Theft of confidential information results in only nominal damages for employer
20 March 2017
An employer was awarded only nominal damages from former employees who copied the employer’s confidential information but made no use, or limited use, of that information and did not cause any damage to the employer. So called "Wrotham Park" damages reflect how much the innocent party would have asked for to release the defaulting party from an obligation, had it been asked, and can be a useful remedy where it is difficult to show financial loss. The judgment provides a useful review of the court's approach to damages where liability and breach of duty are easily established but showing loss to a claimant is more difficult: Marathon Asset Management LLP & anr v Seddon & anr  EWHC 300 (Comm)
Marathon is an investment management firm. It sued two former fund managers for GBP 15 million after information regarding Marathon's clients, portfolios and business operations was copied onto USB drives from company servers when the managers left the firm. The two ex-employees had resigned to set up a rival fund management business.
It was common ground that only a small number of the copied files were ever accessed and that little or no use was ever made of the confidential information. The ex-employees returned the USBs when these proceedings were threatened.
Assessing damages when it is difficult to show a loss – the "Wrotham Park" approach
Marathon asserted that it did not matter what use was made of the files or that they had suffered no apparent loss: the defendants had unlawfully taken its confidential information and they should pay for the value of what they took, which Marathon estimated at GBP 15 million.
Marathon asked the court to assess damages using the approach in Wrotham Park Estate Co Ltd v Parkside Homes Ltd  1 WLR 798, where the court employed the concept of a 'hypothetical bargain' between the parties to license the invasion of the claimant's right. In that case, Brightman J awarded damages for breach of a restrictive covenant attaching to land, assessed by reference to the contract-breaker's gain from the breach, at 5% of the anticipated profit from the wrongful development. The judge considered this to be the sum that the claimant, acting reasonably, could have demanded from the defendant for relaxing the restrictive covenant. Of the various labels, rather than 'Wrotham Park', 'hypothetical bargain' or 'negotiation' damages, Leggatt J preferred the term 'licence fee' damages and used this in this judgment.
As confidential information had been misused, licence fee damages or an account of profits were both potentially available as remedies. Leggatt J noted that Marathon abandoned its claim for an account of profits no doubt given the lack of evidence that the defendants made any profit from any wrongful use of Marathon's confidential information.
No loss and no gain
Leggatt J found the defendants liable for breaches of their contractual and common law duties of confidence in copying and retaining the confidential files. However, Leggatt J decided that as the misuse of confidential information by the defendants had neither caused Marathon to suffer any financial loss nor resulted in the defendants making any financial gain, it was hard to see how Marathon could be entitled to any remedy other than nominal damages.
Leggatt J concluded that the defendants did not copy files from any of the USB drives to any undisclosed computer or other device and decided that there was a "vast gulf between the extent of the use which Marathon says could potentially have been made of the files… and the very limited use which the evidence shows was in fact made of them". The judge acknowledged that, save in very limited circumstances, punishment and deterrence are not purposes for which damages for civil wrongs can be awarded in English law.
Marathon's wider conspiracy claim also failed, as the copying and retention of files caused Marathon no loss, which is an essential element in the tort of conspiracy.
Other claims also rejected
Marathon raised a number of arguments, each of which was rejected:
- Marathon contended that the conduct of the defendants in copying and retaining Marathon's confidential files was analogous to the conversion or detention of goods and gave rise to a claim for damages representing the value of the information taken. Leggatt J could not see how the defendants actions had made them better off or Marathon worse off.
- By copying Marathon's files onto USB drives which were retained on leaving Marathon's employment, the defendants exposed Marathon to the risk of loss and acquired the opportunity for financial gain. Leggatt J dismissed this argument as threadbare noting that the law does not compensate people for being exposed to a risk of injury.
- Marathon argued that where the use of confidential information and its consequent impact was uncertain, a just solution would be to require the defendant to pay a sum representing the value of the information assessed at the point when the breach of duty occurred on the assumption that the information would thereafter be exploited. Although the judge recognised certain legal principles which assist a claimant who has difficulties proving loss (the difficulty of estimation should not be allowed to deprive a claimant of a remedy; where the defendant has destroyed or wrongfully prevented the claimant from adducing the relevant evidence, the court will make presumptions in favour of the claimant), in circumstances where it was established to a high degree of certainty that the files were never accessed or little use was made of them, Leggatt J could not justify awarding damages.
Leggatt J held that Marathon's approach to the assessment of licence fee damages was flawed for a fundamental reason, namely a failure to identify accurately the wrong for which licence fee damages were being sought and to match the remedy to the wrong. In formulating its claim for licence fee damages, Marathon chose to focus its trigger date for the "hypothetical negotiation" of the licence fee as at the date when the files were "copied" rather that when they were "retained" or "made use of" (to the limited extent that they were). However, when the files were copied, no misuse of the confidential information had occurred and the court would not assume future wrongdoing when assessing a remedy.
In a protracted and no doubt expensive case, Leggatt J held that Marathon had "missed the jackpot" of GBP 15 million and awarded nominal damages of GBP 1 from each defendant.
The case provides a comprehensive review of the court's approach to damages in circumstances where liability and breach of duty is easily established, but establishing a loss to the claimant or gain to the defendant is less clear-cut.
The judgment serves as a warning that even in cases of clear breach of contractual and common law duties of confidence, employers will struggle to assert significant losses for the removal of company documents. The case reinforces the importance of employers considering the practical protocols and steps they can take to protect their business around the time of a resignation.
Leggatt J sets out a framework for an 'account of profits' and 'licence fee' damages and this is likely to be a useful resource later this year when the Supreme Court considers the case of One Step (Support) Ltd v Morris-Garner1 (covered in the May 2016 Litigation Review), where the Court of Appeal declined to interfere with a decision to award licence fee damages as a remedy for breaches of covenants not to carry on business competing with the claimant and not to solicit customers of the claimant, as well as for wrongful use of market research.
This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards firstname.lastname@example.org, or tel +44 20 3088 3710.