Nexus: assessment of damages

Chams Plc and another v Mastercard Asia/Pacific Pte Ltd and 5 Others – Where a contractual breach involves the misuse of IP-based confidential information

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The Nigerian Federal High Court has delivered a ruling in a suit bordering inter alia on the misuse of confidential information relating to IP. On 7th November 2019, the Federal High Court delivered a ruling in Suit No. FHC/L/CS/1440/2019 - Chams Plc & Another v Mastercard Asia/Pacific Pte Ltd and 5 Others, granting an interim injunction restraining named Nigerian banks (22 banks in all) from giving effect to MasterCard transactions in which National Identity Cards bearing the logo of the National Identity Management Commission (NIMC) are used. The interim injunction is to remain until the hearing of a pending motion on notice for similar reliefs. [For context, the national identity cards provide proof of identity and come with a prepaid payment technology provided by Mastercard and can be used to make electronic payments and deposit funds.]

...confidential architecture

As some readers (in Nigeria) will know, the suit in question relates to the concession awarded by the NIMC to a Nigerian technology firm, Chams Plc over the issuance of national identity cards. Chams Plc has claimed that after its Special Purpose Vehicle, Chams Consortium Limited was granted the concession by the NIMC to produce national identity cards on behalf of the NIMC (the national identity card project); it invited MasterCard as one of its technical partners on the project.

Chams Consortium Limited (CCL) also entered into a Customer Business Agreement (CBA) with MasterCard, which contained non-disclosure of confidential information and non-compete clauses. Pursuant to this agreement, CCL disclosed confidential information on the entire architecture of the national identity cards to MasterCard. This information as to the architecture of the national identity cards was a product of Chams Plc’s research, design and development work. CCL claims that MasterCard used the disclosed proprietary confidential information and the fact of its being formally introduced to NIMC to bypass CCL; deal directly with NIMC and commence production of national identity cards. MasterCard’s activities have been alleged to result in CCL incurring significant losses and placed MasterCard in a position to make significant revenue using Chams Plc.’s research, design and development work.

In their statement of claim, the plaintiffs have sought the sum of N84billion (approximately $231.7million) as special damages for anticipated loss of revenue from the national identity card project; N10billion (approximately $27.6million) as general damages for fraud; and N20billion (approximately $55million) for inducement of breach and termination of the concessions awarded by NIMC. The plaintiffs also filed a motion ex parte and a motion on notice and in both applications, they prayed the court to inter alia (i) restrain MasterCard from further printing National Identity Cards with the NIMC logo; (ii) restrain Nigerian banks (named as respondents to the application) from honouring MasterCard transactions with the use of the National Identity Cards; (iii) issue an Anton Piller Order for seizure and costing of machines for printing the cards and the seizure of the cards themselves; and (iv) order the police to arrest anyone who obstructs the execution of the court’s orders.

In its ruling on the motion ex parte, the court directed that the defendants be served with the originating processes and the motion on notice. Apart from the order as to service, the court granted only the second order sought i.e. the order restraining the named Nigerian banks from honouring MasterCard transactions made with the use of the National Identity Cards pending the hearing of the motion on notice. All the other prayers made in the motion ex parte are to be heard when the defendants have been put on notice.

Comment
The suit in question borders particularly on breach of contract occasioned by the misuse of confidential information. However, this Kat is interested in the question of misuse of confidential information as it relates to outputs of research and development work (i.e. knowledge-based information).

Regarding the main claims for special and general damages for anticipated revenue, fraud, and inducement of breach, it is opined that the claims are hinged on MasterCard’s alleged misuse of information as to the architecture of the national identity cards. Essentially, the alleged breach of contract lies in the misuse of confidential information. Where the plaintiffs are unable to show that MasterCard made unauthorised use of such confidential information, it may be difficult to prove the plaintiffs’ entitlement to damages especially the claim for special damages.

In Nigeria, claims of misuse of confidential information are likely to be founded in contract or tort, as there are no statutory provisions explicitly providing for such claims. However, section 15 of the Freedom of Information Act 2011 allows public institutions to deny an application to disclose information that contains “trade secrets and commercial or financial information obtained from a person or business where such trade secrets or information are proprietary, privileged or confidential, or where disclosure of such trade secrets or information may cause harm to the interests of the third party”. The section also restrains the disclosure of “information the disclosure of which could reasonably be expected to interfere with the contractual or other negotiations of a third party” and “proposal and bids for any contract, grants, or agreement, including information which if it were disclosed would frustrate procurement or give an advantage to any person”.

This provision suggests that Nigerian courts would frown at unauthorised disclosure or use of proprietary and/or confidential information. However, to the best of this Kat’s knowledge, there has not been a reported, decided case in Nigeria on parameters for imposing liability for misuse of proprietary and/or confidential information or for remedies in the case of such misuse. But, one can get a sense of how such cases may turn by looking at judicial treatment of non-disclosure clauses in employment contracts and/or confidentiality obligations of banks to their customers.

In Aero Contractors v Akingbehin (NICN/LA/123/2013), the defendant, through his solicitors had written to the plaintiff threatening to disclose the plaintiff’s confidential information if he (the defendant) was not reinstated to his position in the plaintiff’s company. The plaintiff sued for breach of the confidentiality clause contained in the defendant’s contract of employment and sought damages in the sum of N25million (approximately $68,000) for the breach. The court found that the defendant did in fact breach the confidentiality clause when he disclosed the confidential information to his solicitors. However, the court awarded only the sum of N2million (approximately $5,500) as damages. In Fidelity Bank Plc v Onwuka, the Court of Appeal held that a breach of a bank’s legal duty of confidentiality not to disclose information to third parties would give rise to liability in damages.

It remains to be seen whether the plaintiffs can show that there was confidential information provided to the defendant which the latter misused in breach of the non-disclosure obligations. Even where the plaintiffs succeed in proving their claims, it also remains to be seen if the court will award the significant sums claimed as damages.

Regarding the motion on notice, especially the Anton Piller order sought, there is also the question of whether the plaintiffs can obtain a mandatory interlocutory order permitting them to seize the defendants’ card-printing/moulding machines, inspect and cost (i.e. appraise) the volume of trade on the national identity cards.

The principles governing the grant of an Anton Piller order in Nigeria have been adopted from the decision of the English Court of Appeal in Anton Piller KG v. Manufacturing Processes Ltd in several cases including Ferodo Limited v. Unibros Stores and Akuma Ind. Ltd v. Ayman Ent. Ltd. The principles are that: (1) there must be a strong prima facie cause of action; (2) the danger to the plaintiff to be avoided by the grant of an Anton Piller order must be serious; and (3) the risk of destruction or removal of evidence must be significant rather than merely possible. The general principles regarding injunctions - serious question to be tried, adequacy of damages, balance of convenience and whether the status quo should be maintained – also apply.

Anton Pillar orders are usually made ex-parte and understandably so. If the point of the exercise is to take the defendant unawares before the defendant has time to hide evidence of infringing materials and/or activities, making the orders after putting the defendant on notice will defeat the purpose. In this Kat’s experience, Nigerian courts are wont to order accelerated hearing once Anton Pillar orders are sought via a motion on notice. That said, the decision is in the hands of the court whether to grant the Anton Piller order when the defendants in this case have been put on notice.

What happens now?
The case continues. The defendants have 30 days from the date of service of the writ and statement of claim to respond by filing a defence. The defendants will also need to respond to the motion on notice, which seeks far-reaching orders against them. Given the national significance of the case (being on the issue of identity management at the national level), it is quite possible for the parties to decide to settle out of court.

Time shall tell and readers should watch this space...

Calculation of damages: a cautionary tale

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If maths was not your strong suit at school, then this blog post is for you. This Kat brings you a cautionary tale from the Intellectual Property Enterprise Court (“IPEC”), England and Wales, where in Lilley v DMG Events Ltd [2014] EWHC 610 (IPEC), 12 March 2014, a significant exaggeration of the damages claimed in respect of a copyright infringement has led to a case being struck out of court.

Background

To provide brief background information, the original action concerned a claim for copyright infringement made by Mr Victor Lilley against DMG, a company which edits and publishes technical journals, including ‘Speciality Chemicals’ Magazine and ‘Adhesives Technology’ Magazine.

Mr Lilley entered into a contract with DMG to supply a number of articles which appeared in these publications between 1996 and March 2004. After the articles had appeared in DMG’s publications, DMG authorised two companies, the Gale Group “Gale” and EBSCO, to publish Mr Lilley’s articles. Mr Lilley alleged that these authorisations constituted an infringement of his copyright in these articles, and claimed damages in the mammoth region of £798,728,820 from DMG.

Subsequent to this, two applications were put before Judge Hacon by DMG. The first was to strike out those parts of the Particulars of Claim and Reply to Particulars in the IPEC which related to a claim against DMG for “unlawfully resisting the copyright infringement claim” under CPR rule 3.4(2). The second application sought to strike out the Statements of Case of Mr Lilley in their entirety on the grounds that they were an abuse of the court’s process, or was otherwise likely to obstruct the just disposal of the proceedings.

The First Application: “unlawfully resisting the copyright infringement claim”

Those of you who are well versed in the laws of copyright will know that “unlawfully resisting the copyright infringement claim” is not recognised as a tort under English Law, and DMG submitted this argument to the court. Further DMG submitted that the court should follow the example of Roth J who had struck out a previous claim by Mr Lilley on 15 March 2013 based on the same alleged tort in similar proceedings brought by him against the Chartered Institute of Management Accountants ([2013] EWHC 1354 (Ch), at [45]). The court was told that Mr Lilley had sought permission to appeal this order but was refused by a decision of Floyd LJ.

What was surprising in this case was Mr Lilley’s response (who was acting as litigant in person) in which he had stated that he made no claim based on a tort of unlawfully resisting the infringement claim. It was merely a heading he had used for Part 10 of his Particulars of Claim, and the tort he wished to rely on in this part of his Particulars was negligent misstatement. The statements that Mr Lilley stated he relied on came from a letter dated 21 December 2006 from DMG’s solicitors which stated that;

this was a flat fee rather than a royalty fee per publication;
DMG is entitled to provide copies to the distributors; and
Lilley Information Systems Limited (Mr Lilley’s company) is not now entitled to vary the original agreement and claim royalty payments from DMG.

Therefore, the court stated, it should follow that the “unlawfully resisting the copyright infringement claim” part of the Statement of Case should be struck out; however, the new claim of ‘negligent misstatement’ would not be struck out when it had barely been explored.

The Second Application

The perhaps more interesting part of this story is the second application from DMG to strike out the Statements of Case of Mr Lilley in their entirety under CPR rule 3.4(2)(b), on the grounds that it constituted an abuse of process. The court stated in its judgment that DMG relied in particular on Jameel v Dow Jones & Co Inc [2005] EWCA Civ 75.

In Jameel Lord Phillips MR stated [at 54]:

“An abuse of process is of concern not merely to the parties but to the court. It is no longer the role of the court simply to provide a level playing field and to referee whatever game the parties choose to play upon it. The court is concerned to ensure that judicial and court resources are appropriately and proportionately used in accordance with the requirements of justice.”

Judge Hacon explained that he would “have to make an assessment of the upper limit of damages to which Mr Lilley would arguably be entitled if he were to prove infringement at trial, and must then decide whether that upper arguable limit warrants the commitment of this court’s resources to Mr Lilley’s claim”.

Maximum arguable damages

The court stated in its judgment that the parties did agree that the damages should be assessed according to the principles laid down in General Tire and Rubber Company v Firestone Tyre and Rubber Company Limited [1975] 1 WLR 819. These principles were summarised into 3 potential approaches to the calculation of damages (conveniently described by the parties as Group 1, 2 and 3):

Group 1 Where the owner of the infringed IP right (“the proprietor”) makes a profit from the sale of goods or services protected by the IP right which has been infringed, damages are calculated by assessing the loss of profit to the proprietor caused by the redirected sales to the infringer.

Group 2 Where the proprietor usually grants a licence and/or receives royalties for the exploitation of their IP, damages due are the royalty payments or licence fee that the infringer would have paid to the proprietor had the infringer acted lawfully and taken a licence of the type generally granted.

Group 3 In this case the court objectively assesses what would have been paid by way of a royalty on the hypothesis that the proprietor had been a willing licensor and the infringer a willing licensee. The courts will look to analogous and the surrounding commercial facts in this situation.

DMG argued that the court should follow the Group 3 approach and calculate damages based on the (1) amount DMG would have paid Mr Lilley for the right to authorise others to publish Mr Lilley’s articles and (2) the royalties which would have been payable to Mr Lilley. Under the Group 3 approach, the maximum quantum of damages that Mr Lilley would have been entitled to was calculated at £83. This was based on the figures which showed the total number of articles from DMG’s publications published by Gale and EBSCO, and how much each of them paid to DMG.

Billion pound Kat

Mr Lilley on the other hand argued that the court should use the Group 2 approach, as he stated that he had licensed the publication of his articles to DMG, and therefore Group 2 was the appropriate stance to take when assessing damages which would total £798,728,820. However, Judge Hacon did not accept that the licences referred to in Mr Lilley’s Statement of Case were “of a nature to provide any guide to the appropriate damages which DMG would have to pay if found to infringe Mr Lilley’s copyrights by authorising Gale and EBSCO to publish at the time (between two and ten years after first publication) and in the manner they did”.

I'm shocked!

Therefore in the end the court found DMG’s argument to be the more persuasive and, following the Group 3 analysis, stated that if the case were to go to trial, the amount of damages that would have been awarded would be £83, a staggering £798,728,737 below the sums claimed.

In his judgment, Judge Hacon stated that he, “did not believe this would be an appropriate use of the court’s resources when the maximum which could ever be at stake is around £83. It would be an abuse of the process”. He also stated that he “must consider other litigants with more serious and possibly more pressing claims, the resolution of which would necessarily be delayed by the hearing of the trial of this action and any preliminary hearings in advance of the trial”.

Now that’s what this Kat calls a ‘slight’ exaggeration of damages.

Nexus

Chams Plc and another v Mastercard Asia/Pacific Pte Ltd and 5 Others – Where a contractual breach involves the misuse of IP-based confidential information

Calculation of damages: a cautionary tale

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