidence of Professor Gabe.
11. Having set out the relevant facts (paragraphs 1-33) the judge considered first the chemistry of the process, that is to say the electrolyte. In paragraphs 40-52 he dealt with the question "Is the chemistry of the Aptec process in "the public domain" or otherwise not protectable?" As there is no cross-appeal this part of the judge's judgment is not of direct relevance but there are aspects of it which cast light on the his decision regarding the apparatus. In his consideration of the law he referred to Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41 for the three elements normally required if, apart from contract, a case of breach of confidence is to succeed, namely that the information must be of a confidential nature, communicated in circumstances importing an obligation of confidence and used in an unauthorised manner to the detriment of the person communicating it. He quoted extensively from the judgment of Cross J in Printers & Finishers v Holloway [1965] RPC 239 and noted that (1) information the future use of which will not be restrained is information not readily separable in the mind of the employee from other information which he is free to use and (2) the actual or threatened misuse of information which has been deliberately memorised for the purpose of its being carried away and used elsewhere will be restrained.
12. The judge considered that the composition of the electrolyte was not protectible because Aptec obtained the information from Blasberg and there was no evidence to show that the communication by Blasberg to Aptec was in confidence or that Blasberg did not regard themselves as free to disclose a similar electrolyte to any other customer of theirs. But the judge went on to consider the protectibility of the electrolyte more generally.
13. In that connection he concluded that the chemistry of the Aptec process was not in the public domain but was the result of some degree of application of the human brain to materials in the public domain and so of the kind referred to by Megarry J in Coco v A.N.Clark (Engineers) Ltd [1969] RPC 41. The judge then quoted the material passages from this court's decision in Faccenda Chicken v Fowler [1987] Ch.117, and continued
"In the result, I must apply the criteria set out by Cross J in Printers & Finishers v Holloway and the Court of Appeal in the Faccenda case to determine whether the information relating to the chemical composition of the electrolyte in the present case is in principle capable of protection after the end of employment. Had it been otherwise protectable at Aptec's suit, I have come to the conclusion that it consists of no more than the application of obvious principles to the requirements of this particular process, viz. that the process should use an insoluble anode and should plate as quickly as possible, and that it would not have been protectable as a trade secret. I have carefully considered the evidence which was given by Professor Gabe in cross-examination at pages 829-833. He said it would take an ordinarily skilled electroplater a period of 6 months to two years to arrive at the process as a whole (that is, including the apparatus) starting from the prior art. Although this is not merely the time which would be taken mechanically to implement a simple idea, but includes the investigation of a problem to which the solution was not immediately obvious, I am not, in the end, persuaded that the chemical formula in this case is not within the second category of information."
14. Thus the judge's reasoning in the case of the chemistry of the electrolyte was to consider whether the information said to be confidential was a matter of common knowledge and so in the public domain; if not whether it came within the category of trade secret and if so whether it came within the second or third category of trade secret as formulated by Goulding J and approved in the Court of Appeal in Faccenda Chicken v Fowler [1987] Ch.117.
15. The judge's consideration of the plating cell was, by contrast, short. Having described Aptec's plating cell and Mr Horton's plating cell both in words and by reference to photographs he concluded that Mr Horton had copied
"the basic ideas [of Aptec's cell] and unless these ideas are not capable of protection has misused confidential information."
His conclusion on that issue was
"As in the case of the composition of the electrolyte, the defendants spent a considerable time in suggesting that the apparatus was in the public domain. In this they failed. There was, again, no disclosure of the apparatus. There were a number of publications of similar ideas, but no suggestion beyond the bare idea of out-of-tank plating. As Mr Meade submits, the documents relating to out-of-tank plating are poor disclosures: see in particular, Surface World, Emde and Metzger & Ott. There was one striking publication, referred to as Hammond, which disclosed a rather similar principle to that used in the Aptec plant applied to the hard chrome plating of the barrels of naval guns. This was identified by Professor Gabe with hindsight, and I believe that it would require real insight to apply the principles disclosed in that article to the internal plating of motor cycle cylinders, let alone in apparatus so similar to that used by Aptec. The evidence that Aptec kept the apparatus confidential was really overwhelming: see Perry's witness statement and transcript page 283, and Miss Dunford at page 268. I have already indicated that I think that Mr Horton himself was aware that the apparatus was considered to be confidential. Mr Homer visited Aptec when he was contemplating going into business with Mr Horton. He was told by Mr Horton not to go into the plating area (transcript page 311-2, and the corresponding cross-examination of Mr Horton at page 651). Mr Horton's rationalisation is far from convincing. I am satisfied that the apparatus was kept confidential.
Accordingly, in my judgment Mr Horton has misused confidential information in relation to the design and configuration of the plating cell."
16. It is apparent from these passages that in the case of the plating cell, as with the electrolyte, the judge considered whether the design and configuration was in the public domain. But, unlike the case of the electolyte, he did not go on to consider if such design and configuration was, in whole or in part, a trade secret and, if so, whether it came within class two or class three of the Faccenda Chicken classification. The judge's decision cannot be supported unless the configuration and design came within class 3. For my part I do not think that it did.
17. The two classes were described by in Goulding J Faccenda Chicken v Fowler [1984] ICR 589, 599-600 as
"information which the servant must treat as confidential (either because he is expressly told that it is confidential or because from its character it obviously is so) but which once learned necessarily remains in the servant's head and becomes part of his own skill and knowledge applied in the course of his master's business." (Class 2)
"specific trade secrets so confidential that, even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone's benefit but the master's." (Class 3)
The classification was considered and, subject to one modification, approved by the Court of Appeal in Faccenda Chicken v Fowler [1987] Ch.117, 136 where Neill LJ giving the judgment of the court said
"(4) The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae (Amber Size and Chemical Co. Ltd. v. Menzel [1913] 2 Ch 239), or designs or special methods of construction (Reid & Sigrist Ltd. v. Moss and Mechanism Ltd. (1932) 49 R.P.C. 461), 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, and in particular may not cover information which is only "confidential" in the sense that an unauthorised disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith. This distinction is clearly set out in the judgment of Cross J. in Printers & Finishers Ltd. v. Holloway [1965] 1 W.L.R. 1; [1965] R.P.C. 239."
The qualification was that to be within Class 2, and therefore protectable by a restrictive covenant, the information must be a trade secret or its equivalent.
18. As the Court of Appeal pointed out in order to determine whether any particular item of information comes within Class 3 it is necessary to consider all the circumstances of the case including, but not limited to, the nature of the employment, the nature of the information, whether the employer impressed on the employee the confidentiality of the information and whether such information may be easily isolated from other information which the employee is free to use or disclose.
19. I shall consider each of those aspects in due course but there is a preliminary matter relating to the manner in which Mr Horton's plating cell came to reflect the basic ideas of Aptec's plating cell. As the judge commented there were no drawings of Aptec's plating cell. Accordingly there were no drawings Mr Horton could take away with him. It was not suggested that he took one of Aptec's cells with him or had photographs of them. The judge made no factual finding to reflect the comment referred to in paragraph 11 above about the Court's readiness to restrain the use of information deliberately memorised or carried away. In his witness statement Mr Horton gives no indication how the plating cell came to be made. It was not suggested to him in cross-examination that he had obtained the information with which to construct his own plating cell in any particular manner. Indeed the only relevant passage appears to be that at pp.668-9 which reads
MR. MEADE: As a unit, the cell with the top plate, how long did it take you to design that?
A. What do you mean by "design"?
Q. Well I am not using it in any special sense, Mr. Horton, but what I mean is, how long did it take you to come up with the size, shape and nature of that plating cell?
A. Well, I knew what I had in mind when I went down to the local plastic supplier. I asked him what plastic he had. He had this in a large two by three metre sheet, I think it was, so I knew I was going to be able to make the plates out of that. I asked him if he had solid, which is what the inside is made of. I asked him if he had tube, and he had tube, so then it was a question of knocking it up by eye, which I did on the lathe in my unit.
Q. So in other words, the design process was that you knew what you had in mind. You went and you chose appropriate components in a single visit to a plastics supplier?
20. It appears to me therefore that even though the judge considered Mr Horton to be a dishonest witness the only inference which is justified by the evidence is that he took the salient features of the plating cell away with him as part of his general knowledge without any deliberate memorisation. That inference is supported by the facts that Mr Horton's plating cell did not include X but, in practice, had to include the features to which the judge referred once the principle of out of tank plating was adopted. The significance of the omission will be apparent from the confidential Appendix to this judgment. The second matter to which I have referred requires more explanation.
21. As the judge pointed out there was nothing secret about the concept of out of tank plating. It was a feature of the Hammond paper amongst others. In addition the judge found that an insoluble anode was both obvious and pointed out in the Blasberg Note. That such an anode must be fixed centrally is obvious too. The judge referred to three other features of the Aptec plating cell, namely, upward circulation of the electrolyte, attachment of the cylinder by simple adaptor plates and X. Mr Horton's plating cell did not have X. Upward circulation of the electrolyte was an obvious requirement of out of tank plating in an unsealed system for the electrolyte would not circulate as required if it was poured in from the top. What were referred to as the adaptor plates performed two functions; first they enabled the bore of the plating cell to be adjusted to that of the cylinder to be plated, second, arising out of the first, they provide a platform on which the cylinder may rest. Each of those functions may thus be seen to be consequences of out of tank plating too. I am very doubtful whether the aggregation of these features gives rise to a trade secret at all. For the purposes of what follows I will assume that it does. The question then is whether it is a trade secret of such a type as to fall within Class 3.
22. It is in that context that I return to the specific matters to which the Court of Appeal referred in Faccenda Chicken v Fowler [1987] Ch.117, 137 as relevant to whether the information is a trade secret such as to come within that class. The first is the nature of the employment and whether the employee habitually handles confidential information so as heighten his appreciation of its confidential nature. Mr Horton was employed as a sales engineer who occasionally operated the system some part of which is claimed to be a trade secret. There was nothing in his contract of employment concerning secret or confidential material or in his position within Aptec to heighten his appreciation of its allegedly confidential nature.
23. The second matter is the nature of the information itself. As to this the Court of Appeal said
"In our judgment the 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."
Later the court added
"It is clearly impossible to provide a list of matters which will qualify as trade secrets or their equivalent. Secret processes of manufacture provide obvious examples, but innumerable other pieces of information are capable of being trade secrets, though the secrecy of some information may be only short-lived. In addition, the fact that the circulation of certain information is restricted to a limited number of individuals may throw light on the status of the information and its degree of confidentiality."
As I have already indicated I am prepared to assume that the plating cell is capable of being a trade secret but I do not think that it attains that degree of confidentiality as to fall within Class 3. The concept of out of tank plating is well known and to a greater or lesser extent the features of the Aptec cell reproduced in Mr Horton's cell are the consequences of adopting that concept.
24. The third factor is the whether the employer impressed on the employee the confidentiality of the information to the extent that it shows the information can properly be regarded as a trade secret. This factor is present given the findings of the judge concerning the matters to which I have referred in paragraph 8 above. But it is also clear on the facts of this case that the claim to confidentiality was much wider than was justified. Thus the judge dismissed Aptec's claim in respect of the chemistry. Also behind the screen were other operations such as the cleaning of the cylinder to be coated, the application of the strike or initial coating and the application of a clear nickel layer. In Lancashire Fires Ltd v Lyons and Co.Ltd [1996] FSR 629, 673-4 the Court of Appeal held that it was not incumbent on the employer to point out to the employee the precise limits of what he sought to protect as confidential information. But, as is apparent from the passage referred to, the issue in that case related to the central processing unit within which the trade secrets were to be found. In its reference to "precise limits" the Court of Appeal made clear that it was not dealing with a case in which extravagant claims are made from which the confidential nature of a small part is to be inferred.
25. The fourth factor is whether the information can be easily isolated from other information the employee is free to use or disclose. In my view it is not. In his occasional operation of the process Mr Horton could not help but notice that the concept used was that of out of tank plating with upward circulation of the electrolyte to the inside of a plate on which cylinders of different sizes might be rested. It would be obvious that the plate could also serve as an adaptor of one bore to another and that the anode was centrally mounted. I do not see how what could be so easily seen and assimilated could be isolated from the general knowledge of Mr Horton acquired during his employment with Aptec.
26. For all these reasons I would allow this appeal. I do so without regret. If my assumption that the information came within class 2 is right then Aptec might have protected themselves by covenant or patent from which the duties of Mr Horton would have been plain. If the employer for reasons of his own does not do so then the court should not, in my view, be astute to find confidential information within class 3 tucked away in a much wider, but unjustified, claim to confidential information. Such claims are easily made but expensive and time-consuming to refute. A junior employee such as Mr Horton should not be exposed to such a risk except in clear cases.
27. It follows that the questions whether an injunction should have been granted and if so in what terms do not arise. I would allow the appeal and discharge the injunctions of Pumfrey J.
28. I would add that one of the features of Aptec's plating cell is X as described in the confidential Appendix to this judgment. The inclusion of that step was inventive and confidential. So far as I am aware Mr Horton only became aware of it as the consequence of discovery and other compulsory processes of this court. The matter relating to X has not, so far as I am aware, been canvassed in open court. It follows that the implied undertaking as to confidentiality applies to all such matter and Mr Horton is not allowed to use the information he now has regarding X without the prior leave of the court.
LORD JUSTICE CHADWICK: I agree
MR. JUSTICE CHARLES: I also agree
Order:
1. Appeal allowed. Order of Pumfrey J to be set aside and injunction order discharged.
2. Claimant to pay 1^st Defendant's costs of appeal and of the application for security for costs, such costs to be subjected to detailed assessment if not agreed.
3. There is an enquiry of damages sustained by the 1^st Defendant from the interlocutory injunction to the final order.
4. The articles to be delivered up to the 1^st Defendant.