Vestergaard Frandsen A/S (now Called MVF 3Aps) v Bestnet Europe Ltd & Ors

Compensation for misuse of confidential information must reflect the economic loss caused by the particular misuse. Sales of products directly embodying the misused information may attract lost profits on diverted sales and a reasonable royalty on other sales. Products subsequently developed from that misuse require a proportionate assessment of the benefit derived from the information. The appropriate approach may comprise a lump-sum quasi-consultancy fee and compensation for any accelerated market entry. Pure economic loss is not assessed solely by asking whether the loss was foreseeable and caused by the breach. Where later development, testing and expertise materially contribute to the successful product, damages should not assume indefinite liability for all subsequent sales.

The claimants sought an inquiry into compensation following Arnold J’s liability judgment, in which the defendants were held to have misused confidential information contained in a database of polyethylene mosquito-net recipes and test results: [2009] EWHC 657 (Ch). The inquiry concerned sales of nets made using the original First Formula and later nets made using a Later Formula derived through further experimentation.

The court had to determine the number of First Formula nets sold, the appropriate measure of compensation for those sales, whether sales of Later Formula nets attracted broader damages, and whether misuse had accelerated the defendants’ market entry.

1. First Formula nets. The parties accepted that the General Tire measure applied. The claimants were entitled to lost profit on sales which they would probably have made absent the defendants’ competition, and a reasonable royalty on remaining sales. The court adopted equi-proportional diversion, finding that 73.9 per cent of 248,152 sales would have been made by the claimants. After allowance for minority interests, lost profit was US$323,761, with a 4 per cent royalty of US$11,658 on the remaining sales.
2. Later Formula nets. The Later Formula did not itself constitute the misuse found in the liability judgment. Nevertheless, the earlier misuse materially contributed to its development and to the WHOPES application. The proper approach was proportionate compensation consisting of a quasi-consultancy fee for the use made of the confidential information and damages for any accelerated entry into the market.
3. The quasi-consultancy fee had to reflect the substantial use of the First Formula, the testing results and the Montpellier report, balanced against the defendants’ further experimentation, changes to the polymer and additives, and the expertise applied by Dr Skovmand. The appropriate fee was US$150,000.
4. The misuse saved approximately six months in the early development work. However, that saving would not have brought forward WHOPES interim approval, because the Phase II testing would still have taken place during the relevant mosquito seasons and the product would still have been considered at the December 2007 meeting. No accelerated-entry damages were therefore payable.
5. The total compensation awarded was US$485,419.

• Court of Appeal: The liability and remedies decisions were considered on appeal. The Court upheld the finding that the Fence database had been used, but overturned liability against Mrs Sig and dismissed the challenge to the refusal of an injunction against Later Formula nets: [2011] EWCA Civ 424.
• Supreme Court: The claimants’ appeal concerning Mrs Sig was unsuccessful: [2013] UKSC 31.
• High Court (Chancery Division): The present judgment determined the inquiry into compensation.