Author: Michael McCartney
Michael McCartney, a partner in Fladgate’s employment team, comments on a recent case that has significant repercussions for employers.
In the recent case of Marathon Asset Management LLP v Seddon and Bridgeman the High Court considered the appropriate level of award to make to an investment management business which claimed that two of its senior employees had copied highly confidential material onto a USB stick for use in relation to a competing business. The information copied was extremely sensitive and potentially very valuable. It included a list of all those clients who had redeemed their investments with Marathon. This information in itself would have provided the Defendants with a readymade target list for their future competing business. As a result, the Claimant valued the information copied at £15m and sought an award at the same level. In rejecting the Claimant’s approach the court made an award of £2, reflecting the nominal price which the Defendants would have agreed to pay Marathon to copy and retain the files on a USB stick before returning them to the Claimant.
Wrotham Park award
Given that it had not suffered any actual financial loss, Marathon could not seek substantial damages. Instead it invited the court to address the question of remedy using the approach in the case of Wrotham Park Estate v Parkside Homes. In that case the court had been asked to make an assessment on the basis of a hypothetical negotiation between the parties. In other words, the price the Defendants would have needed to pay the Claimant to obtain a release from their contractual obligation and for a licence to use the information copied.
The Claimant’s approach
Crucially, the Claimant’s forensic searches showed that only a small number of the files copied had actually been accessed by Mr Bridgeman and then only on a handful of occasions. Mr Seddon appeared to have made no use of the material at all after it had been copied. Nevertheless, the Claimant asked the court to disregard the evidence of actual use. It argued that this would involve the court in an assessment which had the benefit of impermissible hindsight. Instead it invited the court to assess the price (using the Wrotham Park approach) which would have been payable by the Defendants in return for an unrestricted licence to use the material as at a particular date when it claimed wrong had occurred. Marathon selected the appropriate point as being the day on which the material had been impermissibly copied onto the USB stick by the Defendants. Its expert valued the appropriate licence fee which ought to have been paid by the Defendants on this date as being somewhere between £2.5m and £39.4m.
The court’s decision
The court held that the Claimant’s approach failed to match the remedy to the wrongs which had actually been committed by the Defendant on the fee valuation date. The judge decided that the unlawful actions of the Defendants could be separated into three: copying the material onto the USB stick; retaining the files; and making use of the confidential information. On the trigger date chosen by the Claimant for its hypothetical negotiation, no misuse of the material had occurred. The Claimant could not therefore seek an award in respect of a hypothetical licence fee which assumed that the Defendants would make unrestricted and widespread use of the information. The court would not assume future wrongdoing when assessing remedy. This would equate to a “jackpot”.
The approach adopted by the court was to ask what hypothetical licence fee the Defendants would pay for copying and retaining (but not using) the Claimant’s confidential information. Unsurprisingly the court concluded that this fee would be purely a nominal one. It awarded £1 against each Defendant.
First, this is a highly unusual case. In most cases involving misuse of confidential information linked to a team move, the damages suffered by the Claimant will be significant. Alternatively, the Claimant can elect to seek a remedy on the basis of the gain made by the Defendants by requesting an account of profits. In the instant case neither approach would have provided the Claimant with a worthwhile remedy. The wider breaches of duty had already been the subject of an arbitration and the parties had reached a settlement of those. In this case a much narrower breach of obligation was being considered, relating to the confidential material itself, and the remedy needed to flow from that narrow breach.
Second, Marathon purposely chose not to direct the remedy to the actual use made of the confidential information, and this undoubtedly had an impact on the award. It gambled instead on a “jackpot” award using an early valuation date which it hoped would require the court to assume more widespread misuse. The judge held this approach was inappropriate. He concluded that the correct starting point is to identify the wrongful acts which have taken place and then assess the appropriate remedy. In a case where confidential information has been misused, the court should start by identifying the extent of the misuse, before moving on to value the benefit to the defendant.
Third, the judge’s finding could have significant and concerning repercussions for business, particularly, in holding that the only circumstances in which a remedy for future misuse is relevant is where the Defendant is still in possession of the material and is threatening to misuse it. This approach offers little deterrent against widespread copying and retention of sensitive data by employees. It would mean that a claimant could not expect a significant award unless there is also significant misuse. The value of the claim therefore hinges entirely on the ability of the claimant’s forensics team to unearth evidence of material, widespread misuse. This is likely to ring alarm bells for employers.
Michael McCartney, Partner, Fladgate LLP (firstname.lastname@example.org)