Ani Corporation Ltd v Celtite Australia Pty Ltd

[1990] FCA 361

Re: THE ANI CORPORATION LIMITED and TITAN MINING AND ENGINEERING PTY LTD
And: CELTITE AUSTRALIA PTY LIMITED; COLIN NORRIS and ROLAND SHAW
No. N G347 of 1990
FED No. 361
Interlocutory Injunction - Confidential Information
(1991) AIPC para 90-728
19 IPR 506

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)

CATCHWORDS

Interlocutary Injunction - principles upon which granted - weaknesses of applicant's case weighed with balance of convenience.

Confidential Information - effect of patent as publishing information to the world - distinction between duty of fidelity during employment and obligation towards confidential information after it has ceased - knowledge part of ex-employee's store of knowledge and skill - research not leading to any solution taken up again at a later date with new employer.

HEARING

SYDNEY

#DATE 20:7:1990

Counsel for the applicants: Mr C.A. Sweeney QC with Mr J.C.B. Allsop

Solicitors for the applicants: Messrs Baker and McKenzie

Counsel for the respondents: D.K. Catterns

Solicitors for the respondents: Messrs Freehill, Hollingdale and Page

ORDER

The undertaking of the First Respondent to the court be noted that it will keep full and proper accounts of all sales by it of the cap nut pending the determination of the proceedings further order.

The application for interlocutory injunctions be dismissed.

The costs of the application for interlocutory injunctions be the respondents' costs in the action.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application for interlocutory injunctions to restrain the respondents from making use of what is alleged to be confidential information belonging to the applicants, and in particular from manufacturing and selling a device referred to as a "cap nut" which is claimed to have been developed by the use of the confidential information. It is the applicants' case that between about January 1986 and June 1988 the second and third respondents, Messrs Norris and Shaw, were involved, as supervisor of research and development and as research and development worker, respectively, in research directed to an attempt to develop a nut with a disc welded to its distal end, capable of fulfilling the requirements of a nut for a roof bolt, to be fixed in position with epoxy (or similar) resin, in mining operations. In the statement of claim, the applicants plead that information in relation to the nut was imparted to Messrs Norris and Shaw, by other employees of the second applicant (which I will call Titan), on a confidential basis. It is further pleaded that about 1 July 1988 Mr Norris left Titan's employ, and was shortly afterwards employed by the first respondent (which I will call Celtite), a competitor of the applicants; and that about 1 August 1989 Mr Shaw, who had in the meantime become an employee of the first applicant, a company related to Titan, left that employment and also commenced employment with Celtite. The statement of claim continues:

"19. Since in or around July 1, 1988 the Second and Third Respondents have owed an obligation of confidence to the First and Second Applicants not to disclose or to make use (sic), without the consent of the Applicants, any information whatsoever, including the idea of a welded nut, to any person including but not limited to another employer.

1. It is plain that clause 19 of the statement of claim is far too wide. However, what is significant for present purposes is that the statement of claim, without defining the nature of the confidential information to which it refers, proceeds to allege that this information was misused by the respondents in Celtite's manufacture of a cap nut, being "the same or substantially the same product" as the nut the subject of the research by Titan previously referred to. (While this particular allegation has the appearance of precision, it should be pointed out that, as will emerge shortly, there never was produced by that research any usable nut which could be relevantly described as a "product".) It is claimed that, unless restrained, the respondents will sell the Celtite cap nut to mines and collieries throughout Australia "in breach of their obligations of confidence owed to the applicants in relation to the welded nut" (i.e. the nut the subject of the research).

2. On the second day of the interlocutory hearing, counsel for the applicants, for the first time, specified the alleged confidential information. He did so in the following terms:
   

"The information was information that by applying arc welding to fix a blind disc to a nut the result could be achieved that at predetermined and predictable points the disc would be forced off the nut by the failure of the welds and therefore that the product was well adapted to use with mining roof bolts.

1. To understand what is involved, it is necessary to appreciate the manner in which the relevant roof bolts are used in mines and collieries. A hole is drilled in the rock, into which is inserted a sausage-shaped flexible plastic container divided into two compartments, in each of which is one of the two components of an epoxy (or similar) resin. When the roof bolt is inserted, it, of course, breaks both compartments of the plastic container, and, if it can be held and turned by some means, it will mix the resin and the catalyst so that the bolt will become fixed in position. It is the object of a well known technique to provide a means of turning the bolt for this purpose which also enables the mine worker, in the one operation, to proceed with the fixing of the roof plates by tightening into position the nut of the roof bolt. That technique involves the use of a nut, part of the threaded portion of which is blocked with a plastic plug; the nut is screwed onto the bolt until the end of the bolt engages the plastic plug so that the bolt can then be turned by turning the nut, but when the bolt becomes fixed in position by the setting of the resin, further pressure on the nut breaks out the plug, enabling the nut to be screwed all the way into position. The welded cap nut with which the present application is concerned is an alternative means to the same end - when the welded cap on the distal end of the nut makes contact with the end of the bolt, the bolt turns until the setting of the resin fixes it in position and the increased pressure forces the cap off the nut. It was developed by Celtite at a time when that company's right to manufacture and sell nuts with plastic plugs had just been challenged by proceedings which have yet to be dealt with in this court.

2. The applicants say that the genesis of the cap nut was much earlier, in late 1985 or 1986, when, according to a sales and service engineer in Titan's employ, a Mr Yearby, he suggested to Messrs Norris and Shaw the idea of spot welding a metal disc to the outside of a nut. Mr Yearby's claim is not accepted by Messrs Norris and Shaw, but there is no dispute that Mr Shaw did work, in or about 1986, on the idea of welding a disc to a nut. At a conference of sales and service engineers of Titan in about the first half of 1987, Mr Shaw presented a nut with a metal disc spot welded to it. Discussion ensued, in which it was pointed out that the diameter of the disc created an insuperable obstacle to the use of this particular device in practice. It was too large to fit into the tool used for turning the nut. According to the affidavit of Mr Yearby, Mr Shaw said, in answer to the criticism: "I need that size disc to get the welding performance required." Mr Shaw's own evidence was to the effect that he was covered in confusion, and abandoned the idea completely. As the evidence stands at present, it seems plain that no further attempt was in fact made by Titan to develop such a nut. One reason may have been success in achieving improvement in the performance of nuts using plastic plugs.

3. Other evidence confirms that, in or about late 1986, Mr Shaw was working on the idea of welding a disc to the end of a nut. He had made a prototype which, presumably, was the one shown at the meeting of sales and service engineers in 1987. At that time, Mr Shaw's duties in respect of research and development involved his reporting to Mr Norris, who exercised a supervisory responsibility in that area. There is evidence that research and development projects were regarded as confidential, as indeed one would expect.

4. The respondents' case is that Mr Shaw's work for Titan on the development of a nut with a welded disc had never progressed very far, and so far as it had gone had proceeded up a blind alley, since he could not solve the problem of the size of the disc. That problem required a solution compatible with the production of a weld which would break at just the right torque and would also be capable of manufacture without causing damage to the thread of the nut. The mere idea that an appropriate nut of this kind could be achieved had not really been extended or built upon by what had been done at Titan. As for the idea itself, the respondents say it cannot be regarded as confidential, since it was already in a relevant sense public knowledge well before 1986. In proof of that proposition, the respondents put forward evidence that it was common practice amongst those persons involved in the mining industry to keep abreast of current technology in roof bolt development by, inter alia, search of patent registers and examination of other published material. Mr Norris says that he knew, and his evidence indicates that others at Titan knew, of a patent referred to as the Lamendin patent, the publication date of which in Australia was 10 August 1972. Another patent, referred to as the Bohnius patent, also had a publication date in Australia prior to 1986, being 11 July 1984. The respondents say that these patents clearly revealed, for the benefit of the public, the whole of the concept so far as it was known to Titan.

5. The Lamendin patent referred to a "plate associated with the nut ... attached to it by welding ... and adapted to be broken free therefrom as torque is applied to the nut tending to screw it further onto the rod". Claim one of the claims refers to
   

"a plate which limits the travel of the nut along the rod being attached to the distal face of the nut by a breakable joint, the method comprising introducing in an unmixed condition a settable synthetic resin and a resin-setting catalyst sealant into the hole, inserting the first end of the rod into the hole, rotating the rod to mix the resin and catalyst, thereby causing the sealant to set and hold the rod fast, applying torque to the nut in a direction which tends to screw the nut onto the rod so that the said joint breaks when screwing the nut onto the rod ... ."

Claim four refers to "a method according to Claim 1, wherein the plate is secured to the nut by welding .."

1. The specification of the Bohnius patent, which is also concerned with resin bonded rock bolts, refers to a precisely similar device and specifically nominates spot welding as a suitable method for forming the welds "adapted to fracture when ... predetermined torque is achieved to enable the shank to pass the stop".

2. There are disputed questions of fact as to the source of the suggestion that Titan might investigate a nut of this type, as to the extent and value of the work done at Titan, as o how Celtite came to develop the cap nut, and as to whether any use was made by Mr Norris or Mr Shaw at Celtite of knowledge gained by them during the earlier work at Titan. At an interlocutory hearing, it is not appropriate that I should examine these questions in detail in order to reach firm conclusions about them: Peter Pan Electrics Pty Ltd v. Newton Grace Pty Ltd (1985) 8 FCR 557 at 565; Martin Engineering Co v. Trison Holdings Pty Ltd (1988) 11 IPR 611 at 618-619. For present purposes, it is sufficient to say that no evidence was put before me on which I could at this stage be satisfied Mr Shaw or Mr Norris had discovered, while they were at Titan, any way out of the impasse revealed at the conference of sales and service engineers in 1987, nor could I find that they had investigated the problems (much less found a solution to them) of welding to a nut, in such a way that the weld would break predictably, a disc of the limited diameter involved in Celtite's cap nut. This is not to say that both of these findings may not be made at a final hearing; but there is not at this stage a serious question to be tried upon either of them.

3. In his judgment (which was cited as authoritative by the Court of Appeal in Roger Bullivant Ltd v. Ellis (1987) 13 FSR 172 at 179) in Faccenda Chicken Ltd v. Fowler (1985) 1 All ER 724 at 731, Goulding J. (at 731) pointed out that some information acquired by an employee in the course of his service,
   

"because of ... its easy accessibility from public sources of information, cannot be regarded by reasonable persons or by the law as confidential at all. The servant is at liberty to impart it during his service or afterwards to anyone he pleases, even his master's competitor ."

He selected, for illustration of this point, the example of "a published patent specification well known to people in the industry concerned". There was good reason for this example, since in O. Mustad and Son v. Dosen (1964) 1 WLR 109; (1963) RPC 41 (a case decided by the House of Lords in 1928 but not then reported), it was held that the obtaining of a patent relevantly made public certain information about a machine which had previously been claimed to be confidential. Lord Buckmaster (at WLR 111; RPC 43) said:

"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."

1. It need hardly be added that Lord Buckmaster was not talking about the duty of fidelity of an employee during the course of his employment, nor was he referring, as he later made clear, to the confidentiality which might in some circumstances attach to information going beyond that disclosed by the patent. But, in the present case, it is difficult to see, on the evidence, what serious question is raised of information not published in the patents to which I have referred. Titan could not demand that anything its employees learned must forever be locked away as confidential. There are categories of information; and some knowledge, even if confidential at the time it is acquired, travels with the employee who learns it, when he leaves his employment, and is available to him wherever he goes. In Faccenda Chicken (ubi cit. supra) Goulding J. said:
   

"(T)here is information which the servant must treat as confidential, either because he is expressly told it is confidential, or because from its character it obviously is so, but which once learned necessarily remains in the servant's head and becomes part of his own skill and knowledge applied in the course of his master's business. So long as the employment continues, he cannot otherwise use or disclose such information without infidelity and therefore breach of contract. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master ... ."

In that case, quite detailed knowledge of the various terms on which particular customers of the former master wished to do business was held to fall within this principle. The decision was affirmed on appeal to the Court of Appeal ((1987) Ch 117). Neill L.J., delivering the judgment of the court, said (at 136):

"The implied term which imposes an obligation on the employee as to his conduct after the determination of the employment is more restricted in its scope than that which imposes a general duty of good faith. It is clear that the obligation not to use or disclose information may cover secret processes of manufacture such as chemical formulae ... , or designs or special methods of construction ... , and other information which is of a sufficiently high degree of confidentiality as to amount to a trade secret. The obligation does not extend, however, to cover all information which is given to or acquired by the employee while in his employment, and in particular may not cover information which is only 'confidential' in the sense that an unauthorized disclosure of such information to a third party while the employment subsisted would be a clear breach of the duty of good faith."

1. Applying these statements to the present case, there is much to be said for the proposition that no trade secret of Titan was discovered in 1986 or 1987 by Messrs Norris and Shaw. Their employer gained no new product or process. The results of Mr Shaw's efforts were disappointingly negative. The most he and Mr Norris did, while in Titan's employ, was to extend somewhat their skill and knowledge in respect of the art of welding discs to nuts. Whatever they learned became, for each of them, inseparable from his acquired store of knowledge and skill, to which Titan had no exclusive right. Ultimately, if that is found to be the position in this case, it will not be enough. As Neill L.J. said in Faccenda Chicken (at 137):
   

(T)he information will only be protected if it can properly be classed as a trade secret or as material which, while not properly to be described as a trade secret, is in all the circumstances of such a highly confidential nature as to require the same protection as a trade secret eo nomine. The restrictive covenant cases demonstrate that a covenant will not be upheld on the basis of the status of the information which might be disclosed by the former employee if he is not restrained, unless it can be regarded as a trade secret or the equivalent of a trade secret ... ."

Similarly, the High Court has held that the law does not protect, as exclusively the property of a particular individual, what is merely know-how, even if it was imparted by him under a confidential badge: O'Brien v. Komesaroff (1982) 150 CLR 310 at 328. I do not think there is anything in Ansell Rubber Co Pty Ltd v. Allied Rubber Industries Pty Ltd (1967) VR 37 to the contrary of these propositions.

1. If, nevertheless, I were of the opinion that the applicants had shown a serious question to be tried, there would remain the balance of convenience. Although counsel for the applicants was able to point to a number of factors which favoured his clients, there are also weighty factors tending to the contrary. The grant of an injunction might scorch a promising new product in the bud, causing indeterminable loss. It is a serious consideration that the court is being asked to act upon an undertaking as to damages which may prove of little use because of the impossibility of estimating any amount payable under it. On the other hand, if there is no interlocutory injunction, and the applicants ultimately succeed, the calculation of their damages, though a difficult task, would not, in my opinion, encounter quite the same obstacles. Any inroads made into the applicants' market would be likely to provide a yardstick.

2. It has been held that whether a sufficiently serious question to be tried has been shown, and whether the balance of convenience favours an order, are not questions to be determined in strict isolation from each other: Martin Engineering Co v. Matflo Engineering Pty Ltd (1987) 17 FCR 132 at 137, where several of the authorities are cited. Taking into account the weaknesses of the applicants' case as constituting a factor related to the balance of convenience (see Castlemaine Tooheys Ltd v. The State of South Australia (1986) 161 CLR 148 at 154), to be considered with all the other factors which counsel put to me (including the applicants' contention that there was a doubt about the respondents' ability to meet an award of damages), I am of the opinion that even if there is a serious question to be tried, it is not a case in which an interlocutory injunction should be granted. I note that Mr Catterns, who appeared for the respondents, gave an undertaking to the court on behalf of the first respondent that it would keep full and proper accounts of all sales by it of the cap nut pending the determination of the proceedings or further order; and I dismiss the application for interlocutory relief. I order that the costs of the application be the respondents' costs in the action.