Case 12: Confidential design information given during negotiations

design of the computer chip had A not given the impression that he would conclude a contract with him. The negotiating parties are each protected in the precontractual stage against the other party’s arbitrary and unexpected breaking-off of the negotiations, and the mutual duty to take care of each other’s economic interests results in a claim for damages if a disloyal party exploits the other party’s ideas that were disclosed during the negotiations in the expectation that the contract would be perfected.

From a recent case, where similar problems had to be resolved by the OGH,1 it may be deduced that parties are bound in good faith to use information about crucial aspects of the contemplated contract, which could be economically exploited by others, only in the context of that contract. If a party decides to abstain from concluding a definite contract after having received such information from the original negotiating party, he is deemed to be contractually bound not to disseminate information on product design that would have remained undisclosed by the original negotiating party. According to the OGH, the original negotiating party may successfully resort to injunctive relief sounding in contract and to a claim for misappropriation of intellectual property (though not yet protected), according to §1041 ABGB:

Where property has been used for the benefit of another, not in the management of a business, the owner can demand the return thereof in kind, or if such return can no longer be made, the value thereof at the time of its use, even though no advantage was received therefrom.

Thus, A is responsible for restitution that is based on a ‘claim for misappropriation’ (Verwendungsanspruch) falling under ‘unjust enrichment’.2 The value of the frustrated benefit that could have been derived from the misappropriated design determines the amount of compensation.

Another possible ground for a claim, especially in the variation of the facts, could again be §1295(2) ABGB.3 If one, consciously and without a

case 1.

England

B may seek an injunction against A to restrain him from using the confidential information or (more likely) he may seek financial remedies against A, either damages for his loss in being unable to make profitable use himself of the information or an account of the profits A makes from the use of the information.

Such remedies are available where the defendant makes unauthorised use or disclosure of information which is confidential and where it was received by the defendant in circumstances which imported the obligation of confidence.5 The design information here has the necessary quality of confidence: there are cases in which such technical and commercially valuable information has been held to be subject to the duty of confidentiality.6 And even in the case where B does not expressly require confidentiality it is likely that a court would hold that A ought to have realised that he was expected to respect the confidentiality.7 There is no doubt about this where B tells A that he expects A to treat the information as confidential. The remedy of injunction may be inappropriate here because the information has already been passed to C, and it is not clear from the facts that the obligations of confidence will necessarily extend to C if he did not know the background to A’s obtaining the information. Moreover, where information was given in confidence with a view to monetary reward for it, as in many cases of the sharing of trade secrets in a commercial context, a court will be more likely to refuse an injunction and instead order monetary remedies.8 A will be liable either to pay damages or to account for his profits.9 Damages in such cases may be calculated either on the basis of the lost royalty payment which B could have charged for

5Saltman Engineering Co. Ltd v. Campbell Engineering Co. Ltd (1948) 65 RPC 203.

6E.g. Seager v. Copydex Ltd [1967] 1 WLR 923 (unpatented design for new form of carpet grip).

7Ibid. (parties negotiating towards contract for joint exploitation of invention); James Industries Ltd’s Patents [1987] RPC 235 (duty of confidence presumed between commercial partners); Coco v. AN Clark (Engineers) Ltd [1968] FSR 415, 421 (information of commercial or industrial value given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party for the other, will generally give rise to an obligation of confidence).

8Coco v. AN Clark (Engineers) Ltd, above n. 7, 423.

9Peter Pan Manufacturing Corporation v. Corsets Silhouette Ltd [1964] 1 WLR 96. It is not entirely clear when an account of profits will be ordered; perhaps it is more likely where the defendant has acted deliberately: Goff and Jones, The Law of Restitution, para. 34.021.