GlaxoSmithKline Australia Pty Ltd v Ritchie
[2008] VSC 164
•22 May 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
INTELLECTUAL PROPERTY LIST
No. 2063 of 2004
NOTE:These reasons for judgment have been edited to remove certain information that may be confidential to the parties
| GLAXOSMITHKLINE AUSTRALIA PTY LTD (ACN 100 162 481) | Plaintiff |
| v | |
| JARROD RITCHIE and TPI ENTERPRISES LIMITED (formerly TPI ENTERPRISES PTY LTD) (ACN 107 872 453) | Defendants |
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JUDGE: | HARPER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 23-26, 29-31 OCTOBER; 1, 5, 7-9, 12, 13, 19, 21 & 23 NOVEMBER 2007 | |
DATE OF JUDGMENT: | 22 MAY 2008 | |
CASE MAY BE CITED AS: | GSK AUSTRALIA PTY LTD v RITCHIE & ANOR | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 164 | |
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CONFIDENTIAL INFORMATION – Licit opiate industry – Competing business established by a former employee – Alleged breach of duty of good faith and fidelity – Alleged misuse of confidential information – Whether information confidential – Whether information constituted a trade secret or know how – Whether misuse established - Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239, Stenhouse Australia Ltd v Phillips [1974] AC 391, Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724, Balston Ltd v Headline Filters Ltd [1987] FSR 330 and Ocular Sciences v Aspect Vision Care Ltd [1997] RPC 289 applied – Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 followed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Collinson SC with Ms K. Beattie | Deacons |
| For the Defendants | Mr C. Scerri QC with Mr G. Dalton | Arnold Bloch Leibler |
TABLE OF CONTENTS
Introduction
An overview of the issues of confidentiality
The extraction of opiate alkaloids
The employee’s duty of good faith
The extraction process documents
The GSK Chemicals Division Budget Book (FACS 2.1)
Premgen Project
The GSK Technical Information (FACS item 1)
The Manufacturing Guides (FACS item 1.1)
The Acetic Acid Process (FACS item 1.2)
Westfalia Test Data (FACS items 1.3 (i) to (iii))
Hayes Experiment Data (FACS items 1.4(i)-(v) and 1.5(i)-(xvi))
Port Fairy Research and Development Reports (FACS 1.6)
Crop Details as Disclosed by 2002, 2003 and 2004 Chemicals Division Budget (FACS 1.7)
Conclusion
HIS HONOUR:
Introduction
The plaintiff, GlaxoSmithKline Australia Pty Ltd (“GSK”) is, and its predecessor Glaxo Wellcome Australia Ltd (“GWA”) was, a major manufacturer of opiate alkaloids for the global NRM (“narcotic raw materials”) and API (“active pharmaceutical ingredients”) markets. Among the products of both are and were opiate alkaloids extracted from the opium poppy (papaver somniferium). GSK alleges that the methods by which the extraction is effected are confidential to it. Despite this, the defendants have unlawfully employed those methods for their own purposes, and have profited thereby. GSK, meanwhile, has suffered damage as a result. GSK further alleges that the defendants have misused other of GSK’s confidential information, with like outcomes. Future misuse is, the plaintiff asserts, to be anticipated. Injunctive relief is therefore likewise sought. Hence this litigation. The principal – but not the only - issues raised by it are the identification of the information GSK claims to have been misused, the proper classification of this information as confidential or otherwise, and (so far as it is confidential) the extent to which, if at all, it has been misused – or threatened to be misused - by the defendants. The current statement of claim (the second further amended statement of claim, dated 15 October 2007) also pleads a breach by the first defendant, Jarrod David Ritchie, of the duty of good faith and fidelity which, as an employee of the plaintiff, he owed to it.
The process of extraction of the opiate alkaloids contained within GSK’s successive crops of papaver somniferium is the responsibility of its “Chemicals Division”. The core business of that Division is “overseeing the growing and processing of poppies into dried, raw, poppy material (referred to in the industry as ‘poppy straw’) which is in turn manufactured (through a series of intricate extractional processes) into saleable end-products (namely, opiate alkaloids and value added derivatives of opiate alkaloids) for supply by GSK to consumers in the worldwide licit opiates market”.[1] The “straw” is the material which makes up the (dried) capsules of the poppy; a small proportion of the stem may be included.[2] In 2005, GSK supplied 25% of this market, exporting to over 30 countries. The Chemicals Division then employed about 110 people, and its revenue was approximately A$100 million. Of this, some $20 million has over the past 10 years been allocated to the Division’s Research & Development Department. I accept that research and development is an important aspect of GSK’s involvement with opiates, which involvement is itself an important aspect of the production of very beneficial pharmaceutical products.
[1]Affidavit of Geoffrey Donald Zippel affirmed 24 October 2005, paragraph 2 (CB.7.B.005330).
[2]Paragraph 6 of confidential exhibit “ARR 4” to the affidavit of Andrew Robertson Ross dated 27 August 2007 (CB.8.B.005804).
The entire Australian crop of papaver somniferium, which supplies about 40% of the world’s market for medicinal opiates, is grown in Tasmania. (I do not know whether any of the harvest is sold overseas before the alkaloids are extracted, but - excluding the second defendant - there are two Australian manufacturers of medicinal poppy products: the plaintiff, and a company called Tasmanian Alkaloids.) After harvest, the seeds are collected before being sold for human consumption, generally on bakers’ products. In the case of GSK, the seeds and capsules are separated in Latrobe, in Tasmania. It is there, too, that the capsules, free of seeds, are converted into pellets. The pellets are then shipped to Port Fairy in Victoria for extraction of the opiate alkaloids contained within them; and it is at Port Fairy that the principal functions of the Chemical Division are performed, although important elements of the Division’s administration are located in GSK’s administrative headquarters in the Melbourne suburb of Boronia.
Raw poppy straw contains four key alkaloids: morphine, codeine, thebaine and oripavine. Poppies can be bred, or when growing treated, to produce a relatively greater proportion of thebaine as against morphine; subject always to the inherent limitations imposed by nature, the proportions will depend on the view that the grower or manufacturer takes of its market. As one would expect, morphine straw contains a greater proportion of morphine than does thebaine straw; and vice versa. Morphine and codeine are commonly used analgesics. The other two, thebaine and oripavine, are not themselves analgesics, but form the basis of the manufacture of pain-relieving opiate derivatives such as naloxone and oxycodeine. Indeed, GSK was in 2003 involved in a joint venture (“[XXXXX XXX] project”) with a key customer, [XXXXX XXXXX ], to develop a new process for the manufacture of [XXXXX XX]. This project received some attention in the evidence, and will be referred to again later in this judgment.
In 2005, 5% of the alkaloids produced by the Chemicals Division were for internal GSK use. The remainder were exported to a limited number of third party customers, each of whom is a major international producer of pharmaceutical goods. It is they who manufacture, from the products supplied by GSK, pharmaceutical grade opiates.
The production of opium from the thickened and dried juice of the unripe capsules of the opium poppy first began in the very remote past; for example, opium was described, in the first century AD, by Dioscorides – whose work De Materia Medica was for centuries afterwards the leading text on pharmacology. The basic science is therefore neither new nor (in scientific terms) sophisticated. This is not to suggest that there is anything trite about the mass production of opiate alkaloids for medicinal purposes. Morphine was not isolated as an active constituent until early in the 20th century. Since then, the manufacture of opiates for modern medicinal use has been constantly refined. In the case of GSK, that research and development is carried out by the Chemical Division’s Research & Development Department. It is located at Port Fairy. Much of its work is confidential, as are many of the results of its work.
Two of the principal witnesses in this case were for a time based together at Port Fairy. As Site Operations Manager, Timothy Allan Bowser occupies the most senior position at that location. He is also responsible for so much of the company’s manufacturing operations as are carried out at Latrobe. The first defendant, Jarrod Ritchie, was on 4 December 1996 employed by GWA as a casual analyst in the quality assurance department of the company’s Chemicals Division. He was then about to qualify as a Bachelor of Science from Deakin University. In early 1997, he enrolled in that University’s honours course, which he completed over the next two years. His particular area of expertise is in organic chemistry.
On 1 October 1997, Mr Ritchie became a permanent employee and was promoted to the position of development chemist. I do not know to what extent, if at all, he was then exposed to information that GWA regarded as confidential. In any event, he was not at that time asked to sign any agreement, or to give any undertaking, the purpose of which was to protect the confidentiality of his employer’s confidential information. His duties included the conduct of pilot trials for the extraction of thebaine, in the course of which equipment was rented from a company called Chem Eng Contracts Pty Ltd (“Chem Eng”) (which company subsequently played an important part in the events the subject of this litigation, as did its sole director, Mr David Connolly). On 1 February 1999, Mr Ritchie was promoted again, this time to the position of Laboratory Manager. A further promotion followed on 1 September that year, when he was appointed as the Division’s Process Development Manager, reporting for the first time directly to Mr Bowser. In this role, Mr Ritchie was responsible for research and development at Port Fairy, for its laboratory work and for conducting further pilot and plant trials. A new thebaine plant was commissioned as part of this program.
Mr Ritchie’s final promotion came in November 2001. He was then appointed Research & Process Development Manager. This is a senior position. It carried with it commensurate responsibilities for the proper preservation of his employer’s confidential information. He admits, in paragraph 8 of his amended defence dated 30 April 2007, that he owed GSK a duty of good faith and fidelity. He also acknowledges that it was his obligation to limit his use of GSK’s confidential information to “his work in the plaintiff’s business”. Yet, until July 2002, he remained unencumbered by anything other than such constraints regarding confidentiality as are to be implied in his employment contract. This is not for a moment to deny the importance of such implied terms, or to give less emphasis than is its due to the fiduciary duty of an employee to his or her employer. The only point is that, until he signed an undertaking in the form of a letter presented to him in mid 2002, Mr Ritchie’s contract of employment contained no express term dealing with issues of confidentiality.
In November 2001, the position of Research & Process Development Manager attracted a salary of some $120,000 per annum. It required Mr Ritchie to report directly not to Mr Bowser, but - over his head - to Mr Rick Gain, then the General Manager, Chemicals (but now Managing Director of GSK - Thailand/Myanmar). At the same time, Mr Ritchie became a member of the Chemicals Division Executive Committee. This carried with it membership of the Chemicals Leadership Team and Site Leadership Team. In addition to his previous duties, Mr Ritchie also became responsible for the development of new commercial opportunities.
The plaintiff alleges that, pursuant to a business sale agreement dated 30 June 2002, GWA on 1 July that year transferred to GSK “the rights in respect of” the former’s confidential information. Although this allegation is, in the amended defence dated 30 April 2007, denied, it was not the subject of controversy at trial. Mr Ritchie admits that, on and after 1 July 2002, his employer was GSK.
This relationship came to an end when, on 17 December 2003, or perhaps the following day, Mr Ritchie tendered his resignation. It was to take effect the day after that. During the balance of the month, he worked as a consultant to an enterprise that he was then in the process of creating. It was incorporated, either in January 2004 or early the following month, as TPI Enterprises Pty Ltd. Now, as the second defendant, it has been re-named TPI Enterprises Ltd. I shall refer to it as “TPI”. On 4 August 2005, it obtained a licence from the Government of Tasmania to plant trial crops of opium poppies, and in November that year commenced the construction of a manufacturing facility in Cressy in that State. By September the following year it had been granted, by the appropriate State and Federal authorities, all the licences necessary to manufacture, sell and export opiates for lawful use.[3]
[3]Affidavit of Jarrod David Ritchie sworn 30 October 2006, paragraph 9 (CB.14.C.001501).
TPI has been established to compete in the licit opiates market. It proposes to engage, on a continuing basis, Tasmanian farmers to grow and harvest opium poppies. Poppy straw and seeds will then be purchased from those farmers by TPI, which also proposes to extract the opiate alkaloids from the straw, and to sell the resultant product into the market in which GSK and other opiate manufacturers find their customers.
There can be no complaint about the entry into that market of a new competitor. GSK does not make that complaint. Rather, it contends (among a number of allegations the subject of this proceeding) that the process of alkaloid extraction planned by TPI is illegitimately based upon, or was illegitimately developed from, confidential GSK information wrongly used by Mr Ritchie on TPI’s behalf. I briefly examine, below, the question of confidentiality before outlining my understanding of the processes of extraction.
An overview of the issues of confidentiality
This case touches upon nice issues of law and fact arising from the nature of the opiate manufacturing industry and the role the parties play in it. The evidence is that GSK supplies 25% of the world market for opiate alkaloids. The remaining 75% is, therefore, supplied from other sources. The entirety, however, is the product of a manufacturing process certain aspects of which are common to all. I accept the evidence of Mr Ritchie that “[t]he same sequence is used by all companies that extract opiate alkaloids”. I also accept that it is not possible to extract opiate alkaloids from poppy straw without first processing the crop, extracting the alkaloids into a liquid, ensuring that they are concentrated appropriately in the alkaloid-rich extract, making appropriate pH adjustments, then finally removing them by precipitation for product isolation and packaging. [4]
[4]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraphs 65 &66.
But while those steps may be uniform across the industry, others are not. Both plaintiff and defendant accept that the desired end – the extraction by optimum means of the maximum quantity of alkaloid, with each of the four members of the family taking up an appropriate proportion of the total - is reached only after the completion of a number of different processes using different ingredients, different equipment and different plant. And each of these must be designed so as to draw on and mesh with the characteristics or elements or “parameters” (as these are known in the jargon of the industry) of the previous or succeeding step, or both (depending upon where the particular step lies in the continuum). The aim, therefore, is that, in combination, the totality of the processes will result in the production of the four alkaloids as efficiently and economically as possible, each individual alkaloid in the desired proportion as against the other three.
The position, then, is that broad similarities in over-all approach give way to differences, perhaps very significant differences, in the detail of what is a chemically and technically sophisticated manufacturing process. In these circumstances, it is not surprising that each manufacturer protects as secret the details of its own methods, and the results of their incorporation in the extraction process. Yet the broad similarities necessarily embedded in the operations of each manufacturer produce the consequence that, while the individual details of the various methods or approaches may have been arrived at independently, the possibility remains of much, albeit unwitting, commonality in those details. Thus, to take a hypothetical example, the formulae adopted by one manufacturer may unwittingly replicate in whole or in part those of a competitor. It is also true that the employment, somewhere in the entirety of the extraction process, of a particular chemical or technique or item of equipment may be within the public domain to the point of being trite knowledge. While sophisticated chemistry and technology is involved, much of the learning is - for those in the field – relatively basic. Nevertheless, particular combinations - as included, for example, in a given formula - may be highly confidential to an individual member of the industry. So too, of course, may be the complete formula or formulae; as may be the adoption of a particular parameter.
In this context it is pertinent to refer to the expert evidence given on behalf of GSK by Dr Andrew Ross. He holds a PhD and BSc (Hons) from the University of Glasgow in organic chemistry and chemistry. He is currently Head of Chemistry Primary Supply for GalxoSmithKline Plc, based in Scotland. This role requires him to “look after the chemistry needs for GalxoSmithKline’s primary [pharmaceutical] manufacture”.[5] From late 2004 to late 2006 he worked as the Process and Research Development Manager for GSK in its Port Fairy operation.
[5]T.831.
Dr Ross was asked to comment on the similarities between various GSK processes, and the processes developed, or in the course of development, by the defendants. As things turned out, however, he laboured under something of a disadvantage. On 19 October last year, four days before the trial began, I gave the plaintiff leave to file and serve both the second further amended statement of claim dated 15 October and the further amended confidential schedule (to which I shall refer as “the FACS”). This amended document considerably narrowed the scope of the plaintiff’s claim. I have used it for its intended purpose: as the touchstone for the detailed examination of the information said to have been misused in this case. At the time that Dr Ross prepared his written materials, he did not have either document. Neither had been created. They were not handed to him until his arrival in Australia to give his oral evidence.[6]
[6]T.851.
At the outset I should say something about Dr Ross’ approach. It is incumbent on GSK to establish that the information it seeks to protect is indeed confidential to it. The scope of GSK’s case in respect of confidential information is defined by the FACS. Consistently with the rigorous approach taken by the courts to claims for misuse of confidential information, the subject matter must be identified with precision. Ambit claims covering vague and wide-ranging subject matter cannot be sustained. It seems to me that the simple comparison between one set of documents and another, with the similarities being seized upon and displayed as proof of misappropriation, falls foul of the general approach which the authorities have indicated must be taken. We are concerned, after all, not with a claim for breach of copyright, but with alleged breaches of confidence. Similarities between processes, or particular parts of them, will of course be relevant; but, in my opinion, the exercise of simply comparing the two is inappropriate. The first task is to identify that which is confidential, not that which is similar; and here the touchstone must be the information as identified by the FACS. It is to that document that first recourse must be made. Unfortunately, Dr Ross did not have that opportunity. To the extent, then, that Dr Ross has sought to comment on aspects of the two processes that have not been identified in the FACS as items of allegedly confidential information, or on documents not referred to as repositories of alleged confidential information,[7] I put his opinion aside.
[7]For example, paragraph 37 of his report refers to “Further Documents” provided to him for comment by GSK’s solicitors on 31 July 2007 (CB.8.B.005824).
Dr Ross’ opinion should also be viewed having regard to the legitimate use that Mr Ritchie may make of his knowledge of chemistry, and of the production of opiate alkaloids – his know-how. Mr Ritchie is not the subject of a restraint of trade clause, and GSK does not seek to prevent him and TPI from establishing a competing business. It is the case that particular parameters or elements or sequences of GSK’s production regime are not in the public domain, and would only have been incorporated into it after significant trials and laboratory work, together with an extensive review of the literature. Another reality, however, is that Mr Ritchie is an experienced, qualified chemist who held a senior position in GSK’s R&D department and who worked, on a daily basis, to improve GSK’s alkaloid extraction processes and his own knowledge and skill. During the course of his work he had cause to, and I accept did in fact, review the literature about the extraction of alkaloids from papaver somniferium with an eye to addressing problems being experienced by GSK. His general body of knowledge covered, of necessity, much of that which GSK did at Port Fairy, as well as his own academic and other professional training.
The role of information in the public domain also needs to be mentioned. It is of course true that an item of GSK information cannot be excluded from the defendants use simply because it does not appear anywhere in the public domain. Whether or not it appears in that domain is a factor to be considered when determining the validity of any claim for confidentiality. But it may be so trite as not to be worthy of publication. In any event, once Mr Ritchie’s employment with GSK came to an end, he became free “to use his full skill and knowledge for his own benefit in competition with his former master”.[8]
[8]Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 at 732.
Dr Ross prepared a report dated 23 August 2007.[9] He prefaced his opinion about the similarity between the GSK documents and the defendants’ processes by making the following comment, which I accept as being in accordance with commonsense and logic:
In process design and development two processes could be similar in overall philosophy and conceptual design and this may indicate that one was used as the basis for the design of the other. However, it is not categorical that the two processes are based upon each other. In my opinion, the greater the similarities the higher the likelihood that the two processes originate from the same design. Furthermore, it is my opinion that very specific details regarding control parameters and design philosophies would be a stronger indicator that one process was the bases [sic] of the other.[10]
[9]Confidential exhibit “ARR4” to his affidavit affirmed 27 August 2007 (CB.8.B.005802).
[10]Confidential exhibit “ARR4” to his affidavit affirmed 27 August 2007, paragraph 15 (CB.8.B.005812).
It is also entirely possible that two processes, attempting to achieve the same thing, may be not only very similar, but in some respects identical; and this notwithstanding that the second was not developed by using the first. This will be particularly true where well known chemistry is employed and where a degree of logic will dictate that certain steps will follow others, coupled with the fact that the persons designing the process are experienced in the field.
Given the circumstances against which the extraction of opiate alkaloids is undertaken, the degree of confidentiality sought by those in the industry is nevertheless readily understandable. The inter-relationship of the parameters means that an alteration in one may produce a chain reaction, and so affect one or more of the others. A positive result in one direction may be cancelled out by a negative effect in another; or be so expensive as to be commercially inappropriate. The ultimate result may be either very adverse, or very beneficial. Or somewhere in between. Determining the best possible combination is a matter of trial and error, of adjustment and experimentation, of skill and experience. So both the result and the means by which it was obtained may properly be the subject of the protection of the law.
GSK alleges that the defendants misused information of this kind; information which in these respects was confidential to GSK. Indeed, as I understand its position, it alleges that the information covering the totality of its manufacturing processes, taken together and as a whole, amounts to a trade secret, or perhaps to several trade secrets.[11] Information covering a discrete stage might also qualify as such. Its case, however, is not that it has perfected a means for the extraction of opiate alkaloids that is on an altogether higher plane of sophistication or advancement than any of its competitors. It cannot make that claim, because it does not know enough about its competitors to make the claim good. It is therefore not its case that it has possession of a trade secret or trade secrets that put it in a class above the rest. Its basic premise, as I understand it, is that it is a major player in the relevant world market, and that it is therefore doing what it is doing well enough, although it is always looking for ways to do it better; but it has reached its present position by calling on its skill, experience and knowledge, and by conducting trials and tests and experiments. The results of this combination of qualities constitute valuable and confidential information that it is anxious to preserve to itself and which the defendants are not entitled to exploit.
[11]I attempt a definition of the expression “trade secret” at paragraph 50 below.
Although at times asserting that it seeks to protect “the combination of the data and precise nature of processed details as described in [certain of] GSK’s ... documents”,[12] GSK does not seriously contend that the defendants have effected a wholesale misappropriation of GSK processes. It cannot put that contention (although, like a moth attracted to a candle, it could not resist flirting with it) because on no view have the defendants done this. Rather, the plaintiff alleges that different, albeit very significant, portions or parameters or elements have been called upon by the defendants at different times for different purposes as they moved towards finalisation of their own means of extraction of the opiate alkaloids they plan to manufacture and market. The precise identification of that which the plaintiff contends has been misused by the defendants; whether what is identified ever was, or (if it was) remains, confidential; and whether, if so, it was misused – these are the difficult issues in this case.
[12]Plaintiff’s closing submissions – legal submissions, paragraph 38.
Those difficulties have been created by the circumstances surrounding this litigation. No one could sensibly suggest that the defendants could permissibly acquire for themselves exactly the same raw material, chemicals and plant and equipment as GSK and then – using the same manufacturing techniques, processes and procedures – commence to manufacture the same opiate alkaloids. At times during the course of the trial, and in its closing submissions, the plaintiff came close to alleging that that was nevertheless what the defendants had done. But, in my opinion, such a conclusion could not possibly be justified on the basis of the evidence called in this trial. TPI, in moving towards its aim of becoming a player in the field, began by preparing a series of schemata for what it might do. The principal aim of those exercises, I find, was not to establish TPI’s means of extraction of opiate alkaloids. It was to work out what it might cost to establish TPI as a manufacturer of licit opiates. It was in the course of that exploratory process that the defendants or their agents produced documents that have come to be known as confidential exhibits DC4 (or “the first draft overview”), DC5 (“the second draft overview”), DC6 and JDR29 (a block flow diagram for secondary extraction dated 18 June 2004).[13] These exhibits are referred to in the second further amended statement of claim as the “extraction process documents”. They have since been supplemented by plans that take TPI in directions very different from those of GSK. What TPI calls its “new process” is described by Mr Ritchie in an affidavit sworn by him on 11 October 2007. I shall return to that affidavit later in this judgment, especially at paragraphs 65 and following.
[13]Respectively, exhibits D4, D5, D6 to the affidavit of David Connolly sworn 23 January 2006 (CB.10 C.000001) and JDR 29 to the confidential affidavit of Jarrod David Ritchie also sworn 23 January 2006 (CB. 13. 000983).
The plaintiff has seized on the extraction process documents as demonstrating the defendants’ improper use of GSK’s confidential information. The first, DC4, was prepared while Mr Ritchie was still an employee of GSK. All of them drew on his knowledge, skill and experience – a significant portion of which he had acquired as an employee of GSK. All were prepared by the director of Chem Eng, Mr David Connolly. Because these exhibits formed an important part of the evidence in this case, it is convenient at this point to outline something of their background.
Mr Connolly is a graduate of The University of Melbourne, with a degree in Chemical Engineering (1966). For more than 20 years he has been a fellow of the Institute of Chemical Engineers (UK) and a fellow of the Institution of Engineers of Australia. He founded Chem Eng in 1982. Indeed, he has some connection with all of the parties to this litigation. Most importantly, he is a shareholder in the second defendant; but he is, in addition, a former advisor to both GSK and Tasmanian Alkaloids. I accept that, as he says in his affidavit, he has “particular and specialised skill in the application of chemical engineering principles in the extraction of natural products”. His evidence was in my opinion impressive. I find him to be a witness of truth.
It is Mr Connolly’s evidence, which I accept, that Mr Ritchie contacted him in about August or September 2003. Mr Ritchie explained at the outset that he was not speaking on behalf of GSK. Rather, he was considering the establishment of a third Australian poppy alkaloid processor. Because the plan was not much more than an idea, Mr Ritchie’s present concern was to obtain nothing more than a rough estimate of the cost of commissioning a morphine extracting plant capable of producing between 20 and 30 tonnes of morphine per annum. The estimate had to be rough, because a process had not yet been designed.[14]
[14]Affidavit of David Connolly sworn 23 January 2006, paragraphs 19-23 (CB.10 C.000007-8).
Mr Connolly agreed to assist. Armed with the scant details with which he had been provided, he produced DC4. It was, he says, “extremely rough” and “no plant could be designed or constructed” on the basis of it.[15] But it enabled Mr Connolly to tell Mr Ritchie that housing and equipping the envisaged enterprise would require the expenditure of between $10,000,000 and $20,000,000.
[15]Ibid, paragraph 23.
As further information came to hand, and as plans were amended and re-amended, a second design overview was prepared by Mr Connolly. It took the form of DC5, and was prepared in June 2004. By then, some six months had passed since Mr Ritchie’s departure from GSK. DC6 followed about six months later again, inspired in part by Mr Ritchie’s desire to avoid the use of solvents in TPI’s manufacturing process.
Taken as a whole, exhibits DC4, DC5, DC6 and JDR 29 together embodied those elements of GSK’s processes which are necessarily shared by every manufacturer of opiate alkaloids. In addition, each had other points of similarity with GSK’s operational parameters. All of them also had points of difference, the significance of which is in dispute.
Some of the similarities were trite, such as the common use of well known pieces of plant or equipment. Others, however, concerned GSK parameters that it had only adopted after careful research and development; and here one issue is whether the information on which they were based had become so much part of Mr Ritchie’s store of knowledge, skill and experience as to be his own – or whether he, as “a person of ordinary intelligence, in all the circumstances of the case, including, inter alia, the relationship of the parties and the nature of the information and the circumstances of its communication, [would] recognise this information to be the property of [GSK] and not his own to do as he likes with”.[16]
[16]Deta Nominess Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 193.
A further point of contention is of course fundamental to the outcome of this case. It is whether the characteristics of the manufacturing processes that TPI will (when fully established) in fact adopt, be so different from DC4, DC5, DC6 and JDR29, and the processes of GSK, as to be immune to the GSK charge that TPI has misused GSK’s confidential information.
The question of misuse looms large. The plaintiff’s allegations cover wide ground. The defendants, in response, contend that either there was no relevant use at all – none of their plans involved a misuse of information, and there has certainly been no actual misuse – or (which is, in part, the same thing) that the information in question was and is not a trade secret, and has become part of Mr Ritchie’s general background knowledge. He is, the defendants contend, a skilled chemist. He has appropriate formal qualifications in chemistry. He has much experience in the operation of large-scale plant as well as in the laboratory. He was entitled to seek opportunities outside GSK, and to put his professional attributes to their best use. He did no more than that.
In these circumstances, careful pleading is required. It ought not be the judge who is left to identify that which, in a breach of confidence case, the plaintiff contends has been misused. I do not wish to be unjustly critical, and appreciate the problems to which confidential information litigation gives rise: it must often be difficult for those in whom that information reposes to know with certainty whether any misuse of information has occurred and, if so, to identify that information. What is more, cases such as the present confront non-lawyers with the difficulty of understanding the relevant procedural, and especially pleading, rules, while demanding of the lawyers an understanding of highly technical information sufficient to marry the client’s claims with those rules while assessing the likelihood of obtaining, by litigation, the desired relief. Yet the law must insist not only upon the clear and precise identification of the information upon which the plaintiff relies, but also that that identification be restricted to information that is properly characterised as confidential. I respectfully adopt the words of Laddie J in Ocular Sciences v Aspect Vision Care Ltd:[17]
The requirement of particularity may impose a heavy burden on the plaintiff. In a case where the plaintiff has a large quantity of confidential information and much of it has been taken by the defendant, the obligation to identify all of it might involve a great deal of work and time. … The normal approach of the court is that if a plaintiff wishes to seek relief against a defendant for misuse of confidential information it is his duty to ensure that the defendant knows what information is in issue. This is not only for the reasons set out by Edmund Davies LJ in Zink (John) & Co Ltd v Lloyds Bank Ltd [1973] RPC 717 but for at least two other reasons. First, the plaintiff usually seeks an injunction to restrain the defendant from using its confidential information. Unless the confidential information is properly identified, an injunction in such terms is of uncertain scope and may be difficult to enforce … Secondly, the defendant must know what he has to meet. He may wish to show that the items and information relied on by the plaintiff are matters of public knowledge. His ability to defend himself will be compromised if the plaintiff can rely on matters of which no proper warning was given. It is for all these reasons that failure to give proper particulars may be a particular damaging abuse of process.
These principles do not apply only to the question of the content of the pleadings. Just as it may be an abuse of process to fail properly to identify the information on which the plaintiff relies, it can be an abuse to give proper particulars but of information which is not, in fact, confidential. A claim based even in part on wide and unsupportable claims of confidentiality can be used as an instrument of oppression or harassment against a defendant. It can be used to destroy an ex-employee’s ability to obtain employment or a competitor’s ability to compete. The wider the claims, the longer and more expensive the litigation. … A competitor or ex-employee is entitled to copy non-confidential material, but if the plaintiff mixes a large amount of technology together, some of which has been copied by the defendant, there is a risk that the court will jump to the conclusion that some of what was copied must have been confidential.
His Lordship went on to speak about the possibility of excessively wide injunctions creating a new form of industrial slavery in which individual employees find it impossible to work for anyone except the plaintiff. I add that the requirement that all injunctions be clear and precise is so firmly grounded in considerations of justice and practicality as to need no further justification. An injunction prohibiting the use of information is accordingly only appropriate if the information the subject of the injunction is clearly identified by, or identifiable by reference to, the injunction itself.
[17][1997] RPC 289 at 360.
Some further points should be made. First, the reference in the judgment of Laddie J to the reason set out in the judgment of Edmund Davies LJ is a reference to the importance, in litigation in which accusations of serious misconduct are made, of providing the person against whom the accusations are directed with full particulars of them. Secondly, there may be almost insurmountable difficulty in pleading, then proving, then enjoining, the misuse of confidential information. Prevention, perhaps by means of an appropriately worded clause in a contract of employment or other relevant agreement, may therefore be better than any attempt to devise a cure.
The plaintiff’s initial pleadings did not meet the requirements of the pleading rules. The confidential schedule to the original statement of claim, and the amended confidential schedule of 25 November 2005 (filed 13 months or so after the litigation began) itemised 14 lever arch folders of allegedly confidential material that the defendants had used or were threatening to use. But in fact the link between what was confidential and what was misused, an essential link in a claim based upon the misuse of confidential information, had not been carefully drawn. The spectre of an abuse of process of the kind to which Laddie J referred was raised. Then, on 19 October last year, both the second further amended statement of claim and the FACS were filed and served.
The effect was dramatic. The schedule did not merely amend its predecessors; it supplanted them. As a consequence of its creation, a very large quantity of material – many lever arch folders of documents - became irrelevant. But all the affidavit evidence had been prepared having regard to the earlier particulars, including those now discarded. The result has been both very great difficulty in relating the evidence to the plaintiff’s repleaded case, and a commensurate delay in the preparation of this judgment.
A short description of the process will illustrate the point. Under the heading “GSK Confidential Information” paragraph 4 of the second further amended statement of claim alleges that the plaintiff has in the course of its business acquired, developed and maintained for use in its business certain confidential information not being in the public domain. This information is referred to collectively in the pleading as “the GSK confidential information”, and includes:
(a)scientific and technical information (the GSK technical information) incorporating GSK’s processes and development activities relating to:
(i) growing and breeding poppies; and/or
(ii) extracting alkaloids from poppy straw; and/or
(iii) value added derivatives of opiate alkaloids;
(b)business and commercial information (the GSK business information) about GSK’s opiates clients, including information as to pricing and quantities supplied to these clients by GSK, and details of relevant client contacts.
Paragraph 12 of the second further amended statement of claim then states that further particulars of the GSK confidential information are contained in the FACS.
Much of the latter document is in tabular form. The tables contain two principal columns. The first of these includes a description of the information which GSK claims is confidential. The second identifies the page or pages in the court book in which that information is to be found. In examining the plaintiff’s case it has therefore been necessary for me to ask, first, whether the description of the information given in the first column of the relevant FACS table matches that contained in the document or documents identified in the second column. I have then examined that document or those documents for that purpose. The next step has been a consideration of the question whether the information is confidential. That exercise has required a very careful examination of the evidence, much of it in the form of witness statements prepared before the FACS was in existence, and much consisting of answers given in cross-examination after the FACS was created. I have then had further recourse to the evidence in seeking to answer the question whether the information was used by the defendants. Finally, additional recourse to the evidence has been required in order to determine whether, if the information was used, it was misused.
I have, of course, taken the FACS as a principal point of reference in preparing this judgment. It is the repository of all the information which the plaintiff alleges is not only confidential to it, but has also been misused by the defendants. It is therefore the point of departure when undertaking the task of determining whether the plaintiff has discharged its burden of proof and, if it has, whether it is entitled to any of the relief which it claims. The process has necessarily been slow. Particularly troublesome has been the task of relating the affidavit evidence to a pleading document which did not exist at the time the affidavits were prepared.
The defendants do not challenge the proposition that a proportion of the store of knowledge accumulated by the plaintiff over the course of its involvement in the manufacture of opiate alkaloids is confidential to the plaintiff. Indeed, the defendants claim that their own processes, actual or proposed, are covered by a general cloak of confidentiality. In answer to the claims of the plaintiff, the defendants contend that no information employed, or threatened to be employed, by them has been misused. They assert that all such information was either generated independently of the plaintiff, or was in the public domain, or was (and is) for other reasons not properly characterised as confidential, or had become part of Mr Ritchie’s general stock of knowledge and – because none of it qualified as a trade secret or secrets - was therefore his to exploit.
It is in the public interest that, in general, employees be free to work where, and with whom, they will. They may have, as part of their stock of knowledge (sometimes called their “know-how”) information which is not a trade secret, but which their employer may for proper commercial reasons wish to remain confidential. If so, the employees must respect that confidentiality so long as they remain employed by the same employer, or that employer’s successor in title. But it is in the public interest that they and employers and potential employers be free to bargain over the best means of exploiting the employees’ knowledge, experience and talent. The latter may not, in that bargaining process and while they remain with their current employer, disclose any information that is properly confidential to that employer. Subject to that proviso, however, the law will not - in the absence of a suitably confined and otherwise binding restrictive covenant - seek to prevent those who wish to practice their profession or trade from doing so simply because their work for someone other than their former employer may put that former employer at a financial or competitive disadvantage. And this is true even if the exploitation by the former employees for the benefit of their new employer of the employees’ stock of knowledge results in information once confidential to the former employer being used to the advantage of the new. Were it otherwise, the benefits of employee mobility for the better exploitation of employee skill and experience would be lost. An employee’s stock of knowledge cannot by deliberate choice be forgotten; and, if retained in the memory, cannot be discarded when the employee carries out tasks, which necessarily draw on that knowledge, for the new employer.
It follows that, if the employee were forbidden from using his or her skill, experience and retained memory concerning general principles or items of information for the benefit of a new employer, the choice would be either to remain in the former employment, or not use that skill, experience and knowledge at all. For this reason, and putting trade secrets to one side, non-trivial information which would otherwise be protected will not be so if, by reason of the nature of the information and the employee’s or ex-employee's exposure to it, that information has become part of his or her general background knowledge; has become, in other words, inseparably incorporated in the form of his or her skill and experience.
The relevant law was expounded by Lord Wilberforce in Stenhouse Australia Ltd v Phillips.[18] His Lordship there said:
The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man's improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information … the employer's claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation. For while it may be true that an employee is entitled – and is to be encouraged – to build up his own qualities of skill and experience, it is equally his duty to develop and improve his employer's business for the benefit of his employer. These two obligations interlock during his employment: after its termination they diverge and mark the boundary between what the employee may take with him and what he may legitimately be asked to leave behind to his employers.
[18][1974] AC 391 at 400.
There is as yet no settled meaning of the expression “trade secret”. According to Butterworths Australian Legal Dictionary (1997) it is not a term of art but an ordinary term of the English language.[19] In The Law of Trade Secrets and Personal Secrets, Dr Robert Dean says that:
courts have categorised a trade secret in terms of confidential information of a commercial character, using description by example and relying on specific indications of secrecy to determine whether information is a trade secret. It is a term that changes as the commercial environment changes.[20]
[19]Butterworths Australian Legal Dictionary (1997).
[20]The Law of Trade Secrets and Personal Secrets (2nd edition, Law Book Co, 2002) p.16.
For present purposes, I take a trade secret to be information which “can fairly be regarded as a separate part of an employee’s stock of knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with”.[21] For the purposes of this case, I therefore take a trade secret to be an item of confidential information, learnt during employment, the confidentiality of which, as an employee of ordinary honesty and intelligence would acknowledge, must be maintained even after that employment has come to an end. In other words, a trade secret has an inherent quality that takes it above and beyond more general knowledge, albeit that the general knowledge may to a lay person be very specialised. Whether information amounts to a trade secret is a question of fact, to be determined in the particular circumstances. A trade secret is to be distinguished from knowledge of no special significance such as that which an employee with familiarity with the relevant art might acquire (without employing any more skill than that of an ordinary practitioner of the art) simply by building upon the information necessarily made available to him in the ordinary course of his employment.
[21]Printers & Finishers Ltd v Holloway (No. 2) [1965] RPC 239 at 255 per Lord Cross.
Mr Ritchie may be taken for present purposes as being at least as expert in the relevant field, and at least as familiar with the relevant art, as an ordinary practitioner in that field.
On 16 July 2002, or thereabouts, Mr Ritchie signed a letter in the form of an undertaking to treat certain GSK information as confidential. That letter was prepared by or under the supervision of Mr Gain, who was concerned (the defendants contend without justification) that Mr Ritchie was engaging in activity which cut across his duties as an employee of GSK. It contains the only express terms of Mr Ritchie’s contract of employment that cover this topic. It is appropriate at this point to set out, in full, the operative terms of the letter, to which I shall return when examining in more detail Mr Gain’s concerns. The letter reads:
Further to our recent conversations regarding your duties, I wish to take the opportunity to remind you of the importance in regard to the management of company information.
Accordingly, during the course of employment with GlaxoSmithKline, you will access commercially sensitive information which is confidential and the proprietary (sic) of GSK and not available to people outside the company. This information includes:
a.scientific and technical information concerning the research and developmental projects and activities of the company;
b.information discovered, developed, generated or otherwise produced by you on behalf of the company in the course of your employment with GSK;
c.scientific and technical information concerning the manufacturing and other production activities of the company;
d.medical and technical information concerning the products of the company;
e.commercial, business and financial information concerning products of the company;
f.strategic information concerning future activities of the company;
g.business and commercial information about GlaxoSmithKline’s suppliers, customers and other entities with whom the company has dealings; and
h.any other trade secrets, scientific, technical, medical, operating, commercial, business or other information which is commercially sensitive in nature.
It is expected that you will undertake to treat all such information as confidential and will not disclose any such information to any party. Furthermore, it is expected that your work activities are of a full-time nature and are specifically for the best interests of GlaxoSmithKline and that you will not engage in any work (contract, consulting) related activities outside of GSK.
I, therefore, request that you confirm this undertaking by signing and returning the enclosed copy of this letter.
Please contact me should you require further information and I look forward to your continued commitment in supporting the business objectives of our Chemicals Division.
The reference in this document to work activities being “of a full-time nature”, and the prohibition of “work … related activities outside of GSK” are directed to Mr Ritchie as a GSK employee. More generally, any undertaking given by Mr Ritchie when he signed it does not in my opinion extend beyond the period of his employment so as to prevent him exploiting his general skill, knowledge and experience for another employer. Certainly, the evidence does not disclose anything in Mr Ritchie’s contract of employment, including anything in the undertaking of July 2002, that explicitly covered his post-employment obligation of confidence. The result, in my opinion, is that he is entitled to use on the defendants’ behalf all the information (whether, at the moment before his employment ceased, that information was confidential or not) which at that time formed part of his general stock of knowledge – his “know-how” – and which is not a trade secret. Trade secrets, not being for these purposes included in what I mean by his “general stock of knowledge”, were not and are not covered by this entitlement. Honesty requires that their secrecy be maintained.
I observe in passing that the document is not well drawn. It suffers from its failure to acknowledge that it might well be in GSK’s interest for the information covered by the document, or some of it, to be passed by Mr Ritchie to GSK customers and others in a business relationship with it. Indeed, it might be Mr Ritchie’s duty to do just that as an employee, and it might be to GSK’s benefit for him to do it as an ex-employee. And were the letter, properly construed, to purport to prevent Mr Ritchie, as an ex-employee, exploiting his general skill, knowledge and experience, then it would in my opinion be an unjustifiable restraint of trade and therefore unenforceable against him.
The extraction of opiate alkaloids
Although it is appropriate in layman’s circles to speak of a number of “stages” in the journey of opiate alkaloids from their original repository in the straw of the opium poppy to their use for medicinal purposes, the expression “stage” “has a specific meaning in the science of liquid extraction”.[22] But in any event, the parties to this litigation are concerned with two principal segments or phases of that journey: the initial phase, during which the straw releases its alkaloids (together with impurities and other unwanted material, which must be at least partially removed before the subsequent phase or segment); and the second segment, when further purification is undertaken and the alkaloids are separated from the extractants and from each other.
[22]Affidavit of David Connolly sworn 23 January 2006, paragraph 46 (CB.10.000013).
Following the physical separation of straw and seed, and, in the case of GSK, the conversion of the straw into pellets, the initial extraction stage begins. The pellets are finely ground and then slurried with a liquid extractant. So far as the present evidence goes, the parties’ chosen initial or primary extractant consists of water, either alone or with another liquid or other liquids. In the case of GSK, [XXXXX XX] are used where the source material is morphine straw; and [XXXXX XXXXX XXX] where thebaine straw is the source. TPI employs, or proposes to employ, [XXXXX XXXX]. The slurry is then filtered, and an aqueous extract obtained. Being rich in alkaloids, it is referred to in the industry as a “rich extract” or “RE”.
An alternative primary extractant is dilute acetic acid (a relatively weak organic acid, being the second constituent behind water in plain vinegar). Its possible use as an extractant has been the subject of scientific literature. This includes papers by Walter R. Heumann, who as a member of the academic staff of Montreal University in the 1950’s was a leading researcher in the relevant field. His work, including his work with acetic acid, was and is well known to those involved in this litigation. Nevertheless, acetic acid has never been used by GSK as an extractant in the initial stage. Nor is it proposed to be used by TPI. Both parties have, I find, conducted experiments which have failed to satisfy either that its use in initial extraction is to be preferred to [XXXXX XXXX] (TPI’s choice) or to those extractants favoured by GSK. As I shall have reason to observe later in this judgment (paragraphs 209ff), one problem with acetic acid is that, while being an efficient tool for the extraction of opiate alkaloids from poppy straw, it also extracts much unwanted, extraneous material. Another disadvantage with its use is that it causes the straw to swell, making the process of filtration more difficult than otherwise.
It is in these circumstances paradoxical, or at least somewhat so, that GSK complains that TPI has misused GSK’s information about an extractant, acetic acid, that neither uses. But much of the evidence led in the trial was directed to this complaint; and it is therefore one with which, later in this judgment, I must deal.
Because in the manufacture of opiate alkaloids the object of the initial phase of extraction is to remove as much of the alkaloid content of the straw as is physically and economically feasible, that which is obtained before the residual straw is discarded is referred to as the “yield”. The yield at the conclusion of the initial extraction phase will, of necessity, never be less than the yield when the manufacturing process is complete. The latter yield is referred to as the “over-all yield”, and is expressed as a percentage of the raw material in its original form.
The experience of GSK as outlined in its manufacturing guide known as Manufacturing Guide Basic Chemicals 1 (“MGBC1”) is that approximately [XX]% of the morphine formerly in morphine straw is captured in the rich extract after the straw has been “washed” or re-slurried a number of pre-determined times (the “wash” or “re-slurry” stages) during what is known as a “counter-current” operation.[23] The percentage of codeine removed is typically [XX]%. By contrast the figure for thebaine is typically [XX]%.
[23]The counter-current procedure is described by Mr Connolly at paragraph 51 of his affidavit sworn 23 January 2006 (CB.10.C.000015).
Once the alkaloids have passed from the poppy straw into the extracting liquid, it is necessary to increase their concentration so that they can be more efficiently removed from that liquid. Different techniques have been adopted for this purpose. One, employed by GSK, necessitates the use of organic solvents. The other, chosen by TPI in 2004, involves no solvents, but rather [XXXXX XXXXX XXXXX XXXXX X] of the initial extracting liquid. Indeed, TPI applied for planning permits to construct its Tasmanian plant on the basis that it would “not use solvents in extracting or concentrating alkaloids”.[24] Yet, by another seeming paradox, GSK accuses TPI of misappropriating GSK’s confidential information about the choice of solvents and their place among the parameters of the secondary extraction process.
[24]Confidential affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 12 (CB. 13. C.000986).
The rich extract contains not only alkaloids but also impurities, including unwanted organic matter. This must be removed. As I understand the process described in the “process summary” section of MGBC1, the pH of the rich extract is to this end adjusted from [XXXX] to [XXXX], a step that precipitates the unwanted organic material which may then be removed by further filtration. [XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX X]. This allows the filtered rich extract to be mixed with a solvent, the latter rising through the former. As the solvent rises, it attracts the morphine, codeine and thebaine. The spent aqueous is then expelled, while sodium hydroxide (caustic soda) is added to the rich solvent. This enables the morphine to be back-extracted into the aqueous using counter-current techniques. The caustic aqueous solution is adjusted to pH [X], and the morphine precipitated, while the codeine and thebaine remain in the solvent until they are acid extracted at pH [X].
It is important to note here that the first step of the process impacts on what follows. Likewise, intermediate steps influence what went before, and in turn also influence succeeding steps. The final step is of course the product of that which precedes it. Thus, in the primary stage of extraction, the size of the milled particles of poppy straw impacts upon (a) the surface area of the straw that comes into contact with the initial extractant, and (b) the means by which and the ease with which the filtering process is effected. The choice of that extractant ([XXXXX XXXXX XXXXX XXXXX X]; or some alternative to these) will affect not only the proportion of alkaloid extracted but also the quantity of organic waste that becomes part of the rich extract mix - and that therefore must subsequently be removed, with the difficulty (to differing degrees) such removal necessarily entails. Unless the pH of the mixture is at the appropriate time adjusted by an appropriate means to the appropriate level, the next step in the over-all extraction process will not be conducted with maximum efficiency. And so on.
An example of the inter-relatedness of the several parameters of the manufacturing process may be found in the procedures adopted by GSK. It uses [XXXX] in the initial stage. [XXXX] when employed in this way produces [XXXXX ] as a by-product. That necessitates its removal, and therefore the incorporation of a step designed to effect that end. This in turn has required the adjustment of other steps. TPI, not having incorporated [XXXX] into its production regime, does not need to make like adjustments; but it will have its own to deal with.
It is important in this context to emphasise the point that, if the evidence given by Mr Ritchie in his affidavit of 11 October 2007 is to be believed (and I do believe it), TPI will not in manufacturing its opiate alkaloids follow the path trodden by GSK. It follows, the defendants contend, that they cannot have used any GSK information; certainly not in the way GSK alleges. The steps in the TPI process depend upon and relate to each other as they do in the GSK process. It is the combination of steps or parameters that is important. The combination adopted by TPI is different - TPI says, very different - from that which GSK has embraced. TPI therefore contends, without making any admissions, that, if there has been any transmission of information from GSK to TPI, that information has not been used by the latter as it was, and is being, used by the former; and in any case its use is the product of Mr Ritchie’s skill and experience. It has as its source his background as an astute, experienced and skilful practitioner in the field.
TPI operates, or plans to operate, in some respects as does GSK: that is inevitable, given that both are in the business of manufacturing opiate alkaloids; and both must therefore process the crop, extract the alkaloids into a liquid, ensure that they are concentrated appropriately in the alkaloid-rich extract, make appropriate pH adjustments, discard impurities, then finally remove the targeted alkaloids from the mother liquid by precipitation for product isolation and packaging.
Otherwise, TPI contends that it takes a distinctively different approach to that adopted by GSK, and that it has decided upon its approach after conducting its own trials and experiments. It mills its poppy straw using a different process, [XXXXX XXXXX ]. It uses a different primary extractant ([XXXX]) and a different filter ([XXXXX XXXXX XXXXX XX]) in the initial extraction stage. After the first straw-liquid slurry is filtered, GSK washes the partly-depleted straw; TPI [XXXXX XXXX]. The ratio adopted by GSK as between the volume in litres of rich extract taken off and the dry weight in kilograms of the poppy straw from which the alkaloids are extracted is [XX] (morphine) and [XX] (thebaine). If one includes, in the rich extract taken off, the alkaloid-rich water that remains in the straw after a previous extraction, TPI’s ratio is [XX]. It uses a different technique for concentrating the alkaloids ([XXXXX XXXXX XXXXX XXXXX XXXXX XX]). Following [XXXXX XXX], TPI [XXXXX XXXXX XXXXX XXXXX XXX]; GSK does not [XXXXX XXXXX XX]. After initial extraction, TPI [XXXXX ] the alkaloid-rich extract at pH [XX], whereas GSK adopts a pH of [X] or thereabouts when filtering impurities, and pH [X] or thereabouts when filtering [XXXXX XXXXX X]. GSK favours [XXXXX XXXXX XXXXX XXXXX ]; TPI “[XXXXX XXXXX XXXXX XXXXX XXXXX X]”. TPI uses [XXXXX XXXXX XXXX] rather than [XXXXX XXXXX X] as the reacting base in manufacturing codeine by the methylation of morphine.
One might have expected the evidence put forward by Mr Ritchie in his affidavit of 11 October last year to have been at the centre of controversy during the trial. If believed it does, after all, directly contradict that part of the plaintiff’s case which relies on proving that the manufacturing processes actually adopted (as opposed to considered as planning options) by TPI were so closely allied to those of GSK as to be relevantly indistinguishable. It also tends to contradict GSK’s claim that many of its individual parameters were impermissibly employed by TPI. This is so, the defendants’ argument runs, because it puts sinews on their contention that, even if they did use GSK information, and even if that information was not also held by Mr Ritchie as part of his general body of relevant learning, then their use of it was not to be equated with GSK’s use: the relevant TPI combination of parameters did not match any comparable GSK combination.
I have thus far been concerned to provide some the background to (a) the main areas of dispute and (b) the particularly significant evidence in this litigation. It is now convenient to move to discrete claims not involving the alleged misuse of information. Rather, it involves an allegation by GSK that Mr Ritchie was in breach of his obligation as an employee of GSK to serve his employer with good faith and fidelity.
The employee’s duty of good faith
In paragraph 9 above, I recorded the defendants’ admission that Mr Ritchie as an employee of GSK owed the plaintiff a duty of good faith and fidelity. This, it is settled law, is a duty to which in the employment relationship employees are subject. It has been described by Lord Greene in Hivac v Park Royal Scientific Instruments[25] as “rather vague”. Nevertheless, it is not only invariably asserted as an implied term of the contract of employment, but seems to be a duty known to both the common law and equity. Whatever its total compass in the employment relationship, it has been applied consistently so as to condemn in damages or by way of an injunction the employee who subverts his employer’s business in furtherance of a competitor’s or his own interest.[26]
[25][1946] Ch 169 at 174.
[26]PD Finn Fiduciary Obligations (1977) The Law Book Company Ltd, at paragraph 614.
The second further amended statement of claim alleges, in paragraph 13, a series of breaches by Mr Ritchie of the terms and conditions of his employment agreement. One of these is a breach of “his duty of good faith and fidelity owed to GSK”. Then, in the particulars under this paragraph, the plaintiff asserts that Mr Ritchie breached this duty by (a) becoming involved in what was referred to in this litigation as “the Premgen project”; (b) by seeking (and obtaining) confidential details of the GSK budget for 2004; and (c) by preparing the extraction process documents. It is to this aspect of the case that I now turn, in reverse order to that set out in the previous sentence. A fourth allegation of bad faith centres upon work assigned by Mr Ritchie to a junior GSK chemist, Mr Nick Hayes. I consider that aspect of this case at paragraph 307 and following.
The extraction process documents
I have already observed (paragraph 35 above) that a principal issue in relation to the extraction process documents (exhibits DC4, DC5, DC6 and JDR 29) is whether the information on which they were based had become so much part of Mr Ritchie’s store of knowledge, skill and experience as to be his own – or whether he, as “a person of ordinary intelligence, in all the circumstances of the case, including, inter alia, the relationship of the parties and the nature of the information and the circumstances of its communication, [would] recognise this information to be the property of [GSK] and not his own to do as he likes with”.[27] In other words, a principal issue is whether the information allegedly misused, or any of it, was a trade secret. GSK contends that there is a further issue, going beyond a mere examination of the status of the information in question as its property. That further issue is whether, in the preparation of the extraction process documents, Mr Ritchie breached his duty of good faith and fidelity.
[27]Deta Nominess Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 193.
In my opinion, only exhibit DC4 is here relevant. The remaining extraction process documents were prepared after Mr Ritchie ceased his employment with GSK. He also ceased, at that time, to owe the duty of good faith and fidelity to which GSK had up to then been entitled. It did not constrain him in his work on DC5, DC6 or JDR 29, although he of course remained obliged to refrain from disclosing trade secrets – that is, treating as his own such of GSK’s information as “a person of ordinary intelligence … [would] recognise … to be the property of [GSK] and not his own to do as he likes with”.
There is no reason why an employee should not during the course of his or her employment decide to change employers, or become self-employed, and take such preparatory steps as amount to neither a breach of the duty of good faith and fidelity nor (which may, at least in many instances, be the same thing) an injury to the employer. Thus, the employee may lease premises and order materials from which and with which, after the present employment ends, he or she will carry on business in competition with the present employer.[28] In the absence of any disclosure of confidential information, it would not matter, it seems to me, that in selecting either the premises, or the materials, or both, the employee called upon knowledge and experience acquired during his or her time with the present employer.
[28]Balston Ltd & anor v Headline Filters Ltd & anor [1987] FSR 330, esp at 340.
In my opinion, what Mr Ritchie did was relevantly similar to this example. In saying this, I bear in mind that DC4 was produced while Mr Ritchie’s concept and plans for TPI were in a very embryonic stage. I find, for reasons which appear elsewhere in this judgment, that he wished to be provided with a rough estimate of the cost of establishing a third Australian player in the medicinal opiate alkaloid field. Without such a point of reference, the likely viability of the proposed enterprise, and its attractiveness to those whose financial assistance it needed, could not be assessed. So Mr Ritchie at that stage was far from seeking to design a working model for the production of opiate alkaloids. This, I find, explains why in several important instances (such as the failure to identify the solvent to be used in the liquid to liquid stage - stage two - of the extraction process) DC4 does not include that level of specificity which would enable the information it contains to have any more than an approximate relationship with reality. In other words, DC4 was and remains totally inadequate as a working description as a viable commercial enterprise for the extraction of alkaloids from opium poppies. It provided no more than a skeleton; only a portion (if any) of which might be incorporated in the final structure.
During the trial GSK referred to, but did not emphasize, the distinction between DC4 as a document prepared during Mr Ritchie’s employment and the later extraction process documents (each of which was prepared post-employment). For this reason, it was difficult to examine in isolation the evidence concerning it. I trust, nonetheless, that the reasons I have endeavoured to express below will justify my conclusion that Mr Ritchie was not, in giving the instructions upon which DC4 is based, guilty of a breach of his duty of good faith and fidelity. I have found that GSK has not established its claims in respect of information which it says the defendants have used in the preparation of DC4.
A copy of DC4 (the first draft overview) was originally forwarded to Mr Ritchie by Mr Connolly on 14 October 2003. It necessarily follows that Mr Ritchie was working on the creation of TPI whilst still a GSK employee. He admits as much. Indeed, Mr Ritchie also admits that he prepared a business plan for TPI in August that year, and consented to be a director of a company formed to be the only shareholder in TPI. He however denies the allegation that he allowed any of this to detrimentally affect his work for his employer. He asserts that between September 2003 and his resignation from GSK, he spent between about one and four hours per week on TPI.[29] He also maintains that all his work on the business plan was done outside his “long” and “difficult” GSK working hours.[30] I accept this evidence; and I am not satisfied that his involvement in TPI had any adverse impact on his performance of his duties for the plaintiff. In particular, I reject the evidence that he was absent from Port Fairy when he should have been there. That evidence was largely second hand, coming from a witness, Geoffrey Zippel, who was not at any relevant time an officer of GSK, although he is now its managing director. He relied for this aspect of his evidence on accounts given to him by persons who were either not called as witnesses themselves or, if called, did not give evidence on this topic. The only exception is Mr Bowser; but Mr Ritchie did not report to him in 2003, when the absences were alleged to have occurred. I prefer Mr Ritchie’s evidence to his.
[29]Affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 59 (CB.10.C.000142)
[30]Ibid, paragraphs 50 and 52 (CB.10.C.000140).
The GSK Chemicals Division Budget Book (FACS 2.1)
As part of its normal operational practice, the Chemicals Division of GSK maintains what it calls a “budget book”. This is the repository of relevant information for each budget year: profit targets, forecasted sales by customer and product line, overhead and production costs and unit costs, as well as less detailed equivalent forecast information for the next two years.[31]
[31]I have read this to mean projected information for the next (budget) year plus one, not for the budget year and then for another two (eg. 2004, 2005 and 2006)
At least when current, this data is necessarily highly confidential, because commercially sensitive. Access to the secure directory on which is stored the electronic copy of the budget book is therefore restricted to Ms Claire Hampton (the Finance Manager of GSK’s Chemicals Division) and the three people in that Division’s finance section who assist her. Of the Chemicals Leadership Team, only Mr Bowser has full electronic access to the secure directory.[32] On the other hand, eleven full copies of the Budget Book are circulated each year (usually between Christmas and the first week of January of the budget year). Nine of these go to the Chemicals Leadership Team[33], of which Mr Ritchie was a member.[34] In addition, managers might from time to time be given access to selected pages to enable them to perform their roles. For example, Mr Morris (the Chemicals Division Sales and Marketing Manager) had access to the sales sheets, while Mr Doyle (the Research and Development and Field Operations Manager in Tasmania) had access to the crop data and expenses pages.[35] Mr Ritchie himself was provided with “actual and forecasted sales, production planning, financial analysis, scenario planning, product quality … capital plans and technical data”. He was also “one of only two people at the Port Fairy site, the other being [Mr Bowser] who received copies of the full monthly financial reports for the Chemicals Division business.”[36]
[32]Affidavit of Claire Hampton affirmed 14 October 2005, paragraph 4 (CB.2.B.000002)
[33]Ibid, paragraph 7
[34]See affidavit of Timothy Allan Bowser sworn 19 October 2005, paragraph 196 (CB.2.B.000090)
[35]Affidavit of Claire Hampton affirmed 14 October 2005, paragraph 5 (CB.2.B.000002)
[36]Affidavit of Timothy Allan Bowser sworn 19 October 2005, paragraph 196 (CB.2.B.000092)
GSK alleges that, in December 2003, Ms Hampton - at Mr Ritchie’s request - provided him with pages from the GSK draft budget book for 2004. She did so unaware of what GSK contends was his improper purpose: to advance his scheme to establish TPI in competition with his former employer. The pages which Mr Ritchie thus dishonestly obtained contained commercially sensitive, and therefore especially confidential, information. The data in question falls into the category described in the pleading as “GSK Business Information”.[37] It has been further particularised in a confidential schedule, to which pages from the 2002, 2003 and 2004 budget books have been attached.[38] According to GSK, this information was not required by Mr Ritchie for the performance of his duties as Research and Process Development Manager.[39] Nevertheless, the pages were not returned by Mr Ritchie when he left GSK’s employ. GSK says that Mr Ritchie thereby breached his employment agreement.
[37]Affidavit of Claire Hampton affirmed 14 October 2005, paragraph 4(b) (CB.2.B.000002)
[38]FACS, paragraph 2.1 and Attachment 2.
[39]Second Further Amended Statement of Claim filed 18 October 2007, particulars to paragraph 13.
Mr Ritchie’s response is that he has no recollection of making the alleged request; but if he did, he did so for an entirely legitimate purpose. He was, he says, acting in his capacity as a member of the Chemicals Division Management Committee. Having been troubled by something that arose at a Chemicals Division Leadership Team strategy meeting held at Queenscliff on 18 November 2003, he wanted to check certain figures in the 2004 budget. If he subsequently did approach Ms Hampton, this was the reason.
These accounts each neglect to mention a fact that has since emerged, having in the interim been forgotten by both Ms Hampton and Mr Ritchie. On 7 November 2003, the latter forwarded a one-sentence email to the former: “Could you send me a copy of the budget plan for 2004”.[40]
[40]Exhibit D20 (Additional exhibits folder, Volume 1, tab 2).
Against this background, three issues arise. The first concerns what Mr Ritchie sought, and what he was given. The second is whether he had a legitimate reason for seeking such access. The third is whether the information he received was improperly used by him to the disadvantage of GSK.
I note at this point a question to which I have no answer. I do not know whether Mr Hayes, who began his trials in August, performed experiments with [X]% acetic acid using [XXX] wash tanks. If he did not, GSK could not contend that Mr Ritchie used the results of such experiments in DC4. But it was only on 1 September 2003 that Mr Ritchie directed that a [XXX] wash tank be introduced (for the purpose of experiments with [XXXXX ]).
The next set of experiments, conducted on 11 September 2003, involved the adjustment of the pH of some of the rich extract created the previous day. The rich extract in question had been obtained by using [XX]% acetic acid.[371] Its pH was then adjusted from [XX] to [X], then to [X] and finally to [X].[372] Increasing the pH of the rich extract enables impurities to be removed by filtration. These, as has been seen, would otherwise cause processing difficulties when extracting the alkaloids from the rich extract into an organic solvent. The pH adjustment was done by using sodium hydroxide (“caustic” or “NaOH”) at a concentration of [XX]%, which was the concentration used by GSK on its plant at the time. The results showed that [XX]ml of NaOH was needed to adjust the pH from [XX] to [X], a further [XX]ml was needed to lift it to pH [X], and another [XX]ml was needed to reach pH [X], giving a total of [XXX]ml.[373]
[371]CB.5.B.004125 and T. 424, lines 6-19.
[372]CB.5.B.004126 (tab 88).
[373]T.424-427.
GSK submits that the quantity of NaOH determined in these pH adjustment experiments was used by Mr Ritchie when he provided assumptions for DC4, DC5 and DC6.[374] The quantities provided by Mr Ritchie were very specific and could not have been calculated from a theoretical basis; normally they would be calculated from the results of laboratory tests, such as those performed by Mr Hayes.[375] So, in DC4 it was assumed that [XXX] litres of [XX]% caustic (NaOH) will be used per [XXXX] litres of rich extract or [XX] litre for litre,[376] while Mr Hayes’ experiments showed that the quantity of [XX]% NaOH needed to adjust from pH [X] to pH [X] was [XX]ml for [XXX]ml, the equivalent of [XX] litre for litre.[377] The assumptions were carried over into DC5 and DC6.
[374]Note that item 1.4(iv) of the Further Amended Confidential Schedule was amended to refer to the volume of NaOH required to raise the pH from pH [X] to pH [X], not pH [XX] to pH [X] (see T. 1753).
[375]Confidential affidavit of Timothy Allan Bowser sworn 5 September 2006, paragraph 266-8 (CB.9.B.006145).
[376]CB.10.C000048 and C.000050.
[377]Mr Hayes used [XX]ml of [XX]% NaOH which is equivalent to [XX]ml of [XX]% NaOH. [XX]ml/[XXX]ml = [XX]ml/1ml = [XX] litre/litre (see affidavit of Timothy Allan Bowser sworn 17 October 2007, paragraph 14 (CB.9.B.006304) and GSK technical overview, tab 6).
Mr Ritchie deposed that when he gave the quantity of [XX]% NaOH to Mr Connolly it “was a very conservative guess as to the amount of sodium hydroxide necessary to increase the pH of the RE to about pH [XX-XX]. In hindsight the concentration is far too high. It would almost certainly raise the pH to above [XX] and cause the morphine to precipitate as solid sodium morphinate”.[378] When GSK’s calculations about the equivalent quantity of NaOH were put to Mr Ritchie in cross examination, he said the following:
... the inference from this I do recall with quite some clarity is that because I was using [X] to [XX] ... per cent acetic acid, which would be in the vicinity of [pH] [XX] to [X], that I had used a similar number. But in fact the amount required is almost four times, or nearly between three and four times, that amount. So there's no similarity at all between Mr Hayes' data and that number of [XX].[379]
[378]Confidential affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 90 (CB.13.C.001011).
[379]T.1304-5.
Mr Bowser acknowledged that the extract used by Mr Hayes was a different one to that used in DC4 and DC5[380], but he insisted that laboratory experiments would be necessary to determine the amount of NaOH needed.[381] Because DC4 contemplated the use of [X]% acetic acid, the pH would be higher than the [XX] pH in the Hayes experiment (which used rich extract from a [XX]% acetic acid extraction), with the result that DC4 would require less NaOH to be used to reach a pH of [X] or higher. Moreover, while DC4 and DC5 had specified adjusting the rich extract to pH [XX-XX], this had been changed in DC6 to pH [X], while the amount of NaOH remained constant.[382]
[380]T.751.
[381]T.753.
[382]T.804-6.
Mr Hayes did not give any evidence that he provided Mr Ritchie with the quantities of NaOH he used. The only data provided by him appears to have been a number of spreadsheets emailed on 1 and 12 September and 6 October. So far as I can ascertain, none of them disclose any information about pH adjustment, or more particularly, that Mr Hayes used [XX]ml of NaOH to adjust the pH of the rich extract from pH [X] to pH [X]. As I have noted above, Mr Ritchie deposed that he did not read laboratory notebooks (save his own). However, when asked during re-examination about the quality of Mr Hayes’s work, he gave the following evidence:
Q:What did you mean by the results from Mr Hayes are poor at best?
A:Well, I had a look at his notebooks, and where he's actually meant to do [X] per cent acetic acid, he hasn't added enough acetic acid to make it [X] per cent. He's made a number of mistakes during his laboratory note tests, that I believe I've made some corrections and explained how he should do things.[383]
This suggests that Mr Ritchie may have looked at Mr Hayes’s laboratory notebook at some stage - certainly at the time he started to do his experiments in late August. It might also suggest the possibility that, of all the figures produced by Mr Hayes, Mr Ritchie recalled or made a note that [XX]ml of NaOH would adjust the pH from pH [X] to pH [X]. But I think this an unlikely conclusion.
[383]T.1372.
On 12 September 2003 Mr Hayes conducted experiments to extract morphine using different organic solvent combinations at various O:A ratios.[384] The pH of the cleaned rich extract was first adjusted to [X], which is the pH at which morphine is less soluble and will therefore be likely to move into a solvent combination mixed with the rich extract. Five different combinations of solvents were used: [XXXXX XXX], [XXXXX XX], [XXXXX XXX], [XXXXX XX], and [XXXXX XX]. The different combinations varied in their effectiveness: the best was the [XXXXX XXX] mixture, while the worst (which emulsified) was the [XXXXX XXXX]. Mr Hayes agreed that [XXXXX ], a [XXXXX XXX], is not a solvent that a responsible company would use on a large industrial scale. It became obvious from these experiments what worked and what did not.[385]
[384]CB.5.004127 (tab 88).
[385]T.431-433.
Next, Mr Hayes extracted the alkaloids from the solvent into another aqueous solution by first removing the rich extract, leaving the now alkaloid rich solvent and then adding another aqueous solution with a suitable pH to target particular alkaloids. To achieve the required pH in the aqueous solution, Mr Hayes added [X]% sodium hydroxide.[386]
[386]T.433-434.
Mr Hayes conceded that the phrase “acetic acid process” used by him in his affidavit to describe these experiments was not his. Indeed, he agreed that he did not use that expression in any of his notebooks or in the spreadsheets containing the results that he emailed to Mr Ritchie. The spreadsheets, which included not only the acetic acid experiments[387] but also those using [XXXXX X][388] and [XXXXX ],[389] used “CC” for “counter current” in their descriptions. He agreed that it would not be accurate to describe the sum of those experiments as the “acetic acid process”; they would be counter-current experiments.[390] Although he agreed there would be cases where experiments are conducted purely for observing results for the benefit of the chemist only, he did not believe that these experiments were such a case. Accordingly, he would have thought it appropriate for the results to be recorded in a R&D report.[391]
[387]CB.7.B.005676, B.005677 and B.005682.
[388]CB.7.B005692.
[389]CB.7.B005689.
[390]T.437.
[391]T.438.
As against all this, Mr Ritchie denied using the data prepared by Mr Hayes to settle upon the appropriate percentage of acetic acid in the draft extraction process documents (DC4 and DC5).[392] Indeed, his response to the suggestion that he passed on the data for the acetic acid experiments to Mr Connolly on 1 September 2003 was dismissive: “... I'm sorry, I find it hard to agree that I've generated results from Nick Hayes that are poor at best and I've passed them on to Mr Connolly”.[393] He later said that if this was such a critical parameter, as GSK suggests, he would not have asked a very junior chemist to do the tests for him.[394] Accepting for the purposes of his answers that he did direct Mr Hayes to perform these experiments, including ones that used “extreme proportions” or combinations[395] that would produce inefficient results (such as using [XX]% [XXXXX XXXXX XXXX] wash tank), he explained his reasoning in the following terms:
... the point of these experiments was getting him to understand those factors [ie the inefficiency of moving ammonia to the second tank] and get him to do these trials. And the only way to learn counter-current I believe efficiently is to actually unfortunately sit down and do two to three days of those tiresome extractions and see the effect of moving things differently. And so it wasn't for any data that I required, it was as I believe I said in my affidavit it was to teach him counter-current principles. What the effect of moving the addition of the reagent in different tanks, the different number of wash stages and different take off ratios et cetera.[396]
He later added:
... we would use Mr Hayes on and off as a stop gap but around that time the emphasis on [XXX] had decreased. We had an impurity issue but Nick didn't have the skills to add ... significant contribution to an impurity issue. And I was trying to prepare him for the upcoming work which was what they ended up doing.[397]
[392]T.1094, 1124.
[393]T.1124.
[394]T.1372.
[395]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraphs 75 & 76 (CB.15.C.001872).
[396]T.1111.
[397]T.1113.
One of the issues facing the R&D department in 2003 was how to meet a substantial thebaine order for 2004 from one of its customers while minimising the need for new plant – as Mr Ritchie expressed it, how to “squeeze more juice out of the orange without buying a bigger orange”[398] – as well as balancing the production needs for other products such as morphine. Mr Ritchie thought that using acetic acid in the primary stage on the thebaine plant might be the answer. In his affidavit he deposed that he “firmly believed that with further trials I could demonstrate [acetic acid] to be the most efficient method of thebaine extraction” and that “[i]t was necessary and appropriate for me to have Hayes familiarise himself with its use.”[399]
[398]T.1130.
[399]Confidential affidavit of Jarrod Ritchie sworn 23 January 2006, paragraph 57 (C.001001).
GSK submits that this explanation should be rejected. During his primary extraction experiments using acetic acid Mr Hayes was using morphine straw, not thebaine straw. It was also submitted by Mr Collinson that it would be “drawing a long bow” to accept that GSK would “implement an entirely new extraction process” to meet a demand problem for thebaine.
I do not place particular weight on the fact that Mr Hayes did his work on morphine straw. As I understand Mr Ritchie’s evidence, his prime object was to provide Mr Hayes with the opportunity to conduct and become familiar with counter-current extraction. This was an integral part of the GSK production regime, and Mr Hayes needed to be expert in it. This being so, morphine straw was at least as logical a choice as thebaine straw.
Nor do I think that this was a question of GSK implementing “an entirely new extraction process”. The Thebaine Plant Study was able to use [X]% acetic acid instead of [XXXXX XXXXX ] in the thebaine plant. This would suggest that it may not have been that difficult to change over, especially if the change were to result in increased production.
In my opinion, GSK has not discharged the burden of proof on the Hayes issue. I do not find that Mr Ritchie improperly instructed Mr Hayes to carry out his acetic acid trials on morphine straw. Nor do I find that the results of the Hayes work were improperly used by either defendant. I repeat, in this context, that in any event TPI does not employ acetic acid as a primary extractant.
Port Fairy Research and Development Reports (FACS 1.6)
Items 1.6(i) and (ii) were not pressed at trial.[400]
[400]T.1753.
PFRD/94005 “Extraction of Morphine from Unmilled Pellets” (FACS 1.6(iii))
Item 1.6(iii) describes this report as disclosing “morphine efficiency when using [XXXX] at [sic] the primary extraction liquid”. The report in question takes the form of a one page document to Mr N. Howlett from Mr T. Paton, with a copy to Mr Bowser. It was prepared on 1 February 1994. It states that a sample of unmilled straw pellets was separated into two groups: one part was milled through the laboratory mill, while the other half was broken by hand. Both samples were slurried with [XXXX] in a ratio of [XXX]g straw: [XXX]ml [XXXX]. [XX]ml of each sample was filtered, while [XX]g of [XXXX] was added to the remaining [XX]ml slurry and then filtered. Assays were then taken of the four samples (hand broken straw/[XXXX] and straw/[XXXX] + [XXXX]; milled straw/[XXXX] and straw/[XXXX] + [XXXX]). The results are then set out.
Dr Ross considered this report when he looked at what he termed “the Second TPI process”, namely the current process being developed by the defendants which uses [XXXX] only as the primary extractant. He remarks that “the use of an [XXXX] system to extract the alkaloids from the poppy straw is similar in both processes”. More specifically, “the GSK process information [in PFRD/94005] indicates an improved extraction efficiency with milled poppy straw when compared to non-milled straw when using only [XXX] as the extraction media ...”[401] During cross examination Dr Ross conceded that this GSK report showed only “a very slight improvement in extraction efficiency between hand-broken and lab-milled straw when extracting with [XXXX]”[402] (that is, [XXX]% compared to [XXX]%). He further agreed that the most significant result was that [XXXXX X] was a more efficient extractant than [XXXXX ], and that “the report itself provides no basis for the choice of [XXXXX ] as an extracting media [sic] in a process”.[403]
[401]Confidential exhibit “ARR4” to the affidavit of Dr Andrew Robertson Ross affirmed 27 August 2007, paragraph 22, observation 2 (CB.8.B.005819).
[402]T. 890.
[403]T. 891.
The defendants say that they have never used this information. The previous paragraph might explain why, and perhaps also points up the dangers, in a case such as this, of simply seizing upon similarities and concluded from them alone that misuse of information has occurred.
Mr Ritchie adds to the defendants’ denial of use that the experiment reported in PFRD/94005 was “very rudimentary” with no data given about the particle size. He has no recollection of ever having read the report, nor would he rely on it for any purpose: it contains, he said, insufficient data to confirm the reliability of any result. He also observed that the report tends to suggest that [XXXXX ] is about [XX]% less efficient than [XXXXX ], and it extracts more impurities.[404]
[404]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraphs 28 and 29 (CB.15.C.001859).
The defendants argue that the decision to use [XXXX] as the primary extracting liquid was the result of experiments conducted by Mr Ritchie. He deposes that he decided to investigate the use of [XXXXX ] after a conversation he had with a Tasmanian poppy farmer in September 2006. While discussing the [XXXXX XXXXX X], the farmer said words to the effect “[XXXXX XXXXX XX]”. According to the evidence given by Mr Ritchie in his confidential affidavit of 11 October 2007, “[XXXXX XXXXX XXXXX XXXXX XXXXX XXXX]”. He continued: “[XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXX]?” He then conducted a series of experiments with [XXXX] at various temperatures and found that, at the right temperature, [XXXX] could be very effective at extracting alkaloids. A particular finding was that the natural plant acids in [XXXXX XXXXX XXXXX XXXX]. Mr Ritchie therefore decided to use [XXXXX ]. I accept this evidence.[405]
[405]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraphs 21 to 23 (CB.15.C.001857-8).
In my opinion, GSK has failed to establish that this information is confidential (let alone a trade secret) or that the defendants used it.
PFRD/96005 “Sieve Testing of Plant Milled Straw and PFRD/99013 “Investigations into Change Particle Size Distribution Due to Replacement of Hammers in Straw Mill” (FACS 1.6(iv))
The two reports referred to in item 1.6(iv) are concerned with the particle size of milled poppy straw. The first report PFRD/96005 was prepared by Mr T Paton on 27 February 1996.[406] Tests were conducted using five sieves of different mesh sizes. The results show the proportions of different particle sizes in the samples.
[406]CB.4.B.002225.
The second report (PFRD/99013) was prepared by Mr Peter McCaffrey on 28 September 1999. It was sent to both Messrs Bowser and Ritchie. It reported on the effect that a change in the [XXXXX ] used in the straw mill had on the particle size. Mr McCaffrey reported an increase in the percentage of milled straw under [XXX]µm (microns) in diameter and a decrease in the particles greater than [XXX] µm.[407] He referred to an investigation conducted by Dr Clarkson in 1987 into the factors affecting the efficiency of the [XXX] filter, which suggested:
… [XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXX]. The optimal particle size distribution was found to be between [XXX]µm and [XX]µm ... At this size extraction efficiencies were around [XX]% on plant, compared with [XX]% under laboratory conditions for the [XXXXX X] particle size.[408]
[407]CB.4.B.002556.
[408]CB.4.B.002558.
GSK submits that the optimal particle size referred to by Dr Clarkson, and quoted in PFRD/99013, is “the very particle size that is claimed in claim 57 of the TPI Patent Application”.[409] Although Mr Ritchie claimed to have carried out experiments using poppy straw milled by a company known as Micropowders to less than [XXX]µm, GSK says that that milled straw was not measured until 27 November 2006, only two days before the patent application was filed by TPI on 29 November 2006. Dr Ross gave unchallenged evidence that he would expect “extensive and detailed lab experiments to be required in order to determine [the specific range of optimum particle sizes]”.[410] GSK therefore says that it is apparent from the time line that the particle size data was in fact derived from PFRD/99013.[411]
[409]GSK Technical submissions, paragraph 92(b).
[410]Report dated 18 October 2007, paragraph 14 (CB.9.B.006440).
[411]GSK Technical submissions, paragraphs 94 and 95.
The Defendants say they have never used this information. No information about particle size is to be found in the draft process documents. The reference in the TPI patent application to a mean particle size of less than [XXX]µm and less than [XXX]µm[412] is based on experiments conducted by TPI using straw milled both in its laboratory and on its behalf by Micropowders.[413]
[412]TPI patent application at CB.15.C.001906.
[413]Defendants’ final written submissions, paragraph 106.
Mr Ritchie deposes that he developed the new TPI process, which is described in the patent application, between September and November 2006.[414] During that time he personally conducted and also supervised TPI’s chemists to conduct a number of experiments, including controlled experiments to determine the optimal particle size for primary stage extraction. Those experiments disclosed that there was “[XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX ]” and showed that [XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX X], while “[XXXXX XXXXX XXXXX XX]”.[415] This would appear to be a different conclusion to that recorded by GSK. During cross examination Mr Ritchie denied obtaining the particle size range used in the TPI patent from a reference by Mr Bowser in his affidavit sworn 5 September 2006 to the comments in the report of Dr Clarkson.[416]
[414]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraph 7 (CB.15.C.001854).
[415]Confidential affidavit of Jarrod David Ritchie sworn 11 October 2007, paragraphs 11 to 15 (CB.15.C.001855-6).
[416]T.1336.
There seems to me to be another point worth noting. None of the GSK tests appear to have been conducted using [XXXXX X]; as I understand it, all the GSK experimental work was carried out on plant using a different extractant, namely [XXXXX XXXXX XXXXX ]. If, as I accept, TPI is to use [XXXXX X], GSK would not be a fertile source of information about particle sizes.
Mr Ritchie was cross examined on this issue. He gave the following evidence about the experiments conducted by him and by TPI:
The [XXXXX XXXXX XX] and [XXXXX XXXX]. The problem with that is that the {XXXXX XXXXX XXXXX X]. And I think that's the difference between the lab results given from GSK that said [XXXXX XXXXX XXXX]. Hence [XXXXX XXXXX XXXX].[417]
[417]T.1175-6.
Mr Ritchie’s evidence was that the Micropowder results, provided on 27 November 2006, related to experiments on powder below [XXX]µm, while experiments on [XXXXX X] straw had already been carried out.[418] Although claim 57 of the TPI patent application states: “A method according to any one of claims 51 to 56 wherein the material has a particle size of less than [XXX] micron”,[419] Mr Ritchie pointed out that the patent application gives the optimum range as [XXX-XXX]µm.[420]
[418]T. 1336.
[419]CB.15.C.001926.
[420]T.1335.
It is clear that the Defendants performed their own experiments in order to establish the optimal range of particle size for the new TPI process. In my opinion, GSK has failed to establish that the Defendants misused any confidential information under this item of the FACS.
Crop Details as Disclosed by 2002, 2003 and 2004 Chemicals Division Budget (FACS 1.7)
The FACS at this point makes broad reference to “[c]rop details, being % straw (and seed) ratio, % alkaloid content (assay) and crop yield (tonnes/ha) and straw cost disclosed by the pages of the 2002, 2003 and 2004 [GSK] Chemicals Division Budget attached hereto”. No attempt has been made to identify with specificity the confidential information said to have been used by the defendants.
This is most unsatisfactory. Moreover, while pages from the final version of the 2004 Budget Book, including those containing details of the 2004 crop, have been attached, the evidence of Ms Hampton is that she photocopied for Mr Ritchie only select pages from the draft 2004 Budget Book. These she identified in Exhibit “Confidential CH1“.[421] The pages that make up that exhibit do not include any 2004 crop details. Moreover, the 2004 Budget Book was distributed after Mr Ritchie left GSK’s employ. There is therefore no evidence that he ever had that information. I shall put those pages to one side.
[421]Affidavit of Claire Hampton, paragraphs 10 and 13 (CB.2.B.000003) and Exhibit “Confidential CH1“ (CB.2.B.000005).
Percentage Straw and Seed Ratio
This ratio compares the amount of straw and the amount of poppy seed to be found in a given crop. The figures appearing in the Budget Book are forecasts, not actual figures, based upon GSK’s historical crop productivity information and research.[422] According to Mr Bowser, this involved “reviewing average values from over 25 years of poppy growing experience and from extrapolation of GSK horticultural R&D trials on the specific GSK seed chosen for planting. In practice, when the crop would be harvested, these values would vary from farm to farm and vary from year to year due to seasonal factors”.[423] This ratio is expressed as a percentage of straw: in 2002 it was estimated to be [XXX],[424] while in 2003 it was predicted to be [XXX].[425]
[422]Confidential affidavit of Timothy Allan Bowser sworn 5 September 2006, paragraph 63 (CB.9.B.006105).
[423]Ibid, paragraph 65 (CB.9.B.006106).
[424]CB.1.A.000037, top figure in the fourth column of the first table.
[425]CB.1.A.000041, top figure in the fourth column of the first table.
It is not readily apparent how knowledge of forecasted, not actual, figures for 2002 and 2003 might have been used by the defendants when designing a process that would not come into being until well outside the GSK budget period. And indeed, the defendants point out that the figures used in their process documents are not the same as those recorded in the GSK 2002 and 2003 crop details. Mr Connolly assumed [XX]% straw in the documents prepared by him.[426] Mr Ritchie deposed that, for the purposes of his rough costings, what he gave Mr Connolly as the proportion of seed to straw was the reverse of the GSK proportions: [XX]% seed to [XX]% straw. Clearly there is no relevant use of any GSK information.
[426]CB.10.C.000048 (DC4), CB.10.C.000061 (DC5) and CB.10.C.000083 (DC6).
The defendants also say that this information is published by GSK in the public domain. Mr Ritchie deposed that GSK publishes its proportions in a newsletter, Poppy Patter, which is sent to poppy farmers.[427] So in the October 2002 edition, the following question is asked: “Did you know ... [that] around [XX]% of the weight of a normal crop is seed?”[428] GSK says this is average data from crop assays, not the confidential forecasted figure.[429] I do not accept that there is any meaningful distinction.
[427]Confidential affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 18 (CB.13.B.000987).
[428]CB.12.C000757.
[429]GSK Technical submissions, paragraph 9.
GSK points to a reference by Mr Ritchie to [XX]% straw in a document emailed by him to Mr McMullan on 12 January 2004 setting out financial assumptions and explanations.[430] He was asked about this in cross examination:
Q:I suggest to you that you got the [XX] per cent straw from GSK's crop details document?
A:Well, I would've known it, yes, and ... it was well known in the industry. They published it, I believe.[431]
He admitted that he did not get that specific number from Poppy Patter; rather, he knew the actual figure.
[430]OB.2.tab 74.
[431]T.1311.
GSK has submitted that this email was sent while Mr Ritchie was still employed by it. I have already noted above that Mr Ritchie resigned from GSK on 18 December 2003 and, by agreement with Mr Zippel, his leave arrangements for the following four weeks would stand as the required four week’s notice. Mr Ritchie calculated that this arrangement would expire on 17 January 2004.[432] Notwithstanding that he was still being paid by GSK, in my opinion Mr Ritchie’s email to Mr McMullan did not breach any relevant duty.
[432]Affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 76 (CB.10.C.000148).
Nor do I accept that a forecasted figure for the 2002 crop, which differs from the published actual figure by only [X]%, could be said to have been a misuse of GSK confidential information. In any event, even if it were misuse, no damage could possibly flow. If GSK publishes to the world a figure that is no more than the average proportion of seed to straw, and which is accurate at the time of publication in October 2002, but which will vary from time to time, there is no possibility of the plaintiff being damaged by the use of a figure for a different period and which is likewise subject to change according to different circumstances at different times.
I do accept the Defendants submission[433] that an argument that [XX]% is confidential, while [XX]% is not, cannot be sustained.
[433]T.1623.
Percentage Alkaloid Content (Assay)
The next item of allegedly confidential crop detail information is the percentage alkaloid content or assay for a given quantity of straw. It is also known as “straw loading”. So, as an example, for 500kg of poppy straw a 1.5% morphine assay will yield 7.5kg of morphine, assuming 100% extraction efficiency. In reality the extraction efficiency will not be 100%, so the actual amount of morphine would be less.
This information is projected, so the assay results are the anticipated percentage of alkaloid for the straw. They will vary from year to year due to seasonal factors. Again, the FACS does not identify the actual information; instead, pages of the Budget Book are annexed. During his opening Mr Scerri directed me to page 52 of the 2002 Budget Book[434] which shows a table headed “Assays” in which it was predicted that the morphine crop (having 11% moisture) would have [XXX]% morphine, [XXX]% codeine and [XXX]% thebaine (giving a total alkaloid content of [XX]%). The 2003 Budget Book shows the morphine crop (again having 11% moisture) would have [XXX]% morphine, [XXX]% codeine and [XXX]% thebaine (giving a total alkaloid content of [XXX]%).[435]
[434]CB.1.A.000037.
[435]CB.1.A.000041.
The alleged use of this information was by Mr Connolly, on instructions from Mr Ritchie,[436] who used an assumption of [XXX]% “straw loading” in DC5.[437]
[436]Affidavit of David Connolly sworn 23m January 2006, paragraph 36 (CB.10.C.000011).
[437]CB.10.C.000061.
Mr Ritchie deposes that “it is very well known in the industry that the morphine concentration of Tasmanian poppy crops ranges from about [X]% to [X]%”.[438] He says that GSK has never regarded crop assay as being confidential. Thus, in the October 2002 edition of Poppy Patter, it published a graph with its crop assays for the morphine crop at 11% moisture for the previous 36 years.[439] When this graph was put to Mr Bowser during cross examination he conceded that the information disclosed in it was not confidential.[440] He maintained, nonetheless, that the actual assay values achieved after processing were confidential.[441] GSK says that the forecasted figures used in the Budget Book, compared to the average actual historical figures, were confidential.
[438]Confidential affidavit of Jarrod David Ritchie sworn 23 January 2006, paragraph 23 (CB.13.C.000989).
[439]CB.12.C.000756.
[440]T.600.
[441]T.598.
Mr Ritchie denied using the Budget Book information.[442] This is entirely consistent with the fact that neither the 2002 nor the 2003 figures come out at [XX]%. Mr Bowser conceded that starting with an assumption of [XX]% assay did not constitute a misuse of confidential information.[443]
[442]T.1312.
[443]T.604.
GSK submits that Mr Ritchie has not satisfactorily explained how he arrived at a [XX]% assay assumption. It relies on his concession during cross examination that he did not resort to the public domain literature to ascertain the figure.[444] This approach fails to acknowledge that GSK must prove that the information was both confidential to it and was used by the Defendants. In my opinion, it has failed to do this.
[444]T.1313.
Crop Yield (tonnes/ha)
This information has not been identified in the FACS, nor - so far as I can ascertain -was it addressed in either the plaintiff’s opening or submissions or in the evidence. The Defendants say that they have not used this information. GSK has not pointed to any alleged use. In these circumstances, I find that this claim has not been established.
Straw Cost
This information also has not been identified in the FACS and again it was not addressed in the plaintiff’s opening or submissions or in the evidence. It too has not been established.
Conclusion
For the reasons set out in this judgment, I have been unable to find that any of the claims made by the plaintiff have been proved. In these circumstances, there must be judgment for the defendants. I will hear counsel on any necessary consequential orders.
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