Could Crowson Fabrics stop ex employees Rider and Stimson using Crowson’s customer list to help kick-start their new, rival business? Yes they could, but not for the reasons you might expect. Anna Montes mulls confidential information and database rights.
Topic: Direct marketing
Who: The High Court
When: December 2007
Where: United Kingdom
Law stated as at: 22 January 2008
Just before Christmas 2007, the High Court gave judgment in the case of Crowson Fabrics Ltd v Rider and others. Crowson Fabrics Limited was a company engaged in the design, production and supply of fabrics and two of the defendants (who were not subject to any restrictive covenants or express contractual duties of confidentiality) left its employment to set up a rival company (which was listed as the third defendant to this action).
Crowson commenced proceedings against the defendants, seeking to restrain them from using confidential information pending trial and requiring delivery up of confidential documents it alleged they had taken without consent.
Customer database misappropriated?
Crowson claimed that the ex-employees had provided to their new company, or otherwise retained, a spreadsheet of customer details and sales figures, various e-mail addresses and other confidential documents including Crowson's worldwide-customer-sales database. The customer database was an electronic document which one of the defendants admitted transferring to the computer system of their new company. Crowson therefore claimed the ex-employees had:
- breached an implied obligation not to copy, remove or misuse any of Crowson's confidential business information with a view to use in a competing business;
- breached a duty of fidelity (on the basis that all employees owe a duty of fidelity to their employer) and their fiduciary duties (which, depending on the nature of the employment, an employee may also owe to their employer and which effectively require the employee to put their employer's interests ahead of their own); and
- infringed Crowson's database rights, due to their substantial extraction of information from its database which they then transferred to the systems of their new company.
In response to the claims against them, the two ex-employees did not dispute much of the information brought to the attention of the court by Crowson relating to their actions but they did argue that none of the materials that they used or retained at the end of their employment contained any information considered to be "confidential" as it was all available in the public domain.
Furthermore, all of the material used formed part of their own knowledge and expertise, which they had acquired during their employment and in accordance with law were free to use. They therefore argued that Crowson could not prevent them from using their own knowledge and experience post-termination in the absence of express contractual restrictions.
No breach of confidence finding
The High Court ruled that the defendants had not acted in breach of their implied duties of confidence. It was held that the documents concerned were of value to Crowson and its business, but there had been no breach of confidence. This was for the simple reason that the information concerned could not be considered "confidential" as it did indeed form part of the public domain or resulted from the individuals' accumulated skills and expertise.
The judge stressed that materials do not become confidential simply because an employer deems them to be so. However, the judge did consider that the defendants had not made legitimate use of the information they obtained and that by taking and retaining Crowson's documents, regardless of whether the information they contained was confidential, both ex-employees were in breach of their duty of fidelity. The judge also found that one of the defendants had also breached their fiduciary duties as they had been an employee with a senior role entrusted with senior tasks for Crowson.
Database rights infringed?
Crowson was successful however with its arguments that the ex-employees had infringed its database rights by copying the various customer sales figures and electronic files from its computer system and transferring these to the system set up for their new rival company.
The Copyright and Rights in Databases Regulations 1997 define a database as "a collection of independent works, data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means". A database right exists if there has been "… a substantial investment in obtaining, verifying or presenting the contents of the database". Database rights will be infringed if a person extracts or re-utilises all or a substantial part of the contents of the database without the owner's permission.
Database right finding
In this case the court held that as well as the acts of database extraction complained of, it also considered the transfer of e-mail addresses to be an unauthorised extraction from Crowson's database.
It was held that the databases concerned satisfied the requirements for the subsistence of database rights as they had been arranged in a systematic or methodical way and were individually accessible by electronic or other means. Furthermore, based on Crowson's evidence, the court was satisfied that they had been created as a result of substantial investment in obtaining, verifying or presenting its contents. When considering if there had been an infringement of such database rights, the court was convinced that whatever consent Crowson had previously given the defendants to use the database during their employment, such access rights would have been for the benefit of Crowson only, not the employees.
The court held that it was the extraction of the data from Crowson's database that caused the defendants to infringe Crowson's database rights, not any use they subsequently made of it. The fact that the use made of the information by the defendants had been minimal had no bearing on the case, it was the act of substantial extraction that had an impact on the ruling in this case.
Why this matters:
This case illustrates how employers can use database rights to their advantage in cases where ex-employees have copied and retained information without consent for use after the termination of their employment. Such rights could be particularly useful where the information concerned may not be protected by confidentiality. This case also acts as a reminder to anyone who has left employment as a senior employee that they should not forget their fiduciary duties.
The case does also come with a health warning, however, as the finding that database rights subsisted in the relevant lists is questionable under the strict test created in the famous British Horseracing Board case. It may be that the judge in this case reached his conclusions on this point became the arguments raised by the claimant do not appear to have been seriously challenged by the defendants. Time will therefore tell if this case can be relied upon as a solid authority for the proposition that database rights subsist in customer lists.
In the meantime however, employees should bear in mind that the court felt it may be appropriate to award damages in such an infringement case, based on what would be a reasonable price for individuals to pay for using their former employer's documents as a shortcut to setting up their business in direct competition. However these damages might be quantified in any particular case, the chances are they could make miscreant ex-employees' eyes water!