FEDERAL COURT OF AUSTRALIA
RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2011] FCA 423
IN THE FEDERAL COURT OF AUSTRALIA | |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. There be a taking of accounts by a Registrar of the Court of any profits made by the first respondent from sales of Nexus 820 adhesive between the date in September 2007 when the first of such sales was made until 14 March 2008.
2. The respondents pay to the applicant as damages the amount found upon the taking of accounts referred to in paragraph 1 of this Order.
3. The application stand over to a date to be fixed for the making of further orders as to costs, interest and any other matter which may be required in light of the reasons of the Court published this day.
4. The time for appeal from paragraphs 1 and 2 of this Order be extended until the expiration of 21 days from the making of the orders referred to in paragraph 3 of this Order.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
VICTORIA DISTRICT REGISTRY | |
GENERAL DIVISION | VID 1150 of 2007 |
BETWEEN: | RLA POLYMERS PTY LTD ACN 004 709 915 Applicant
|
AND: | NEXUS ADHESIVES PTY LTD ACN 121 120 036 First Respondent JONATHAN CHARLES CLEWLOW Second Respondent ISHU SOFAT Third Respondent BRETT NIXON Fourth Respondent
|
JUDGE: | RYAN J |
DATE: | 29 APRIL 2011 |
PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
introduction
1 Before this Court is an application brought by the applicant, RLA Polymers Pty Ltd (“RLA”) seeking relief against the respondents in respect of alleged breaches of obligations of confidence by three of its former employees, the second respondent, (“Clewlow”), the third respondent (“Sofat”) and the fourth respondent (“Nixon”) and breaches of the Trade Practices Act 1974 (Cth) (“Trade Practices Act”) and the Fair Trading Act 1999 (Vic) (“Fair Trading Act”) by the first respondent (“Nexus Adhesives”), which were allegedly aided and abetted by the individual respondents. RLA’s case is that the respondents made improper use of their knowledge of RLA’s trade secrets, and confidential information concerning the formulations for two flooring adhesives developed and manufactured by RLA called “Polymer Engineering 265” (“PE 265”) and “Roberts 656” (together “the Confidential Information”) when developing Nexus Adhesives’ respective competing products called “Nexus 820” and “Nexus 840”. In essence, RLA contends that the respondents were in breach of their duty of confidence by disclosing and using their knowledge of the Confidential Information, effectively as a “springboard” to develop and bring to market, more quickly than they otherwise would have, their own competing products. RLA’s contention is that the respondents’ conduct was in breach of continuing obligations of confidence (both contractual and equitable) on the part of Clewlow, Sofat and Nixon and that representations made by or on behalf of Nexus Adhesives to members of the public contravened the Trade Practices Act or the Fair Trading Act.
2 RLA seeks to have the benefit obtained by the respondents’ conduct stripped from them, and that RLA be compensated for the harm occasioned by that conduct.
3 The respondents submit that all RLA’s claims should be dismissed on the basis that none of the causes of action invoked by RLA has been sustained. The respondents contend that the Confidential Information is not capable of protection at law and, in any event, the products known as “Nexus 820” and “Nexus 840” were independently developed by Nexus Adhesives and its consultant, Mr Philip O’Brien (“O’Brien”).
FACTUAL BACKGROUND
Adhesives
4 By way of introduction, it is first necessary to outline the nature of the Confidential Information and adhesives in general. Information respectively possessed by RLA and Nexus Adhesives, particularly that related to specific ingredients of their different adhesives, has to be kept confidential. Accordingly, I have endeavored to exclude from these reasons any reference to specific ingredients and, where necessary, I have used general terms or pseudonyms to identify the ingredient in question.
5 The following is an extract from the CETEC Expert Witness Report (“CETEC Report”) and is an uncontroversial summary of the types of adhesive ingredients which make up PE 265, Nexus 820, Roberts 656, and Nexus 840.
… PE 265 and Nexus 820 and Roberts 656 and Nexus 840 are Contact Adhesives and Pressure Sensitive Adhesives respectively.
A Contact Adhesive is typically a mixture of ingredients dissolved in a solvent. These ingredients are usually made up of a polymer(s), filler(s), possibly pigment(s) and/or additives. With a Contact Adhesive, the product may be applied to one or both substrate surfaces, these are subsequently allowed to solvent dry and become tacky, before the two adhesive surfaces are brought together to create the bond.
Pressure Sensitive Adhesives form a bond by the application of light pressure between the two substrate surfaces. Thus, in the case of a carpet tile, the adhesive is applied to the tile and thereafter simply pressed into position on the floor.
6 The CETEC Report was tendered by RLA and comprised two reports prepared by CETEC Pty Ltd (“CETEC”). The first report set out a number of chemical and documentary analyses and conclusions arising from them and detailed the instructions and materials received by CETEC. The second report was a supplementary report prepared by CETEC after the respondents’ witness statements had been filed and was prepared in response to an enquiry as to whether CETEC’s original opinions had changed, and, if so, how. The authors of the CETEC Report, and expert witnesses called by RLA, were Dr Vytenis Peter Garnys, Managing Director and Principal Consultant of CETEC (“Dr Garnys”) and David Anthony Bate, Senior Consultant of CETEC (“Bate”).
7 It is common ground between the parties to this proceeding that most adhesives contain the following raw materials which are readily obtainable from trade suppliers:
(a) base resins such as polymers which constitute the main ingredient in the adhesive and provide adhesion and tack;
(b) a “tackifier”, such as a resin;
(c) a solvent, such as water;
(d) thickeners;
(e) filler;
(f) biocide, pH adjusters and other additives.
The base resin or polymer is the most prevalent raw material in the adhesive formula, providing the basic performance properties of the adhesive.
RLA Polymers
8 RLA’s business includes the development and manufacture of a variety of polymer compounding products, including adhesives, for textile and flooring applications in Australia, New Zealand and throughout Asia and the Pacific Rim. The products manufactured by RLA include carpet adhesives, flooring adhesives, ceramic tile adhesives, latex compounds and carpet backings. The RLA products “PE 265” and “Roberts 656”, which RLA contends have been used by the respondents as a “springboard” to develop their own products, are from RLA’s flooring adhesives range.
9 RLA’s origins can be traced to the 1960’s when it was established under the name “Rubber Latex Australia”. It is now a wholly owned subsidiary of Australia Vita Pty Ltd and its ultimate parent company is Vita Caymen Limited (the “Vita Group”). RLA’s business has undergone two expansions which are relevant to these proceedings. The first occurred in 1994 when RLA acquired the business of Polymer Engineering, a flooring adhesives manufacturing company which at that time produced a vinyl adhesive manufactured and sold under the product name “Polymer Engineering 3300” (“PE 3300”); a vinyl adhesive manufactured and sold as “Polymer Engineering 165” (“PE 165”); and a pressure sensitive adhesive manufactured and sold as “Polymer Engineering 999” (“PE 999”). The business of Polymer Engineering was acquired pursuant to a Business Acquisition Agreement between RLA, Polymer Engineering Pty Ltd, Ian Clewlow and Norman Clewlow, and a Deed of Assignment of Contractual Rights. That transaction involved the transfer to RLA of all intellectual property and confidential information owned by Polymer Engineering which included, in particular, the chemical formulations and manufacturing processes for PE 3300, PE 165 and PE 999. RLA also acquired all Polymer Engineering’s materials, equipment, and a plant in Thomastown, Melbourne and became the employer of several members of Polymer Engineering’s staff, including Jonathan Clewlow. The purpose of the acquisition was to enable RLA to enter the flooring adhesives market by expanding its product range which previously had not extended to flooring adhesives. The second relevant expansion took place in 1996, when RLA acquired the “Roberts” branded range of flooring adhesive products from Pacific Dunlop.
10 The relevance of the acquisition of Polymer Engineering’s business and the “Roberts” branded range of flooring adhesives products, is that RLA thereby obtained access to, and rights over, particular product formulations which eventually led to the development of “PE 265” and “Roberts 656”. RLA continues to sell “PE 265” and “Roberts 656” to distributors and also sells both products under a number of different brand-names used by distributors who, in turn, on-sell them to customers in the floor covering market.
Development of PE 265
11 The development of PE 265 is relevant to the present proceeding as demonstrating the time taken and processes utilised by RLA in bringing PE 265 to the market in commercial quantities. PE 265 is a vinyl sheet adhesive designed for bonding commercial and domestic vinyl sheet products such as vinyl sheeting and PVC-backed carpets. The process of experimentation and decision-making in which RLA engaged in developing PE 265 is recorded in the RLA Laboratory Development Schedules (“Development Schedules”) from 22 May 1994 to 24 August 1995, the product having been released commercially in May 1995. The Development Schedules are internal RLA documents used to record minutes of discussions between senior management and technical staff regarding the development of the RLA products. According to the Development Schedules, the development of PE 265 began in May 1994 and was initially based on the formulations and technologies which had been developed for PE 165 and PE 3300. The technical work in the development of PE 265 was performed by Richard Clinch (“Clinch”), a former RLA employee, Robert Knowles, (“Knowles”) and an external consultant, Len Goulding, who assisted Clinch and Knowles.
12 Clinch began working for RLA as a chemist in 1994 when he took over the responsibility for the development of PE 265 from Knowles, who was the Development Chemist at RLA and had been responsible for the early development of PE 265 but moved into a different area of RLA and passed the development responsibilities to Clinch in late 1994. In 2003, Clinch was promoted to the position of “Development Manager”. His is currently the “Technical Manager” at RLA, a position he has held since 2005. As Technical Manager, Clinch is responsible for all technical issues and aspects relating to RLA’s flooring adhesives. That involves, among other things, developing and supervising the development of flooring adhesives as well as carrying out technical testing and supervising the testing of products for quality control purposes.
13 RLA kept records maintained by Knowles and Clinch. Those records were described by Clinch in his witness statement as “Workbook A” and “Workbook B”. Workbook B is Knowles’ workbook from 18 July 1994. Clinch’s Workbook A takes over from the time when he joined RLA, and begins on 5 December 1994.
14 According to the records, the critical events in the development of PE 265 were;
(a) the PE 265 project commenced in May 1994;
(b) by 23 August 1994, a trial batch of PE 265 was in the testing phase;
(c) by October 1994, it had been observed that the formulation was “gelling” and further work was required;
(d) that further work involved adjusting the gum resin used as a “tackifying” system so as to arrive at a stable product;
(e) from February 1995, long term stability and performance tests were conducted;
(f) the final selection of the key resins in PE 265 was not made until May 1995.
15 The release of PE 265 as a commercial product involved both arriving at a final formulation of its ingredients, and formulating a set of manufacturing and quality assurance instructions. For example, different components of the product, such as gum rosin which is used as a “tackifier” in PE 265 needed to be pre-mixed. PE 265 was released for commercial distribution in May 1995 and has been subject to minor changes over the past 15 years. Some of those changes have been to accommodate seasonal differences in temperature, and others have been made to reflect changes in the availability of ingredients or to create a more competitive product.
Development of Roberts 656
16 Roberts 656 is a “pressure sensitive” adhesive, so called because it is designed to react to the amount of pressure or weight placed on it to increase its “tackiness”. It is intended for use with carpet tiles, foam underlay and vinyl composition tiles in both domestic and commercial settings. Roberts 656 was first developed in 2001 and was initially based on the technology of PE 999, with the aim of reducing odor and improving “tackiness”.
17 Clinch was given the responsibility of developing Roberts 656 and was aided by Andrea Doyle, a laboratory assistant, who undertook laboratory testing and reported back to Clinch. As with PE 265, the development of Roberts 656 is recorded in the RLA Development Schedules which show that the process of arriving at a commercially viable product took 8 months. As with PE 265, specific mixing and quality control measures were taken for Roberts 656. Also, as with PE 265, the formulation for Roberts 656 has been refined and developed since the product was first sold in October 2001.
Nexus Adhesives
18 Nexus adhesives is a trading company within the meaning of the Trade Practices Act incorporated on 8 August 2006 by Clewlow and Sofat, both of whom are the directors of Nexus Adhesives, each holding fifty percent of the issued shares. Nexus Adhesives began trading in September 2006, predominantly in carpet compounds, and it sold its first flooring adhesives in May 2007.
Clewlow
19 Clewlow was employed by RLA from January 1994 until his resignation on 28 July 2008. He had previously worked for Polymer Engineering for six years and joined RLA upon its acquisition of the Polymer Engineering business in January 1994.
20 Clewlow’s initial designation within RLA was “Sales Manager – Flooring Adhesives” and he was later promoted to “Group Sales & Marketing Manager” in which position he was responsible for general sales and marketing, and what has been referred to as “technical sales” or “technical advice”, which is a term used by Clewlow and Brent Cartwright of RLA, a witness called by RLA, to describe the provision of information to customers concerning the installation and application of flooring adhesives such as PE 265 and Roberts 656. In essence, “technical sales” required a sufficiently detailed knowledge of each product to enable advice to be given about its application to carpets or various types of sheet vinyl. As a result, Clewlow, during his service with RLA, developed considerable knowledge in the use and application of flooring adhesives and their constituent ingredients, but did not have any experience or training in the development or manufacture of the products themselves.
21 Clewlow resigned from RLA following two unsuccessful attempts at a management buy-out (“MBO”) by RLA’s management team. The MBO attempts followed the acquisition of the Vita Group, and therefore RLA, by a private equity firm in or around June 2005. Clewlow, together with other RLA employees, including Steven John Etches (“Etches”), who has been employed by RLA since 1987 and was Group Operations Manager at the time of the attempted MBOs, was interviewed for the position of Managing Director of RLA but failed to secure that position. Etches joined RLA in 1987. Since that time, he has held a number of positions, including Group Operations Manager between 1995 and 2007 and General Manager Group Operations since January 2007. In his current role as General Manager Group Operations, he is responsible for managing a range of activities for RLA in Australia, Malaysia and New Zealand covering technical, production, logistics and occupational health and safety as well as planning, project management, budgeting and financial management for the operations.
22 Clewlow gave evidence, when cross-examined by Mr Derham QC, who appeared with Mr Nash of Counsel for RLA, that he had been displeased when an RLA employee was not chosen as Managing Director. However, he had decided before the interview that, if he were not appointed as Managing Director, he would leave RLA.
23 Clewlow resigned from RLA on 28 July 2006, leaving the premises that day, and incorporated Nexus Adhesives on 8 August 2006. Although he admitted that he and Sofat had discussed the possibility of setting up a business to manufacture and sell adhesives, he claims that they took no steps to establish Nexus Adhesives until after they had both resigned from RLA. This denial has been disputed by RLA, but there is insufficient evidence to support a contrary finding.
Sofat
24 Sofat was employed by RLA from March 1998 until her resignation on 4 August 2006. Her initial position at RLA was “Development Manager – Latex and Foam Products”. She was later employed as “Technical Manager – Latex and Underlay”. She was involved in the development and sales of latex underlay and carpet backing compounds. She did not perform any technical work on PE 265 or Roberts 656 or any other RLA flooring adhesives.
25 Sofat had some experience with flooring adhesives during her employment at Roberts Australia where she had worked as a junior laboratory assistant for a short period of approximately 6 months in 1985. That had involved assisting a senior chemist in mixing adhesives, rather than the development of formulations. Following her time at Roberts Australia, Sofat did not have any significant direct involvement with flooring adhesives again until she commenced to work on developing flooring adhesives for Nexus Adhesives. Before commencing work at RLA, Sofat had been employed by Nuplex Industries Pty Ltd (“Nuplex”) and Dunlop Flooring, predominantly in connection with carpet compounds and underlays.
26 In June 2006 Sofat was approached by Clewlow who told her that he was considering his position at RLA and was interested in starting up an adhesives business. He proposed that Sofat should join him as the “technical person”. Further discussions were held between Sofat and Clewlow in the week preceding Sofat’s resignation from RLA on 4 August 2006. Sofat cited as one of the reasons for her deciding to leave the effect the new owners of RLA were having on the business. Sofat resigned from RLA on 4 August 2006 and left the premises on the same day. Together with Clewlow she incorporated Nexus Adhesives and commenced to work in its business on 8 August 2006.
Nixon
27 Nixon was employed by RLA between February 2002 and 29 January 2007, during which time he was successively “Business Support Manager – Flooring Adhesives” and, immediately before his resignation, “National Sales Manager”. His duties in those capacities were similar to Clewlow’s in that he was primarily involved in sales and promotion of RLA products rather than working as part of RLA’s technical staff in the development of products such at PE 265 or Roberts 656. Before working for RLA, Nixon had gained experience in the flooring industry by installing carpet and vinyl flooring. He also promoted sales and gave advice in the sales and “technical sales” areas. During that time Nixon had been exposed to the various flooring adhesives available in the market and developed a working knowledge of the flooring adhesive industry.
28 In essence, Nixon’s expertise, like Clewlow’s, has been built up over many years in the flooring adhesives industry and has been concentrated on the use and application of flooring adhesives. He has had no training or experience in chemistry or the development of chemical formulations for products like PE 265, Roberts 656, Nexus 820 or Nexus 840.
29 Like Sofat, and, to a certain extent, Clewlow, Nixon left RLA after he became disillusioned with what he perceived as its different business culture following the management changes in 2006. He left RLA on 29 January 2007 without having secured any alternative employment as he and his wife were expecting a baby in February and he wanted some time off work.
30 On 19 March 2007, Nixon joined Nexus Adhesives as manager of the adhesives division.
RLA’S CLAIM
31 By its Further Amended Statement of Claim, RLA claimed that the product formulations for manufacturing each of PE 265 and Roberts 656, i.e. the Confidential Information and the revisions thereof from time to time, are trade secrets of RLA and further or alternatively are information that is confidential to RLA. It alleged that each of Clewlow, Sofat and Nixon was under an equitable duty of confidence to RLA arising from his or her employment with RLA, which continued following the termination of their employment. Relevantly, it was alleged to have been a term of their respective contracts that they:
(a) … would not, during the course of their employment, compete with RLA Polymers, whether directly or indirectly;
(b) … would not, during the course of their employment, procure or solicit any customer of RLA Polymers to cease doing business which the customer would normally do with RLA Polymers;
…
(f) … would preserve and maintain the confidentiality of RLA Polymers’ trade secrets and confidential information;
(g) … would not use or disclose, either during or after [their] employment, information obtained by [them] as an employee which was a trade secret of or confidential to RLA Polymers except in the course of [their] employment with RLA Polymers or to the detriment of RLA Polymers;
(h) … would not use or disclose to any third party either during or after [their] employment, trade secrets and information confidential to RLA Polymers;
…
32 Each of Clewlow, Sofat and Nixon admits the allegations in the Further Amended Statement of Claim as set out at [31] above. In particular, they admit that they owe RLA a duty of confidentiality.
33 It is then alleged that, in breach of the duty of confidentiality, Clewlow, Sofat and Nixon disclosed to Nexus Adhesives knowledge of the Confidential Information to Nexus Adhesives and used it to bring Nexus 820 and Nexus 840 to the market much sooner than would have occurred had they not used the Confidential Information. Accordingly, RLA alleges that Nexus Adhesive’s use of the Confidential Information as a “springboard” to bring its products to the market in such a quick time and in direct competition with those of RLA has allowed Nexus Adhesives to profit while causing harm to RLA’s business.
34 RLA also alleges that Clewlow and Sofat have been in breach of their respective contracts of employment with RLA by establishing Nexus Adhesives, to compete directly with RLA, while they were still employed by RLA and by failing to return any Confidential Information when they left RLA. It is further alleged that Nexus Adhesives, Clewlow, Sofat and Nixon engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act and s 9 of the Fair Trading Act, in that false representations were made, and continue to be made, that Nexus 820 and Nexus 840 have been developed by Nexus Adhesives and, in contravention of s 53(c) of the Trade Practices Act and s 10 of the Fair Trading Act, that those products have characteristics, properties and capabilities which are of a certain nature and superior to PE 265 and Roberts 656. It is alleged by RLA that neither Nexus 820 nor Nexus 840 has been developed by Nexus Adhesives, but rather they are based upon, are commercially equivalent to, and are not superior to, PE 265 and Roberts 656 respectively, as they were derived from Confidential Information.
35 RLA claim that, unless restrained, each of Clewlow, Sofat and Nixon will continue to act in breach of their respective contracts of employment with, and duties of confidence to, RLA, and that Nexus Adhesives, Clewlow, Sofat and Nixon will continue to make representations in contravention of the Trade Practices Act and the Fair Trading Act.
36 By its Further Amended Statement of Claim the relief sought by RLA is as follows:
A. An injunction that the Respondents be restrained from using, or disclosing to any person, any of the Confidential Information.
B. Further or alternatively to A., an injunction that the Respondents be restrained from manufacturing, promoting and selling the Nexus 820 and/or Nexus 840 products for a period of not less than 12 months, alternatively a period commensurate with the advantage obtained by the Respondents from their use of Confidential Information.
C. Further or alternatively to A. and B., a declaration that the formulations for Nexus 820 and 840, and any profit derived from their sale up to the date of judgment, are held on trust for the Applicant by the Respondents.
D. Further or alternatively to C., a declaration that the Respondents have misused Confidential Information in the manufacture of the Nexus 820 and Nexus 840 products (whether branded as “Nexus 820”, “Nexus 840” or otherwise) by the First Respondent.
E. Delivery up on oath or affirmation of any Confidential Information in the possession of any of the Respondents.
F. Delivery up on oath or affirmation or destruction under the supervision of RLA Polymers of all products and materials derived from, produced from or containing any of the Confidential Information.
G. A declaration that the Respondents have:
i. Engaged in misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth) and section 9 of the Fair Trading Act 1999 (Vic); and
ii. Contravened section 53 of the Trade Practices Act 1974 (Cth) and section 10 of the Fair Trading Act 1999 (Vic).
H. An injunction restraining the Respondents from continuing to make the representations.
I. Equitable compensation.
J. Damages.
K. Damages pursuant to section 82 of the Trade Practice Act 1974 (Cth).
L. Damages pursuant to section 159 of the Fair Trading Act 1999 (Vic).
M. The taking of all necessary accounts and the making of all necessary enquiries.
N. Interest pursuant to statute.
O. Such further orders that to the Court seem fit.
P. Costs.
RESPONDENTS’ DEFENCE AS PLEADED
37 The respondents’ defence as pleaded in the Second Further Amended Defence dated 19 June 2009, is, in essence, a denial of all allegations made by RLA. In particular, each of Clewlow, Sofat and Nixon say that all Confidential Information in their possession was delivered up to RLA when they resigned from its employ. Clewlow admits that he had access to the Confidential Information while employed at RLA. However, he denies that he acquired any substantial knowledge of the Confidential Information. Each of Clewlow, Sofat and Nixon denies that any Confidential Information has been used to develop Nexus 820 or Nexus 840. The respondents contend that the development of Nexus 820 and Nexus 840 was conducted entirely independently of, and not in reliance on, any information derived from RLA.
38 Clewlow and Sofat also deny that, during the course of their employment with RLA, they engaged in the establishment of the business of Nexus Adhesives which competed with RLA whether directly or indirectly.
39 As well, the respondents do not admit RLA’s allegation that the product formulations and processes for manufacturing each of PE 265 and Roberts 656, and the revisions thereto from time to time, are trade secrets of RLA or that the information is confidential to RLA.
40 As I have already mentioned at [32] above, each of Clewlow, Sofat and Nixon admits the matters alleged by RLA which are listed at [31] including, in particular, that each of them owes RLA a duty of confidentiality. Accordingly, the two matters in dispute between the parties are, essentially, whether the Confidential Information is a trade secret or otherwise confidential to RLA, and, if so, whether the respondents have misused that information in developing either or both of Nexus 820 and Nexus 840.
CONFIDENTIAL INFORMATION
41 RLA was put to proof of its assertion that the Confidential Information is a trade secret or has the necessary qualities of confidentiality to attract appropriate equitable relief. It is convenient now to consider the relevant authorities on what constitutes confidential information or a trade secret and what constitutes general “know-how” which the respondents would be allowed legitimately to exploit in their own interests.
Applicable Principles
42 The following recent analysis by Finn J in Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220 (“Australian Medicare”) at [632]-[634], provides a useful summary of the relevant principles to be applied in a case like the present;
632 The agreed elements of the action for breach of confidence are, for present purposes, that:
(i) the information in question must be confidential in character: it must have “the necessary quality of confidence about it”: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215;
(ii) it must have been imparted in circumstances importing an obligation of confidence: Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40; and
(iii) there must have been an actual or threatened unauthorised use or disclosure of that information: Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73 at 87, 111-112; Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222.
See generally, Dean, The Law of Trade Secrets and Personal Secrets (2nd ed, 2002); Toulson and Phipps, Confidentiality (2nd ed, 2006).
633 The essential attribute of confidential information is what has been described as “relative secrecy”: Franchi v Franchi [1967] RPC 149, at 153; Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 119. Whether this attribute exists in a given case will be often a question of degree and a variety of criteria have been invoked in varying contexts to sharpen the inquiry to be made:
(i) is the information in question widely known, or publicly available in the relevant industry, trade, etc: Coco at 51; cf Ansell Rubber Co at 50; Titan Group Pty Ltd v Steriline Manufacturing Pty Ltd (1990) 19 IPR 353 at 381;
(ii) has the confider made the information public by using it in its manufactured products and placing it on the market, or would the ascertainment of the information from the manufactured product by reverse engineering or otherwise require the expenditure of time, effort, money or experimentation: see eg Ackroyds (London) Ltd v Islington Plastics Ltd [1962] RPC 97; Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1985) 5 IPR 357 at 379;
(iii) did the confider produce or obtain the information only after the expenditure of time and/or money by way of research or in the application of skill and ingenuity; Saltman Engineering Co Ltd; cf United Sterling Corporation v Felton [1974] RPC 162; Interfirm Comparison (Australia) Ltd, at 117; could another person acquire or duplicate the information only by going through a like process: Cranleigh Precision Engineering Ltd v Bryant [1966] RPC 81 at 89-90; Ansell Rubber Co at 49;
(iv) what steps has the confider taken to preserve the secrecy of the information and to prevent it becoming public knowledge: Amber Size & Chemical Co Ltd v Menzel (1913) 30 RPC 433 at 438; Dean, at [3.165]-[3.175];
(v) is the information intrinsically valuable or is it valuable to the confider or to a competitor or other interested party: Surveys & Mining Ltd v Morrison [1969] Qd R 470; Measures Brothers Ltd v Measures [1910] 1 Ch 336; and
(vi) would a reasonable person in all the circumstances recognise the information to be the “property” of the confider: Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 191; Printers & Finishers Ltd v Holloway (No 2) [1965] RPC 239 at 255.
634 There is no single test for determining when the communication of confidential information will import an obligation of confidence. As Gowans J said in Ansell Rubber (at 40):
That obligation may come into existence by reason of the terms of an agreement, or what is implicit in them, by reason of the nature of the relationship between persons, or by reason of the subject-matter and the circumstances in which the subject-matter has come into the hands of the person charged with the breach.
43 Counsel for RLA also correctly asserted that, to the extent that the Confidential Information is pleaded as being a “trade secret” of RLA, the observations of Harper J in GlaxoSmithKline v Ritchie (2008) 77 IPR 306 (“GlaxoSmithKline”) at [49]–[50] are apposite;
49 There is as yet no settled meaning of the expression “trade secret”. According to Butterworths Australian Legal Dictionary (1997) it is not a term of art but an ordinary term of the English language. [Butterworths Australian Legal Dictionary (1997)]
In The Law of Trade Secrets and Personal Secrets , Dr Robert Dean says that:
courts have categorised a trade secret in terms of confidential information of a commercial character, using description by example and relying on specific indications of secrecy to determine whether information is a trade secret. It is a term that changes as the commercial environment changes. [The Law of Trade Secrets and Personal Secrets (2 nd edition, Law Book Co, 2002) p.16.]
50 For present purposes, I take a trade secret to be information which “can fairly be regarded as a separate part of an employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with”. [Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239 at 255 per Lord Cross.] For the purposes of this case, I therefore take a trade secret to be an item of confidential information, learnt during employment, the confidentiality of which, as an employee of ordinary honesty and intelligence would acknowledge, must be maintained even after that employment has come to an end. In other words, a trade secret has an inherent quality that takes it above and beyond more general knowledge, albeit that the general knowledge may to a lay person be very specialised. Whether information amounts to a trade secret is a question of fact, to be determined in the particular circumstances. A trade secret is to be distinguished from knowledge of no special significance such as that which an employee with familiarity with the relevant art might acquire (without employing any more skill than that of an ordinary practitioner of the art) simply by building upon the information necessarily made available to him in the ordinary course of his employment.
Identification of Confidential Information
44 In GlaxoSmithKline, Harper J explained at length at [38] the burden borne by an applicant of properly informing the respondent, and also the Court, with a high degree of particularity, what is claimed to be confidential information or a “trade secret”;
[t]he law must insist not only upon the clear and precise identification of the information upon which the plaintiff relies, but also that that identification be restricted to information that is properly characterised as confidential. I respectfully adopt the words of Laddie J in Ocular Sciences v Aspect Vision Care Ltd [[1997] RPC 289, at 360]:
The requirement of particularity may impose a heavy burden on the plaintiff. In a case where the plaintiff has a large quantity of confidential information and much of it has been taken by the defendant, the obligation to identify all of it might involve a great deal of work and time. … The normal approach of the court is that if a plaintiff wishes to seek relief against a defendant for misuse of confidential information it is his duty to ensure that the defendant knows what information is in issue. This is not only for the reasons set out by Edmund Davies LJ in Zink (John) & Co Ltd v Lloyds Bank Ltd [1973] RPC 717 but for at least two other reasons. First, the plaintiff usually seeks an injunction to restrain the defendant from using its confidential information. Unless the confidential information is properly identified, an injunction in such terms is of uncertain scope and may be difficult to enforce … Secondly, the defendant must know what he has to meet. He may wish to show that the items and information relied on by the plaintiff are matters of public knowledge. His ability to defend himself will be compromised if the plaintiff can rely on matters of which no proper warning was given. It is for all these reasons that failure to give proper particulars may be a particular damaging abuse of process.
These principles do not apply only to the question of the content of the pleadings. Just as it may be an abuse of process to fail properly to identify the information on which the plaintiff relies, it can be an abuse to give proper particulars but of information which is not, in fact, confidential. A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against a defendant. It can be used to destroy an ex-employee’s ability to obtain employment or a competitor’s ability to compete. The wider the claims, the longer and more expensive the litigation. … A competitor or ex-employee is entitled to copy non-confidential material, but if the plaintiff mixes a large amount of technology together, some of which has been copied by the defendant, there is a risk that the court will jump to the conclusion that some of what was copied must have been confidential.
45 In reliance on the above passages in GlaxoSmithKline, the respondents have contended that the Confidential Information as pleaded by RLA, casts too wide a net. Accordingly, the respondents say, the Confidential Information should include the product formulations and the processes for manufacturing in their entirety and should not be allowed to be fragmented to allow confidential or “trade secret” status to be accorded to, for example, the individual ingredients in PE 265 and Roberts 656. I do not accept this submission. In light of the test in GlaxoSmithKline for determining whether information is a “trade secret”, it seems to me that, if certain ingredients which comprise the formulation of PE 265 and Roberts 656 have the necessary quality to enable them reasonably to be regarded as a “trade secret”, then RLA’s pleadings are not imprecise or too wide. Further, the principle discussed by Harper J in the passage reproduced at [44] of these reasons seems to apply more appropriately to cases where large amounts of confidential information are in issue, the identification of which places an unacceptable burden on the respondents when trying to understand the case against them. This is not such a case. Indeed, particularising in a statement of claim each ingredient which RLA considers confidential would involve disclosing the very information which it seeks to keep confidential. On the basis that the respondents must know, at the very least, the type of ingredients which make up the formulations of PE 265 and Roberts 656 as a result of their knowledge of Nexus 820 and Nexus 840 and similar adhesives in the industry, I accept that the Confidential Information was sufficiently identified in the pleadings. Accordingly, provided that RLA has proved to the requisite standard that certain individual ingredients should be considered “trade secrets”, the fact that a particular ingredient has not specifically been pleaded as forming part of the Confidential Information has no bearing on these proceedings.
Quality of confidence
46 Consistently with the principles outlined above, I make the following findings which I consider demonstrate that the Confidential Information amounts to information with “the necessary quality of confidence about it” (Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203, at 215) to attract the imposition of an obligation of confidence.
47 RLA contends, and I accept, that, while the individual ingredients which constitute PE 265 and Roberts 656 are readily obtainable from various industry suppliers, the Confidential Information itself is not widely known, or publicly available in the adhesives manufacturing industry. That includes, in particular, the type, relative proportions and number of polymers specified in the formulas for PE 265 and Roberts 656.
48 A matter of contention in these proceedings has been the value and effectiveness of a “starting point formulation” or “start-up formulation” (“SPF”). The parties tend to agree that SPFs are generic product formulations made available by suppliers of raw materials, particularly polymers, such as Nuplex and BASF to manufacturers of adhesives like RLA and Nexus Adhesives. This is supported by the evidence of Mr Kissock, a former BASF sales manager who had worked for 7 years with BASF Australia where he held the positions of Industry Manager (Fibre Bonding), Industry Manager (Construction Chemicals) and Industry Manager (Architectural Coatings) (“Kissock”). In the role of Industry Manager (Construction Chemicals) he had accountability for the sales and profitability of all of the business’ sales within the construction chemicals strategic business unit. He left BASF at the beginning of 2009. The evidence of Kissock and Dr Farquharson, a senior research chemist for approximately 14 years at Nuplex where he was involved in the development of polymers, is that SPFs usually include a list of the raw materials and their relative proportions necessary to create an adhesive. This is also clearly apparent from the documentary evidence tendered in these proceedings. Each supplier usually suggests that all the raw materials, including the polymer or polymers, be ordered from its catalogue of available products. The purpose of providing SPFs to manufacturers like RLA and Nexus Adhesives is fairly obvious: the provision of SPFs is a way of marketing the supplier’s products and establishing ongoing commercial connections, in the expectation that the manufacturer will use the SPF to create a commercially viable formula utilising as many of the supplier’s raw materials as possible. These facts are uncontroversial. However, there is some dispute over how useful SPFs are in the creation of commercially viable products.
49 There is significant evidence from each side which suggests that only very rarely can an SPF be converted directly into a commercial product. The evidence-in-chief of Dr Farquharson, called by the respondents, was that SPFs provided by Nuplex are “a very general, generic guide” which are given out freely and are often generated from publicly available information and, accordingly, they “don’t expect the starting point formulation to be a commercially viable formulation”. Indeed, as Dr Farquharson acknowledged, the level of sophistication of SPFs is “moderate at best”, and, to develop a commercially viable product from an SPF, would require a certain degree of experience in handling formulations of the relevant type.
50 On the evidence before the Court, I consider that, although SPFs may contribute to the ultimate production of an adhesive, significant further development is usually required to arrive at a commercially viable product. Notwithstanding this general need for further development, the respondents contend, accurately, that many SPFs are in the public domain.
51 Although it is true that several SPFs are available in the public domain and obtainable from suppliers like BASF and Nuplex, this only affords the public knowledge of the “types” of ingredients of flooring adhesives and those which are specific to a particular SPF. There is no evidence to suggest that the Confidential Information, as distinct from general SPFs or the individual ingredients of adhesives, is in the public domain. The availability of the ingredients does not reveal that they are necessarily present in RLA’s formulations, or, if they are, the relevant quantities that are used by RLA in those formulations.
52 The evidence of Dr Garnys, an expert witness for RLA, was that, although reverse engineering of an adhesive such as PE 265 or Roberts 656 is possible, that task would require the expenditure of substantial time and money. Dr Garnys’s evidence was not seriously contested by the respondents. A precise estimate of the time and money needed to reverse engineer such an adhesive was not available on the evidence and any attempt to quantify the expenditure would be in the realms of conjecture. Nevertheless, I am able to find that the ascertainment of the Confidential Information by reverse engineering of the manufactured products of PE 265 and Roberts 656, although possible, would require the expenditure of time, effort and money on experimentation to such a degree that it cannot be said to be “publicly available” or in the “public domain”.
53 As I have found at [8]-[15] above, the Confidential Information consists of detailed and technical information going to the selection and specification of quantities of particular raw materials, the order of mixing components, equipment settings (including timing and speed parameters) and other information relevant to the manufacture of PE 265 and Roberts 656. Moreover, the development of the Confidential Information has been the result of the expenditure of considerable money, skill and ingenuity which, even where RLA was working from existing formulas (like PE 165 and PE 3300), took significant time to bring a finished product to the market. Whether the time taken by RLA to develop the Confidential Information is indicative of the amount of time which another developer would ordinarily take to produce comparable adhesives is, of course, a highly controversial issue in these proceedings and is dealt with later in these reasons.
54 The value of the Confidential Information to RLA, as reflected in the time, effort and resources necessary to produce adhesives like PE 265 and Roberts 656, has been clearly demonstrated by the evidence of RLA’s witnesses Etches, Clinch and Mr Paterson who has worked in the field of developing and commercialising polymer systems and industrial adhesives, sealants and coatings for 24 years and is, at present, the Group Technical Manager responsible for RLA’s Adhesives and Compounds division. Further, the proposition that information, such as the Confidential Information, would be valuable, not only to the owner of the information, but also to any competitors or third parties has also been made good by the evidence under cross-examination of the respondents’ witnesses, O’Brien and Clewlow. In particular, the following exchange took place between Mr Derham QC and Clewlow:
When you left RLA, you didn’t think there was anything confidential about the formula for PE265?I assumed that the formula for PE265, RLA would regard that as confidential information.
But you didn’t understand the importance of that, you’ve just said?No. I said that I – I believe I said that it was never explained to me what “confidential information” was.
Was it explained to you that the formula for PE265, for example, was confidential information?No.
Did you understand that it was confidential information?I made the assumption that it was.
You did. You weren’t under any illusion about that, were you?Well, I wouldn’t imagine RLA would want all their formulas out in the market, no.
Why?Why wouldn’t they?
Yes?Because it would be bad business.
Why?I can’t really answer that.
…
55 During cross-examination of O’Brien, whom the respondents put forward as responsible for much of the development of Nexus 840, the notion of an adhesives manufacturer disclosing its product formulations was described as “commercial insanity”. Further, Counsel for the applicants directed me to Recital C and clause 4 of the confidentiality deed dated 16 November 2006 between Nexus Adhesives and P O’Brien & Associates which recites that;
P. O’Brien acknowledges that substantial harm and damage to the business of Nexus Adhesives may occur in the event that any formulae or manufacturing process belonging to Nexus Adhesives is disclosed to any third party or competitor.
56 The findings recorded at [54]-[55] above demonstrate the importance in the adhesives industry of maintaining the confidentiality of formulations and processes. I accept that, should the Confidential Information become available to RLA’s competitors, those competitors would have a commercial advantage by being able to reproduce RLA’s products and sell them under their own brand without expending corresponding time or resources in developing them. They may thereby be able to manufacture and sell products with the same performance characteristics but at lower prices or use the information as a base or SPF for the development or modification of their own products.
57 Further, the Confidential Information has not been patented, and so disclosed on a public register. Rather, RLA has relied on maintaining the confidentiality of its product formulations and, accordingly, has communicated the Confidential Information to production staff only to the extent necessary to enable them to manufacture discrete quantities of the relevant product in response to individual customer orders. The Confidential Information has otherwise been stored in an electronic database subject to a password restriction accessible only to senior RLA staff (such as Clewlow, Sofat and Nixon), including sales personnel for costing purposes. Although the respondents sought to diminish the importance of the measures taken by RLA to protect the confidentiality of the Confidential Information, partly by the disputed assertion that the Confidential Information was accessible by anyone who passed through the “canteen” or “tea room”, I accept the evidence adduced by RLA through the witness statements and oral testimony of Etches and Clinch, which was not seriously contested, that RLA implemented a number of policies tending to demonstrate the secrecy of the information and a desire to prevent it from becoming public knowledge. Those measures, in addition to those already mentioned, included;
(a) retrieving confidential information from departing employees;
(b) preventing publication of the details of the product formulations in, eg, Material Safety Data Sheets (“MSDS”);
(c) describing the non-hazardous components of PE 265 and Roberts 656 comprising 95% of their content as “Trade Secret” in the MSDS; and
(d) actively pursuing litigation, like that against Bostik Australia which was ultimately compromised, to prevent the disclosure and misuse of its confidential information.
58 Thus far in these reasons, I have used the term “Confidential Information” to refer to the product formulation and methods of production for each of PE 265 and Roberts 656. This should not be taken to suggest that the protection afforded to the Confidential Information as a “trade secret” applies only to the totality of that information. Rather, the obligation of confidence may apply separately to each item of that information provided that it can, of itself, be characterised as a “trade secret”. Thus, aspects of the Confidential Information, particularly the two key polymers in the PE 265 formulation together with their relative proportions and weights would constitute a “trade secret” if an employee of ordinary honesty and intelligence would regard that information in that light. The question posed by Harper J in GlaxoSmithKline of whether information amounts to a “trade secret” involves the application of an objective test of whether an item of confidential information, learnt during employment, would be understood by an employee of ordinary honesty and intelligence to be confidential, so that its confidentiality must be maintained even after that employment has come to an end. A lack of understanding as to what is a “trade secret” or confidential information is no defence if it is found that the objective test has been satisfied.
59 By contrast with what might ordinarily be described as “know-how” forming part of an employee’s “stock of knowledge” which can be drawn upon when working for a new employer, specialised information amounting to a “trade secret” cannot be utilised in that way. That is information which can fairly be regarded as a separate part of an employee’s stock of knowledge but which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer” (GlaxoSmithKline, at [50]).
60 In my view, the evidence discussed at [48]-[58] above and that adduced during the cross-examination of Clewlow, Sofat, Nixon and O’Brien demonstrates that a person of ordinary honesty and intelligence would recognise the Confidential Information to be the property of his old employer.
61 There was some attempt by the respondents to suggest that they did not understand the concept of a “trade secret”, and to invite a finding that nobody at RLA had properly explained to them the meaning of “confidential information” or “trade secret”. As I have emphasised at [58] of these reasons, the respondents’ subjective understanding of the nature of the information is irrelevant if the objective test be satisfied. In any event, it was evident, during cross-examination by Mr Derham QC, that Clewlow, Sofat and Nixon each understood that the Confidential Information was regarded by RLA as something which should be kept confidential, and should not be disclosed to competitors. Significantly, the respondents considered their own product information, similar to the Confidential Information, such as manufacturing formulas, to be confidential information which they would not wish to be disclosed to the public. It was also elicited during the cross-examination of O’Brien that information of that kind is regarded within the adhesives industry as confidential in nature and not to be publicly disclosed. The exchange between Mr Derham QC and O’Brien was in these terms;
So, for example, you would wish to ensure that any formula you developed was not available to any other competitor of yours?Yes.
It would be kept secret, wouldn’t it?Yes.
And it would only be provided to anybody else outside your company, under strict conditions that it be kept secret?Under contractual agreement, yes.
Yes, a contractual agreement?Yes.
And, in fact, that is the practice in the industry, isn’t it?In general.
…
In other words, they wouldn’t give you their actual formulation?No. Some – under some circumstance that doesn’t occur until you’ve qualified with them.
And once you’ve qualified with them, and they actually engage you to manufacture a particular product in accordance with their formula, they sign you up to keep that formula secret, don’t they?Yes.
In every case?Yes.
Yes. And that’s well known in the industry, isn’t it?Yes.
And that’s something that you know, that Jonathan Clewlow was fully aware of, isn’t it?Yes.
Yes. It’s also the case, isn’t it, that where, in a particular market there are a number of manufacturers manufacturing competing adhesives, they do not share their formula with their competitors?No.
Have you ever seen that occur?No.
It would be pure commercial insanity, wouldn’t it?Yes.
62 It is, in my view, quite clear from the evidence that each of Clewlow, Sofat and Nixon, in fact, knew that the Confidential Information was confidential to RLA in the context of the adhesives industry. In accordance with the principles enunciated in Australian Medicare and GlaxoSmithKline, I consider the Confidential Information to have the “necessary quality of confidence about it” to import an obligation of confidence enforceable by an action like the present. I have also been led to characterise the Confidential Information, and certain specific items of that information, as a “trade secret”. I do not accept that certain aspects of the Confidential Information, such as the number, type and amount of polymers in a formulation, can be considered part of an employee’s “stock of knowledge” which can legitimately be drawn upon when working for a new employer. As indicated at [59] above, the “know-how” exemption does not apply where the knowledge constitutes a “trade secret”, which in this case comprises specific items of the Confidential Information that can fairly be regarded as a separate part of an employee’s stock of knowledge but which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer”. Accordingly, for the reasons explained in the following paragraph, I consider that the number, type and amount of polymers in both PE 265 and Roberts 656 constitute a “trade secret”.
63 In these proceedings, both parties acknowledged that the key components of the adhesive products PE 265, Roberts 656, Nexus 820 and Nexus 840, are acrylic polymers. The polymer content of each adhesive makes up of the bulk of the raw material used in both pressure sensitive adhesives and vinyl flooring adhesives and is considered to be the main “cost driver” as it is the most expensive ingredient in the finished product. In my view, any knowledge of the type, number and quantity (i.e, weight) of polymer used in a specific adhesive formulation constitutes a “trade secret”, provided that the information is not in the public domain. Accordingly, any “stock of knowledge” taken away by the respondents on leaving RLA, which included such information about the polymers used in PE 265 and Roberts 656, was a “trade secret”, and not available to be used to further the development of a competitive product. Although such knowledge might have formed a separate part of an employee’s stock of knowledge it was, nevertheless, information which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer”.
64 In the interests of maintaining the confidentiality of information possessed by both parties, I shall identify the ingredients used in each product with a particular pseudonym. It is clear that the parties regard the polymers as the main constituent of their respective adhesives. Where necessary later in these reasons, I shall assign other pseudonyms to other ingredients. Accordingly, the two polymers in PE 265 are hereafter referred to as Polymer A and Polymer B. The polymer in Roberts 656 is Polymer B. The polymers in Nexus 820 are Polymer 1, Polymer 2 and Polymer A. The polymers in Nexus 840 are Polymer B and Polymer 3. I shall also make reference to a Nuplex Polymer 4 and a Nuplex Polymer 5, which were considered in the development process by the respondents but ultimately not used in their final formula for Nexus 820 or Nexus 840.
Obligation of confidence
65 For the Confidential Information to have “the necessary quality of confidence about it” (Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215) the information must also have been imparted in circumstances importing an obligation of confidence (Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40).
66 It is clear from the review of the authorities by Gowans J in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40, that the obligation can be imported from various circumstances. Clewlow, Sofat and Nixon, as I have outlined at [31]-[32] of these reasons, have admitted in their defence that there were terms of their respective employment contracts that imposed an obligation of confidence and that each of the individuals was under an equitable duty of confidence arising from his or her employment relationship. Accordingly, each was under a duty not to use or disclose any of the Confidential Information which he or she retained on departing from RLA. As already mentioned, this included specific items of the Confidential Information that could fairly be regarded as a separate part of an employee’s stock of knowledge but which “a person of ordinary honesty and intelligence would recognise to be the property of his old employer”. It is now necessary to identify what, if any, information was taken away, or could reasonably be inferred to have been taken away, by the respondents.
67 During the course of his or her employment, each of the respondents had access to the Confidential Information and, in particular, to System 21 which contained the product formulations for PE 265 and Roberts 656. Further, the evidence before the Court in the form of witness statements of the respondents and their oral evidence under cross-examination indicates that each of them acquired Confidential Information in the sense of being exposed to it during the employment and retaining knowledge of it after leaving. This is evident from the following:
(a) In his witness statement, Clewlow claimed that, while employed at RLA, he “had access to many if not all of the RLA formulations. I also had intimate knowledge of the PE 265 and R656 formulations, but from a costing point of view only”. Clewlow affirmed this assertion during cross-examination;
(b) In her first witness statement, Sofat claimed that she had acquired knowledge of the two polymers used in PE 265 from her “stock taking days at RLA”, where she came into contact with the Flooring Adhesive shed which contained large storage tanks for the two polymers used in PE 265. Further, she explained in her first witness statement that, when she started developing Nexus 820, she had been “aware of the raw materials and polymers used in PE 265”, though she did not know their specific quantities. Under cross-examination she confirmed her possession of this knowledge;
(c) During cross-examination Nixon conceded that he knew most of the ingredients in Roberts 656 and PE 265 and his answers to Mr Derham’s questioning seemed to suggest that he had some knowledge of specific quantities. Nixon admitted, in his witness statement of 4 September 2009, that, while working for Nexus Adhesives he had found an old notebook from his employment with RLA which contained some notes about “items and quantities contained in the PE265 adhesive product”. He claimed that he had mentioned what was contained in his old notebook “in passing” to Sofat. Sofat claimed in her first witness statement that it had been Nixon who had told her of the two polymers in PE 265 and their proportions when he joined Nexus, and that she had written these in her notebook (“Notebook”).
68 It is also clear from the evidence that the respondents had disclosed the retained knowledge described at [67] above to each other. In RLA’s submission, in breach of their duty of confidence they thereby authorised and encouraged its use when developing adhesives for Nexus Adhesives. The evidence supporting a finding to that effect is as follows;
(a) Sofat gave evidence during cross-examination that she was aware of Clewlow’s knowledge of the formulations for PE 265 and Roberts 656 and that Clewlow had “encouraged” her to try out, as part of her development process, what he remembered to be the key polymer ingredients in PE 265, in their approximate proportions;
(b) As mentioned at [66] above, Nixon also conceded that he had shared with Sofat the information regarding the polymers in PE 265, as well as their proportions and cost;
(c) Sofat conceded that she had transcribed into her Notebook on two separate occasions what Nixon had told her about the ingredients in PE 265. It appears from Sofat’s first witness statement that Nixon had provided her at some stage in March 2007 with details of the PE 265 polymers, their proportion and cost, and then later, “on a date between 30 July 2007 and 28 August 2007 [I] was having a further conversation with Brett Nixon and he listed some further components of PE 265, which I wrote down in my note book.”
69 On this evidence, at the least, the respondents have been in breach of their obligation under the terms of their respective contracts not to use or disclose to any third party either during or after their employment, trade secrets and information confidential to RLA. Under the principles enunciated in Australian Medicare, the agreed elements of the action for breach of confidence have been made out. However, for RLA to obtain the remedies which it seeks, it must make good its claim that the respondents’ breaches of their duty of confidence have led to their disclosing and using their knowledge of the Confidential Information to bring to market competing adhesive products more quickly than would otherwise have been the case, effectively using that information as a “springboard” to develop their own products. Accordingly, there needs to be proof to the requisite standard that the respondents used the Confidential Information in that way and to that effect.
The Springboard Doctrine
70 As I have set out earlier in these reasons, it is RLA’s submission that the respondents used the Confidential Information to gain a “springboard” into the adhesives market. The “springboard doctrine” is inextricably linked to the concepts of misuse of confidential information and trade secrets outlined above at [42]-[69] and, at its simplest, reflects the misuse by one party of another’s confidential information in order to bring out its own product in a manner or time which it would not otherwise have been able to achieve. The “springboard doctrine”, has been the subject of considerable judicial exegesis, including in Saltman Engineering Co Ltd v Campbell Engineering Co (1948) 65 RPC 208, where Lord Greene observed, at 215;
The information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process. What the defendants did in this case was to dispense in certain material respects with the necessity of going through the process which had been gone through in compiling these drawings, and thereby to save themselves a great deal of labour and calculation and careful draughtsmanship. No doubt, if they had taken the finished article, namely, the leather punch, which they might have bought in a shop, and given it to an expert draughtsman, that draughtsman could have produced the necessary drawings for the manufacture of machine tools required for making that particular finished article. In at any rate a very material respect they saved themselves that trouble by obtaining the necessary information either from the original drawings or from the tools made in accordance with them. That, in my opinion, was a breach of confidence.
71 In Terrapin Limited v Builders’ Supply Company (Hayes) Ltd (1967) RPC 375 Lord Roxburgh coined the term “spring-board”, at 391 where he said;
As I understand it, the essence of this branch of the law, whatever the origin of it may be, is that a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential information, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any members of the public. The brochures are certainly not equivalent to the publication of the plans, specifications, other technical information and know-how. The dismantling of a unit might enable a person to proceed without plans or specifications [392] or other technical information, but not, I think, without some of the know-how, and certainly not without taking the trouble to dismantle. I think it is broadly true to say that a member of the public to whom the confidential information had not been imparted would still have to prepare plans and specifications. He would probably have to construct a prototype, and he would certainly have to conduct tests. Therefore, the possessor of the confidential information still has a long start over any member of the public. The design may be as important as the features. It is, in my view, inherent in the principle upon which the Saltman case rests that the possessor of such information must be placed under a special disability in the field of competition in order to ensure that he does not get an unfair start; or, in other words, to preclude the tactics which the first defendants and the third defendants and the managing director of both of those companies employed in this case.
72 The following observations were made by Prichard J in Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1985) 5 IPR 353, at 383;
One can only conclude that there is a principle, founded on the concept of fairness, that when once a person has received information in confidence he is not free, if and when the information becomes freely available public knowledge, to exploit any advantage he may have gained over other members of the public by reason of having had advance knowledge of the former ‘secret’; but that so long as he takes no advantage, derived solely from having had the information in advance of the general public, the confidant is free to use the information in the same way as any other member of the public – even to the detriment of the person who confided in him. Any unfair advantage of this sort is regarded as being of a temporal nature. Restoring once more to the language of metaphor – it gives the confidant a head start.
73 The fundamental principle discernible from the authorities is that a recipient of confidential information or trade secrets should not be allowed to use it as a springboard into a better position than would have been achieved from the use of publicly available information and the recipient’s own independent skill and ingenuity. As Goldberg J succinctly put it in Dart Industries Inc v David Bryer (1997) 38 IPR 389, at 408-409;
In short, if a person wishes to design a product without it being alleged the person has used confidential information he must proceed through an independent design sequence and not use confidential information as a springboard to jump through the sequence.
74 In the current proceedings, RLA has relied on the “springboard doctrine” in alleging that Nexus Adhesives had brought competing products to the market faster and more cheaply and efficiently than it would have had the respondents used only information available in the public domain and had they not used the Confidential Information.
75 If the “springboard doctrine” applies in these proceedings, its effect will be reflected in any relief provided by this Court. At this point, it is necessary to consider whether, and, if so, to what extent, the respondents have misused the Confidential Information. If the “misuse” limb of the test in Australian Medicare outlined at [42] can be satisfied, it will be appropriate to assess the effect of the “springboard doctrine” in framing an appropriate remedy.
MISUSE OF CONFIDENTIAL INFORMATION?
76 Before discussing the evidence in relation to the alleged misuse of the Confidential Information, it is worth noting four different inferences which are available in the circumstances of the present case;
(a) that the respondents acquired and used the Confidential Information to produce their own competitive products and the whole of the activity of Nexus Adhesives in purporting independently to develop Nexus 820 and Nexus 840 has been a “ruse” to mask the unlawful use of RLA’s Confidential Information;
(b) that the respondents used parts of the Confidential Information (i.e., the type, number and amount of polymers used by RLA — which constitute a “trade secret”) in numerous ways throughout the development process in order to produce either or both Nexus 820 and Nexus 840. Thus, notwithstanding their genuine desire or attempt to produce those adhesives independently, the respondents still misused Confidential Information in the development of the Nexus products;
(c) that the respondents did not use any of their knowledge of the Confidential Information until the so called “post thickening problem” which manifested itself in mid-August of 2007. In order to overcome the problem, the respondents used their knowledge of the Confidential Information, thus significantly reducing the time, effort and money which would otherwise have been needed to overcome the problem and bring Nexus 820 to the market;
(d) the respondents used none of the Confidential Information in any way and the development process was entirely independent.
77 The authorities noted elsewhere in these reasons make clear that all that is required to establish a breach of confidence or misuse of confidential information, is proof that RLA’s confidential information or “trade secrets” have been misused by the respondents. Any relief which might be afforded, in the event that the cause of action is proved, will be framed in light of a finding as to when that information was first used in the development process for either or both Nexus 820 and Nexus 840. Accordingly, it is irrelevant to RLA’s principal cause of action whether the respondents set out from the inception of Nexus Adhesives to use their knowledge of the Confidential Information to “copy” PE 265 and Roberts 656, without ever intending independently to develop the products. If such an allegation were proved, it would have the same effect on the framing of appropriate relief, as proof that the Confidential Information had been used from the outset as an aid in creating an independent product. In other words, the respondents’ subjective intention would not be determinative of whether they had misused the Confidential Information. The only consequence of drawing the “ruse” inference would be to disincline the Court to allow for any mitigating factors when formulating the appropriate relief.
78 As will be seen from the following discussion of the relevant evidence, only one of the inferences outlined at [76] above can reasonably be drawn after subjecting the evidence to the requisite standard of proof. I have explained at [79]-[151] below why that process has led me to conclude that it is inference (b) to which the evidence points.
The “ruse” inference
79 In essence, the following findings would be necessary to support the inference which Counsel for RLA have invited the Court to draw in respect of the misuse of the Confidential Information:
(a) When Clewlow, Sofat and Nixon left the employ of RLA, they each retained Confidential Information (in document or any other form);
(b) When the respondents set up Nexus Adhesives, they intended to use the Confidential Information to produce identical products without the need for independent development;
(c) The respondents have tried, from the outset, to mask that intention by creating an impression of independent development by:
• seeking to fix the earliest possible date for the development process to have begun, and, in so doing, have sought to mislead the Court as to when meaningful development actually began;
• exaggerating Sofat’s expertise and initial involvement in the development process, with a view to making independent development appear credible;
• playing down the focus on the use of the PE 265 ingredients in the development process, with a view to masking the importance to that process of knowledge of those ingredients;
• seeking to substitute the key ingredients in PE 265 and Roberts 656 with identical ingredients in order to disguise the use of the Confidential Information and create an appearance that different products were being created;
• purporting to rely on the use of external assistants, who were either not called as witnesses or, who, when called, did not substantiate the account given by the respondents;
(d) Accordingly, in RLA’s submission, the whole of Nexus Adhesives’ operations in the development of Nexus 820 and Nexus 840 has been a “ruse” to conceal the unlawful use of RLA’s Confidential Information without spending the time, money and independent expertise necessary to produce products which would be competitive in the adhesives industry. In doing so, the respondents have gained a “springboard advantage”.
80 In his closing submissions, Dr Wilson SC, who appeared with Mr T Wodak for the respondents, noted that the “ruse” hypothesis had been put only to O’Brien, who, for his part at least, denied that there had been any “subterfuge” and said that “I did what I said I was going to do, with no cloning or copying of RLA.” I do not accept that the “ruse” inference is available on the evidence before the Court. There is sufficient evidence, which is canvassed below, to demonstrate at least some attempt at independent development and, I consider, the weight of that evidence negates the “ruse” inference.
Independent Development
81 The respondents’ fundamental contention is that there is no evidence to support the claim by RLA that the respondents used the Confidential Information in the development of either or both Nexus 820 and Nexus 840. In their submission, the Nexus Adhesives products were developed entirely independently by the respondents and O’Brien.
82 Of the evidence adduced by the respondents, the following supports a finding that their development of Nexus 820 and Nexus 840 was intended to be independent and, at the least, was not a “ruse”:
(a) O’Brien’s evidence of his involvement from an early stage and the role he played in the development process, particularly in relation to Nexus 840, which includes evidence of correspondence between O’Brien and Clewlow and Sofat which I consider has significant probative value; and
(b) Evidence of meetings with representatives of BASF and Nexus Adhesives’ subsequent acquisition of SPFs from BASF.
I shall address in turn each of these aspects of the respondents’ evidence.
O’Brien’s evidence
83 O’Brien’s evidence of his involvement with Nexus Adhesives carries, in my view, significant weight when determining several issues in these proceedings. As I explain in greater detail at [91] below, he testified that he “intended to develop a pressure sensitive adhesive first, and provide what assistance I could to Nexus Adhesives in developing other flooring adhesives”. O’Brien made it clear, in his witness statement and when giving oral evidence, that he had “started from scratch” in the development process and did not at any time know of, or use, any of the Confidential Information.
84 RLA submits that the “assistance” which O’Brien claimed to have rendered in relation to “other flooring adhesives” was not specified in the rest of his written statement in concrete terms or with the supply of any dates. According to RLA, O’Brien’s description of the development of Nexus 840 also lacked detail and was not supported by contemporaneous records. Although these criticisms are supported by the terms of the witness statements, O’Brien professed that it was his normal practice not to keep records of a development undertaken for a principal, such as Nexus Adhesives, after his involvement in that process had ceased. O’Brien said that it was his usual business practice to:
(a) Retain hard copies of all communications relating to a project in date order in a “working file” and to rely on electronic copies, which are deleted, usually on a daily basis, once they are no longer relevant.
(b) Shred all documents once projects have been completed, terminated or were of no further interest to him.
(c) Retain on his own behalf documents which may have some commercial intellectual property value in the event that they may become useful in future.
85 O’Brien went on to explain that, other than a letter to Clewlow from P. O’Brien & Associates Pty Ltd dated 24 October 2006, and certain notes dated 20 November 2006 related to meetings between O’Brien and Clewlow between 13 and 15 of November 2006,
… no such documents were retained from our relationship with Nexus adhesives Pty Ltd as they did not provide us with any viable commercial intellectual property given that all such documents were otherwise available in the public domain or the knowledge and information contained in them was otherwise known to us. The documents in our possession, referred to in Schedule 1, were not intentionally retained or retained for any commercial reason but rather, were inadvertently placed in a file relating to work we are doing for Nexus Adhesives Pty Ltd presently which is completely unrelated to Nexus 820, Nexus 840 or any other pressure sensitive adhesive.
86 In RLA’s submission, O’Brien’s written statements concerning his business practices stand in sharp contrast with his other evidence. In particular, RLA argued that O’Brien’s evidence regarding his business practices was somewhat contradicted by his statement that “I wanted to have everything in point form that was safe and stable and clear that I was not involved in anything untoward”, when asked during cross-examination about the content of an email to Clewlow. RLA argues that, had this truly been his intention, O’Brien would have kept all of his records demonstrating independent development. RLA also claimed that O’Brien’s evidence as to why he destroyed almost all of the documents relating to Nexus Adhesives and the development of its products is hard to reconcile with the advice he claims to have given to Sofat in relation to her development work “[e]xperience has shown me that technical people will think out problems and convey them [f]rom observations if they write it down – also avoids confusion and remains as a record for future use.” As O’Brien and Clewlow had discussed the content of a letter from RLA’s solicitors Blake Dawson of 21 December 2006, the cumulative evidence, according to RLA, tends in favour of an inference that O’Brien deliberately destroyed all documents with the intention of eliminating inculpatory evidence. In support of this contention, RLA invoked Allen v Tobias (1958) 98 CLR 367 at 375, which adopted the exposition in The Ophelia [1916] 2 AC 206, of the maxim omnia praesumuntur contra spoliatorem:
If any one by a deliberate act destroys a document which, according to what its contents may have been, would have told strongly either for him or against him, the strongest possible presumption arises that if it had been produced it would have told against him; and even if the document is destroyed by his own act, but under circumstances in which the intention to destroy evidence may fairly be considered rebutted, still he has to suffer. He is in the position that he is without the corroboration which might have been expected in his case.
87 Accordingly, so RLA’s argument goes, it should be inferred that, if O’Brien’s documents had been available to the Court, they would not have supported the respondent’s case, but rather, would have supported RLA’s case. RLA also relied on Katsilis v Broken Hill Pty Co Ltd (1978) 52 ALJR 189, where Barwick CJ suggested at 197 that;
[o]rdinarily, though a case is normally better tried on the evidence which is produced than on that which is not, it can properly be said that the failure of a party to give or produce evidence which, in the circumstances of the case, that party in its own interest would be expected to give or produce, warrants the conclusion that, if given or produced, the evidence would not support that party’s case. Indeed, in some circumstances it might be inferred that it would support the opponent’s case; but, if so, it must depend very much on the circumstances. But, in any case, the inference would depend upon some element of conscious repression or withholding of the evidence. The warrant for the inference must depend upon the deliberation with which the evidence is withheld and the appreciation or likely appreciation of the party of its significance in the case.
In Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66, Kenny J suggested, at [30]–[34] that, for the presumption to operate, it must be shown that there has been deliberate destruction of documents with the intention of destroying evidence. Conversely, in MCT Dairies Inc v Probiotec Limited [2009] FCA 1385, Rares J held, at [36], that the presumption arises even if no intention to destroy evidence has been shown.
88 There is no evidence that O’Brien intentionally destroyed evidence. Further, and in any event, I do not consider that the production of documents which he had created would necessarily have had any impact on my findings about the creation of Nexus 840. It seems to me that the documents attesting to independent development could quite easily have been brought into existence by the respondents as part of the “ruse” imputed to them by RLA. In accordance with the principles relating to the destruction of documents which I have canvassed above, and my own perception of the circumstances of this case, I decline to draw an inculpatory inference from O’Brien’s destruction of his documents. I do so for the following reasons:
(1) The evidence of O’Brien which I have just recounted was given in response to questions in cross-examination directed to an email from O’Brien explaining to Clewlow that “[t]his was originally an idea to show that your technology was independent from RLA”. The response was made in the course of explaining that the passage from the email to Clewlow concerned O’Brien’s decision to remove himself from the development process and at the same time, curb Clewlow’s apparent “paranoia” about the claims on behalf of RLA in the letter of 21 December 2006 from Blake Dawson Waldron. That letter recited Clewlow’s employment by RLA from January 1996 until 28 July 2006 and his appointment on 8 August 2006 as a director and employee of Nexus Adhesives. It also alleged that, upon resigning from RLA, Clewlow had purchased a personal computer (“PC”) which he had used in the course of his employment and which contained “non-personal” information related to RLA’s business which had not been deleted from the PC. The letter continued:
4. The email correspondence, worksheets and reports contained in the PC included information that is confidential to RLA Polymers and, in some instances, material in which RLA Polymers has intellectual property rights.
5. Following your departure from RLA Polymers, RLA Polymers discovered that:
(a) the filing cabinet which was used primarily by you is missing a number of hard copy files;
(b) these files contained information relating to RLA Polymers’ customers, suppliers, sales margins and other customer information; and
(c) the files included information which is confidential to RLA Polymers and in which it has proprietary rights.
The only logical inference which can be drawn from the circumstances referred to in paragraphs 1, 2, and 5 above is that the information contained in the filing cabinet and which is now missing was acquired by you for personal reasons and your employment with Nexus. In light of this, RLA Polymers is also concerned that you are using the information contained in the PC for personal reasons and your employment with Nexus.
Furthermore, RLA Polymers has become aware that, on behalf of Nexus, you have been soliciting business from RLA Polymers’ customers and, for the purposes of doing so, using information that is confidential and proprietary to RLA Polymers and was acquired by you during the course of your employment with RLA Polymers.
The unauthorised use by you, for your own benefit or the benefit of Nexus, of information that is confidential to RLA Polymers, that is a trade secret or in which RLA Polymers has intellectual property rights, gives rise to an entitlement on the part of RLA Polymers to take a legal proceeding to restrain that unauthorised use, an account of all profits, and damages. RLA Polymers reserves it right to bring a legal proceeding against you and Nexus.
Among other things, the unauthorised use of such information amounts to a breach by of the duties you owed to RLA Polymers as a term of your employment and the duties otherwise imposed on you at law, which include obligations not to disclose or otherwise misuse confidential information obtained during the course of your employment, and not to compete with RLA Polymers by using confidential customer or product information obtained during the course of your employment with RLA Polymers.
… …
The letter concluded with demands, “otherwise reserving [RLA’s] rights for delivery up on oath of all information in electronic or hard copy form obtained by Clewlow in the course of his employment at RLA, a statutory declaration setting out in detail the use made by Clewlow and Nexus Adhesives of the information and undertakings in writing that Clewlow and Nexus Adhesives would not make any further use of the information, including for soliciting RLA’s customers.
The transcript reveals that O’Brien’s full response in the course of Mr Derham’s cross-examination was;
If you read the whole of this, this is the end of my frustration period with Jon. Jon is paranoid, and has always been paranoid that RLA will pursue him, which he was correct in that paranoia. And I wanted to, in my context, I wanted to have everything in point form that was safe and stable and clear that I was not in any way involved in anything untoward. I tried to explain to Jon that he should move forward. He had some products, and some knowledge that he could, you know, get into the marketplace commercially. All we had to do is, you know, follow procedure. And that he should – all along, he should be significantly different than anyone else. Make products that are better, not equal. Or copies.
(2) If it be accepted that it was O’Brien’s normal business practice to destroy all documents and records in the way described at [84] of these reasons, it does not follow, even if he had been concerned in some way about the propriety of his contribution to the development of Nexus 820 or Nexus 840, that he would have abandoned his normal business practice. Further, and in any event, the evidence suggests it was Clewlow rather than O’Brien who appears to have had real concerns about allegations of misappropriating RLA’s formulas which were justified when he received Blake Dawson Waldron’s letter of 21 December 2006;
(3) The advice given to Sofat was directed to keeping records during the development process. It was never denied that records had been kept by O’Brien during his development of Nexus Adhesives’ products; he simply destroyed his when he was no longer involved in that development;
(4) Had O’Brien been implicated in an elaborate sham development or “ruse”, it is more than likely he would also have destroyed the information emanating from him which was, in fact, produced on discovery in these proceedings.
89 Although O’Brien destroyed documents which might otherwise have demonstrated at least some of the development process in which he claimed to have been engaged, and notwithstanding RLA’s submission that, on one view, O’Brien’s assertion about his business practice was somewhat contradicted by other evidence, I regard O’Brien as a generally truthful witness. His testimony was not manifestly inconsistent with other evidence which I have accepted and his credibility was never seriously challenged.
90 O’Brien, under cross-examination, furnished some evidence which, I consider, tends to establish that development of Nexus 820 and Nexus 840 when initially undertaken, was intended to be independent.
91 O’Brien’s company was initially retained to perform development work for Nexus Adhesives particularly in relation to a vinyl sheet adhesive (i.e, Nexus 820) and a pressure sensitive adhesive (i.e, Nexus 840). It was mutually intended that O’Brien would receive a royalty from subsequent sales of products which he was to develop for Nexus Adhesives. It is apparent from O’Brien’s evidence, the evidence of Kissock and Sturgess, and from the letters of 11 and 20 November 2006 between Clewlow and O’Brien, that it was initially contemplated that O’Brien would develop both of those adhesives and possibly some other products. Mr Sturgess is Managing Director of a business known as MJS Floorcoverings which distributes adhesives from companies such as RLA and Nexus to major contractors, retailers and installers within the flooring industry. Whether it was always intended that O’Brien should perform that full range of tasks is a matter of controversy between the parties and is unclear on the evidence. The documentary evidence suggests that O’Brien was regarded as likely to develop both Nexus 820 and Nexus 840, while there is also evidence from Clewlow and O’Brien pointing to a finding that O’Brien’s main focus was to be on the pressure sensitive adhesive, and that he was to provide help, where necessary, with the vinyl sheet adhesive. The finding which I have been persuaded to make in the light of this conflicting evidence is that O’Brien was initially commissioned to develop both products with whatever assistance might be obtainable from Sofat. However, as indicated in Clewlow’s email to Sofat and O’Brien of 31 January 2007, there had been little progress (at least in Clewlow’s view) in the development of either the pressure sensitive or the vinyl sheet adhesive. This led to Clewlow’s decision to divide the tasks assigned to his chemists, with Sofat to concentrate on the vinyl sheet adhesive and O’Brien on the pressure sensitive adhesive as, at that stage, Clewlow thought that they “wouldn’t be far off some [pressure sensitive adhesive] lab samples”.
92 O’Brien’s email to Clewlow of 26 February 2007 illustrates what had been achieved in developing Nexus 840 and, in particular, O’Brien’s continuing role with Nexus Adhesives. That email accords with O’Brien’s evidence that he had become frustrated for a number of reasons in performing his commission from Nexus Adhesives. The email recites:
(a) O’Brien’s concerns that he had other work and private issues to take care of and was struggling to find the time to devote to work for Nexus Adhesives;
(b) that his completion of the pressure sensitive adhesive was being hampered as he had run out of the key polymer;
(c) that there were still outstanding issues regarding the confidentiality agreement; and
(d) O’Brien’s concern that the continuation of the existing working arrangement might strain his relationship with Clewlow.
Accordingly, O’Brien completed the working formula for a pressure sensitive adhesive, which he provided to Nexus Adhesives by email on 20 April 2007, and thereupon ceased his direct involvement in developing adhesives for Nexus Adhesives.
93 When questioned by Mr Derham QC about whether he had sought to create the “appearance of development” of a pressure sensitive adhesive independently of any knowledge of RLA’s formulations, and whether such independent development was to be achieved by finding replacement polymers for those used by RLA in its adhesives, O’Brien explained that it was not the “appearance” of independent development, but independent development itself which was the driving force of his involvement. He denied any suggestion that his involvement in the development process had been anything but independent. He said during cross-examination that “from the initiation of our association, I did not want to be tied up with an exact copy or a clone of anything. I really wanted to be different because commercially you need to be different”. When re-examined by Dr Wilson SC, O’Brien reiterated his denial of any “ruse” and again insisted that all of his work up to 20 April 2007 had been independent.
94 From the whole of the evidence before the Court, I infer that, as long as O’Brien was engaged directly in the development of either Nexus 820 or Nexus 840, the development process did not involve use by him of any Confidential Information and was, thus, independent. As I have outlined in greater detail at [119] of these reasons, the finding that O’Brien had been engaged in independent development entails the conclusion that Nexus 840 was not developed using Confidential Information. There is no evidence to suggest that O’Brien had ever used Confidential Information without realising it, i.e, as a result in some way of Clewlow’s insistence on using specific polymers.
Other evidence of independent development
95 Clewlow wrote a letter to Kissock dated 5 October 2006 in which he asked Kissock to “please forward some start up formulas for an Acrylic Vinyl Sheet adhesive and a Pressure Sensitive vinyl tile adhesive. As I have mentioned, Nexus has enlisted an outside company to develop these products…”. In my view, that request suggests that, at that time, the development of the Nexus Adhesives products was intended to be quite independent of any of the formulas for RLA’s products. Acquisition of SPFs would be unnecessary if RLA formulations were to be relied on for the development of Nexus 820 and Nexus 840 and I am not persuaded that the letter to BASF was part of a “ruse” to create a false appearance of independent development.
96 It is not entirely clear when those SPFs were obtained from BASF. However, it is likely that they were not received until long after the letter of 5 October 2006 and, following a meeting with BASF. That meeting, according to the evidence of Kissock of BASF was attended at BASF by Sofat, O’Brien and certain BASF personnel including himself. When the meeting occurred was the subject of some contention but, the evidence points to some time in early November 2006. The meeting concerned the support which BASF could provide to Nexus Adhesives in the form of adhesives technology. Kissock’s recollection was that it had been agreed at the meeting that a number of polymer samples and SPFs were to be sent by BASF to Nexus Adhesives.
97 That evidence shows, I consider, that Nexus Adhesives had been engaged in developing certain of its adhesive products by, at the latest, early November 2006. The meeting at BASF, which included O’Brien, suggests to me that the development process was, at a “research stage”, proceeding independently of any use of RLA’s Confidential Information. Accordingly, I do not accept that the evidence, on balance, makes out the “ruse” hypothesis.
98 I turn now to the evidence which, in RLA’s submissions, establishes misuse of the Confidential Information by each of the respondents.
99 This evidence demonstrates why the correct inference is that the respondents used parts of the Confidential Information (i.e., the type, number and amount of polymers used — which constituted a “trade secret”) in numerous ways throughout the development process in order to produce either or both of Nexus 820 and Nexus 840. Accordingly, notwithstanding any desire or attempt to produce the products independently, the respondents still misused Confidential Information in the development of one or both of those products.
Evidence of misuse
100 The following elucidates the reasons why I consider the respondents used parts of the Confidential Information in numerous ways throughout the development process of Nexus 820.
101 In their closing submissions, Counsel for RLA highlighted four instances which they consider constituted a clear misuse by the respondents of the Confidential Information.
First misuse
102 In RLA’s submission, one instance of use of the Confidential Information by the respondents was revealed by some of Sofat’s discovered documents and her evidence given during cross-examination. Sofat claimed that, during October 2006 she had begun to study BASF SPFs and have discussions with BASF and O’Brien about the use of various raw materials. She said that she;
used these discussions to reinforce basic principles and discuss the function of each raw material in the formulation, and also to discuss various tackifiers … These discussions reinforced some of my knowledge and in some cases gave me fresh ideas and background in the use of these raw materials.
She also claimed that, during October 2006, she had started her own study of the resins used in tackifiers and had made notes in an exercise book to reinforce this information in her mind. This exercise book became discovered document 35 (“Exercise Book”).
103 Sofat’s evidence was that, of the three SPFs obtained from BASF and one which she had obtained from Nuplex, she had based her development of Nexus 820 on the BASF Wet Lay Formulation. Counsel for RLA contended that much of the information in the Exercise Book was identical to discovered document 37 which is made up of the notes given to Sofat when she left Roberts in 1985 (“Roberts Notes”). RLA further suggested that the information in the Exercise Book had simply been transcribed from parts of the Roberts Notes. This appears to be correct. However, amongst the information which was apparently lifted from the Roberts Notes is a page headed “Wet Lay Adhesive”. The information contained below that heading included a primitive table, which I have replicated below, after removing the actual names or acronyms of polymers and all the relative proportions and weights of the ingredients to preserve confidentiality;
Wet Lay Adhesive | |||
Try | Dry | Wet | |
#% | Polymer A | # | # |
#% | Polymer B | # | # |
#% | Filler | # | # |
#% | Gum Rosin | # | # |
#% | Biocide | # | # |
104 According to RLA, although the page was headed “Wet Lay Adhesive”, the information contained in that table bears no resemblance to the SPF for the BASF wet lay flooring adhesive said by Sofat to have been the origin of Nexus 820. The ingredients in the above formulation include two specific acrylic polymers compared with a single, and different, polymer in the BASF Wet Lay Adhesive SPF on which Sofat claimed to have based her development of Nexus 820. It is also apparent that the formulation in the table has a lower percentage of Gum Rosin than that used in the BASF formulation and it specifies a different brand of biocide. It is, in fact, quite different from the BASF SPF.
105 On the other hand, RLA contended, the formulation in the table at [103] above matches the formulation for PE 265 as it stood when Sofat left RLA. Evidence of the formulation for PE 265 at the time when Sofat left RLA confirms this contention. Even the specific brand of biocide used in the above formulation (not identified in these reasons) is identical to that used in PE 265. Accordingly, it is evident that Sofat’s intention was to “try” a particular formulation using the same two acrylic polymers, gum rosin and biocide as were present in PE 265. This is claimed by RLA to be evidence of Sofat reinforcing what she knew, or had been told, of PE 265. This evidence tends to show that Sofat knew the PE 265 formula and was using it at this early “research stage” in the development of Nexus 820.
106 When confronted during cross-examination with this parallel between the Exercise Book formula and the PE 265 formula, Sofat accepted its existence and suggested that the reason for it “could have been” because she had noted the ingredients that she knew were in PE 265 as something to try while developing a vinyl sheet adhesive. When asked by Mr Derham QC why she had made those notes under the heading, “Try”, her answer was simply “Why not?” RLA argues that this evidence establishes that, from the very start of the development process of Nexus 820, in late October 2006 or early November 2006, the formulation for PE 265 had been a reference point for Sofat’s work. I accept this argument.
107 I am not satisfied that Sofat’s explanation for reproducing in the Exercise Book the PE 265 formulation is sufficient to exclude as the preferable inference that the respondents did in fact use the Confidential Information. However, it seems to me that her evidence suggests that she did not comprehend, at that time, that she was using the Confidential Information illegitimately. As I have outlined above, the test being objective in nature, and it having been found that a reasonable person would understand such information to have been confidential, whether she knew that to use the Confidential Information as she did was impermissible is, for the purposes of liability at least, irrelevant. Sofat ought to have known that to use the Confidential Information to confer a possible competitive benefit on Nexus Adhesives was prohibited.
108 According to RLA, the fact of Sofat’s, having used part of the Confidential Information at an early stage in the development process helps to explain the subsequent steps in what they allege to have been a gradual incorporation of PE 265 technology into the formulation of Nexus 820. This gradual incorporation is said to have been revealed in more detail in the “Second Use” which RLA alleges was made by the respondents of the Confidential Information.
Second Use
109 RLA alleges that the second use of the Confidential Information by Nexus Adhesives is evidenced by the development process for Nexus 820 and Nexus 840 having been driven by the respondents’ desire to target, in particular, the RLA polymers and substitute for them equivalent polymers. In their closing submissions Counsel for RLA asserted that;
(a) in the case of Nexus 820, in the period leading up to its initial release the Respondents developed that product by targeting and replacing the [Polymer A and Polymer B] used in PE265 with what the Respondents believed to be the Nuplex equivalent polymers;
(b) in the case of Nexus 840, the Respondents simply used the same polymer as in Roberts 656 and added a small amount of a second resin to mask the fact;
(c) in relation to the remaining ingredients in PE265 and Roberts 656, the Respondents simply replaced these with equivalent products sourced from other manufacturers.
By these actions, RLA contends, the respondents have misused the Confidential Information to gain a “springboard advantage” in the development of the two Nexus Adhesive products. I shall now consider the evidence on which RLA relies in support of this contention and shall deal in turn with each of RLA’s allegations.
110 First, in relation to “targeting and replacing” the polymers in PE 265 with equivalent Nuplex polymers to create Nexus 820, RLA submitted that the weight of the evidence strongly supports the view that part of the Confidential Information was misused in that way. Supplemented by evidence in contemporaneous documents and the evidence of the varieties of acrylic and other polymers on the market, including those used in SPFs, the imputation to the respondents of misuse of part of the Confidential Information in the development of Nexus 820 is fairly persuasive. However, although there is a considerable body of evidence relevant to the “targeting and replacing” claim, the weight which I attribute to much of it is not great. In my view, the evidence to which greater weight should be given is that of Sofat during cross-examination when questioned about the various annotations in her Notebook.
111 Sofat’s Notebook (and in one instance, noted above at [102]-[103], her Exercise Book) is replete with references to both Polymer A and Polymer B, including specific weights and relative proportions. When challenged to explain why there is a table on one page of the Notebook which identifies a number of Nuplex polymers opposite those of BASF polymers, Sofat conceded that the table sets out an “indication of which resin can be a replacement for another resin.” She also stated that what she was trying to do was “find acrylic polymers that were suitable in our development and we favoured the use of Nuplex polymers so that we knew we could stay away from what RLA were trying to do, were doing … We wanted our formulation to be different.”
112 On the next page of the Notebook, there is the single annotation;
Polymer B | : Polymer A |
≈ 50 | : 50 |
In relation to that annotation and her knowledge of the polymers in PE 265, Sofat stated under cross-examination that Clewlow;
had indicated or was encouraging me to try different polymers or [Polymer A] or [Polymer B], he would, sort of, say why don’t you try this? Or why didn’t you try that? And that didn’t necessarily mean I immediately clicked, “He’s telling me because of this reason,” no.
Following which, Mr Derham QC asked “Well, he actually told you, didn’t he, at some point, and you noted it in your laboratory notebook that the two polymers were [Polymer B] and [Polymer A] and that their approximate proportions were 50/50?” In response Sofat said, “Jon indicated to me, “Why didn’t you try those polymers at that proportion?”.” Indeed, whether or not Sofat was aware of it, the email from Sofat to Clewlow dated 12 February 2007 and Clewlow’s response dated 13 February 2007, indicates that Clewlow’s only knowledge was of the two PE 265 polymers, or that, at that stage in the development process, Polymer A and Polymer B were to be the “target” polymers on which Nexus 820 was to be based, using Nuplex equivalents.
113 In my view, this evidence of Sofat under cross-examination supports the inference that, during Sofat’s actual laboratory development of Nexus 820 at some point between 31 January 2007 and 26 March 2007, Clewlow disclosed to her the two polymers in PE 265 and their relative proportions and, as a result of that disclosure, the use which was then made of that part of the Confidential Information was to replace the BASF polymers contained in PE 265 (i.e, Polymers A and B) with the Nuplex “equivalents” or “replacements”. This inference becomes more compelling when one turns to the evidence of the utilisation of Polymer B.
114 None of the SPFs which Sofat claims were provided by BASF, and on which she relied to produce Nexus 820, contained Polymer B. Further, it is the evidence of RLA’s expert, Bate, based on the BASF literature cited by Sofat or otherwise discovered by the respondents, that;
In relation to the resins that were tested by the Respondents, only a limited selection of BASF resins seem to have featured in the Respondents’ development work: [Polymer A]; [Polymer B]; and, to a lesser extent, [Polymer C]. This can be contrasted with the 8 different BASF resins that are recommended by BASF in the product literature from BASF included in the Nexus 820 development materials … I note that at no point in the BASF product literature or starting point formulations provided to CETEC is it suggested that a developer of an adhesive product base the product around the [Polymer B] product.
In addition to this evidence, RLA submits, and I accept, that other evidence indicates that the reason for using Polymer B in a vinyl sheet flooring adhesive was not obvious as it lacked plasticiser resistant properties and, accordingly, it is unclear why a developer would have chosen that particular polymer for use in an adhesive when a number of other available polymers have plasticiser resistant properties. This absence of any logical explanation for the use of Polymer B in a vinyl flooring adhesive was demonstrated by Sofat in her email to O’Brien of 29 February 2007, where she asked:
I have been doing some work on the wet lay adhesives FOR VINYL using Nuplex polymers. I have used [Polymer 4] & [Polymer 5]. These are both pressure sensitive & plasticiser resistant. [Polymer 5] has slightly more tack than [Polymer 4]. Do the pressure sensitive have enough cohesive strength strength [sic] on their own or is there an advantage in using a combination of [Polymer B] & pressure sensitive to increase the cohesive strength or is [Polymer B] used mainly to minimise the cost?
115 When cross-examined on the purpose of this email to O’Brien, Sofat said that she was aware that Polymer B could be used in vinyl flooring adhesives but, as it did not have the plasticiser resistance which the other polymers she was testing had, she “wanted to know what extra advantages it would offer to offset its plasticiser resistant property”. I consider that Sofat’s answers to questions as to why Polymer B was being considered and tested in preference to the many other available polymers, were not helpful and were somewhat evasive. I find it hard to accept that Polymer B was the natural choice of polymer for experimentation or identification of an equivalent in the course of a truly independent development process if it was unclear to the developer why that polymer would be used in the first place. During cross-examination on this subject, it was put to Sofat by Mr Derham QC that;
You know, don’t you, that Mr Clewlow responded to your request for a comparison of the prices of BASF acrylics with just two, because what you were trying to do was to target acrylics from Nuplex that would replace the two acrylics from BASF you knew were in PE265?
to which Sofat replied;
No. It’s no secret that Jon was aware of the polymer prices and information like that from his time at RLA, so it’s not necessary that that is what we were – we knew these were the polymers used at RLA. It’s just not – that’s no secret. So – but we were genuinely trying to do our own development of an 820.
116 Sofat’s responses to questions about the respondents’ knowledge and use of the Confidential Information suggested that they did not necessarily realise that their actions were in breach of their obligations of confidence or that they were misusing trade secrets. However, as I have emphasised earlier in these reasons, the use of the specific polymers in PE 265, by the respondents who owed a duty of confidence to RLA, when considered objectively, was in breach of confidence. Accordingly, the inference I draw from the evidence is that, from January 31 2007 when Sofat began actively developing Nexus 820, Clewlow encouraged, and Sofat engaged in, the use of Confidential Information for the purpose of progressing the development of Nexus 820.
Second misuse – Nexus 840
117 It is alleged by RLA that the targeting and use of the polymer used in Roberts 656 for the development of Nexus 840 was even more blatant than the misuse of the polymers in PE 265. In support of this allegation, it was said that the evidence suggests that O’Brien only ever considered the use of Polymer B as the key polymer for use in Nexus 840 and that, even though O’Brien claimed that it had been recommended by BASF at the time, no witness from BASF was called to verify his claim. In this context, RLA invoked Jones v Dunkel (1959) 101 CLR 298 in support of a finding that, had a witness from BASF been called, the evidence of that witness would not have assisted the respondents’ case. Accordingly, in the absence of other evidence to verify O’Brien’s claims, RLA contends, O’Brien’s focus on Polymer B as the key polymer was not wholly independent but, rather, had been encouraged by Clewlow. These assertions are based on the following evidence;
(a) the email from O’Brien to Clewlow and Sofat dated 19 December 2006 which mentions Polymer B in a passage setting out each of the matters that “it was initially agreed” should be the focus of O’Brien’s work. O’Brien states that there was “Preference for BASF” and that “BASF suggested 85D with modification to replace [Polymer B] for plasticiser resistance. BASF advised that 85D is not available”. O’Brien also conceded that Polymer B was not the only polymer recommended for a pressure sensitive adhesive and his personal view seems to have been that the product had “several shortcomings”. He nevertheless persisted with that polymer, even after its eventual unavailability was preventing him from working on the development of Nexus 840. To the extent that O’Brien claimed that Polymer B nevertheless came “high” on BASF’s list of recommendations, Kissock did not confirm that level of recommendation and nobody else from BASF was called. As well, O’Brien’s explanation for including a second polymer in his formulation depended on unspecified contacts within Nuplex and unidentified “Pressure Sensitive Emulsions” that could be used with Polymer B. Dr Farquharson did not attest to any such discussions, and nobody else from Nuplex was called to give evidence;
(b) the initial discussions between O’Brien and Clewlow had been to the effect that O’Brien was to “duplicate” a number of adhesives;
(c) in December 2006, Clewlow had received the letter from Blake Dawson Waldron and discussed its contents with O’Brien. O’Brien’s evidence that the ability of Nexus Adhesives to show independent development had been discussed between O’Brien and Clewlow, contradicted Clewlow’s evidence on that point;
(d) O’Brien destroyed all records of his work and there was no evidence of his having passed on any information to Nexus Adhesives beyond the formulation for Nexus 840. That formulation required further work from Sofat, none of which had been documented or, if it had been, had not been discovered to RLA.
118 CETEC’s analysis of Nexus 840 and Roberts 656 reveals that there is a complete correlation between the chemical profiles of the two products under Fourier Transformed Infra Red Spectroscopy (“FTIR”). Accordingly, RLA characterised the respondents’ evidence as unsatisfactory and contended, in light of the fact that all of the records documenting the development of Nexus 840 had been destroyed, that the most adverse inference available should be drawn against the respondents, i.e., that the reliance on Polymer B as the core component of Nexus 840 was no accident. Rather, the respondents had targeted and exploited their knowledge of the Roberts 656 formulation. I reject these contentions for the reasons which follow.
119 As outlined at various points in the foregoing reasons, I have concluded that O’Brien was a witness of truth when recounting his part in the development of Nexus 840, and, to the extent that he was involved, the development of Nexus 820. In relation to sub-paragraph (a) of [117] above, the email from O’Brien to Clewlow and Sofat reveals nothing more than that Nexus Adhesives had a preference for using BASF materials and that they had been advised that 85D was the optimal polymer to use in a pressure sensitive adhesive, but none of it was available. At different stages during cross-examination by Mr Derham QC, O’Brien explained that he had used Polymer B “only because it was the pressure sensitive leader that we were told, by BASF, everyone was using” and that, while BASF recommended a product not in stock, they also recommended Polymer B which, in O’Brien’s evaluation, was the best “all round” polymer for use in a pressure sensitive adhesive. O’Brien explained in re-examination by Dr Wilson SC that, although his recollection of the matter was not entirely clear, BASF would have recommended 85D for its plasticiser resistance qualities and the fact that it is their “Vanguard”, but, as that was not available, it apparently recommended Polymer B which is its “best general purpose” polymer. Although O’Brien’s lack of total recall in this area makes it difficult to make a finding with complete confidence, I am disposed to find that BASF recommended Polymer B as its best “all round” polymer for use in a pressure sensitive adhesive, but that, following discussions, BASF representatives suggested that, although not presently available, 85D would be the best ingredient for lending plasticiser resistance qualities to an adhesive if those qualities were required.
120 In relation to the addition of Polymer 4, it is suggested that O’Brien’s evidence should be disbelieved because Dr Farquharson did not give any evidence of discussion between Nuplex and O’Brien and nobody else from Nuplex was called to give evidence.
121 The rule in Jones v Dunkel only applies where a party is “required to explain or contradict something”. Neither Kissock nor Dr Farquharson was asked whether or not O’Brien requested of either of them or anyone else at BASF or Nuplex for advice about the appropriate polymers to use. Had RLA wished to explore this issue, either or both Kissock and Dr Farquharson could have been questioned about the nature of any dealings which either of them had with O’Brien. Nor was it put to O’Brien at any stage of his cross-examination that his explanation of why he had chosen to use Polymer B in preference to any other polymer was untruthful or incomplete.
122 I reject RLA’s reliance in this context on Jones v Dunkel because of the respondent’s failure to call witnesses to confirm O’Brien’s assertions about his dealings with various sales representative from BASF and Nuplex . As already indicated, O’Brien’s credibility has not been successfully impugned and, because I do not regard O’Brien as having been in the respondents’ “camp”, the respondents could not reasonably be required to call another non-party witness to corroborate his evidence. It was suggested by RLA that it would have been easy to call corroborative witnesses but it did not support that suggestion by evidence. In any event, the rule in Jones v Dunkel does not permit an inference that Nexus Adhesives’ failure to call the relevant BASF representative (Mr Barlow) or Nuplex representative (Mr Attia) to give evidence means that, had either been called, his evidence would have damaged the respondents’ case. Even were the rule in Jones v Dunkel to apply, it would not prevent a finding that O’Brien was telling the truth. O’Brien’s reasons for choosing Polymer B as the backbone of Nexus 840 should be accepted. Although those reasons were not further substantiated by the additional witnesses suggested by RLA, the only effect which that can have on O’Brien’s testimony, is as to the weight to be given to it. As I have not discerned any evidence tending to support RLA’s attack on O’Brien’s credibility, even if the weight to be given to his evidence be diminished in the way indicated, his evidence is still the only evidence available on the point and commands sufficient weight to compel acceptance of his explanation for utilising Polymer B in the formulation of Nexus 840.
123 In relation to sub-paragraph (b) of [117] above, it is not in issue that Nexus Adhesives wished to make adhesives with qualities similar to those of RLA’s products. Accordingly, I do not regard the word “duplicate” used in the letter from O’Brien to Clewlow as significant in establishing a basis for imputing to the latter an intention to use, or actual use of, part of the Confidential Information. However, it goes some way to supporting an inference that Confidential Information may have been used as a comparator when developing Nexus 840.
124 As I have already concluded that O’Brien was a truthful witness, it follows that, where it contradicts Clewlow’s testimony, O’Brien’s evidence is to be preferred. I therefore find that the letter from Blake Dawson Waldron of 21 December 2006 outlining RLA’s initial concerns, was discussed with O’Brien and I also accept that a need to show independent development of the Nexus adhesives was discussed by O’Brien and Clewlow and was important to them. However, as I have already indicated at [93]-[94] of these reasons, I do not believe that, in the context of the discussions between Clewlow and O’Brien, an inference should be drawn that Clewlow, O’Brien and Sofat were engaged in a “ruse” to create a false impression of independent development while throughout merely adopting the Confidential Information. A concern to demonstrate independent development was understandable after receipt of Blake Dawson Waldron’s letter. It was also O’Brien’s evidence that “from the initiation of our association, I did not want to be tied up with an exact copy or a clone of anything. I really wanted to be different because commercially you need to be different.” It is true that, in the email exchange between O’Brien and Clewlow of 26 and 27 February 2007, O’Brien suggested, amongst other things, that “we disregard formal agreements and commissions etc. This was originally an idea to show that your technology was independent from RLA. Enough time has elapsed to allow self development to be credible”. On one interpretation that suggestion supports the “ruse” theory but, I prefer the interpretation which O’Brien gave during cross-examination. That was to the effect that the formal agreements were to be set up, not as a “ruse”, but as an attempt to demonstrate to an outside party that Nexus Adhesives had commissioned O’Brien with the degree of formality customary in arrangements which would itself be a demonstration of independence. In other words, according to O’Brien, he and Clewlow wanted the development process to be, and appear, legitimate. They thought that this would be achieved by formal agreements which, given the nature of their relationship and the size of Nexus Adhesives at the time, might otherwise not have been executed. Thus, when relations between O’Brien and Clewlow began to deteriorate, O’Brien’s comments in the email to Clewlow were, he claimed, designed to allow himself to be removed from the enterprise while at the same time alleviating Clewlow’s concern about RLA’s accusation of utilising Confidential Information to avoid the need for independent development.
125 On the balance of the evidence, I do not consider that contention (c) summarised at [117] above adds any weight to RLA’s assertion that, with encouragement from Clewlow, O’Brien used Confidential Information in the development of Nexus 840.
126 As to RLA’s contention (d), I have already examined, at [84]-[89] of these reasons the issue of destruction of documents and I do not believe that O’Brien’s actions in that respect casts any light on whether or not he used Confidential Information in the development of Nexus 840.
127 In relation to contention (e) noted at [117] above, I have been unable to accept the CETEC evidence as establishing, to the requisite standard of proof, that the respondents used Confidential Information in developing Nexus 840. The demonstration of chemical similarity has been comprehensive but that is not sufficient when viewed in light of the totality of the evidence to persuade me that there has been misuse of the Confidential Information.
128 I have been influenced to make this finding, first, by the absence of evidence that Nexus 840 is more or less similar in its chemical composition to Roberts 656 than it is to other comparable products in the market. This was the main criticism levelled by the respondents at the analysis of Nexus 840 in the CETEC Report.
129 Secondly, there is evidence to the effect that a qualified chemist can readily produce pressure sensitive adhesives. O’Brien, who developed the primary formula for Nexus 840 and has significant experience with pressure sensitive adhesives, suggested that their development was “a relatively simple task’’ and not “rocket science”, and that adhesives such as Nexus 840 are “extremely simple to develop and subsequently make”. When re-examination by Dr Wilson SC, O’Brien explained the relative simplicity of creating a pressure sensitive adhesive, describing it as “first year stuff”.
130 Thirdly, O’Brien indicated during cross-examination that the use of Polymer 4 in Nexus 840 adds plasticiser resistant qualities which Polymer B alone does not provide. When re-examined, the same witness said that “they have different tack, different drying characteristics, different plegs, different cohesive strength, different chemical resistance. They’re not the same.” Further, despite claiming that “there is a 100% correlation between the two products in terms of their chemical profile under FTIR”, the CETEC Report states that “the analytical evaluation of Nexus NA840 and Roberts 656 indicates that the two formulations are almost identical in their chemical nature”, (emphasis added). However, the same report notes that there are clear differences in the ingredients used. In these proceedings it has been stressed that the polymers are the key ingredient and “cost drivers” of an adhesive. Accordingly, I find it hard to accept without further evidence that Nexus 840, which contains, amongst other things, two different polymers one of which have plasticiser resistant qualities not found in the Roberts 656 product, was necessarily created using Confidential Information. I therefore decline to infer that Polymer 4 was added to Nexus 840 simply to “mask” the fact that Nexus 840 is otherwise a complete copy of Roberts 656. Had the respondents been seeking to “target” the RLA polymers and replace them with equivalents, as RLA contends, it is likely that they would not have used Polymer B in Nexus 840 but would have used a Nuplex or other equivalent polymer.
131 The considerations canvassed above in respect of Nexus 840, preclude an affirmative finding that the respondents used Confidential Information in developing Nexus 840, at least as far as O’Brien was involved in that process. After the formulation had been provided by O’Brien to Sofat and Clewlow, some minor changes were made, but there is nothing to suggest that they were attributable to the use of Confidential Information.
Other Ingredients
132 When one has regard to ingredients other than the main polymers, there is insufficient evidence to support the inference that there was a simple targeting of the ingredients of Roberts 656 and substituting for them like or equivalent ingredients. Information about the ingredients of adhesives of the relevant type was readily available in the public domain, from the literature to the SPFs available from companies such as BASF and Nuplex. I also find that knowledge of the type of ingredients used in the relevant adhesives was part of the respondents’ general stock of knowledge when they left RLA. Notwithstanding that finding, I consider that use of the specific types or brands of ingredients in the weights and relative percentages in which they were present in the RLA products would amount to a breach of confidence. The evidence does not enable me to impute that kind of use to the respondents. Nor do I make any finding against the respondents of misuse of Confidential Information in choosing any of the other ingredients in Nexus 820 and Nexus 840.
Third Use
133 The third misuse of Confidential Information, in RLA’s submission, was demonstrated by evidence from Sofat’s Notebook. As noted at [111] of these reasons, the Notebook contains a number of notations which, RLA contends, demonstrates the respondents’ detailed knowledge of Polymer A and Polymer B and their proportions and qualities used in PE 265. Some of the references to this Confidential Information have been explained by Sofat, as noted at [112] above, as the result of Clewlow’s urging her to try Polymer A and Polymer B in a specific ratio.
134 Another entry in the Notebook dated 26 March 2007, Sofat explained, “indicates what Brett [Nixon] told me were the two polymers that RLA Polymers uses in PE 265, and their proportion and cost.” This entry in the Notebook was a detailed transcription of the key polymers in PE 265 and their relative weights, including their dry weights. Sofat conceded during cross-examination that Nixon had not provided her with the dry weights, but she had calculated them herself in order to arrive at an indication of how Nexus 820 differed from PE 265. Sofat claimed in her first witness statement that one of the reasons for Nixon having given her the Confidential Information just mentioned was that “It may have to do with trying to establish how competitive our product would be on cost, or an indication of whether we were being quoted reasonable prices by our suppliers…”.
135 RLA contends that this evidence of Sofat shows that Confidential information was illegitimately used to aid or enhance the development process from a costing perspective. Although this contention has force, it is likely that the identity of the polymers and the prices at which they could be bought from suppliers such as BASF was either in the public domain or readily ascertainable without misuse of Confidential Information. They were certainly matters known to Nixon and Clewlow when each of them left RLA. On the other hand, as pressed by RLA, the costing of the constituent ingredients is critical in bringing an adhesive to market and, as both sides accept, the key ingredients in these adhesives were the polymers. Therefore, knowledge of the precise costs of the principal polymers in PE 265, when used as a comparator in developing a competing product, would, in my view, constitute a trade secret. Accordingly, I accept that the Confidential Information was misused by the respondents in order to establish “cost drivers” and aid in the development of Nexus 820. If the respondents had not possessed that information but had been compelled to undertake independent development and research from material in the public domain it is likely that the commercial development of Nexus 820, would have occupied more time and resources than it did. As a result, the entry on to the market of Nexus 820 would have been delayed, denying the respondents the “springboard” benefit which they achieved.
Fourth Use
136 The final significant indication of misuse of the Confidential Information emerged from what became known in the proceedings as the “post thickening problem”. That became apparent in mid-August 2007, following the release of the initial version of Nexus 820 in May 2007. The essence of the problem was that the initial formulation for Nexus 820 was unstable so that the adhesive thickened in the container or “can” rendering it unusable. According to a letter from Clewlow to Nuplex of 30 August 2007, the issue had “caused [the respondents] much embarrassment and imposed enormous costs on our new company”. The “post thickening problem” was, the evidence reveals, of serious concern for the respondents and Sofat was unable to identify or solve it at the outset. In cross-examination, Sofat said that the product had to be recalled which, she acknowledged, was an embarrassment for Clewlow and Nixon and that “we were all concerned about fixing the problem as rapidly as possible.”
137 In her second witness statement Sofat described as follows how she attended to, and resolved, the “post thickening problem”;
59. I investigated the problem, together with Brett Nixon. I determined that the problem resulted from a problem with Nuplex [Polymer 5]. I could not ascertain whether the problem resulted from a batch variation of Nuplex [Polymer 5], or if [Polymer 5] was fundamentally unsuited to the purpose for which we were using it.
60. I met with Mike Law and Joe Barkachi of Nuplex to discuss the problem on 29 August 2007, together with Jonathon Clewlow and Brett Nixon. At this meeting Mike Law or Joe Barkachi suggested that Nexus incorporate Nuplex [Polymer 1] into Nexus 820, as a replacement for Nuplex [Polymer 5].
61. I also spoke with Mr Lance Barlow & Dr Joshua Taylor of BASF in relation to the post-thickening problem.
62. I further discussed the problem with Mr. Graham Farquharson of Nuplex who indicated that an adhesion enhancer, which was a specific component in Nuplex [Polymer 5], could be contributing to the problem.
63. I then began testing Nuplex [Polymer 1] and at the same time, at BASF’s
suggestion, looked at incorporating [Polymer A] into the Nexus 820 formulation.
64. My investigations showed that Nuplex [Polymer 1] was suitable for inclusion in the formulation, and that [Polymer A] offered the final formulation improved ‘wetting out’ properties.
65. Solving this problem was a high priority for me and I worked on it immediately I became aware of it. I cannot recall precisely how long it took for me to resolve the problem but it took between a few weeks and a month.
66. My investigations revealed that the combination of [Polymer 1], [Polymer 2] and [Polymer A] resulted in an easy-to-use and stable product.
67. We adopted the revised formulation with three polymers (that is, [Polymer 1], [Polymer 2] and [Polymer A]) for all production of Nexus 820 from late September 2007.
138 Although the respondents implied that the “post thickening problem” had been dealt with simply and expeditiously, RLA contended that the available evidence suggested that it had been a complex problem and solved simply and expeditiously only by the respondents using their knowledge of the PE 265 formulation. I have already found that the respondents were aware of, and had recorded in a number of places, the key ingredients of PE 265. According to RLA, the “post thickening problem” was so acute that, to overcome it, the respondents had to change the entire base of their formulation by replacing Polymer 5 with Polymer 1 and including Polymer A as an additional polymer. RLA further contends that the evidence establishes that this solution to the “post thickening problem” was achieved by comparing the ingredients in PE 265 with those in Nexus 820 as originally formulated.
139 In support of their submissions, Counsel for RLA pointed to a number of entries in Sofat’s Notebook, in particular a page containing essential elements of the PE 265 formulation including specific weights, which had been written down by Sofat after Nixon had “mentioned it in passing”. Nixon claimed to have found the formulation in an “old notebook” which he had retained from his time at RLA and he said that he had mentioned it to Sofat while he was tearing out pages and shredding them. She said in her first witness statement that;
I knew it was not the full formulation, as it was obvious to me that there were ingredients missing. As I had conducted so much work in the laboratory on vinyl adhesives and received positive comments about Nexus 820 I was curious to compare why PE265 had different properties. Brett. I believe, was also curious to know what the difference was in order to understand the positive comments that he was receiving about Nexus 820. Ultimately this information was of limited interest because it was incomplete, so I was unable to satisfy my curiosity.
RLA contended that Sofat’s explanation for writing down the formulation should not be believed, particularly as Nixon claimed not to have known, until April 2009, that Sofat had written down what he had told her. I regard this admission by Sofat as showing that both Sofat and Nixon were in breach of their obligations not to disclose Confidential Information to third parties.
140 By way of further explanation of why Nixon had provided Sofat with this information, and why she had subsequently recorded it in her Notebook, Sofat conceded that the reason for Nixon’s having communicated the Confidential Information to her may have been the “post thickening problem”. It was put to Sofat by Mr Derham QC that the only logical reason for Nixon to have imparted the Confidential Information to Sofat was to enable her to analyse the formulation to ascertain whether it might have contributed to solving the “post thickening problem”. Sofat’s response to this suggestion was “No, it was – his purpose was most probably to, you know, to make me aware of, maybe, what was in PE265, and I found it of interest”. That tends to confirm, in my view, that, irrespective of the purpose of the communication, the Confidential Information was certainly in possession of Sofat and Nixon when they encountered the “post thickening problem”, and, although it is unclear exactly when Sofat received that information, it was clearly of interest to her at the time when it was communicated. The closer the time when that communication occurred to the realisation of the post-thickening problem the stronger is the inference that it was of interest as a potential solution to that problem. On the other hand, if the communication occurred earlier that strengthens the inference that the information was of interest in the initial development of Nexus 820. Sofat placed her receipt of the information between 30 July and 28 August 2007 based on the sequence of annotations and dates in her Notebook. Nixon was unable to give any clear indication of when he gave the information to Sofat and deferred to the Notebook when pressed. I find it more likely than not that Nixon provided the Confidential Information to Sofat at some time between 30 July 2007 and 28 August 2007 and that he did so after the respondents had become aware of the “post thickening problem”. If Nixon provided the Confidential Information between 30 July 2007 and 28 August 2007, that reinforces the probability that it was provided in order to overcome the “post thickening problem”. However, the findings made at [107], [113] and [135] of these reasons have led me to fix misuse of the Confidential Information, and, therefore, the respondent’s use of the “springboard”, as the date on which the Confidential Information was first recorded by Sofat in her Exercise Book during the “research stage” of the development of Nexus 820. That was some time in October 2006. Moreover, the fact Clewlow had provided details of the polymers in PE 265 at some point between 31 January 2007 and 26 March 2007, and Nixon had given Sofat “the two polymers that RLA Polymers uses in PE265, and their proportion and cost” on 26 March 2007, confirms the conclusion that the date after the “post thickening problem” was encountered on which Nixon provided Sofat with the Confidential Information is irrelevant for the purposes of liability. Rather, it merely affords further evidence of the use of Confidential Information in the development of Nexus 820.
141 RLA identified in its submissions a number of aspects of the evidence from which, it contended, the Court should infer misuse of the Confidential Information to combat the “post thickening problem”. In particular, it referred to a number of “batch records” numbered 1 to 8 and dated 28 August 2007 which had been created by Nixon to identify the “post thickening problem”. Those were originally recorded in the Notebook which has a different page for each batch and each batch shows a different combination of ingredients. Each page sets out the formulation for Nexus 820 with handwritten changes for each batch. Significantly, in batches 3 and 4, Polymer 5 and Polymer 2 have been overwritten with Polymer A and Polymer B which, it will be recalled, are the two polymers in PE 265. The batches are given a “best” to “worst” ranking. Two of the formulations (7 and 8) which used a specific batch of Polymer 5, and batch 3 and 4 were ranked as the “best”. The evidence of both Nixon and Sofat is that Nixon had carried out the “batch tests”. However, it is unclear why Nixon, who was not a chemist, had been left to carry out these tests without Sofat’s supervision, as she contends he was. Sofat claimed that Nixon was doing his own tests with her having very little to do with it, even though she acknowledged that she was responsible for solving the “post thickening problem”. I find it unlikely that Nixon was entrusted with overcoming, without Sofat’s supervision, the “post thickening problem” which had perplexed Sofat, a trained chemist. I consider that Sofat denied direct involvement in the creation of the “batches” to distance herself from, what I find was a clear use of the Confidential Information to resolve the “post thickening problem”. As noted earlier in these reasons, the “post thickening problem” was a major concern for Nexus Adhesives and I therefore regard it as highly improbable that Nixon had been left to explore possible solutions without Sofat’s supervision or, at least, her instructions.
142 RLA invited a finding that Sofat had been working in conjunction with Nixon to solve the “post thickening problem” and, suggested that her role, as revealed by the Notebook was to compare and contrast the PE 265 and Nexus 820 formulations in order to instruct Nixon as to which “batches” to test. In this connection, RLA instanced a page in the Notebook where the Nexus 820 formulation is set out and below it, in a table, the PE 265 ingredients which had been communicated by Nixon to Sofat are recorded for the second time. The table sets out both the wet and dry weights of the PE 265 ingredients. As noted at [134] above, the dry weights had been calculated by Sofat as that is her customary way of understanding and dealing with the weights of polymers. Immediately after the table, on the same page appears a version of the Nexus 820 formulation in which the thickener has been replaced with the thickener from PE 265, and the plasticiser and the sequestering agent have been removed. PE 265 does not contain a plasticiser or sequestering agent. This record is said to demonstrate a comparison by Sofat of the differences in the ingredients, other than the polymers, of PE 265 and Nexus 820.
143 I regard as inadequate the respondents’ explanation of their activities in relation to the Confidential Information. The inference I prefer is that Sofat and Nixon used the Confidential Information which Nixon had communicated to Sofat to compare the ingredients in PE 265 with those in Nexus 820 in an attempt to identify the cause of the “post thickening problem”. That misuse of the Confidential Information led, ultimately, to the discovery that the problem could be overcome by adding Polymer A to the formulation of Nexus 820. How the addition of Polymer A was arrived at as the solution is unclear from the respondents’ evidence. Sofat gave differing accounts of how Polymer A came to be used in Nexus 820, which RLA argued was indicative of her inability to make the facts accord with her version of events. Her first explanation has been set out at [137] of these reasons. In essence, she claimed that “at BASF’s suggestion, [she] looked at incorporating [Polymer A] into the Nexus 820 formulation.” RLA contended that her evidence in this respect should be given little or no weight because nobody from BASF had been called to corroborate it and no evidence had been adduced of the nature of Sofat’s purported initial investigations into the suitability of using Polymer A. Nor, RLA claimed, was there evidence of the results of her later investigations of polymer combinations and the stability of the end product. Even if it be accepted that BASF had provided advice to try Polymer A, Sofat’s reliance on that advice was said to be contradicted by her “Development Notes” which she provided to the respondents’ solicitors and were later relied on by Mr Turner in his expert’s report. There were two versions of the “Development Notes”, one of which made no reference to how or why Sofat decided to use Polymer A in Nexus 820, while the other stated that:
Nuplex thought a small addition of V275 may assist. (As per Graham’s report – discovery 58) – Attachment 9. As there was no lab sample availa[b]le, and BASF still had a complicates [sic] method of ordering samples, I took the decision to work with [Polymer A], stock of which I had in the lab and timing was crucial.
144 As RLA has argued, that explanation of why Sofat resorted to Polymer A is inconsistent with her witness statement. It is also contrary to the evidence of Dr Farquharson who recommended that Sofat should use Polymer 1 instead of V 275 and Polymer 4 instead of Polymer A.
145 Accordingly, I regard this aspect of Sofat’s evidence as failing to explain how she came to include Polymer A in Nexus 820. Rather, I have found persuasive the transcription of the PE 265 ingredients into Sofat’s Notebook, the “batch” samples incorporating the precise polymers used in PE 265 and the other evidence in Sofat’s notebook set out at [133] above. That being the available evidence, I prefer the inference that the respondents discovered, in the time that they did, that Polymer A was a solution to the “post thickening problem” because they were using the PE 265 formulation as a comparator. I reject Sofat’s explanation as to how she resolved the “post thickening problem”.
146 The absence of any records of tests of the suitability of various polymers or contemporaneous documents recording field trials and stability testing of the final Nexus 820 formulation (which by then incorporated three polymers) has not weighed against the respondents in my findings which I have been able to make notwithstanding the lack of that evidence. However, had such documentary or other evidence been available, it may have clarified the issue and supported the case which the respondents sought to advance. In particular, it was to be expected that a significant change in the formulation which overcame the “post-thickening problem” by replacing Polymer 5 with Polymer 1 and adding an entirely new Polymer A to the extent of 30% of the polymer content, would have been accompanied by further testing over time or detailed correspondence with Clewlow and Nixon about the impact of the changes on the costs of the Nexus Adhesives product. Given that polymers are the key ingredients and cost drivers in an adhesive, I think it highly unlikely that such a radical change to the formulation could have been embarked on without much more in the way of field trials and stability testing. It also seems improbable that the respondents, on their own initiative, resumed communications with BASF notwithstanding the difficulties which they had met in the earlier stages of development in obtaining the relevant polymers from that supplier and Clewlow’s claimed preference for using Nuplex polymers. Moreover, although I accept that the respondents were under pressure to solve the “post-thickening problem”, it would have been foolhardy to launch the reworked Nexus 820 on to the market without some certainty that the problem would not recur. Had Nexus 820 failed again, the damage to the reputation of Nexus Adhesives may well have been irreparable.
Expert Evidence
147 The expert evidence adduced by each party has had some significance in making an objective assessment of how long independent development and release on the market of an adhesive like Nexus 820 should have taken. However, my conclusions as to liability have not resulted from according substantial weight to the expert evidence on either side.
148 I regard the evidence as sufficient to find, on the balance of probabilities, that there has been misuse by the respondents of Confidential Information. However, the misuse which I have found is attributable only to the development of Nexus 820, as I have concluded that Nexus 840 was developed predominantly by O’Brien without misusing Confidential Information. I have considered aspects of the CETEC Report in relation to Nexus 840 at [127]-[131] above and, as there indicated, although I accept that the chemical properties of Nexus 840 and Roberts 656 are very similar, the other evidence about pressure sensitive adhesives, including the credible evidence of O’Brien, suggests that such similarities are inherently likely to be present solely as a result of the nature of adhesives of the relevant kind. I am not persuaded by anything in the CETEC Report to doubt the truthfulness of O’Brien’s testimony about the independent development of Nexus 840.
149 The respondents raised a number of objections to the admissibility and weight to be attributed to the CETEC Report, some of which have merit. However, as I have made my findings on liability in respect of Nexus 820 without relying on the CETEC Report, and as there is nothing in the CETEC Report which has affected my conclusions about Nexus 840, there is no need for further consideration of these evidentiary issues.
150 Those parts of the CETEC Report which I have found useful are general in nature and not the subject of objection on behalf of the respondents. Those parts included general comments on the types of ingredients found in adhesives and some observations by RLA’s expert, Bate, based on the BASF literature cited by Sofat or otherwise discovered by the respondents which has been noted at [114] of these reasons. None of the respondents’ objections affects my reliance on this information which, in any event, has been only peripheral to the central findings.
151 As a result of my decision in RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd [2010] FCA 1088, a considerable amount of the respondents’ expert report became inadmissible or, I considered, was of little weight. I have not been persuaded by such admissible evidence as I have found in the respondents’ expert reports to change my findings as to misuse of Confidential Information. However, as noted at [147] of these reasons, I have paid some regard to Mr Turner’s report in estimating the time in which the respondents could be expected to have brought an adhesive to market without the advantage of a “springboard”.
IMPACT OF SPRINGBOARD
152 My finding that the respondents used Confidential Information in their development of Nexus 820 makes it necessary to fix the date on which development of Nexus 820 commenced and to identify when the Confidential Information was used as a “springboard”. As noted earlier in these reasons, it is probable that the respondents possessed and used the Confidential Information related to PE 265 when they started to develop Nexus 820. Sofat had recorded the PE 265 formulation in her Exercise Book and had the benefit of that information during, what I have termed, the “research phase” of the development process. Thus, the use of that part of the Confidential Information as a “springboard” coincided with the commencement of the development of Nexus 820. When that commencement occurred does not emerge clearly from the evidence. However, a commencement date must be postulated to ascertain how long Nexus Adhesives took to bring a commercially viable product to the market. It will then be necessary to estimate the time which Nexus Adhesives, uninstructed by the Confidential Information, would have taken from initial research to the successful marketing of the finished product. That period also is not susceptible of precise definition because of the lack of strongly probative evidence directed to it and the many variable factors which bear on the estimate.
153 RLA contended that an existing, reasonably well-resourced, adhesives manufacturer would take between nine and twelve months to develop a product like PE 265 or Nexus 820 from “scratch” and market it in commercial quantities. That contention was supported by evidence from Etches, Clinch and others who claimed that a period within that range had been occupied in developing and marketing PE 265. The CETEC Report also suggested that twelve months from commencement to completion would be an appropriate estimate in the circumstances.
154 From that basis, RLA argued that the process would have taken even longer had it been undertaken independently by an under-resourced developer like Nexus Adhesives which had only a single chemist inexperienced in the formulation of flooring adhesives and busy with additional responsibilities for starting up and running its compounding division. Accordingly, RLA argued, the Court should infer that, as a result of having used the Confidential Information as a “springboard”, the respondents had saved themselves a substantial part of the time (in excess of twelve months) which independent development of Nexus 820 would have taken.
155 The respondents invited a finding that their development of Nexus 820 began in October 2006, with the first batch being manufactured in May 2007, although a commercially saleable version of Nexus 820 was not released until September 2007. Accordingly, on the respondents’ calculation, it took approximately seven months to produce the defective version of Nexus 820 which was recalled, and a further month to produce the marketable adhesive, making a total time frame of approximately eight months.
156 In the light of these competing contentions, I shall consider when development of Nexus 820 actually started and finished and how long Nexus Adhesives would probably have taken to complete the process without any “springboard” advantage.
Timeframe for Nexus 820 development
157 I am satisfied that steps were taken to develop Nexus 820 as soon as Nexus Adhesives was incorporated in August 2006. However, although the evidence indicates that some research and the identification of sources of supply for ingredients and the necessary laboratory and manufacturing equipment had been undertaken between August 2006 and January 2007, I find that physical production of trial batches did not occur before, at the earliest, February 2007.
158 It is to be expected that almost any development of an industrial product will involve some initial research and preparation after which time will be devoted to physical trials of prototypes followed by commercial production. The evidence presented by each side suggests that manufacture of a new or improved adhesive shares these characteristics and is likely to require most time to be spent on production of physical samples which will need a significant amount of trial and testing.
159 The respondents have sought to portray Sofat as an experienced chemist who was receiving assistance from the very experienced O’Brien, when she took charge of the development of Nexus 820. Acceptance of that portrayal, in combination with the other admissible evidence regarding the development of adhesives, tends to the attribution of only a small amount of time to the research phase of the hypothetical independent development of Nexus 820.
160 In other words, if it be assumed that Sofat already had the requisite skill and knowledge to begin developing flooring adhesives, the primary research should not have taken very long and once ingredients had been sourced with the assistance of SPFs, the true trial and error testing of sample batches would have commenced. As I have already indicated my view of O’Brien as a generally credible witness, it is reasonable to accept his evidence that possession of the relevant SPFs would equip a developer to embark immediately on modifications, accomplished, I infer, through trial and error testing of sample batches.
161 The respondent’s expert, Mr Turner, claimed that the most time-consuming task in the creation of a new adhesive is the acquisition of the raw materials, after which the development and refinement of the formulation would be relatively rapid. It is unclear from Mr Turner’s report whether he regarded the total time needed for independent creation of a marketable adhesive as four and a half months, seven and a half months, or as short as only six weeks. He drew on his experience of having worked on “Roberts” adhesives in 1990 when that business was owned by Dunlop and recounted in his report;
After three months of development failures, it was made quite clear by the General Manager, that if, I was not up to the task, they would have to find someone else who could. The development took 4.5 months and the new product was successfully commercialised.
162 In his further supplementary witness statement, Mr Turner recounted that, after three months of failures described in the extract at [161] above, “at about 3.5 months into my tenure, I had one of those wonderful moments, an epiphany of thought that crystallised that [I] needed to dissolve the rosin in oil”. In their final submissions, Counsel for RLA interpreted Mr Turner’s evidence as being that it had taken him four and a half months to develop a new “Roberts” adhesive. However, it is not clear from Mr Turner’s account whether that period included the sourcing of raw materials which he generally regarded as the most time-consuming task in achieving mass-production of a new adhesive. It is also to be noted that the relatively speedy development to which Mr Turner attested was assisted by his access to a “state of the art R&D laboratory” and a team of three qualified chemists undertaking an intense three month program of experimentation. As well, Mr Turner was under extreme pressure from a demanding General Manager. By contrast, Sofat’s experience as a chemist in processing vinyl flooring adhesives was, at the least, limited and her only assistance was from Nixon who had no training as an industrial chemist. Moreover, O’Brien did not regard Nexus Adhesives’ facilities as appropriate for commercial production and Sofat was also heavily engaged with the latex compounding side of Nexus Adhesives’ business which, according to Clewlow’s email of 30 January 2007, was busier than expected.
163 It also has to be borne in mind that O’Brien’s input into the development of Nexus 820 was limited to the provision of advice and he does not appear to have seen any samples or notes made in the course of development of that product. Indeed, as is demonstrated by O’Brien’s emails to Clewlow of 26 February 2007, O’Brien had been unable to provide any real guidance to Sofat as at the date of that email. However, O’Brien testified that he had continued to assist Sofat with the carpet and vinyl adhesives formulations after he had finished working on the formulation for Nexus 840. If that evidence be accepted, O’Brien only provided assistance with Nexus 820 after he had completed the formulation for Nexus 840 which was conveyed by email on 20 April 2007. On the assumption that Nexus 820 was released in May 2007, O’Brien’s assistance with that product could not have extended over more than one month.
164 Mr Turner also gave evidence to the effect that, in his experience, installation of plant and equipment for manufacture of a new adhesive would take about three months whilst “[i]n every company that I have ever worked for the expected development lead-time is 3-6 months”. I infer from this evidence that Mr Turner is suggesting that a new enterprise requiring time to purchase and install plant and equipment would take from six to nine months to bring a commercially viable product to market. That inference also depends on Mr Turner’s apparent assumption that the new enterprise would have qualified chemists and an adequate laboratory to deploy in the development of its product.
165 I have not found that the experts’ reports on either side compel the adoption of a particular period as likely to be occupied in the independent development of a new adhesive. Making the best use I can of the whole of the available evidence, I have concluded that the period would fall within the range from nine to twelve months. Its location within that range would be influenced by a number of variables, including;
(a) Whether or not the enterprise is already established or newly formed;
(b) Whether or not there are delays in obtaining raw materials;
(c) The extent of the research and development facilities of the enterprise;
(d) The number and relative experience of any chemists and the extent to which they have been dedicated to developing the product;
(e) The size of the enterprise and related internal and external regulatory requirements; and
(f) The intensity of the development schedule, the necessity to meet deadlines and any potential delays.
166 The evidence of various delays and changing priorities for the development of various products between late October and late December 2006 suggest that the “research phase” for Nexus 820 cannot be regarded as having occupied the whole of those two months. It is clear from the evidence that, at that time, none of Clewlow, Sofat, Nixon or O’Brien was according a high priority to Nexus 820. If O’Brien had been responsible for Nexus 820, as I find he was in December 2006, no significant development time was devoted to Nexus 820 in that month. At most, no more than one month can be allocated to the “research phase” of Nexus 820 for the period to the end of December 2006.
167 The evidence indicates that, to the end of December 2006, Sofat had been acting only as O’Brien’s assistant on the development of Nexus 820 and there is nothing to suggest that she performed any real work on Nexus 820 during January 2007. I have therefore deducted the month of January 2007 from the time taken to develop Nexus 820. I have done that after taking into account the evidence of Sofat, Clewlow and O’Brien and, in particular, the letter from O’Brien to Sofat and Clewlow of 19 December 2006 and the email of 30 January 2007 from Clewlow to Sofat and O’Brien. The latter conveys that the development process had been slower than desired due to O’Brien “being ambushed by Worksafe”, the Nexus Adhesives’ “compounding business being busier in some areas than expected” and O’Brien having had his own business to run. From O’Brien’s email it seems that there had been no real development of Nexus 820 by 19 December 2006 and that he would be unable to make any progress on it until the end of January 2007. Further, by 30 January 2007, in Clewlow’s view, the development was two to three months behind schedule. I also base my finding that no real development work on Nexus 820 took place in January 2007, on the absence of any contemporaneous documents or other probative evidence to the contrary. In addition, although O’Brien may have been not “far off some lab samples” for what became Nexus 840, Clewlow stated in his email of 30 January 2007 that Sofat still needed to “work with BASF/Nuplex to develop two Vinyl Sheet adhesives”. It was at that point that Clewlow decided to divide the responsibilities of O’Brien and Sofat, giving Sofat a more active role in development of Nexus 820. I have therefore concluded that, until early February 2007, no batches of Nexus 820 had actually been produced by Sofat or O’Brien and that product was then still in the “research phase”.
168 In her email to O’Brien of 9 February 2007 Sofat advised that she had been doing some work on what would become Nexus 820. RLA contends that the questions asked by Sofat of O’Brien in that email were so elementary as to demonstrate that she had very little knowledge or experience in the development of vinyl flooring adhesives. O’Brien rejected this suggestion and claimed that Sofat’s questions raised more complex matters than appeared from the text. In any event, I regard that email as showing that Sofat had only just begun to experiment with the various ingredients which had been acquired from Nuplex and I, therefore, date the physical development of Nexus 820 from the beginning of February 2007.
169 In the light of the findings summarised above about the actual time taken to develop Nexus 820, I consider that the “research phase” of that process occupied approximately one month, during the period from late October 2006 until late February 2007. I further find that the “physical development phase” lasted for approximately three months, from the beginning of February 2007 to the beginning of May 2007 when the first commercial release of Nexus 820 occurred. In consequence, it probably took the respondents about four months in all to develop Nexus 820 and bring it to the market. That period is obviously well short of the nine to twelve months which I have postulated as the time frame in which a reasonably well-resourced producer could be expected to develop a new adhesive from “scratch” and launch it on the market. However, as I have found at [136] of these reasons, the respondents were first apprised of the “post thickening problem” in mid-August 2007. That problem was resolved in the space of a month, between late August 2007 and late September 2007. Accordingly, it is appropriate to add an extra month to the time imputed to the actual development of Nexus 820, making a total time of five months before the respondents achieved a marketable version of Nexus 820, at least four months and up to seven months earlier than they would have had they not used the Confidential Information.
170 Although I regard the evidence canvassed earlier in these reasons as sufficient of itself to fix the respondents with liability for misuse of the Confidential Information, my findings in that respect derive additional support from the conclusion just explained, that the actual development of Nexus 820 occupied a period as short as only five months.
CONCLUSION
171 Of the main findings outlined in the foregoing reasons, the first is that the respondents did not use Confidential Information in the development of Nexus 840.
172 Secondly, elements of a cause of action for a breach of confidence as enunciated in Australian Medicare have been made out in respect of the respondents’ development of Nexus 820. The evidence tending to establish each of those elements may be summarised as follows;
(a) the Confidential Information was confidential in character, i.e, it had “the necessary quality of confidence about it”: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 215 (see [46]-[64] of these reasons);
(b) the Confidential Information was imparted in circumstances importing an obligation of confidence; Coco v A N Clark (Engineers) Ltd [1969] RPC 41 at 47; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 40 (see [65]-[69] of these reasons); and
(c) there was actual unauthorised use and disclosure of the Confidential Information: Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) 22 FCR 73 at 87, 111-112; Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 (see [100]-[116] and [133]-[151] of these reasons) .
173 The cause of action was made out because the available inference which I prefer is that the respondents used parts of the Confidential Information in numerous ways to contribute to the development and production of Nexus 820. Irrespective of whether they wished or intended to develop and produce the Nexus adhesives without recourse to the Confidential Information which they brought with them from RLA, they were only able to achieve what they did with Nexus 820 in the space of five months by using parts of the Confidential Information. Creation and development of that product for the commercial market, had it been uninfluenced by the Confidential Information, would have taken at least nine, and up to twelve, months. The “springboard” advantage thus gained by the respondents has a bearing on the remedy which this Court should grant.
174 The remedies sought by RLA have been set out at [36] of these reasons. My findings as to the liability of the respondents and the springboard advantage they have achieved from misuse of the Confidential Information make it appropriate to order an account of the profits derived by Nexus Adhesives from sales of Nexus 820 during a specified period. Because I have considered that completely independent development and production of Nexus 820 would have taken between nine and twelve months, I have taken the mid-point of that range, namely ten and a half months, in fixing the period during which Nexus Adhesives should be taken to have profited impermissibly from its sales of Nexus 820. Thus, the account of profits should be for a period of five and a half months from when Nexus 820, free of the “post-thickening” problem, was released for commercial distribution and sale at the end of September 2007. I shall order that the respondents pay to RLA as damages the amount of those profits as found on the taking of an account.
175 I do not consider the other remedies proposed by RLA to be appropriate in the circumstances, particularly as the current version of Nexus 820 is not a straightforward replica of PE 265, but, is a different product, albeit that elements of the PE 265 formula had been used to a certain extent in its development. As well, I consider that an account of profits and an order for payment of those profits to RLA will adequately compensate it for damages for breach of confidence or any contravention by the respondents of the Trade Practices Act or the Fair Trading Act.
176 I shall hear Counsel at a mutually convenient time on the questions of costs, interest and any further orders which may be required in the light of these reasons. In addition, I shall extend, until the expiration of 21 days from the making of orders in respect of those matters, the time for appeal from the substantive orders made this day.
I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. |
Associate:
