Court of Appeal considers confidentiality obligations of in-house lawyers

The Court of Appeal has considered whether and in what circumstances a former employed lawyer will be restrained from acting adverse to a former employer in order to protect that former employer's confidential information: Generics (UK) Limited v Yeda Research & Development Co Ltd [2012] EWCA Civ 726.

The court held unanimously that, on the facts of this case, there was no real risk of disclosure of the alleged confidential information and therefore the injunction that had been granted at first instance would be discharged. However, the court was divided over the applicable principles, and in particular whether an in-house lawyer who was in possession of material confidential information of a former employer would be restrained from acting unless he or she could establish that there was no real risk of disclosure or misuse, as would be the case for a private practice lawyer under the principles established in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222. Two of the three judges expressed the view (though one described it as "tentative at best") that the Bolkiah principles did not apply to this situation and it would be up to the former employer to satisfy the court that an injunction was appropriate.

Background

The claimant sought a declaration of non-infringement and revocation of the first defendant's patent relating to a pharmaceutical called Copaxone, of which the second defendant was exclusive licensee. From February 2011 the litigation was managed for the claimant by a senior in-house patent attorney who had previously been employed by the second defendant. In November 2011 the second defendant sought an injunction barring the patent attorney's continued involvement in the action on the basis that, while working for the second defendant, she had obtained significant confidential information about the Copaxone litigation which might be used against the second defendant in the action. The injunction was granted at first instance. The claimant appealed.

It was common ground that an in-house patent attorney should be treated in the same way as an in-house lawyer for these purposes.

At first instance it was also common ground that the applicable principles were those in the Bolkiah case. On appeal, however, the claimant argued that the Bolkiah principles applied only to third party professionals providing legal services (or the equivalent, such as the extensive litigation support services provided by the accountants in the Bolkiah case itself). The claimant's position was that for former employees, including lawyers or patent attorneys who had conducted litigation for their former employers, general barring orders of the sort granted in Bolkiah would not be granted; the employer could only obtain an injunction to restrain use (or threatened use) of "trade secrets", applying the principles in Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117.

Decision

The Court of Appeal held unanimously that, on the facts of this case, the alleged confidential information was at most peripheral to the litigation and there was no real risk of disclosure. On that basis, the injunction would be discharged.

They disagreed, however, as to the applicable principles:

• Sir Robin Jacob considered that there should be no difference in the principles applicable to an in-house or private practice lawyer, and that the Bolkiah principles would apply in both cases.
• Etherton LJ disagreed. In his view, there were sound reasons of principle and policy why, in the case of an in-house lawyer, the burden should lie on the former employer to satisfy the court of the probability of wrongful disclosure or use of the confidential information.
• Ward LJ was reluctant to adjudicate between the two views, as it was not necessary for the determination of the appeal, but said that he shared the concerns expressed by Etherton LJ.

Etherton LJ's decision contains an interesting analysis of how the Bolkiah and Faccenda Chicken cases should be reconciled. In his view, the existence of a fiduciary duty to preserve confidentiality after termination of the contractual retainer was essential to the court's decision in Bolkiah. He therefore reviewed the authorities on whether, and to what extent, employees owe fiduciary duties to their employer in respect of confidential information received in the course of employment. He said that it was "necessary to accept", at Court of Appeal level, that the receipt of confidential information by an employee gives rise to fiduciary duties in respect of that information. However, he said, the nature and scope of those duties are "coloured and restricted by" the contract between employer and employee, including the implied terms established in the Faccenda Chicken case. Accordingly, subject to the express terms of the employment contract, an employee's fiduciary duties extend only to information that carries a sufficiently high degree of confidentiality to amount to a trade or business secret. In contrast, it seems, a third party professional's fiduciary duty would extend to all confidential information received.

Comment

This decision is of interest for the Court of Appeal's comments as to the principles that apply where an in-house lawyer wishes to act in a matter adverse to a former employer in relation to which the in-house lawyer holds (or may hold) material confidential information of the former employer. 

The decision suggests that there may be circumstances in which the former employer can obtain a barring order, rather than merely restraining use of the information. However, it gives no definitive answer to the question of whether the onus should be on the in-house lawyer to establish that there is no real risk of disclosure (as per Sir Robin Jacobs's view) or on the former employer to establish that, exceptionally, an order should be granted because the in-house lawyer is in possession of "trade secrets" that are likely to be wrongly disclosed or used (as per the views of Etherton and Ward LJJ).

The message for companies employing in-house lawyers is that if they wish to be able to restrain those lawyers from acting adverse to the company in particular matters once the employment has ended, the best course is to incorporate an express covenant to that effect in the employment contract. Such a term would have to meet the usual requirements for a valid covenant in restraint of trade (being designed to protect legitimate business interests, and no wider than reasonably necessary for that purpose).

The decision also underlines the importance of acting quickly to restrain a breach of confidential information. The court's conclusion that there was no real risk of misuse of the information was strengthened by its inference that the claimant waited at least eight months before it applied for an injunction. Sir Robin Jacob commented that if a former client (or employer) really believes that there is a risk of misuse, it will act at once; if it stands by and allows the lawyer to get well into the case before speaking up, the court will view the claim with considerable scepticism. Putting the point more colourfully he said: "If someone is treading on your toe or about to do so you shout. If you wait for months first then complain in a desultory way, you are apt not to be believed."