English court affirms battery ban amid trade secrets dispute

In October, 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 has 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”.

Arnold was mindful that the law applicable to establish whether information was acquired “unlawfully” is an unresolved and “difficult question” which may require a referral to the Court of Justice of the European Union.

However, he expressed his provisional view that this should be determined in accordance with the Rome II Regulation, which states that: “the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur”.

Arnold also discussed how the directive failed to specify a “choice of law” rule, which he considered to be the function of the regulations. This would also be consistent with the objectives of the directive to disregard the law of the country of acquisition if that differs from the provisions of the regulations.

Proper forum

To serve the claim form out of the jurisdiction, the court must also be satisfied that England is the proper place in which to bring the claim. Senior contended that, although the High Court judge directed himself correctly to the law and the various connecting factors, he incorrectly characterised the dispute as concerning the alleged use of trade secrets to compete in the UK market; in fact, this concerned the manufacture of battery separators in China, which would have resulted in China’s being the appropriate forum.

Celgard on the other hand likened this dispute to that in the UK Supreme Court decision of Unwired Planet v Huawei (2020), where it was concluded that China was not an available forum for the dispute to be tried. Although it was not necessary to establish whether the present dispute could be tried in China, Arnold followed the reasoning in Unwired Planet that the totality of the dispute must be considered including, where necessary, the defendant’s response to the claim.

Davis, agreeing with Arnold’s judgment, summarised this as follows: “I do not think that Celgard is required to be treated, in effect, as having made direct claims of a kind which it in fact has elected not to make in the present proceedings.”

Moreover, Arnold did not accept Senior’s submission that the present case should be distinguished from Unwired Planet on the basis that, unlike patents, trade secrets are not territorial rights. He explained that, as information is not property, it has no situs and thus legal rights to control information also have no situs.

While there are inherent differences between patents (comprising registered rights connected to a specific country) and trade secrets which may indeed be relevant to the question of jurisdiction, Arnold supported the High Court judge’s characterisation of the dispute, concluding that the UK was the “proper forum”.