Crowson Fabrics Ltd v Rider & Ors

Former employees may prepare to compete after termination, but preparation is not automatically legitimate. The court must first identify the employee’s contractual, fidelity and, where applicable, fiduciary duties, then assess whether the preparation undermined those duties. Employees may use their own skills, knowledge and genuinely public information after leaving. They may not copy, retain or deliberately memorise the employer’s compilations as a shortcut for competition. Such conduct may breach the duty of fidelity even where the underlying information is not confidential. A senior employee is fiduciary only where the nature of the role requires him to act solely in the employer’s interests. Transfer of a substantial part of an electronically accessible database, made through substantial investment, constitutes extraction for the purposes of the Copyright and Rights in Databases Regulations 1997.

The claimant brought a liability-only trial against two former employees and their newly incorporated competing company. It alleged breaches of the employees’ duties of fidelity, fiduciary duties, misuse of confidential information, diversion of business opportunities, solicitation of customers and agents, and infringement of database rights.

The defendants argued that their activities were merely preparatory, that the information was public or part of their accumulated expertise, and that they had no obligation to return or refrain from using the documents. The issues included the status of the employees, the legitimacy of their preparatory activities, the quality of confidence in the information, and whether substantial database extraction had occurred.

1. Disposition. The defendants were liable for breaches of the duty of fidelity. Mr Rider was also a fiduciary and breached his fiduciary duty. The claimant established infringement of its database rights, but failed to establish that the information itself was confidential.
2. Preparatory competition. The description of conduct as preparatory does not determine whether it is lawful. The court must identify the employee’s obligations and then assess whether the activities pursued in preparation for competition were consistent with them. The defendants had crossed the line by creating a rival business while employed, soliciting agents and customers, diverting business opportunities, and copying or retaining the claimant’s documents for use in the competing business.
3. Fiduciary status. The relevant question is the nature of the employee’s role and whether, in the circumstances, he was required to act solely in the employer’s interests. Mr Rider occupied a senior, trusted position and was a fiduciary. Mr Stimson was a senior and experienced salesman, but his role did not justify imposing fiduciary duties.
4. Information and documents. Former employees may use their accumulated skills, knowledge and information genuinely obtained from public sources. Information does not become confidential merely because it is labelled confidential. However, deliberately copying, memorising, retaining or transferring the employer’s compilations for post-termination use is illegitimate, even if individual items could have been found publicly. The claimant was entitled to delivery up of its documents and copies, with the question of any wider restraint reserved.
5. Database rights. The claimant’s electronically accessible customer and sales materials were databases created through substantial investment. The defendants’ unauthorised transfer of substantial parts to Concept’s computer system constituted extraction. The extent of later use was immaterial to liability for substantial extraction.
6. Relief. The court reserved the determination of relief. It expressed doubts about the practical enforceability and value of a springboard injunction and identified an account of profits or damages in lieu of an injunction as matters for further argument.