Yesterday’s Age reported on a former GSK executive’s victory in a court action brought by GSK alleging he had started up a competing business using GSK’s confidential information – Pain relief for scientist who took on tall poppy.
The case itself is GlaxoSmithKline Australia Pty Ltd v Ritchie & Anor  VSC 164 …
GSK and another company were the two main manufacturers and suppliers of legal opiate extracts from Tasmanian poppies.
Over a 7 year career with the relevant part of GSK, Mr Ritchie rose to the position of Research & Process Development Manager in the Chemicals Division responsible for this production. He saw a market opening and left to set up a third competitor.
There are 368 paragraphs in Harper J’s judgment, so I’m not going to try and deal with it in any detail.
A couple of big picture points do emerge: the importance of properly identifying what it is claimed is (a) confidential and (b) being misused; secondly, restraining what an ex-employee can do with what they learn during their employment. No doubt Mr Ritchie’s position was also helped by the lead time involved in setting up his factory to get into the business too.
You can get some idea of the problems GSK ran into from:
20 At the outset I should say something about Dr Ross’ approach. It is incumbent on GSK to establish that the information it seeks to protect is indeed confidential to it. The scope of GSK’s case in respect of confidential information is defined by the FACS. Consistently with the rigorous approach taken by the courts to claims for misuse of confidential information, the subject matter must be identified with precision. Ambit claims covering vague and wide-ranging subject matter cannot be sustained. It seems to me that the simple comparison between one set of documents and another, with the similarities being seized upon and displayed as proof of misappropriation, falls foul of the general approach which the authorities have indicated must be taken. We are concerned, after all, not with a claim for breach of copyright, but with alleged breaches of confidence. Similarities between processes, or particular parts of them, will of course be relevant; but, in my opinion, the exercise of simply comparing the two is inappropriate. The first task is to identify that which is confidential, not that which is similar; and here the touchstone must be the information as identified by the FACS. It is to that document that first recourse must be made. Unfortunately, Dr Ross did not have that opportunity. To the extent, then, that Dr Ross has sought to comment on aspects of the two processes that have not been identified in the FACS as items of allegedly confidential information, or on documents not referred to as repositories of alleged confidential information, I put his opinion aside.
21 Dr Ross’ opinion should also be viewed having regard to the legitimate use that Mr Ritchie may make of his knowledge of chemistry, and of the production of opiate alkaloids – his know-how. Mr Ritchie is not the subject of a restraint of trade clause, and GSK does not seek to prevent him and TPI from establishing a competing business. It is the case that particular parameters or elements or sequences of GSK’s production regime are not in the public domain, and would only have been incorporated into it after significant trials and laboratory work, together with an extensive review of the literature. Another reality, however, is that Mr Ritchie is an experienced, qualified chemist who held a senior position in GSK’s R&D department and who worked, on a daily basis, to improve GSK’s alkaloid extraction processes and his own knowledge and skill. During the course of his work he had cause to, and I accept did in fact, review the literature about the extraction of alkaloids from papaver somniferium with an eye to addressing problems being experienced by GSK. His general body of knowledge covered, of necessity, much of that which GSK did at Port Fairy, as well as his own academic and other professional training.
22 The role of information in the public domain also needs to be mentioned. It is of course true that an item of GSK information cannot be excluded from the defendants use simply because it does not appear anywhere in the public domain. Whether or not it appears in that domain is a factor to be considered when determining the validity of any claim for confidentiality. But it may be so trite as not to be worthy of publication. In any event, once Mr Ritchie’s employment with GSK came to an end, he became free “to use his full skill and knowledge for his own benefit in competition with his former master”.
Harper J did accept, however, that there could well be something there to protect:
25 ….The ultimate result may be either very adverse, or very beneficial. Or somewhere in between. Determining the best possible combination is a matter of trial and error, of adjustment and experimentation, of skill and experience. So both the result and the means by which it was obtained may properly be the subject of the protection of the law.
The problem GSK repeatedly ran into was identifying what it was that (1) it claimed was confidential and (2) it claimed Mr Ritchie or his new company had misused. Thus, at  Harper J adopted the views of Laddie J in Oracular Sciences imposing a heavy burden on the plaintiff in a confidential information action to identify both issues properly.
The next problem that GSK ran into was the public interest in allowing ex-employees to freely use the knowledge, experience and talent they had gained during the course of their employment. In the absence of a properly drawn post-employment restraint, the (former) employee would be free to use confidential information, even if it was confidential unless it rose to the level of a trade secret:
46 It is in the public interest that, in general, employees be free to work where, and with whom, they will. They may have, as part of their stock of knowledge (sometimes called their “know-how”) information which is not a trade secret, but which their employer may for proper commercial reasons wish to remain confidential. If so, the employees must respect that confidentiality so long as they remain employed by the same employer, or that employer’s successor in title. But it is in the public interest that they and employers and potential employers be free to bargain over the best means of exploiting the employees’ knowledge, experience and talent. The latter may not, in that bargaining process and while they remain with their current employer, disclose any information that is properly confidential to that employer. Subject to that proviso, however, the law will not – in the absence of a suitably confined and otherwise binding restrictive covenant – seek to prevent those who wish to practice their profession or trade from doing so simply because their work for someone other than their former employer may put that former employer at a financial or competitive disadvantage. And this is true even if the exploitation by the former employees for the benefit of their new employer of the employees’ stock of knowledge results in information once confidential to the former employer being used to the advantage of the new. …
47 It follows that, if the employee were forbidden from using his or her skill, experience and retained memory concerning general principles or items of information for the benefit of a new employer, the choice would be either to remain in the former employment, or not use that skill, experience and knowledge at all. For this reason, and putting trade secrets to one side, non-trivial information which would otherwise be protected will not be so if, by reason of the nature of the information and the employee’s or ex-employee’s exposure to it, that information has become part of his or her general background knowledge; has become, in other words, inseparably incorporated in the form of his or her skill and experience.
His Honour did acknowledge, however, that there is no settled meaning to the term “trade secret”. He adopted the following:
50 …. I take a trade secret to be information which “can fairly be regarded as a separate part of an employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with”. For the purposes of this case, I therefore take a trade secret to be an item of confidential information, learnt during employment, the confidentiality of which, as an employee of ordinary honesty and intelligence would acknowledge, must be maintained even after that employment has come to an end. In other words, a trade secret has an inherent quality that takes it above and beyond more general knowledge, albeit that the general knowledge may to a lay person be very specialised. Whether information amounts to a trade secret is a question of fact, to be determined in the particular circumstances. A trade secret is to be distinguished from knowledge of no special significance such as that which an employee with familiarity with the relevant art might acquire (without employing any more skill than that of an ordinary practitioner of the art) simply by building upon the information necessarily made available to him in the ordinary course of his employment.
Of course, this does carry with it, shall we say, a degree of fuzziness.Which is rather less alarming than things at the level of the secret formula for Coke, or the Colonel’s special recipe and, perhaps, has much more in common with the long standing approach in Ansell Rubber rather than the much more controversial Faccenda Chicken.
Now, 18 months before he left (having already been there 6 years) GSK did sign Mr Ritchie up to a form of confidentiality agreement. Harper J  found that it only operated during the term of his employment and not afterwards. Further, his Honour was not very happy with the drafting and considered that if it were interpreted to operate as a post-term restraint it would have been unreasonable and therefore unenforceable.
On the question of how to treat employees, Duncan Bucknell timely draws attention to a short article by Deepak Somaya and Ian O. Williamson (teaser only) and adds a few thoughts of his own. If they’re working with the Crown jewels, pay them accordingly and think carefully about those post-employment restraints.