MVF 3 Aps & Ors v Bestnet Europe Ltd & Ors

In a breach of confidence claim, the full patent-style measure of lost profits and a user royalty is appropriate where each sale uses or embodies the confidential information. It does not automatically apply where a later product merely derives an indirect advantage from an earlier misuse. The recoverable loss must instead be traced to the original wrong, which may comprise an accelerated market entry and a payment for the actual assistance which the information gave in development.

A reasonable royalty under the user principle must reflect the basis on which it is awarded. A retrospective quasi-consultancy fee may compensate for the actual use of confidential information in developing a derived product, but does not give the claimant a share of that product’s commercial returns.

Vestergaard had established at a liability trial that Bestnet used confidential information from a database of insecticidal-net formulations and test results to devise its initial, or First Formula, product. Earlier remedies proceedings had distinguished that direct misuse from Bestnet’s Later Formula product, which had been developed from the earlier misuse but did not itself use the confidential information.

On an enquiry as to damages, Rose J awarded lost-profit and user-principle damages for First Formula sales. For Later Formula sales, she awarded a retrospective quasi-consultancy fee and considered whether misuse had accelerated Bestnet’s market entry. She found that it had not. Both sides appealed from her decision, reported at [2014] EWHC 3159 (Ch). Vestergaard also sought to adduce a later French judgment.

The central issue was the proper measure of damages where a product is derived from, but does not itself embody, confidential information.

1. Appeal and cross-appeal dismissed. Permission to adduce the French judgment was refused. It had no important bearing on the appeal because it concerned an injunction granted under French procedural law, on an uncertain evidential and legal basis.

2. The General Tire measure was correct for First Formula nets because their manufacture and sale directly misused confidential information. That measure may include lost profits on displaced sales and a reasonable royalty on sales the claimant cannot show it would have made. The analogy with patent infringement is strongest where every sale uses or embodies the protected information.

3. It was not appropriate to extend that measure automatically to Later Formula nets. Their sales were not themselves wrongful, although the product derived from the initial misuse. The court applied the scope-of-duty reasoning in SAAMCO, [1997] AC 191: liability normally extends only to consequences attributable to the feature which made the conduct wrongful. Where a capable competitor could lawfully develop a competing product, the relevant harm was the facilitation or acceleration of lawful competition, not all ensuing sales.

4. Rose J was therefore entitled to award a retrospective quasi-consultancy fee for the actual assistance given by the confidential information, together with compensation for any period of accelerated market entry. Her finding that the misuse saved about six months of development time was open to her. That delay did not delay market entry because the relevant approval timetable and mosquito-testing season absorbed it. Mr Larsen’s restrictive covenant did not prevent preparatory consultancy for a company not yet carrying on competing business.

5. The 4% user-principle royalty for First Formula sales was within the proper range. It was assessed on the basis that those sales had not displaced Vestergaard’s sales. The US$150,000 quasi-consultancy fee was properly assessed retrospectively as payment for the use actually made in developing the Later Formula, not as a share of Bestnet’s turnover or profits. The interest rate of 2% above base rate was a permissible broad-brush assessment in the absence of evidence supporting a different rate.

• Court of Appeal (Civil Division) — dismissed Vestergaard’s appeal and Bestnet’s cross-appeal, and upheld Rose J’s assessment of damages.
• High Court, Chancery Division, Intellectual Property Court — Rose J assessed damages on the enquiry in the judgment appealed from, [2014] EWHC 3159 (Ch).
• Earlier liability and remedies proceedings — Arnold J found direct misuse in the First Formula but held that the Later Formula was derived from, rather than itself a misuse of, the confidential information. An earlier Court of Appeal appeal was dismissed save on Mrs Sig’s personal liability; a subsequent Supreme Court appeal on that issue was dismissed.