Force India and damages for misuse of confidential information
Published 22 January 2014 By: Kerenza Davis
In the world of Formula 1 (“F1”), millions of pounds can be won or lost over the matter of a few seconds. Mega-rich companies compete to create faster cars, carefully guarding any information that might shave a few moments off a model’s time.
The aerodynamism of a F1 model is crucial to this time performance, and it transpires, also useful for generating questions on the misuse of confidential information. This is good news for lawyers since it has produced the helpful Court of Appeal judgment Force India Formula One Team Limited v Aerolab SRL and others  EWCA Civ 780, which provides guidance on a number of tricky issues, including:
- How to distinguish between a claimant’s confidential information and a defendant’s knowledge;
- The impact of “confidential” information also being publically available;
- Quantification of damages where the misused information has been developed to create something more valuable; and
- Quantification of damages where only part of a corpus of confidential information has been misused.
In 2008 Force India (who design and produce F1 cars) entered into an agreement with Aerolab for the latter to perform aerodynamic tests on Force India’s model.
Aerolab was required to keep certain information provided to them confidential during the course of the Agreement and for two years following its termination. The “information” covered by this clause was very broadly defined, but contained some exceptions including information in the public domain and information already independently known by Aerolab.
In 2009 Force India fell behind with its payments to Aerolab and subsequently failed to comply with an agreed remedial plan. Accordingly, Aerolab stopped work and purported to terminate the contract. The precise date of termination was in dispute but settled by the Court of Appeal as 19 August 2009, by which time Aerolab had started working for Force India’s competitor Team Lotus.
Force India alleged that confidential drawings it had provided to Aerolab during the Agreement had been used by Aerolab in developing Lotus’ model both before and following termination. Their claim came before Arnold J in the High Court ( EWHC 616 (Ch)]. Force India appealed Arnold’s findings on a number of points, but while the Court of Appeal disagreed with some of his analysis it left his overall judgment on liability and quantum largely intact. The leading judgment was given by Lewison LJ.
Information v Knowledge
In considering how Force India’s confidential “information” could be distinguished from the knowledge of Aerolab’s employees (some of which had inevitably been developed by working with this very information) Lewison disagreed with Arnold’s analysis on the significance of how memorable the information was, preferring Roxburgh J’s analysis in Terrapin Ltd v Builders’ Supply Company (Hayes) Ltd  RPC 375, 391, which defined information as:
“something that can be traced to a particular source and not something which has become so completely merged in the mind of the person informed that it is impossible to say from what precise quarter he derived the information” [at 391].
The dividing line between “information” and “knowledge” then can be taken as the point at which an idea becomes so entrenched in an individual’s understanding that s/he can no longer specify where s/he learnt it. The fact that information is remembered without reference to any external materials will be irrelevant if the party knows its source was originally confidential information.
Information in the public domain
It was common ground between the parties that by August 2009, having been raced at 10 Grands Prix, the general aerodynamic design of Force India’s 2009 model was in the public domain. Given Arnold’s finding that Aerolab’s work for Lotus used Force India’s design “at the level of the general shape and configuration of its component parts, but no more” [at 130] could Aerolab rely on the public availability of such information as a defence?
The answer from Lewison LJ was a resounding no. Advocating an approach aimed at preventing guilty parties avoiding potentially significant amounts of work or getting an unfair head start, he held: “It is clearly not a defence that the person in breach of confidence could have obtained the information elsewhere if he did not in fact do so” . Since Aerolab had used the information from the confidential source it did not matter that it might have been publically available to them.
Evolution of information
Aerolab admitted to using some of Force India’s confidential information in their work for Lotus, but argued this was only a basic starting point in an evolutionary process. Significantly, by August 2009 Force India’s model was the worst performing model in the 2009 F1 Championship so arguably any value in the misused information was only realised following Aerolab’s independent input.
Lewison LJ rejected the idea that this could serve as a defence, again quoting Roxburgh J in Terrapin, who remarked [at 390]:
“information is none the less used if it serves as a starting point for a new design, because in the end the design wholly or partially discards the information from which it was originally built up”.
However, the Court found that such matters can impact on quantum.
In general, damages for misuse of confidential information are assessed on one of three bases: the profit made by the guilty party, the loss suffered by the innocent party or a reasonable price that would have been negotiated for the use of the information (as per Wrotham Park).
Where the third of these bases is used Lewison LJ approved the distinction made in Seager v Copydex (No 2) 1 WLR 809, between situations where there was “nothing very special” about the information used and those where the information “involved an inventive step" [at 813]. In the former case the fee of a competent consultant is the appropriate measure of damages but in the latter the measure would be much higher, equating to the price paid by a willing buyer desirous of obtaining the information.
In the immediate case as Arnold J had found the misused information only served to save Aerolab some time (there being nothing “special” or “inventive” about it) Lewison LJ approved his finding that the appropriate measure was the cost of a consultant. Force India’s initial claim for c. £13 million (essentially the entire cost of developing the model) was rejected; instead, the Court upheld the finding that the appropriate measure of damages was a reasonable fee for the pieces of information used, here £25,000 [at 103].
Information from a larger matrix
Lewison LJ also commented that Arnold J had not addressed the question of whether Aerolab regarded themselves as free to use all Force India’s confidential information, but suggested that if Arnold J had found this to be the case “then it seems to me that compensation should have been assessed on the basis of the value to Aerolab of the whole corpus of information. After all, if A wrongfully retains B’s dictionary, it does not matter that he only looked up a few definitions” [at 96].
While this is a pleasing analogy it raises some difficulties. Such an approach would move away from the concrete question of the value of the information that has actually been used to the more theoretical question of the value of the opportunity to use it. This risks creating liability for contemplated rather than actual wrongdoing. Must a wrongdoer pay a reasonable fee for the opportunity they had to use the information if they had been moved do so? In the absence of any loss to the claimant or gain by the defendant could this be justified?
Further, while one can undoubtedly see that in the real world having a large cache of information will be of greater value than having a few individual pieces, this value lies in the ability to pick out all the salient pieces of information from the overall corpus. Given that damages are awarded on the basis of a theoretical negotiation, with value being attributed to the information used according to the cost the defendant would have had to incur in obtaining it (whether by paying a competent consultant or negotiating with the owner) arguably the value the defendant would gain from having such a cache is (or could be) already factored into the quantification of damages. It is at least a plausible argument that the cost of “obtaining information” could include the cost of identifying which pieces would actually be of use, in which case what “reasonable” buyer would pay more to have a consultant also provide them with ancillary bits of information they did not need?
Lewison LJ’s suggested approach seems to be based more on compensating the claimant for an understandable sense of grievance at having their intellectual property treated by another as if it belonged to them than on any actual loss they have suffered as a result or any tangible benefit derived by the wrongdoer.
These latter points are perhaps questions to be thrashed out in another lap round the same kind of circuit but in the meantime Lewison LJ’s is a highly useful judgment in clarifying the law in this area.
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- Tags: Competition Law | Confidentiality | Contract Law | Employment Law | F1 | Formula 1 | Motorsport
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