Law News Update - Claims of disclosure of confidentiality and infringement of copyright by an ex-employee
In brief:
Bluescope Steel Limited v Kelly [2007] FCA 517
- This case concerned the claims that an ex-employee had disclosed confidential information to a third party in breach of fiduciary and contractual obligations owed by him and when disclosing such information, infringed copyright in certain works embodying the confidential information.
Bluescope Steel Limited v Kelly concerned claims by Bluescope Steel Limited (Bluescope) and Bluescope’s joint venture, Castrip LLC (Castrip), that Mr Kelly (an ex-employee of Bluescope) and K.Con Pty Limited (K.Con), the company Mr Kelly established after leaving Bluescope, had:
- disclosed confidential information to a third party, Danieli & Co (Danieli) in breach of fiduciary and contractual obligations owed by Mr Kelly; and
- when disclosing such information, infringed copyright in certain works embodying the confidential information.
The alleged confidential information was information relating to a research and development project under the name “Project M”. Project M was conducted by Bluescope and Ishikawajima-Harima Heavy Industries Co Limited (IHI). Mr Kelly was heavily involved in Project M. Subsequently, Bluescope and IHI assigned to Castrip, the rights in certain information arising from Project M, which Bluescope and Castrip claim is confidential.
Breach of confidentiality
There was no dispute in the proceedings that Mr Kelly and K.Con conveyed, both orally and in writing, a significant amount of information to Danieli. The question was whether the information disclosed was “confidential” to Bluescope and Castrip.
Mr Kelly and K.Con argued that, amongst other things, the information was in the public domain, because it could have been derived by a competent expert from other information in the public domain. His Honour did not agree and held that at least some of the information disclosed by Mr Kelly and K.Con was confidential on the basis that:
- Bluscope and Castrip could point generally to the fact that some part of all the information disclosed must, by necessary inference and consequence, have been confidential. Justice Emmett did not consider it necessary to identify with precision, precisely what information disclosed was confidential. It was this critical information derived from Project M that was the real value of any information that could be provided by Mr Kelly and it was that “added value” that Danieli sought and obtained from Mr Kelly.
- This information had the necessary quality of confidentiality taking into account how difficult it would have been to acquire by others and the complexity, skill and effort expended to acquire it.
- The information was received in such circumstances as to import an obligation of confidence.
- Whilst some information had been disclosed in scientific papers and a patent application, a significant and critical part must not have been in the public domain.
- Mr Kelly could not identify the actual source of any such information in the public domain.
- Mr Kelly’s assertion that it would have been possible to obtain the critical confidential information from a source in the public domain and to describe such a source was not sufficient.
The difficulty in identifying exactly what information disclosed was confidential caused difficulties as to the precise formulation of an injunction and in determining the extent, if any, of an award of an account of profits. Nevertheless, Justice Emmett was able to formulate an injunction and formula for account of profits which in his view was equitable and sustainable.
Copyright infringement
Mr Kelly used documents of Bluescope to make notes and “directly transfer” such notes to his own documents. There was no dispute that copyright in the works which were disclosed subsisted. Justice Emmett held that Mr Kelly copied a substantial part of the material from the documents of Bluescope and IHI directly into his own documents.
His Honour held that having regard to the quality of what was copied in relation to the works as a whole, infringement of the copyright of Bluescope and IHI was established. The parties agreed that remedies for this infringement were to be part of the remedies for breach of confidentiality.
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