Vestergaard – creating another buzz

This long-running case [1] has now reached a finale – a High Court decision on the assessment of damages, handed down in October 2014.

As might be expected from a case which has piqued interest over the course of first instance, Court of Appeal and Supreme Court decisions, the judgment following the inquiry as to damages also provides interesting points in respect of the calculation of damages.

In particular, Rose J considered the damages applicable to the sales of a certain type of mosquito net, which was developed indirectly from confidential information belonging to Vestgergaard.  While there was no direct authority on this point, the general principles applicable to calculation of damages in General Tire v Firestone were still followed, putting the "injured party in the same position as he would have been if he had not sustained the wrong"².

Background

To recap on the facts which are relevant to the damages decision, the dispute involved certain secret information used in the manufacture of mosquito nets.  The Claimant, Vestergaard, had a business which involved the development, manufacture and marketing of mosquito nets, and as part of that business had developed special techniques which ensured that their nets retained their insecticidal properties after washing.  These techniques involved the "recipes" for the insecticide used, and the choice of material used to make the nets.

Each technique or recipe would be tested both in a lab, and then later in field trials in an area where malaria is endemic.  Approval for successful mosquito nets would also be required from the World Health Organisation (WHO).

The case revolved around two ex-employees (Mr Larsen and Mrs Sig), and an ex-consultant of Vestergaard (Dr Skovmand).  Both Mr Larsen and Dr Skovmand were involved in developing the confidential techniques while working at Vestergaard.

In 2004, Mr Larsen and Mrs Sig decided to set up a business in competition with Vestergaard.  Dr Skovmand agreed to work with them, and began developing a product, which was in due course manufactured and put on the market under the name "Netprotect".

Arnold J held, back in 2009, that the Defendants had misused the Claimants' confidential information, and that therefore an inquiry should be held as to damages.  The parties were poles apart in terms of the quantum to which they considered Vestgaard should be entitled (Vestergaard claiming many millions of pounds, while Bestnet claimed that it was worth only a few thousand).

Quantum Decision

A total amount of US$485,419 was awarded to Vestergaard in damages.

In coming to this figure, Rose J looked at two different types of infringing nets sold, and calculated damages figures for each one.  The types of infringing nets and calculation of damages were divided up as follows:

1. Nets made using a recipe which was based directly on the work Dr Skovmand had done for Vestergaard
   
   Damages in relation to this first category of nets were split into:

(i) Firstly, a sum awarded on the basis of loss of profit on diverted sales from Vestergaard to Bestnet (ie the sales that would have been made by Vestergaard if the Bestnet product had not been on the market).

This was calculated by apportioning an amount of Bestnet sales to Vestergaard, on the basis of the proportions of business won in other areas of the market.  This was then reduced by an amount that represented the proportion of Vestergaard owned by interests outside the Vestergaard group.

(ii) Secondly, a royalty amount for remaining sales reflecting a payment for permission to use the confidential information that had been used to develop the infringing recipe.

     2.   Nets made using a recipe developed by Dr Skovmand while working             for Bestnet (developed using Vestergaard confidential information in             combination with a substantial amount of further research and             development)

In respect of this second category of nets, Rose J awarded a damages amount based on a consultancy fee for use of Vestergaard's confidential information.

Rose J considered that although a lot more development had been done by Dr Skovmand while at Bestnet, the information on which the original recipe was based was still used quite substantially (both in the development of the second recipe and also in promotional material and applications for WHO approval).  This was combined with a consideration of typical consultancy rates in the area, and Dr Skovmand's own consultancy rate while at Vestergaard was directly considered, which led to the damages award.

Vestergaard had also sought so-called "springboard" damages, ie compensation for a "short cut" or "fast track" entry into the market, and potentially an additional sum of damages could have been awarded in this respect.  However, Rose J found on the facts that, while Dr Skovmand's development time had been reduced by approximately 6 months by using the Vestergaard confidential information, this had not speeded up entry on to the market because the time taken to achieve WHO approval to sell the new nets was also held up by 6 months (the requisite testing could take place only in mosquito season, so there was a 6-month delay).  As a result, no additional springboard damages were awarded.

Comment

This decision provides useful guidance as to the Court's approach on assessing damages for breach of confidence on loss of sales, notional licence fee and springboard bases.  It also confirms that damages will still be payable even where the later development arises indirectly from the confidential information in question, with such damages being assessed by reference to a notional consultancy rate.

The decision further illustrates that a different view between the parties as to the principles that should be applied to the assessment of damages should be approached can lead to a very significant difference in each party's view of the sums at stake and, even once the principles are established, the outcome is still heavily fact dependent, both as to what happened between the parties in dispute and what the market position is generally.

1. Vestergaard Frandsen A/S (now called MVF 3 ApS) and others v Bestnet Europe Limited and others [2014] EWHC 3159 (Ch)

2. General Tire & Rubber Company v Firestone Tyre & Rubber Company [1975] 1 WLR 819, page 824