Battery ban and trade secrets: key takeaways
Earlier this month, the English Court of Appeal had the opportunity to analyse the Trade Secret Regulations (the regulations), which partially implemented the Trade Secrets Directive into UK law in 2018.
In Shenzhen Senior Technology Material v Celgard (2020), it upheld a decision of the UK High Court to grant an interim injunction to prevent the import of allegedly “infringing goods” into the UK, dismissing the appeal.
However, it also expressed the need for further interpretation of the new statutory framework, which aims to address gaps in the common law regime. Lord Justice Richard Arnold handed down the judgment (with which Lord Justice Andrew Popewell and Lord Justice Nigel Davis agreed).
Alleged theft
This case concerns the alleged theft of trade secrets belonging to a US company, Celgard, by a former employee, John Zhang, who later worked at the Chinese company, Shenzhen Senior Technology Material. Both companies manufacture and supply battery separators, which are applied in lithium-ion batteries to separate the anode and the cathode of the battery. They are considered fundamental to the performance, safety and lifespan of batteries used in, for example, electric cars.
Between July 2005 and October 2016, Celgard employed Zhang on terms which included a non-disclosure agreement. During this period, Zhang had access to various trade secrets concerning Celgard’s battery separator products. According to Celgard, Zhang had told the company’s chief operating officer that he was moving to work for a non-competitor, General Electric in the US, but it later materialised that he had joined Senior, a competitor, in China.
Consequently, Celgard asserted that Senior was to import battery separators into the UK, and then market them. It argued that these products’ designs, characteristics, functioning and/or production processes would benefit significantly from Celgard’s trade secrets. This, it argued, was in breach of an equitable obligation of confidence (under common law) and/or a breach of regulation 3 of the regulations.
Celgard also claimed that Senior is vicariously liable for the wrongdoing of Zhang in disclosing Celgard’s trade secrets to Senior. Senior is yet to serve its defence, although it has in the meantime vigorously denied Celgard’s claims.
A serious issue
In order to obtain the court’s permission to serve the claim form out of the jurisdiction in China, Celgard was required to establish that inter alia there is a “serious issue” to be tried on the merits of its claim. This is also a key requirement for obtaining an interim injunction, which in both contexts is equivalent to establishing a real (as opposed to a fanciful) prospect of success.
In determining whether there was a serious issue to be tried, Arnold stressed the importance of claimants in trade secrets cases fully particularising the information which comprises the trade secrets being misused, which Senior claimed Celgard had failed to identify.
Despite Celgard’s prima facie falling short of this full disclosure, Arnold concluded that Celgard’s case had been sufficiently established at this point in the proceedings, although further particulars would be required at a later stage. The extent to which the defendant had obstructed the claimant, or at least failed to cooperate, was also deemed relevant to the claimant's ability to provide further particulars.
Applicable law
Celgard pleaded for English law to be applicable to this dispute. To establish this, a multi-factorial assessment of the factors connecting the claim to the UK rather than China was undertaken at first instance, and at appeal.
Arnold also considered the effect of article 4(5) of the directive (which was not transposed into UK law by the regulation). This states that: “the production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought under the circumstances to have known, that the trade secret was used unlawfully within the meaning of paragraph 3”.
