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Top tips for protecting confidential information and trade secrets in motorsport

Posted: 20/10/2021


For most businesses, protecting their confidential information is of the utmost importance. This is even more the case for those involved in the motorsports industry, where marginal gains are the difference between winning and losing. The pace of technological development places a premium on the skills of those who are able to harness innovation for a competitive advantage. Misappropriation of confidential information by employees, workers or contractors cannot just adversely affect performance; it can have wider reputational harm and regulatory consequences.

One only has to consider the Spygate and Stepneygate[1] espionage controversies in the noughties involving alleged misappropriation and misuse of confidential information between the McLaren, Ferrari, and Renault F1 teams and more recently, the case of Force India Formula One Team Limited v 1 Malaysia Racing Team SDN BHD[2], concerning a claim by Force India against Lotus for misuse of confidential information and copyright infringement to do with specialist aerodynamic designs, to appreciate the consequences of not properly protecting confidential information.

This article considers how the law of confidence can protect competitive advantage in the motorsports industry and provides top tips on how those involved in the motorsport industry can best protect such information.

The patent and trademark aspects of intellectual property in motorsport will be covered separately by other authors on LawInSport in due course. The patent and trade secrets aspect in motorsport is covered here.

What are trade secrets and confidential information?

Before working through the top tips, it is helpful to provide a brief overview on what types of information the law states are capable of protection. Broadly, there are two types:

  • Trade secrets - these are a specific form of confidential information which are commercially valuable, treated as secret and give the owner a competitive advantage. Examples in the motorsports industry include processes of manufacture for a car or motorbike, unique designs or special methods of construction. Such information “is of a sufficiently high degree of confidentiality as to amount to a trade secret"[3] and is protected by an implied duty of confidentiality, even after termination of the contract. Beyond the common law trade secrets are also protected on a statutory basis in the United Kingdom through the Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597), albeit that these regulations are beyond the scope of this article.
  • Mere confidential information – not so confidential as to be a trade secret but still proprietary information belonging to the employer. Employees must treat such information as confidential but, once learned, it becomes part of their skill and knowledge applied in the course of business. During employment, employees may not use or disclose this information without breaching their contractual obligations. However, once employment terminates, subject to the information being protected for a limited duration, the employee is able to use “his full skill and knowledge for his own benefit in competition with his former employer."[4]

Therefore, when it comes to mere confidential information, employers must ensure that they include express restrictions in their contracts of employment (or in specific confidentiality agreements) to ensure that a departing employee cannot join a competing team and use such information. Such clauses must be well thought through and reference specific examples of confidential information, which the employee is prohibited from sharing when they leave.

For instance, in the case of Dyson Technology Ltd v Pellerey[5], considered below, "Confidential Product Information" was specifically defined in the employee’s covenants. The period of protection will also have to be considered. The longer the restriction, the higher the burden placed on the employer to prove its reasonableness in the event of a legal challenge. A balance has to be struck between protecting the legitimate business interests of the employer and placing the employee under a restriction which amounts to an unlawful restraint of trade.

Top tips

Security
Restrict access to confidential information and ensure that IT systems are secure and protected (e.g. firewalls, secure e-mails, encryption and excluding external devices). More prosaically, promote a culture of awareness amongst staff by keeping policies concerning confidential information and data protection up to date and making sure staff are familiar with their contents. These policies should be incorporated into the contracts of employees, workers and contractors in order that everyone involved in the business has a personal stake in their application. 

Incentivising employees to remain
Prevention is better than cure and if an organisation can create a culture where individuals do not want to leave and feel connected to the company, this will reduce the risk of a bad-leaver disclosing confidential information to a competitor. Financial incentives and wider benefits should reward loyalty and longevity.

As considered above, some of the best ways of ensuring that an organisation’s confidential information remains secure starts with well-drafted contracts for employees and contractors. Restrictive covenants restrict what an individual is able to do when they leave a company. For example, a restrictive covenant may prevent an employee from joining a competitor or enticing a fellow employee to join them at a new organisation. Provided the restriction is reasonable, it will be enforceable.  

For example, in Dyson v Pellerey the claimant was a member of the Dyson group of companies. The defendant employee was an engineer, with a background in research related to electric cars. His contract contained post-employment restrictions, including a 12-month "Restricted Period", restricting him from carrying on, or being "engaged, concerned or interested in any Restricted Business". He had been involved in the claimant’s project to develop an electric car, which was at an early stage. He obtained a position with another company, Tesla, which specialised in electric car design. The claimant applied for interim injunctive relief. The High Court granted the injunction[6]. The restraint sought was no wider than was reasonably necessary to protect the claimant’s legitimate commercial interests in the trade secrets and confidential information that both parties might reasonably have anticipated the employee would acquire in the course of his employment.

As held by Snowden J., there was “no obvious reason in principle why it should be any less legitimate for an employer planning an entry to a particular marketplace to seek to protect its trade secrets or equivalent confidential information relating to its proposed products from disclosure to an established manufacturer. If the employer's confidential information relating to its planned new product were to be disclosed, the established manufacturer might then seek to capitalise upon its existing position to launch new "spoiler" products of its own or employ targeted marketing strategies aimed at the new product in an effort to diminish the impact of its arrival and stifle competition when the new product is most vulnerable.”[7] It was “entirely reasonable for [the claimant] to insist upon a post-employment restraint that might operate as a result of Mr. Pellerey's involvement in the research and development of a proposed new product prior to the Dyson Group entering the market in question.”[8]

Garden leave
Garden leave is a useful method of keeping a departing employee out of the marketplace long enough for any information that they have to go out of date. Providing there is an express garden leave clause in the contract of employment, a company can stop the employee from performing their regular duties immediately whilst also retaining them for the full notice period, typically requiring them to stay at home. This helps to keep the individual away from a competitor, for example another Formula 1 or 2 team, for the duration of their notice.

A garden leave clause can be used in conjunction with post-termination restrictive covenants for maximum effect. However, it is not unusual for the duration of the restrictive covenants to be reduced by any period spent on garden leave so as to ensure that the restrictions are reasonable.

Long notice in the contract of employment
This one is obvious, as the longer the notice period, the more time the employer will have to plan for the employee’s departure. For example, a team would want to ensure that its head of engineering or technical director has a long notice period to avoid them being able to join a competitor and share any confidential information.

Whilst senior individuals (typically with increased bargaining power) may not agree to a long notice period, generally the more senior and better remunerated the individual, the longer the period of notice which an employer can require.

Enforcement
Where a company believes that a former employee has misused its confidential information, it has options available to it to protect its rights.

As a first step, the company should issue a written notice to the individual in question identifying the confidential information which has been misused, requiring the individual to refrain from further misuse and hand back the information. If the individual refuses to provide these undertakings, the company can commence injunctive proceedings to obtain a court order enforcing its rights. However, this route is costly and the company must act quickly in order to ensure that a court will grant injunctive relief[9].

The case is also likely to be heard in public (albeit the details concerning any confidential information would likely be kept private) which is a consideration for organisations such as Formula 1 teams, given the media interest which they attract. Any application under Part 39 of Civil Procedure Rules for a hearing in private has to be justified as a derogation from the principle of open justice. Underlying any application for interim injunctive relief will be a claim in contract or based on the tort of breach of confidence. It is not uncommon for the sum of damages from the underlying claim to be exceeded by the costs of the injunction application so it is important to ensure that the evidence relied on in support of the injunction is carefully prepared and persuasive. The applicant will also have to be prepared to provide a cross-undertaking in damages to protect the respondent in the event that it is ultimately determined that the interim injunction order should not have been made. This is because the merits of the injunction are only being assessed by the court on an interim basis. Should the court dismiss the injunction at a return date or subsequent trial, the applicant will be liable to the respondent for any damage caused by the injunction in the interim. In cases of urgency or secrecy (for example where alerting to the respondent to the proposed injunction might lead to irreparable damage to the applicant’s interests – for example, by publication of a trade secret to the world at large), an application can be made on a without notice basis.

Finally, having sought to protect the confidential information by recourse to the courts in the first instance, the breach of confidential information could then be reported to the relevant regulator, such as the FIA. The regulator may have powers that are not open to a court, such as imposing a points deduction or fine. For example, in the wake of the Spygate and Stepneygate espionage cases, McLaren was excluded from the 2007 Constructors' Championship and a subject to a record fine of $100 million.

Conclusion

Confidential information can be protected by security, technological and legal means. Whilst these means are complementary, by applying the legal measures addressed in this article those involved in the motorsports industry can promote and protect their competitive advantage whilst avoiding the types of controversies concerning loss of confidential information which beset the sport in the last two decades.

 

This article was first published on the LawInSport website in August 2021. 


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