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Theft and misuse of confidential information

  • United Kingdom
  • Commercial litigation
  • Litigation and dispute management

13-04-2017

Practical rather than punitive approach to damages

In cases concerning the alleged theft and misuse of confidential information, opposing parties invariably adopt greatly disparate positions on the financial value of the claim. The recent case of Marathon Asset Management  LLP and another v Seddon and others [2017] EWHC 300 (Comm) provides a helpful yardstick against which parties can measure their expectations, as characterised by the judge in the Marathon case:

“In circumstances where the misuse of confidential information by the defendants has neither caused [the claimant] to suffer any financial loss nor resulted in the defendants making any financial gain, it is hard to see how [the claimant] could be entitled to any remedy other than the award of nominal damages”.

Whilst the value of the claim in Marathon totalled some £15 million, the judge found that only nominal damages in the sum of £2 should be awarded to Marathon.

Factual background

Marathon carried on a highly successful fund management business. Following a long-standing dispute between the firm’s founders, one of the founders left the organisation along with a number of other employees, who subsequently established a competing business. Marathon sued two of the outgoing individuals (S and B) after it transpired that a substantial number of confidential business files had been transferred onto USB drives and taken, prior to their departure.

It was admitted and established that one of the defendants (B) had copied a substantial amount of Marathon’s confidential information onto a USB drive, which he retained for a number of months, in breach of his contract of employment and duty of fidelity to Marathon. It was also established that the other defendant (S) had saved confidential files onto a shared drive, later copied onto a USB drive by his co-defendant (B).

Notably, it was accepted by both parties that only a very small number of the numerous files copied and removed were ever used by the defendants.

It was not alleged that the conduct of the defendants had caused Marathon to suffer any financial loss.

“Licence fee” damages

Marathon maintained that it did not matter what use was actually made of any of the files or that no loss had been shown, but that the defendants should pay the commercial value of the confidential information which they unlawfully took.

Marathon asked the court to assess damages according to the established principle set out in Wrotham Park Estate Co Limited v Parkside Homes Ltd [1974] 1 WLR 798, referred to by the judge as “licence fee” damages, which, he said, capture the basic idea that such damages represent a fee that would reasonably have been agreed between the parties to licence the defendants in respect of the confidential information. Marathon’s case was that such “licence fee” damages amounted to £15 million.

The decision

The defendants were found liable to Marathon, both having breached contractual and common law duties of confidence through copying and retaining confidential information.

Whilst Marathon made much of the commercial value of the information copied by the defendants, and that such information would have enabled them to “hit the ground running” in starting up a new venture, critically, the judge found “the fact is, however, that this did not happen” commenting:

 “[…] there is a vast gulf between the extent of the use which [Marathon] says could potentially have been made of the files […] on which its claim for damages is based, and the very limited use which the evidence shows was in fact made of them.”

Returning to central principles, the judge commented that the objective behind an award of damages for a civil wrong is to compensate the claimant for injury caused by the wrongful act. In this case, the judge found that no financial loss had been suffered by Marathon, nor financial gain enjoyed by the defendants, in connection with the theft and misuse of the confidential information.

The judge therefore determined that Marathon had “missed the jackpot” and awarded only nominal damages to Marathon.

Impact

This judgment illustrates the importance of matching the remedy to the wrong, and the court’s approach to awarding damages where quantification of a claimant’s loss (or a defendant’s gain) is not clear-cut.

Critical to the outcome of the case was the actual use made of the material, as opposed to the potential uses the material could have been be put to. The decision illustrates an unwillingness from the court to take a punitive approach to damages, even in the face of clear breach, over a more practical assessment of what has actually been lost or gained by the parties arising from the breach in civil proceedings.

The level of damages awarded in respect of the breach of contractual and / or common law duties of confidence will hinge upon the factual circumstances of each case.

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