When directors or shareholders of small technology companies fall out things can get very nasty, and since most technology companies have secrets of one kind or another (trade secrets, secret processes and other confidential information) one of the major risks is that one of the warring parties will misuse those secrets in order to form a new competing business or simply to get back at those he’s fallen out with. Such activities are rarely a good idea, and in a case in March 2011 the High Court granted a perpetual injunction (which is very rare) in order to protect a company’s position.
The delightfully named Hedgehog Golf Company Limited (HGC) had developed and patented a device known as a “hedgehog” which attached to the wheels of a golf trolley to enable golfers to play in wet conditions. HGC is currently involved in a patent infringement case against Masters Golf Company (Masters) in respect of the “hedgehog” patent. A Mr Hauser (H) was a 50 per cent shareholder in, and a director of, HGC. In March 2009 the other shareholder and director of HGC, a Mr Lantsbury (L) presented an “unfair prejudice” petition against H under the Companies Act 2006 claiming that H had been responsible for a series of actions which were unfairly prejudicial to the interests of L as a shareholder. In March 2010 the High Court gave judgement in L’s favour, and the judge concluded that among the appropriate remedies was “to allow [L] to purchase [H's] share at a value to be agreed or, if necessary, to be established by the court after due enquiry”.
The judgement was, as is usual, circulated to the parties in the case (H, L and their respective lawyers) a few days before the judgement was formally announced in court. Shortly after seeing it, H telephoned a Mr Baum, a consultant to HGC, and put forward a proposal which he asked Mr Baum to pass on to L. H said that, if his proposal were not accepted, he would not only decline to provide any further assistance in connection with HGC’s patent infringement claim against Masters, but would offer his services to the patent attorneys acting for Masters to assist them in their defence of HGC’s proceedings. H also warned that he would make it publicly known that there were shortcomings in HGC’s patent and that he would contact golf trolley manufacturers to offer his services in helping them to manufacture products that competed with the hedgehog and effectively circumvented the patent protection.
When the judgement was formally given in court, H agreed to give an undertaking that, in essence, he would do nothing to harm HGC in relation to the period “whilst [he was] a director of [HGC]“, but he declined to give any undertaking as to what he would do when he was no longer a director.
A few days after the judgement H notified Companies House of his resignation as a director of HGC without informing L or any other representative of HGC that he was resigning. H then telephoned Mr Baum and told him that L needed to come back to him with a financial offer “to stop [L] from offering [his] services to the other side”. H subsequently sent L an e-mail to similar effect.
At this stage HGC obtained from the court an interlocutory injunction restraining H until 15 April 2010 from disclosing “any confidential information as to the practice, business dealings or affairs of [HGC] or any of [HGC's] customers or clients”. The order provided for the “confidential information” to include, among other things, confidential information relating to the hedgehog patent. That injunction was subsequently extended.
On 21 January 2011 H made a witness statement in support of patent proceedings issued by HUA Services LLP. The witness statement referred extensively to the application pursuant to which HGC’s hedgehog patent had been granted. As a result HGC went back to court.
The judge found it easy to conclude that HGC was well-justified in its concern that H, if not restrained by injunction, would disclose confidential information without HGC’s consent. He had in the past shown a “blatant disregard” for L’s rights; he had revealed an intention to destroy or damage HGC; he had made a number of threats, including to assist a party with which HGC was engaged in litigation; he had shown a willingness to reveal information about HGC, to its prejudice, even at the risk of breaching a previous court order. The judge therefore granted a perpetual injunction to restrain H from improperly disclosing confidential information.
Passions can run high when people who’ve previously worked very closely together fall out amongst themselves, but it can be an expensive mistake to allow the heart to rule the head. Even if one of the founding fathers of a business was primarily responsible for its success, that success, together with related confidential information and intellectual property, belong to the business and not to any one individual. The present case confirms that the courts are ready to step in on very short notice in appropriate cases and use their full powers to prevent the abuse of such rights.
©Taveners 2011