"Sum of knowledge" can constitute trade secrets
In a final and enforceable judgment of 12 March 2021 (LF-2020-92904), Frostating Court of Appeal found there to be unlawful use of trade secrets by a former employee using his knowledge acquired at the employer to develop a competing product. The judgment is important, and shows that former employees must be careful about utilising the knowledge and experience they acquire at an employer, even if the knowledge is only in that person's head. Lawyers Sigurd Holter Torp and Trond Sollund in Schjødt represented the employer.
By Sigurd Holter Torp
In this case, the employer was dominant in the world market with a so-called directional core drill, which means that the drill can be steered at the same time as core samples are retrieved from the rock it is drilled into. The employer had spent many years and significant costs developing the drill, which was mainly protected through secrecy rather than patenting. One employee had special responsibility for the development and improvement of the drill. For several years, he acquired total knowledge about the drill, including knowledge of what worked and what did not work. After 16 years, he left the company and started developing a competing drill. About 2-3 years later, he launched "his" product, which was a directional core drill that appeared almost identical to the original drill.
The employer sued the former employee and his company, based on an allegation that the new drill had been developed through unlawful exploitation of the employer's overall experience base over several years, which was submitted to constitute trade secrets. A basic line of defence by the employee was that the employer had to document and specify exactly which trade secret had been violated, at the same time as a detailed comparison of the two drills was carried out to establish differences.
The facts of the case stemmed from the period before the entry into force of the new Act on Trade Secrets, so the claim was based on the previous Marketing Control Act, Section 28. The claim did not succeed in the District Court, and the employer appealed the case to the Court of Appeal.
A technical expert was appointed, who was of the opinion that the two products had significant similarities, but that differences in design premises, in his view, meant that the drills had been developed separately without any violation of trade secrets. The Court of Appeal did not agree with this.
The Court of Appeal pointed out that the expert's assessment was based on the end result, i.e. on a technical comparison of the drills' respective solutions today. The Court of Appeal found that this was too narrow a consideration, and that a trade secret may also include accumulated knowledge, i.e. experience and knowledge that accompanies a product, including knowledge from trial and error over years. The Court of Appeal found support for such a "sum of knowledge"-point of view in, i.a., the Nottflottør judgment in Rt-1964-238, LG-2003-8617 (Roxar-Flowsys) and LG-2013-162132 (Vosstech).
When assessing whether there has been a violation of trade secrets, the approach can therefore not be limited to a technical review of the competitor's product in order to find knowledge worthy of protection. The Court of Appeal pointed out that it is not only the technical solutions the company eventually landed on that are important knowledge for the business, but also accumulated knowledge from several years of trial and error.
The Court of Appeal assumed that the sum of experience and knowledge behind the development and improvements of the drill was information that had to be characterised as a trade secret. The Court of Appeal thus rejected the former employee's submission that only concretised, delimited and clearly described trade secrets are protected.
The question was then whether the former employee had unlawfully utilised this sum of experience and knowledge in the development of the competing drill.
In the specific unlawfulness assessment, the Court of Appeal emphasised that this was technological knowledge of great importance to the company, that the tools were based on the same concept and aimed at the same use, and that the similarity between the two products was striking despite the fact that there were also differences. Emphasis was also placed on the employee's long-standing connection to the company and his central role in research and development, which gave him knowledge and experience that had been used in his own development. Furthermore, it was emphasised that the person in question had acted disloyally by secretly developing a directly competing product, and that he had spent significantly less time and significantly lower costs than his previous employer on developing the drill.
After an overall assessment, the Court of Appeal concluded that there was unlawful exploitation of trade secrets and ordered the former employee to pay compensation, which was set at a discretionary amount of NOK 5 million.
It is a prerequisite for technology development in a modern society that it responds to the misuse of trade secrets. The need to respond to such abuse is emphasised, inter alia, in the preamble to the EU Directive on trade secrets, (EU) 2016/943, item 1.
The Court of Appeal's judgment addresses these considerations and protects companies' trade secrets. The judgment shows that former employees must be careful about utilising the knowledge and experience they bring with them from a previous employer. This is especially true if working in an innovative technical company and either start a competing business of your own or switch to a competitor. Since it is not a condition that trade secrets shall be specified or written down on a document, there is then a requirement for prudent and loyal conduct in order to avoid unlawful utilisation of a previous employer's sum of knowledge.