How to protect a confidential business model: from waste management to Threads!

In the UK, such valuable business information may be protected:

• under the common law as “confidential information” – information will be regarded as being confidential if it has a ‘quality of confidence’, the information was imparted in circumstances requiring an obligation of confidence and there has been an unauthorised use or disclosure (actual or threatened) of the information which has, or will, cause detriment to the information owner;
• under the Trade Secrets (Enforcement etc.) Regulations 2018 – if it fits the specific criteria of a UK “Trade Secret”, being a secret (not generally known) which has commercial value because it is secret and has been subject to reasonable steps to keep it secret; and/or
• by the protection given by various intellectual property rights.

The protection of confidential information and trade secrets is often backed up by clauses in employment contracts, which aim to prevent confidential information being taken or used by employees on departure.

The above regimes overlap in many ways and provide a range of remedies for the owners of confidential information and trade secrets where protected information is unlawfully obtained, used or disclosed. These remedies include an injunction, compensation, damages and/or an account of profits.

Waste Managed Limited  v Stephen Wilce & Others [2023] EWHC 1456 – a recent injunction

An injunction is an order from the court, usually obtained on an urgent and interim basis, preventing a party from using confidential information or trade secrets it has obtained or requiring that party to take certain specified steps in relation to any confidential information held.  In cases where confidential information or a trade secret has been disclosed to a third party, an injunction is often required to stop that information becoming public knowledge, to prevent rivals from benefiting from that information and to ensure a business retains its “stand out” factor.

Last month, the UK High Court refused to grant an injunction to a waste company which claimed some of its former employees used confidential information about its business model to set up a rival company.

Waste Managed Limited sought an injunction against three of its former employees, a company called Marketing Position Limited and another individual defendant, who had set up a competitor waste company called Better Waste Solutions Limited. The claim included allegations of breach of contract, breach of fiduciary duty, misuse of confidential information, inducing breach of contract, unlawful means conspiracy and misrepresentation.

In particular, Waste Managed Limited alleged one of its former employees had, used Waste Managed Limited’s confidential information, replicated its confidential business model and so gained unlawful advantage when setting up the competitor business.  It was claimed that this resulted in customers being lost and Waste Managed Limited suffering loss and damage. Waste Managed Limited sought an injunction to prevent any of the defendants using its confidential information, particularly relating to the confidential business model. It also sought an order requiring the defendants to hand over various information.

However, in determining the injunction application, Mr Justice Murray refused to grant an injunction on the basis he was not persuaded that the defendants had misused Waste Managed Limited’s confidential information or its confidential business model as there was gaps in the evidence which had been provided to him. Instead, he commented that the gaps in evidence would hopefully be dealt with via the disclosure and witness evidence to be provided by the parties as the main claim is prepared for trial and, on the balance of harm test, there was a greater risk of injustice if the injunction was made against the defendants.

Threatened legal action against Threads

Earlier this month, saw the introduction of Threads, a new text-based conversation app that, according to Meta, is designed to be a space “where communities come together to discuss everything from the topics you care about today to what’ll be trending tomorrow…” Threads is owned by Facebook and Instagram’s parent company, Meta. Threads has been pitched by the owners of Meta as a “friendly” alternative to Twitter.

Since its launch, the BBC has reported that Twitter is considering legal action against Threads with Twitter owner, Elon Musk, stating that “competition is fine, cheating is not”. It is currently estimated that more than 100 million people have signed up for Threads since the new app was launched on 6 July 2023. In comparison, according to an SEC filing from 2013, it took Twitter four years to build the comparative number of users – building its userbase from scratch whereas Threads was able to tap into the pre-existing two billion monthly users Meta says Instagram has.

It is said that Twitter’s legal advisers have written to the CEO of Meta, Mack Zuckerberg, accusing Meta of “systematic, wilful, and unlawful misappropriation of Twitter’s trade secrets and other intellectual property” to create Threads. This includes allegations that Meta had hired dozens of former Twitter employees who “had and continue to have access to Twitter’s trade secrets and other highly confidential information” that ultimately helped Meta develop what Twitter is calling the “copycat” app.

It is anticipated that Twitter will seek to enforce its legal rights and demand Meta take immediate steps to stop using any Twitter trade secrets or other confidential information belonging to it.  We wait to see whether Twitter will launch legal proceedings against Meta on the basis that it has misused it trade secrets and confidential information in the creation of Threads. We will keep you updated as this high-profile case develops.  

Our experience

We previously acted for a company specialising in providing control systems to, amongst others, companies within the utilities sector in its injunction application against a former employee (and his prospective new employee) for misusing confidential information in respect of one of its control systems, which was an exclusive product offered by our client.  We successfully obtained an injunction order which prevented the former employee from using the confidential information he had obtained during his employment in relation to the control system and also our client’s customers, including an order that the confidential information be delivered up along with any devices containing the confidential information.  We were also able to secure an order preventing the prospective employee from using any of the confidential information which it had been passed by the former employee.

In this case we were able to show the court that there was a serious issue to be tried and the harm it would cause our client if the defendant were able to misuse the information justified the granting of an injunction order.

In cases such as these we are also able to draw on experience from our Employment and Data Privacy teams as cases involving misuse of confidential information and trade secrets often involve a multitude of legal issues.

Our Disputes team is highly experienced in bringing or defending injunctions and the underlying claim. We recently shared our top five tips for discharging a freezing injunction following a recent success in discharging a freezing injunction that had been obtained against our client, a global shipping company. If you need advice about protecting confidential information and/or securing or defending an injunction, please contact Adele Whaley.