Trade Secrets: Contempt proceedings put miscreant in jail for failure to provide information about misappropriation

https://depositphotos.com/143511463/stock-photo-contempt-of-court-rubber-stamp.htmlGenerally, a breach of confidence under English law does not give rise to criminal liability (and the recently implemented Trade Secrets Directive only addresses civil remedies for misappropriation of trade secrets). Sometimes the conduct giving rise to the breach may constitute an offense in its own right (for example an offense under the Computer Misuse Act 1990) but in the absence of such a scenario sanctions will be limited to inter partes remedies. However, as shown by the case discussed below, if an order for inter partes relief is breached, criminal sanctions may still be imposed following a finding of contempt of court.

The case of Corbiere and others vs Ke Xu, concerned a defendant who had misappropriated his employer’s confidential information, said to be worth over £31m. Mr Xu flew to Hong Kong with the confidential information but was extradited back to the UK where he was tried for fraud offenses. Mr Xu pleaded guilty to these offenses and was sentenced to four years’ imprisonment.

Prior to leaving the UK Mr Xu arranged for the delivery of a number of computers and other electronic devices to his parents in China. He was also observed in Hong Kong carrying what the Claimants believed to be a laptop and passing a shoulder bag to his wife. Therefore, an order was also made at this time requiring him to deliver up the confidential information in his possession. Mr Xu failed to comply with the delivery up order and, following a private prosecution by the Claimants was sentenced to a further 18 months imprisonment.

The Home Secretary subsequently made an order that Mr Xu be deported (which was also Mr Xu’s wish) however the Claimants sought judicial review of this decision due to the perceived risk of Mr Xu being able to benefit from the confidential information upon his return to China.

During the course of the subsequent civil proceedings, the court made an order in January 2018 that the defendant disclose various information relating to the whereabouts of  the confidential information he had taken (such as the location of copies and the names of the people to have or had it in their possession). The Court also made an order that Mr Xu must surrender his passport until the disclosure order had been complied with. Mr Xu failed to comply with the disclosure order and was subsequently found to be in contempt of court.

At the committal hearing last month the defendant was sentenced to 13 months’ imprisonment for failing to comply with the order (the punitive element of the sentence was reduced to reflect the time already served by Mr Xu).

This is notable as it shows that in certain circumstances a breach of confidence can give rise to a de facto criminal sanction. It is also indicative of the court taking a strict approach when dealing with a failure to comply with court orders which may be relevant to other circumstances.

The English Court’s increasing robustness to enforcing court orders should be noted by companies operating outside the UK. The same principal as seen above could equally apply to other forms of court order which would otherwise be purely a civil matter. In addition to the possibility of criminal sanctions against individuals (including directors), an overseas entity in breach of an order of the English Court may be subject to a bar on bringing an application before the court (whether in the same proceedings or other proceedings) until the contempt has been purged. This could make continuing to operate in the UK extremely difficult.

 

Image Source: Deposit Photos.

The Author

Robert Williams

Robert Williams is a partner and co-head of Bird & Bird's Intellectual Property Group in London. He has significant experience in both contentious and non-contentious IP work, advising on the full range of issues relating to patents, copyright, trade marks, designs and trade secrets/confidential information. He also jointly leads our International Trade Secrets Protection Group.

Rob has particular experience of complex IP disputes (with a focus on multi-jurisdictional patent litigation and trade secrets disputes) and has advised clients from a range of IP rich industries, including life sciences, energy, and utilities, specialty chemicals, mechanical engineering and electronics on various strategic IP issues including lifecycle management.

For more information or to contact Ron, please visit his Firm Profile Page.

Robert Williams

Will Smith is an Intellectual Property Associate at Bird & Bird. Will works across a range of contentious intellectual property matters, principally concerning patents, copyright and confidential information. He has recently been involved in coordinating pan-European patent revocation strategies for clients in the life sciences sector.

Will has also worked on a variety of non-contentious intellectual property matters including licensing agreements and due diligence both in the context of corporate sales and as part of detailed internal intellectual property audits.

For more information or to contact Will, please visit his Firm Profile Page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments.

  1. Night Writer July 20, 2018 2:21 pm

    Techdirt people should read this. Trade secrets are a way to control employees. Yes sometimes the employees do bad things. But trade secrets are going to put a chill on every engineer wanting to move companies.

  2. Bob Zeidman July 21, 2018 11:18 am

    Night Writer, did you read the article? The employee stole information worth $40 million. Yes, I do want to control my employees, at least enough to keep them from stealing my assets.

  3. Night Writer July 23, 2018 11:43 am

    @2 Bob Zeidman

    I did read that. But, the point is that the threat of a lawsuit will put a chill on employees leaving and working in the same area. The problem with trade secrets is that they seldom have defined boundaries and can encompass far more than a patent claim. It will leave the employees stuck at their current employer or change careers.

  4. Bob Zeidman July 23, 2018 11:56 am

    @Night Writer, you’re right about trade secrets being fuzzy, but the plaintiff has the high burden of showing that the claimed trade secret meets the criteria of being a trade secret (not generally known, steps were taken to keep it secret, and being secret made it valuable). Plus they need to show that the employee made use of the trade secret.

    The scenario you just described simply never happens. Not only are there strong employment laws that protect employees, but trade secret cases are very expensive for plaintiffs. No company sues an employee to keep them from leaving. And no employee will choose to remain at a company that takes such steps.

  5. Bob Zeidman July 23, 2018 12:24 pm

    @Night Writer. While trade secrets can be fuzzy, the plaintiff still needs to show that their claimed trade secrets meet the necessary criteria: not generally known, were kept secret, and have value in being secret. Plus the plaintiff needs to show that the employee actually used the trade secret and did not develop it independently or discover it from another source. This is a very high bar; trade secret cases are very expensive for plaintiffs. Plus employees are protected by employment laws. The scenario you describe just doesn’t happen, except in rare cases where an officer of the company leaves. Any company that sued its employees for leaving could not afford to stay in business and could not attract employees. Trade secret laws have been around in the legal system for decades, during a period of time in American history of the largest mobility of workers. It’s simply an impossible scenario that you describe.

  6. Night Writer July 26, 2018 5:13 pm

    @5 Bob Zeidman

    I was an engineer that worried about trade secrets when I left my employer. What you forget is the difference is power between the employee (poor) and employer (rich or at least can afford attorneys.)

    Actually, what I describe is not only feasible but it has happened. What we are seeing now is the selling of trade secrets and everyone knows the biggest value of the trade secrets is keeping control of your employees.

    It isn’t hard to show something is a trade secret and the more developed the trade secret law becomes the more the big companies can focus on development in a trade secret manner. Moreover, the employee using the trade secret is a fairly low bar in that just working in the same area of technology is going to survive a SJ motion.

    We also know that the Silicon Valley companies have been punished in the past for making secret agreements on how much to pay employees or at least not to pouch each others’ employees.

    I have done a great job of predicting just about everything that has happened in patent law and I am very confident in my predictions with trade secrets. They are a great tool for the large monopolies we have in Silicon Valley and they will spend many millions strengthening trade secret law in Congress (federal law by the way which trump CA law) and in developing and scaring employees.