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[2001] HCA 70
respondent. Appeal dismissed with costs.
The High Court held that once an inventor publicly discloses an idea through patent applications the idea loses its confidential quality. A contract promising never to use that information even after it becomes public is a restraint of trade. Because no evidence showed the restraint was reasonable it was unenforceable. The respondents could not be perpetually restrained from using information that the appellants themselves had made public. The appeal was dismissed.
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Mr Allen, a cabinet maker, developed prototypes for a parallel-opening foldaway ironing board. By 1994 his company Maggbury had retained designers and taken steps to obtain patent protection. On 14 July 1995 Maggbury filed Australian patent application PN4147 and on 4 August 1995 PN4592. Maggbury later assigned these to Gisma. An international application under the Patent Cooperation Treaty was filed in 1996 claiming priority from the Australian applications. The PCT application was published in Australia on 18 February 1997.
Three days after the first Australian filing Mr Allen required visitors from Hafele Australia to sign a confidentiality agreement before viewing prototypes. After negotiation Hafele Australia executed a deed dated 25 July 1995 and Hafele executed a similar deed dated 13 November 1995. Both deeds were prepared by Maggbury's solicitors. The recitals recorded that the inventor wished to exploit the Product commercially and that the parties wished to discuss mutually advantageous ways of doing so. The term Product was defined to include the invention the subject of the patent applications, all future applications, secrets and know-how. Information was defined as each and every record of information disclosed to Hafele in relation to the Product, including writings, sketches, diagrams, models, prototypes and drawings.
Clause 5.1 required Hafele to treat the Information as private and confidential. Clause 5.2 limited use to assessing proposals for the Purpose. Clause 5.6 stated that Hafele shall not at any time hereafter use the Information for any purpose whatsoever except with the Inventor's informed prior written consent. Clause 11, headed Duration, provided that Hafele will forever observe the obligations of confidence set out in the agreement unless released in writing. The deeds were governed by Queensland law.
Negotiations proceeded, including displays of the boards at trade fairs in Sydney in July 1996 and Melbourne shortly thereafter. Mr Allen demonstrated the boards to visitors. Negotiations broke down. On 10 June 1997 Hafele wrote terminating discussions, referring to advice from its patent lawyers that the claims rested on a weak foundation. In September 1997 the parties executed a settlement under which Hafele paid AUD 20000 to Maggbury. The settlement recorded that Hafele acquired no rights of use and would not make use of the invention to the extent Maggbury established legally valid patent protection. No mention was made of the confidentiality deeds.
In October 1997 Hafele Australia began distributing a wall-mounted foldaway ironing board. Mr Allen became aware of this in July 1998 and learned that Hafele was manufacturing both wall-mounted and drawer-mounted versions in Germany. Proceedings were commenced in the Supreme Court of Queensland in September 1998. The appellants pleaded the express terms of the deeds and, in the alternative, an implied term limiting obligations to information that remained confidential at the time of breach. The respondents admitted the implied term.
After trial in November 1998 Byrne J delivered reasons on 22 January 1999. His Honour found that the respondents had used Information derived from the documents and prototype supplied by the appellants. The combination of features in the Hafele wall-mounted board corresponded too closely to the appellants' materials to be coincidence. No such use was found in the drawer-mounted version. Byrne J emphasised that the deeds constrained use of information derived from a designated source rather than information of a particular content. He granted an injunction restraining manufacture or distribution of the Hafele wall-mounted board or any other wall-mounted ironing board designed or manufactured using wholly or in part information derived directly or indirectly from the supplied materials. Damages of AUD 25000 were awarded.
The Queensland Court of Appeal allowed the respondents' appeal. It accepted the primary judge's factual findings of copying but held that the agreement not to use information was unenforceable because it had no time limit and covered all information whether or not publicly disclosed. It further held that no injunction should be granted under the general law because the information had been made public so far as it was of significant value. The Court of Appeal reduced damages to AUD 5000.
The appellants appealed to the High Court. The majority (Gleeson CJ, Gummow and Hayne JJ) dismissed the appeal with costs. Kirby J and Callinan J would have allowed the appeal and restored the trial judge's orders. The majority held that on proper construction the deeds imposed perpetual restraints that continued after public disclosure but that those restraints were invalid under the restraint of trade doctrine because they had not been justified as reasonable.
The majority began by noting that interpretation of a written contract is the ascertainment of the meaning the document would convey to a reasonable person having all the background knowledge reasonably available to the parties at the time of contracting. That background included the centrality of intellectual property protection to commercial exploitation of the ironing board invention. The deeds were entered against the known background that patent applications would place significant features of the invention into the public domain.
The majority analysed the text of the deeds. Clause 5.1 required Hafele to treat the Information as private and confidential. Clause 5.6 prohibited use at any time hereafter for any purpose whatsoever without consent. Clause 11 stated it was a condition that Hafele would forever observe the obligations of confidence. These provisions were not limited to information retaining a confidential quality. The majority rejected the view that the deeds could be read as applying only while the Information remained confidential. The emphatic temporal language was explicit and put the intent in inescapable terms. An implied term limiting the obligations to confidential subject matter would contradict the express words.
Having so construed the deeds the majority turned to the restraint of trade doctrine. The provisions restricted the respondents' liberty to conduct their operations and dealings with third parties as they thought fit. The restrained activities formed part of their trade. The source of the rights sought to be enforced was contractual, not proprietary in the Information once it had been made public by the appellants. The fact that the respondents could still trade without using the appellants' disclosures did not prevent the doctrine applying. The majority referred to its recent decision in Peters (WA) Ltd v Petersville Ltd and declined to apply any narrow criterion such as fettering existing freedom or sterilisation of capacity. The doctrine applied because the restraints were not of a species generally accepted as part of the structure of a trading society.
No attempt had been made at trial to justify the restraints as reasonable in the interests of the parties or the public. The majority noted substantial difficulty in doing so once the Information was in the public domain through the appellants' own acts. The settlement payment and the letter accompanying it did not vary or release the obligations under the deeds. Because the restraints were invalid the perpetual injunction granted at first instance could not stand. The appeal was therefore dismissed.
The majority distinguished cases in which publication is by a third party or where equitable obligations arising from a fiduciary relationship are involved. Here the question was one of contractual construction and the application of the restraint of trade doctrine to the rights so created. The Court of Appeal's conclusions on the extent of public disclosure through the PCT application and the trade fairs were accepted. Those disclosures removed the confidential quality of the significant features of the invention.
Before the decision the law recognised that confidentiality obligations ordinarily cease when the protected information loses its quality of confidence. The majority cited Judge Learned Hand in Picard v United Aircraft Corporation and Conmar Products Corporation v Universal Slide Fastener Co for the proposition that an applicant for a patent who broadcasts the invention to the world should not be taken to exact greater protection against a contractual promisor than against the world at large unless that intent is put in the most inescapable terms. Similarly, in O Mustad & Son v Dosen the House of Lords held that once the plaintiff had itself published the specification the secret had ceased to exist and there was no longer subject matter upon which the agreement could operate. Atkin LJ had observed that there was no longer any subject matter upon which the agreement could operate once the construction and operation of the machine had been completely published.
The majority also referred to Attorney-General v Guardian Newspapers Ltd (No 2) where Lord Goff noted that a case in which the confider himself publishes the information might be distinguished on the basis that the confider may have implicitly released the confidant from the obligation. Cranleigh Precision Engineering Ltd v Bryant was distinguished on the basis that it involved a third-party patent and an employer-employee relationship carrying fiduciary obligations.
The deeds in the present case contained explicit language that the majority held was sufficient to express an intent that obligations continue after public disclosure. However, that intent engaged the restraint of trade doctrine. The majority noted that Queensland had no statutory equivalent to the Restraints of Trade Act 1976 (NSW) which had been considered in Wright v Gasweld Pty Ltd. The common law doctrine therefore applied without statutory modification. The majority left open whether a limited head-start restraint might have been justified but held that the absolute perpetual unconditional restraint before the Court could not be supported in the absence of justification.
After the decision it is clear that a contractual restraint on the use of information that persists after the information has entered the public domain at the instance of the party seeking enforcement is to be characterised as a restraint of trade. Such a restraint is unenforceable unless the party seeking enforcement demonstrates that it is reasonable in the interests of the parties and the public. The decision reinforces that confidentiality agreements are not immune from the doctrine merely because they are freely bargained or because the restrained party could trade without the information. The emphasis on explicit language for perpetual obligations remains, but those obligations must still satisfy the restraint of trade test once the information is public.
The decision also confirms that the doctrine is not excluded merely because the restraint is said to protect a head start or because the parties are of equal bargaining power. All contractual restraints can be said to be freely bargained. The majority declined to apply any narrow test for the engagement of the doctrine and left for another day the identification of species of restraint that have become generally accepted as part of the structure of a trading society.
At paragraph 8 the majority adopted Lord Hoffmann's statement that interpretation involves ascertaining the meaning the document would convey to a reasonable person with all background knowledge reasonably available to the parties. In plain English this means judges read contracts in the real-world commercial setting the parties were in, including legal rules about patents that both sides understood.
Paragraph 43 contains the quotation from Antaios that if detailed semantic and syntactical analysis leads to a conclusion that flouts business commonsense it must yield to business commonsense. This translates to: do not interpret a commercial contract in a way that makes no commercial sense; look at the practical business outcome the words are meant to achieve.
At paragraph 46 the majority quoted Learned Hand J: the applicant is proposing to broadcast the invention to the world at large, reserving as his protection only the claims which he may secure; and there is ordinarily no reason to suppose that he means to exact any greater protection against the promisor than he will have against others. At any rate, if he does, he should say so. In plain English, once you publish your invention in a patent you cannot expect a secret-keeping contract to give you stronger rights against the other party than you have against anyone else in the world unless you spell that out very clearly.
Paragraph 49 quotes Atkin LJ from Mustad: there was a complete publication to the public of the construction and operation of the machine ... there is no longer any subject matter upon which the agreement could operate. This means that when the person who wants secrecy publishes the details himself the secret disappears and the contract no longer has anything left to protect.
Paragraph 61 refers to the recent consideration in Peters (WA) Ltd v Petersville Ltd of cases in which it has been said that some restraints are not of a nature to which the doctrine applies. The majority rejected the criterion of fettering existing freedom and the principle of exclusion by reference to sterilisation. In plain English the Court is not using old narrow tests to decide whether the restraint of trade rule even applies; it is keeping the law flexible.
Paragraph 62 states that the fact that the restraint can be said to have freely been bargained for provides no sufficient reason for concluding that the doctrine should not apply. All contractual restraints can be said to be of that character. This is a direct warning that simply saying the parties agreed to it voluntarily does not immunise a restraint from scrutiny.
The precedent is triggered when a party discloses technical or commercial information under a written confidentiality deed that contains express perpetual or unlimited temporal obligations, the discloser then places the substance of that information into the public domain through patent applications or other deliberate public acts such as trade fair demonstrations, the recipient later uses the information in its own manufacturing or distribution, and the discloser seeks to enforce the deed by injunction or damages after the information has lost its confidential quality through the discloser's own conduct.
The deeds must use language such as forever, at any time hereafter or for any purpose whatsoever without carving out an exception for public disclosure. The information must have been supplied for a limited commercial purpose such as assessing a licensing proposal. The recipient must not have received a written release. The restraint must operate on the recipient's ordinary trading activities once the information is public. No attempt to justify the restraint as reasonable need have been made at trial. The public disclosure must be by or attributable to the party seeking enforcement rather than a third party. The claim must rest on contract rather than equitable breach of confidence or intellectual property rights that have been removed from the pleading.
Displays at trade fairs that allow inspection of the essential features, coupled with patent publication that sets out the combination of features claimed to be valuable, will engage the principle that the information has lost its quality of confidence. A settlement payment that does not expressly vary the confidentiality obligations does not prevent the doctrine applying. The precedent applies even where the recipient obtained a head start during the period of confidentiality if the restraint sought is absolute and perpetual rather than limited in time to the period of any legitimate advantage.
The judgment has been treated as authoritative on the engagement of the restraint of trade doctrine to confidentiality obligations that survive public disclosure by the confider. The majority's construction approach, emphasising explicit language and business commonsense, has been followed when courts interpret deeds containing forever or at any time hereafter language. The application of Mustad and the distinction drawn with Cranleigh have been accepted as illustrating that once the confider publishes there is ordinarily no remaining subject matter for a confidentiality obligation unless the intent to impose greater protection is put in inescapable terms.
The rejection of the argument that the doctrine does not apply merely because the restrained party could trade without the information has been treated as confirming that the doctrine looks to the restriction on liberty in trade rather than total sterilisation. The discussion of Peters (WA) Ltd v Petersville Ltd and the refusal to apply narrow tests such as fettering existing freedom or sterilisation has guided later analysis of the threshold for the doctrine's operation. The observation that all contractual restraints are freely bargained has been cited to repel arguments that arm's-length negotiation removes a restraint from scrutiny.
The majority's acceptance of the Court of Appeal's findings on the extent of public disclosure through the PCT specification and trade fair demonstrations has been followed in cases assessing when information loses its confidential quality. The emphasis that no justification was attempted at trial has been used to underline that the onus of proving reasonableness lies on the party seeking to enforce the restraint. The distinction between contractual and equitable obligations, and the observation that different considerations may apply where the confider publishes, has been cited when courts consider whether to grant equitable relief once information is public.
The judgment's treatment of the settlement deed as not varying the confidentiality obligations has been applied to prevent parties from relying on collateral agreements that do not expressly address the deeds. Overall the decision has been treated as settling that perpetual restraints on the use of self-disclosed public information require justification under the restraint of trade doctrine and will fail in the absence of such justification.
The majority expressly left open whether a contractual restraint limited to the period of any legitimate head-start advantage would exceed what is reasonably necessary to protect the discloser's interests. It noted that a construction giving the restraints a limited temporal operation after public disclosure might be supported as the contractual imposition of a head-start handicap but found it unnecessary to determine the point because the appellants sought an absolute perpetual unconditional injunction.
The Court also left for further consideration in an appropriate case the identification by Lord Wilberforce in Esso Petroleum of species of restraint which have become generally accepted as part of the structure of a trading society. The present appeal was not the occasion for dealing with that subject because a contractual restraint in respect of publicly available information is far from attaining general acceptance of that kind.
Questions remain about the operation of severance or reading-down clauses in confidentiality deeds. Clause 16.10 provided for severance or reading down to maintain remaining provisions so far as possible, yet the majority found it unnecessary to determine whether the restraints could be severed or read down to apply only while the information retained its confidential quality. Queensland lacks legislation equivalent to the Restraints of Trade Act 1976 (NSW), leaving open how far a court may rewrite an invalid perpetual restraint.
The interaction between the restraint of trade doctrine and express contractual acknowledgments that the recipient will be entitled to an injunction in the event of breach was not resolved. Clause 13.3 of the deeds contained such an acknowledgment, yet the majority held that invalidity under the doctrine prevented injunctive relief.
The weight to be given to the fact that the discloser has itself caused the loss of confidentiality when a court considers whether to grant any limited springboard relief or other equitable remedy remains open. The majority noted that different considerations might apply with respect to equitable relief where entry into the public domain is brought about by the activity of the party seeking to enjoin further use.
Finally, the precise boundary between information derived from the designated source supplied under the deed and information sourced elsewhere in the public domain or the recipient's existing knowledge was not required to be drawn because the restraints were wholly invalid. In a case where a limited restraint is justified these factual questions may require detailed evidence and may give rise to difficult questions of enforcement on a contempt application.
S J Lee for the appellants (instructed by O'Shea Corser & Wadley)
J S Douglas QC with G C McGowan for the respondents (instructed by Aitken Walker & Strachan)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
Contract - Confidential information - Contractual restraint upon use of "Information" - Restraint expressed to be perpetual - Information disclosed in patent application - Proper construction of contract - Whether restraint to apply once information disclosed to public - Whether contract in restraint of trade.
Restraint of trade - Contractual restraint upon use of information concerning invention - Whether confidentiality agreement constitutes an unenforceable contractual restriction on trade - Whether the restraint imposed is more than that required to protect the interests of the parties.
Injunction - Confidentiality agreement between inventor and potential marketer - Substantial copying of invention found contrary to agreement - Whether injunction granted unacceptably wide - Whether injunction would involve excessive supervision by court - Permissible scope and duration of injunctive relief.
"A hinge for wings such as ironing board supports the board off a support on pairs of links which engage to limit angular movement beyond a working disposition. The board may be folded and collapsed into a wall mounted cover. The wall mounted unit might be fitted to a height adjustment mechanism. The links may be combined with a means increasing the angular extent of the folding action to collapse the folded board into a drawer unit. The board may be mounted to a turntable to allow for angular movement. The board may be supported on supports attached to sliding tracks to enable movement to a storage position in a cabinet."
The Designated States in respect of the PCT application included Germany and the United States. The international publication date in respect of the PCT application was 6 February 1997. The publication date in Australia was 12 days later.
"That's the situation at present, that any agreement with Mr Allen's organisation or organisations is subject to you carrying out a market appraisal and satisfying yourself in relation to the patents? - That's accurate.
And that's simply prudent on your part, isn't it? - Yes.
You don't want to pay good money for something that anybody could copy for nothing? - I'd say that's accurate."
It is against that background that there falls for consideration the dealings with the respondents which gave rise to this litigation.
"the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract".
That knowledge may include matters of law, as in this case where the obtaining of intellectual property protection was of central importance to the commercial development of Mr Allen's ironing board[3].
"2.1 The Inventor wishes to commercially exploit the Product.
2.2 The Inventor and Hafele [Australia] wish to hold discussions to consider mutually advantageous ways of commercially exploiting the Product (the 'Purpose').
2.3 In the course of these discussions the Inventor or his representatives may disclose information about the Product to Hafele [Australia].
2.4 The Inventor and Hafele [Australia] have entered into this Deed so as to set out the terms and conditions governing any disclosure by the Inventor about the Product.
2.5 Hafele [Australia] has agreed to enter into this Deed to acknowledge the right title and interest of the Inventor in the Product and to scrupulously observe a strict code of confidentiality in relation to the Product."
The expression "Product" was defined in par (e) of cl 3.1. The elements in the definition included "the product identified by patent application no [PN4147]"; "all future patent applications"; "secrets and know how"; and:
"the invention created by the Inventor being a foldaway ironing board assembly and in particular a folding ironing board mounted to a support structure such as a wall, kitchen unit, cupboard bench support, mobile cabinet or drawer".
"'Information' means each and every record of information whatsoever disclosed, shown or provided to Hafele [Australia] by the Inventor in relation to the Product and, without limiting the generality thereof, includes any writing, sketches, diagrams, models, film, video tape, plans, designs, drawings, manufactured prototypes, layouts, schedules or photographs."
"Hafele [Australia] shall not disclose nor permit to be disclosed nor cause to be disclosed without the prior, written consent of the Inventor, to any person the fact that discussions are taking place between the Inventor and Hafele [Australia] in relation to the Purpose."
Immediately upon any decision by Hafele Australia not to pursue the Purpose, it was to return to Maggbury all copies of the Information in its custody, power, control or possession (cll 8.2, 10.1).
"5.1 Hafele [Australia] shall treat the Information as private and confidential.
5.2 Hafele [Australia] shall not use the information, or any part thereof, for any purpose other than to fairly and properly assess proposals canvassed with the Inventor in relation to the Purpose.
5.3 Hafele [Australia] shall take all reasonable steps to ensure that the Information is made known only to [particular officers or employees of Hafele Australia identified as the 'Permitted Persons'].
5.6 Hafele [Australia] shall not at any time hereafter use the Information for any purpose whatsoever except with the Inventor's informed prior written consent." (emphasis added)
"It is a condition of this agreement that Hafele [Australia] will forever observe the obligations of confidence set out in this Agreement, unless released from such obligations in writing by the Inventor. Without limiting the generality of this condition, Hafele [Australia] agrees to continue to observe its obligations as to confidentiality:
(d) after Hafele [Australia] becomes liable to return the Information." (emphasis added)
The second sentence of cl 11 may have been included with an eye to reading down or severing the otherwise unlimited obligation imposed in the first sentence. Clause 16.10 was headed "Severance" and stated:
"If any provision of this Agreement cannot be given effect or full force and effect by reason of statutory invalidity or other invalidity that provision shall be severed or read down but so as to maintain and uphold so far as possible the remaining provisions of this Agreement."
It may be noted that the statute law of Queensland does not have an equivalent of the modifications of the common law rules respecting invalidity and severance which are made by the Restraints of Trade Act 1976 (NSW) and were considered by the New South Wales Court of Appeal in Wright v Gasweld Pty Ltd[4].
"I have been doing this work for 15 years now and I have received hundreds of offers from inventors about inventions they made. Here in Europe it is a fact that a confidentiality agreement only covers information that is not in the public domain and is not publicly known. Let me add that it does not make sense to be obliged to keep something secret which is publicly known."
"Since our conversation on that occasion, we have been giving thought to some design considerations of our own, with the result that we will not be making use of characteristics claimed by you in accordance with your PCT registration. Furthermore, since our last discussion at the Interzum, we have received a detailed statement from our patent lawyers which points towards the fact that your claim to industrial property rights rests on a very weak foundation which would make it very difficult indeed to defend it against any possible opposition.
Based on these facts, we have now reached a decision not to take you up on your licence offer. This naturally leaves you free to utilize your industrial property yourself or to sell them to another interested party."
Thereafter, Mr Allen demanded return of the prototype, photographs and documents provided during the course of the negotiations.
"It shall also be understood that, by paying the sum of AUD 20,000, we will not acquire any rights of use to your client's invention and that we shall not make any use of the invention to the extent that your client should establish legally-valid patent protection for the invention concerned."
"Alternatively, it was an implied term of each said Deed of Confidentiality that each of the obligations relating to the use and disclosure of the Information was limited to subject matter which was confidential at the time of breach or threatened or intended breach."
In effect, Hafele Australia and Hafele by par 7 of their further amended defence admitted that implied term. Two points should be made here. The first is that what was said to be an implied term may better be understood as an express term derived on a proper construction of the text of the agreements. The second is that, in framing their pleading as they did, Maggbury and Gisma appear to have assumed that the placing of information in the public domain, at the latest by the publication of the PCT application in February 1997, did not have the consequence that at the time of the later alleged breaches by the Hafele companies, in particular the activities which the plaintiffs now sought to restrain, the confidential quality of the disclosures which had been made by Maggbury had been lost or destroyed.
"1. In our opinion, the agreement not to use information is unenforceable, because it has no time limit and it covers all information whether or not publicly disclosed.
"Although the details of the invention evolved with time, it seems evident that those aspects of it which were then considered to be of particular value must have been included in [the PCT application] which Maggbury published under the [PCT] on 18 February 1997. On the second day of the trial counsel for Maggbury made reference to that publication, saying in effect that most of the features of the board in issue would have been disclosed by the publication of the specification in February 1997, but that a number of features 'being the specific design detail of the ironing board' were not disclosed.
The judge made no findings on this point; some indication of what turned out to be significant in the Allen designs is to be found at p 15 of the judge's reasons:
The judge also referred to some more trivial similarities which it is not necessary to discuss.
It appears to us that all these features except possibly the last are present in the published specification. Looking at the matter more generally, it would be surprising if a patent specification intended to protect a number of different embodiments of the invention would fail to set out, with a view to obtaining protection for them, all aspects of the invention thought by the inventor to be of value. It was common ground that no aspects of the Allen design were considered individually inventive. The argument which was put forward and accepted by the primary judge was that the combination of features was worthy of protection. But no attempt was made to show that the combination disclosed in the patent specification published in 1997 kept from the public any worthwhile aspect of the various combinations of features it disclosed."
"Mr Allen demonstrated the advantages of the boards to the people who came to the fairs. When asked by the judge what features of the ironing board would the people who came to the Sydney fair not be able to see from the demonstration Mr Allen gave, he answered 'probably none, I would think'."
"that there is a pretty slim chance that the patent applications might succeed in deterring manufacturers from copying essential features. Moreover, the main (if not the only) idea which Maggbury hopes has protection is the linkage arrangement between the wall mounting and the U‑shaped support arm. Hafele abandoned this mechanism for a safer, probably cheaper, pivoting arrangement, which other manufacturers will likely find more attractive."
"Maggbury won the case because the judge found that their wall-mounted board copied some aspects of the Maggbury design. Insofar as the features copied were not what Mr Chaseling described as 'arbitrary' - referring to such matters as the use of a particular rather than a slightly different gauge of steel - it seems probable that they had all, or substantially all, been disclosed by the patent specification and the exposure at trade fairs. We were not asked, if of opinion that what was disclosed by the patent specification or what was disclosed at the trade fairs, or the combination of both, could not be protected as confidential, to reduce the scope of the injunction accordingly. Nor, in our opinion, would it be right to do so. Insofar as the patent specification failed to disclose any information about the invention, it is likely to have been either commonplace or of no real significance."
"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense".
Of course, what in respect of a particular contract comprises "business commonsense", as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ and in respect of which an imputed consensus is impossible. Here the difficulty arises not from the need for detailed semantic and syntactical analysis of the language used in the agreements, but from the use therein of simple terms such as "at any time hereafter" and "forever". Is this a case where "something must have gone wrong with the language"[8]?
"the applicant is proposing to broadcast the invention to the world at large, reserving as his protection only the claims which he may secure; and there is ordinarily no reason to suppose that he means to exact any greater protection against the promisor than he will have against others. At any rate, if he does, he should say so."
The same judge later expressed the point slightly differently in Conmar Products Corporation v Universal Slide Fastener Co[14]. Speaking of the relationship between employer and employee, his Honour said[15]:
"Conceivably an employer might exact from his employees a contract not to disclose the information even after the patent issued. Of what possible value such a contract could be, we find it hard to conceive; but, if an employer did exact it, others would perhaps be obliged to turn to the specifications, if they would use the information. Be that as it may, we should not so construe any secrecy contract unless the intent were put in the most inescapable terms; and the plaintiff's contract had none such."
"had entered into a written agreement under which he expressly agreed that he would not disclose information of which he might get an insight in consequence of his work".
After the commencement of the action in England seeking injunctive relief against Dosen, the appellants, upon legal advice and thinking that the step would protect their position, made a patent application, the specification in respect of which was published in the United Kingdom. Dosen successfully contended that the secret the subject of the patent application thus had been published to the world and that he was free from any obligation of secrecy under the contract or otherwise. In the Court of Appeal, Atkin LJ construed the contractual obligation as one "not to acquaint strangers with [the employer's] trade secrets"[19]. His Lordship concluded[20]:
"It seems to me, therefore, that there was a complete publication to the public of the construction and operation of the machine, the construction and operation of which was alleged in the proceedings to be a trade secret, and from that moment it appears to me quite plain that that which before might have been a trade secret, was a trade secret no longer. Now, what is the result of that? It appears to me that the result is that there is no longer any subject matter upon which the agreement could operate."
That statement is to be read with the later remark by Lord Buckmaster in the House of Lords[21]:
"Of course, the important point about the patent is not whether it was valid or invalid, but what it was that it disclosed, because after the disclosure had been made by the appellants to the world, it was impossible for them to get an injunction restraining the respondents from disclosing what was common knowledge. The secret, as a secret, had ceased to exist."
In the Court of Appeal, Lawrence LJ had put the matter slightly differently by emphasising that it was the plaintiffs who, by their own act, had made public the essential part of the trade secret which they then sought to restrain Dosen from communicating. His Lordship said[22]:
"[B]y applying for a patent, it seems to me that they have destroyed the foundation of their action."
"support any general principle that, if it is a third party who puts the confidential information into the public domain, as opposed to the confider, the confidant will not be released from his duty of confidence".
"that a case where the confider himself publishes the information might be distinguished from other cases on the basis that the confider, by publishing the information, may have implicitly released the confidant from his obligation".
Those remarks respecting release are readily applicable where the relationship is equitable rather than contractual, as is the present case.
(1) Within the "confidentiality agreements" executed by Hafele[36], was it shown that Hafele was in breach of the agreements when account is taken of the public availability of the information said to have been confidential? In other words did the initiatives of the first appellant, Maggbury Pty Ltd ("Maggbury"), in disclosing that information publicly, by making Australian and international applications for patents in 1995 and 1996, deprive it of any basis for complaint about anything that Hafele did?
(2) If Hafele was in breach of the confidentiality agreements, does the common law doctrine of restraint of trade apply to relieve Hafele of its obligations otherwise under the agreements by rendering such agreements, or the offending restraints on trade contained within them, unenforceable in law?
(3) If not, was it open to the primary judge to conclude that an injunction was a necessary and appropriate remedy in the circumstances to restrain Hafele from breaching the covenants contained in the confidentiality agreements?
(4) Was the injunction framed by the primary judge so wide in its terms and extended in its duration and application as to indicate a miscarriage of discretion so as to sustain the decision of the Court of Appeal on additional grounds?
"have a halting effect on commercial transactions. The owners of new and unpatented products would hesitate before transmitting the information and making the disclosures essential to bring about meaningful negotiations."
"Undue interference [with contracts], though imposed on the ground of promoting freedom of trade, may in the result hamper and restrict the honest trader and, on a wider view, injure trade more than it helps it. If a man wishes to tie himself for his own good commercial reasons to a particular supplier or customer it may be no kindness to him to subject his contract to the arbitrary rule that the courts will always reserve to him a right to go back on his bargain if the court thinks fit. For such a reservation prevents the honest man from getting full value for the tie which he intends, in spite of any reservation imposed by the courts, to honour. And it may enable a less honest man to keep the fruits of a bargain from which he afterwards resiles."
These words were spoken in relation to the question of the reasonableness of restraints. In my opinion, however, they can equally be applied to the entire basis of the doctrine.
"Public policy, like other unruly horses, is apt to change its stance; and public policy is the ultimate basis of the courts' reluctance to enforce restraints. Although the decided cases are almost invariably based on unreasonableness between the parties, it is ultimately on the ground of public policy that the court will decline to enforce a restraint as being unreasonable between the parties. And a doctrine based on the general commercial good must always bear in mind the changing face of commerce. There is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reasonable as between the parties. There is one broad question: is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable?" (second emphasis added)
If the question is framed in these terms, I have no doubt that the restraint is enforceable. It is true that the restraint was unlimited in terms of time and place; but those considerations are not decisive. Courts do grant permanent injunctions from time to time[87]. And as to the absence of any geographical restraint, I point out that the market to which the parties were looking was an international one. A number of other factors, taken together, suggest that the restrictive covenant was reasonable. The parties were engaged in commercial dealings and the respondents were on an equal footing with the appellants, if not on a superior commercial footing to them[88]. They took their own legal advice. The covenant with the appellants that the respondents entered into simply forbade them from making use of information that was provided to them by the appellants: the restraint was designed to prevent the respondents from obtaining the benefit of the appellants' wall-mounted invention in ways that would harm the business of the appellants. The covenant left the respondents with their pre-existing freedom to trade, and did not otherwise interfere with their business[89]. It could not be said to injure the public by stifling competition. Indeed, as one court has suggested, striking down such restraints might have adverse consequences on trade[90]:
"The owners of new and unpatented products would hesitate before transmitting the information and making the disclosures essential to bring about meaningful negotiations."
All these considerations, in my view, lead to the conclusion that the restraint went no further than was necessary in the interests of both parties and offended no public interest. Even on the current law of restraint of trade, the covenant can and should be given effect.
"[I]f the evidence in an application for contempt shows that a particular feature in one of the [respondents'] models is identical with a feature in one of the various versions of [the appellants'] board referred to in the injunction, being a feature which has been publicly disclosed or is commonplace, the Court will have to delve into the process whereby that feature came to be in the [respondents'] board - from one of [the appellants'] versions, on the one hand, or from information published by [the appellants] or common knowledge, on the other.
There is much authority emphasising that an injunction restraining the use of confidential information should not be in such terms as to be likely to give rise to difficult or embarrassing questions when it is sought to prove breach … Here the problem the Court would encounter would not be to discriminate between confidential and other information, that being the main difficulty in the sorts of cases to which we have referred. It would probably be to determine whether the presence of a feature which is in truth publicly known or commonplace is to be found in the [respondents'] board as a result of, for example, one of its employees having once looked at a drawing supplied by [the appellants]. It appears to us that that task could fairly be described as embarrassing, not least of all because it would seem to make little practical difference to [the appellants] whence the feature was derived."
"[I]t is plain, in my opinion, from a long series of cases of authority, that the breach of a negative covenant, especially where private rights only are concerned, 'constitutes a strong foundation for relief by way of injunction'[93]. In J C Williamson Ltd v Lukey and Mulholland[94] Dixon J said: 'If … a clear legal duty is imposed by contract to refrain from some act, then, prima facie, an injunction should go to restrain the doing of that act.'"
"In some cases, the practicalities of the facts may make it impossible to frame an injunction in anything but the most general terms; and, in any event, the danger of an order couched in overly particular terms is that it may leave the defendant at liberty to indulge in reprehensible conduct which is almost but not quite enjoined, without committing any contempt."
A more precise injunction than the trial judge granted in this case might have readily enabled the respondents to use information obtained from the appellants in violation of their agreement.
cf Welch Perrin & Co Pty Ltd v Worrel (1961) 106 CLR 588 at 611. ↑
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114. See also the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350-352, and of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735 at 739; [2001] 1 All ER 961 at 965. ↑
cf Bank of Credit and Commerce International SA v Ali [2001] 2 WLR 735 at 762 per Lord Clyde; [2001] 1 All ER 961 at 987. ↑
(1991) 22 NSWLR 317. See also Heydon, The Restraint of Trade Doctrine, 2nd ed (1999) at 233‑236. ↑
cf Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 326‑327, 329, 338. ↑
Maggbury Pty Ltd v Hafele Aust Pty Ltd [2000] QCA 172. ↑
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201. ↑
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913 per Lord Hoffmann; [1998] 1 All ER 98 at 115. ↑
[1964] 1 WLR 109 (n); [1963] 3 All ER 416; [1963] RPC 41. ↑
[1965] 1 WLR 1293 at 1314‑1315; [1964] 3 All ER 289 at 298‑299. ↑
[1965] 1 WLR 1293 at 1314; [1964] 3 All ER 289 at 298. ↑
[1965] 1 WLR 1293 at 1315; [1964] 3 All ER 289 at 299. ↑
[1965] 1 WLR 1293 at 1315; [1964] 3 All ER 289 at 299. ↑
[1964] 1 WLR 109 at 111; [1963] 3 All ER 416 at 418; [1963] RPC 41 at 43. ↑
[1965] 1 WLR 1293 at 1316; [1964] 3 All ER 289 at 299. ↑
Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at 317‑318 [26]; 176 ALR 693 at 700‑701. ↑
As held by the primary judge: Maggbury Pty Ltd v Hafele Australia Pty Ltd unreported, Supreme Court of Queensland, 22 January 1999 at 25 per Byrne J. ↑
The "Robinhood Ironing Centre", which featured a foldaway ironing board inside a box mounted on a wall or in between studs, without a carousel, retailed at $250-$330, whereas the potential for the appellants' version was to retail at $150. ↑
Bacchus Marsh Concentrated Milk Co Ltd (in Liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 440 per Isaacs J; Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1394 [37]; 181 ALR 337 at 348. ↑
Peters American Delicacy Co Ltd v Patricia's Chocolates and Candies Pty Ltd (1947) 77 CLR 574 at 590 per Dixon J. ↑
Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1392 [29]‑[32]; 181 ALR 337 at 346. ↑
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 324 per Lord Pearce. ↑
Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 307; affd on other issues by the Privy Council: (1975) 133 CLR 331; [1975] AC 561. ↑
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317; cf Triplex Safety Glass Co v Scorah [1938] Ch 211 at 216-217; Lindner v Murdock's Garage (1950) 83 CLR 628 at 640. ↑
Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 at 453 citing Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 331; Adamson v New South Wales Rugby League Ltd (1991) 31 FCR 242 at 292 per Gummow J. ↑
Biodynamic Technologies Inc v Chattanooga Corp 644 F Supp 607 at 611 (1986). ↑
Reasons of Gleeson CJ, Gummow and Hayne JJ at [51]. ↑
Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 701. ↑
See The Ipswich Tailors' Case (1614) 11 Co Rep 53a at 53b [77 ER 1218 at 1219]:
"[A]t the common law, no man could be prohibited from working in any lawful trade, for the law abhors idleness, the mother of all evil … and especially in young men, who ought in their youth, (which is their seed time) to learn lawful sciences and trades, which are profitable to the commonwealth, and whereof they might reap the fruit in their old age, for idle in youth, poor in age; and therefore the common law abhors all monopolies, which prohibit any from working in any lawful trade". ↑
See Sanderson, Restraint of Trade in English Law, (1926) at 19; Anson's Law of Contract, 27th ed (1998) at 360; Heydon, The Restraint of Trade Doctrine, 2nd ed (1999) at 3-13. ↑
Meltz, The Common Law Doctrine of Restraint of Trade in Australia, (1995) at 16; Treitel, The Law of Contract, 10th ed (1999) at 415-416. ↑
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 333-335 per Lord Wilberforce. ↑
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co [1894] AC 535; Heydon, The Restraint of Trade Doctrine, 2nd ed (1999) at 16-19. ↑
Sanderson, Restraint of Trade in English Law, (1926) at 24 traces the modern presumption against restraints of trade to Mitchel v Reynolds (1711) 1 P Wms 181 [24 ER 347]. ↑
The test of reasonableness between the parties has considerable difficulties. The test requires judges to substitute their own views for the decisions of businessmen and women, thereby overturning the arrangements on which the latter have based their affairs. It asks the courts to engage in a delicate exercise: they must not inquire into the adequacy of consideration or the fairness of the contract, but they can take account of the quantum of consideration to determine if a covenant is reasonable. The test also leaves undefined in what circumstances the "public interest" should strike down restraints that surmount the hurdle of reasonableness. ↑
For instance, under s 80(1A) of the Trade Practices Act, the Commission alone can seek an injunction to prevent an acquisition which would have the effect of substantially lessening competition. It also has the power under s 88 to make authorisations excepting contracts and arrangements from s 45 and other provisions relating to restrictive trade practices. ↑
Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1392 [28], 1392-1393 [33]; 181 ALR 337 at 345, 347; Australian Capital Territory v Munday (2000) 99 FCR 72 at 92. It is worth adding that the relations between employees and employers, and indeed between principals and independent contractors in some matters and circumstances, are closely regulated by statute and the common law: see Workplace Relations Act 1996 (Cth); Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; Hollis v Vabu Pty Ltd (2001) 75 ALJR 1356; 181 ALR 263. ↑
Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1392 [28], 1392-1393 [33]; 181 ALR 337 at 345, 347. See also Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 327-328: "One of the mischiefs at which the doctrine was aimed originally was the mischief of monopolies. But this was dealt with by legislation and the executive has from time to time taken efficient steps to prevent it." ↑
[1968] AC 269 at 298 per Lord Reid, 309 per Lord Morris of Borth-y-Gest, 316 per Lord Hodson. ↑
[1968] AC 269 at 332-335 per Lord Wilberforce. ↑
Panayiotou v Sony Music Entertainment (UK) Ltd [1994] Trading Law Reports 532. ↑
Peters (WA) Ltd v Petersville Ltd (2001) 75 ALJR 1385 at 1393-1394 [34]-[38]; 181 ALR 337 at 347-348. This Court, while noting criticisms of the pre-existing freedom test, made it clear that it was unnecessary to consider that matter further: see (2001) 75 ALJR 1385 at 1390-1391 [22]; 181 ALR 337 at 344. ↑
Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 700; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 307 per Walsh J, 316 per Gibbs J. ↑
[1968] AC 269 at 324. See also Walsh J in Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 307. ↑
See Heydon, The Restraint of Trade Doctrine, 2nd ed (1999) at 131-132 for a discussion of cases in which lifelong restraints were held to be good. ↑
North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 471 per Viscount Haldane LC; English Hop Growers v Dering [1928] 2 KB 174 at 181 per Scrutton LJ; Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 300 per Lord Reid, 320 per Lord Hodson, 324 per Lord Pearce; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 316 per Gibbs J. ↑
Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 at 298 per Lord Reid, 309 per Lord Morris of Borth-y-Gest, 316-317 per Lord Hodson. While these comments are directed to the scope of the restraint of trade doctrine, I can see no reason why keeping intact a pre-existing freedom should not factor in the reasonableness of the restraint. ↑
Biodynamic Technologies Inc v Chattanooga Corporation 644 F Supp 607 at 611 (1986). ↑
Maggbury Pty Ltd
Hafele Australia Pty Ltd
[2000] QCA 172
(1961) 106 CLR 588
(1982) 149 CLR 337
(1991) 22 NSWLR 317
(1969) 123 CLR 648
(2000) 75 ALJR 312
(1984) 156 CLR 41
(1996) 186 CLR 71
(2001) 75 ALJR 1385
(1919) 26 CLR 410
(1947) 77 CLR 574
(1973) 133 CLR 288
(1975) 133 CLR 331
(1950) 83 CLR 628
(1972) 126 CLR 449
(1991) 31 FCR 242
(1972) 127 CLR 617
(1999) 198 CLR 380
(1973) 133 CLR 260
(1998) 195 CLR 1
(2000) 99 FCR 72
(1986) 160 CLR 16
(2001) 75 ALJR 1356
(1979) 141 CLR 552
(1931) 45 CLR 282
Appeal dismissed with costs.