THE BRINKMANN CORPORATION AND ANOTHER v. HON SIU CHEONG ELLIS

HCA674/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.674 OF 2006

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J U D G M E N T

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1. On 12 July 2006, I gave judgment for the plaintiffs and continued the interlocutory injunction order against the defendant.  The following is my reasons therefor.

Background

4. The plaintiffs’ allegations commenced in 2003 when Brinkmann began to source their grills from their manufacturer Xilin through Talyuen under a confidential agreement organized by Wood.  Later, on about 15 and 16 November 2005 the defendant set up a presentation to his customer Lowe’s.

5. It was alleged by the plaintiff that sometime before 30 November 2005 both Wood and Hon had discussed their resignations and Talyuen had learnt of their resignation before Brinkmann.  Furthermore, Wood and Hon had committed to Talyuen and Xilin to participate in the Lowe’s presentation.  There was evidence of communication between Hon and Wood to demonstrate that they had the intention to design grills for the Lowe’s presentation.  This was found in an email dated 30 November 2005.  Hon even said to Wood that they must design and prototype some better grills as quickly as possible in order to hit Lowe’s presentation as soon as Wood “dump Mr Scrooge”, a reference to Mr Brinkmann, the owner of the plaintiffs.

6. On 30 November 2006, Wood handed in his resignation to the plaintiff.  In his resignation, he denied any intention to compete against Brinkmann or any other business plans.  However Hon and Wood together collaborated on grill designs for the Lowe’s presentation.  Wood also removed his notes and documents containing Brinkmann’s trade secrets relating to the outdoor grill, flashlight and spotlight designs.  Wood’s last day at Brinkmann was 13 December 2005 and the effective date of his resignation came into effect the day after.

7. On 16 December 2005, Hon handed in his resignation to Brinkmann HK which would take effect only by 16 January 2006.  He said that he might spend more time with his family.  Subsequently, Hon erased nearly all files on his computer at Brinkmann HK and attempted to obliterate the information on his computer.

8. It was also alleged that Hon had taken Brinkmann’s certain information of a confidential nature sometime before 28 December 2005.  After the arrival of Wood to Hong Kong, both Wood and Hon attempted to poach one of Brinkmann’s manufacturers, Talentone.  They proposed to Talentone that they were going to offer products at a price 20% lower than Brinkmann’s prices.  Furthermore, Wood and Hon wrongly informed Talentone that Binkmann would discontinue business with them and cease paying Talentone’s outstanding account.

9. At Lowe’s presentation on 7 January 2006, models of gas grill to be manufactured by Xilin was presented and promoted to the company.  These models of gas grills came about utilizing Brinkmann’s designs, which were new and confidential.  On 8 January 2006, Wood and Hon visited another supplier called Keesung, who also supplied to Brinkmann.  It is worthy to note that these events occurred before the effective date of Hon’s resignation, which was on 16 January 2006.  During February and March 2006, Wood and Hon attempted to poach Brinkmann’s customers.  On 10 February 2006, Hon was asked by Wood to comment upon a draft agreement to act as Xilin’s commissioned consultants starting from 15 December 2005 for the outdoor grill designs, pricing of them and dealings with customers.

The injunction sought

10. The plaintiffs made a claim against Hon in order that he is restrained from using information acquired during his employment with the 2^nd plaintiff on the following grounds, namely :

(i)	First, the plaintiffs contended that the defendant has obtained trade secrets during his employment with Brinkmann and these should still be protected even though he no longer works for the plaintiffs.
(ii)	The second basis of the claim is for the breach of his duty of fidelity as he acted dishonestly prior to the termination of his employment.  The plaintiffs are seeking for a permanent injunction to prevent Hon from using Brinkmann’s trade secrets and confidential information.

The defendant’s submission

11. The defendant submitted that generally, there is :

(a)	No restraint of trade.
(b)	No restrictive covenant in his term of employment.
(c)	Only a general stock of knowledge being used by the defendant after his employment.

Analysis

12. In determining what information acquired by Hon should be considered as trade secrets and what is part of his ordinary stock of knowledge, it is helpful to refer to the case of Gilman Engineering Ltd v. Ho Shek On Simon [1986] HKC 52.   This case sought to provide a principle that would aid to distinguish between trade secrets and ordinary knowledge and experience.  Where highly confidential information cannot be separated from trade secrets, the party to the proceedings must provide a detailed list of such information in order that the courts may decide.

13. In the Gilman case, it was decided that public policy demanded that one cannot be restrained from using general information and knowledge acquired during his course of employment.  What can be regarded as trade secrets in this case is the list of design features found in the revised terms or order.  The defendant counsel tried to demonstrate that these designs are not unique to Brinkmann in that existing products in the market have similar features.

14. In reference to the questions that the court must ask itself when deciding whether or not to grant an interlocutory injunction, the following questions are relevant :

(i)	whether there is a serious question to be tried,
(ii)	if so, whether, if the plaintiffs were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;
(iii)	if not, whether the defendant would be adequately protected by the plaintiffs’ cross-undertaking in damages should it be later found that the plaintiffs should not have been granted an interlocutory injunction;
(iv)	if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

15. The plaintiffs relied on the persuasive authority of Dr Robert Dean (The Law of Trade Secrets and Personal Secrets) on the protection of information which should not be dismissed on the grounds of simplicity :

“… mere simplicity of an idea does not prevent it being confidential; indeed, the simpler an idea the more likely it is to need protection.” (p.68)

16. In reference to company information it was said that :

“… general business practices will in many cases not be regarded as sufficiently secret to be protected, however, special information pertaining to the company such as company accounts has been protected, as have the company’s range of products for the coming season; and costs and prices which are not generally known may well constitute trade secrets or confidential information” (p.70, [3.50])

17. The issue of contact information of customers and manufacturers are dealt with as follows :

“Names and telex addresses of their company’s manufacturers and suppliers and their individual contacts; the negotiated prices paid by the company; the name of some overseas buying agents through whom the company deals; the company’s new ranges; actual or proposed; information as to the requirements (such as styles) of the company’s customers; details for the company’s current negotiation; negotiated prices paid by customers to the company; the company’s samples; and the company’s current ‘fast moving’ lines … I think that all of these forms of information are at least capable of being confidential.” (p.71)

18. Hence, however simple Brinkmann’s designs may be and as long as they are unique to the company, they can be considered as trade secrets.  It is particularly so when these designs were meant to be market in the summer of 2006/2007.

19. In the case of Feccenda Chicken Ltd v. Fowler [1987] Ch 177, it was held that information which is classified as trade secrets cannot be used by a former employee, regardless of the fact that there was no express restrictive covenant.  Therefore, the defendant in this case cannot use confidential information before and after employment at Brinkmann’s for his own benefit.

20. In applying this principle, one may see Hon has breached his contract of employment as he was utilizing such information even before the termination of his employment.  Furthermore, where he uses Brinkmann’s trade secrets after the termination of employment, he has breach his duties of fidelity towards his former employers.

The definition of trade secrets

21. Trade secret or its equivalent is simply information :

(i)	which can be easily isolated from other information which the employee is free to use so that any many of average intelligence and honesty would think it is improper to use the information at the disposal of his new employee;
(ii)	which, if disclosed to a competitor, would be liable to cause real or significant harm to the owner.

22. Furthermore, there are no instances where the defendant denies knowing the information being referred to by Brinkmann.  This can be deduced from his various affidavits.  He therefore knows what he will be prevented from using and so a detailed list of information is not required in this case.

23. The defendant himself has also accepted the following in his affidavits :

(i)	projected prices at which each customer can be charged;
(ii)	inventory planning and control utilized in production and distribution procedures;
(iii)	forecasting methodology; and
(iv)	private financial information

are or are capable of being confidential.

24. One must also bear in mind that confidential information was obtained and were used for Wood’s and Hon’s own purpose during their course of employment.  From the book of Dr Dean cited above, it can also be seen that the information utilized by the defendant cannot be described as ordinary knowledge.  For example, the design of a side table is unique to Brinkmann.  This case, however, is not one of infringement of copyright of research and development or copyright but one where an employee had dishonestly and disloyally used his company’s trade secrets for his own benefit.

25. In supporting the above, the plaintiffs also pointed out that Hon had never once alleged that the information he used had become an inseparable part of his ordinary stock of knowledge and experience.

Conclusion

26. An order has been made for the plaintiffs because the defendant’s undertakings were not enough for the circumstances and seriousness of this case.  The revised terms of the order were amended for the order.  In addition, the defendant will be restrained from using the information listed until 30 June 2007, or until further order.  The time limitation proposed by the defendant as to 1 January 2007 is not sufficient as it still provides the defendant several months to manufacture their products in time for the summer to compete with Brinkmann.

27. The defendant’s voluntary undertaking is in terms of paragraph 1(1)(J) of the order.  This implies that these items of information are not part of the ordinary knowledge and skill but are trade secrets which the defendant is not permitted to use.

28. In sum, the injunction should continue in terms of the draft as amended by me on 12 July 2006.