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I wonder if anyone can help me with the Cadbury Schweppes decision. I am going to trench on the boundaries of this maillist and question the Supreme Court's treatment of the compensation point rather than the restitution point (such as it was). Anyone whose digestion cannot stand a varied diet should hit the delete key now.

The way I understand this case is as follows. The plaintiff Cadbury Schweppes (CS) licensed the defendant FBI Foods (FBI) to produce Clamato juice. (Let's not worry about the different parties to this.) In the course of this arrangement it revealed its secret recipe. In 1982 CS terminated the licensing arrangement by giving 12 months notice. By their contract FBI was entitled to compete in the juice market as long as its product did not contain clams. As soon as CS gave notice of termination, FBI turned its attention to developing a competing product. FBI successfully used CS's secret recipe in order to develop a clone that did not contain clams. This product was ready by the time the licence ended in 1983. Using the secret recipe was a breach of confidence. The trial judge held that if FBI had not used the secret recipe to assist in its product development then it could and would have developed a competing product as good in the same time, again before the end of the licence in 1983. FBI launched its product in 1983 and took some of CS's market share. CS sued FBI claiming compensatory damages and not disgorgement.

The trial judge held that while there had been a breach of confidence, CS had suffered no loss. If FBI had not used the secret recipe it would nonetheless have been able to produce an equivalent product in the same time and also before the expiry of the licence in 1983, and would have done so.

(The trial judge nonetheless awarded 'headstart' damages in the amount it would have cost FBI to hire a consultant to develop this product without the secret recipe, in other words the market value of the secret recipe, some $30, 000. The SCC did not allow this head of damages, rightly in my view as it in fact represented FBI's profits and not CS's loss. As the SCC observed, CS was not in the business of selling its secret recipe. This is a small restitution point in the case - for another see Newbury J's confused judgment in the Court of Appeal.)

The SCC took a different view. Binnie J wrote the only judgment. He held that the 12 month period during which FBI might have developed a legitimate competing product should run not from the 1982 notice date, but rather from the 1983 end of licence date. So for 12 months from that 1983 time FBI was actually competing with CS when it should not have been and CS was suffering lost market share because of this. Here is what Binnie J said at paragraph 96:

"The appellants argue that the 12-month period ought to begin with the date of the notice of April 15, 1982 and point out that the trial judge said the appellants could have developed a Caesar Cocktail-like tomato juice without using the Clamato manufacturing information "within the 12-month notice period". The fact is, however, that on April 15, 1983, the date when the licence expired, the appellants did not have a formulation for Caesar Cocktail that complied with their legal obligations to the respondents. They had in fact taken no steps to produce a product that complied. I see no reason to "backdate" the fiction of their hypothetical research to the notice period. The appellants did not begin to sell a product in breach of the confidence until April 15, 1983."

I have some difficulty with this. My view is that since FBI could and would have developed a competing product before the 1983 end of the licence period, its wrong did not cause CS any loss. Binnie J accepted that the causation test in a case such as this is the conventional counterfactual "but for" test.

Is there anything to say in favour of Binnie J's view? Perhaps there is, depending on how we characterize FBI's wrong:

If FBI's wrong consists in selling a product developed using confidential information, then it did not breach confidence until sales began in 1983. Absent the wrong, FBI would not have sold these products beginning in 1983, and so what would it have done at that time? It would have turned its mind to developing an alternative product. And so that is when the 12 month period begins to run. I think that is how the SCC saw it.

On the other hand, if FBI's wrong consisted in using the confidential information for unauthorized purposes, which would I think include using it in its own product development, the wrong would date from 1982 when FBI started researching its competing product. Absent its wrong, what would FBI have done at that 1982 date? It would have turned its attention to developing a competing product without the use of CS's trade secret. On this theory the 12 month development period runs from 1982 and expires along with the licence period in 1983. This I think is how the trial judge saw it.

If this is the right way to frame the problem, then the SCC's approach has some cogency. Detriment, as the court confirmed elsewhere in the judgment, is an essential element of a breach of confidence 'cause of action' (a common law concept, but one that comes naturally once we move into damages relief.) CS did not suffer any detriment until FBI started to sell its competing product. So perhaps the cause of action was not complete until that time, namely in 1983. And perhaps then the causation test ought to be applied as of that date. The question might be tested by asking whether CS would have succeeded in an application brought on April 16, 1982 to enjoin FBI from using the secret recipe to develop a competing product, or whether it would only have been entitled to an injunction against the wrongful sales.

This strikes me as too clever by half, but I would be grateful if anyone could tell me why?

A final restitution point. I note that Binnie is scrupulous about using Lionel Smith's terminology - 'disgorgement' to identify profit stripping awards. Although the court does not refer to Dr Smith's work, I have it on good information that the relevant articles were argued before the court.

Steven Elliott

Lionel Smith wrote:

Released yesterday is the decision of the Supreme Court of Canada in Cadbury Schweppes Inc. v. FBI Foods Ltd., the great Clamato case (a reference which only Canadians are likely to understand) (and those Canadians living in England may be interested to hear that some branches of Sainsbury's stock this "confection" (per Binnie J)). There is a great deal on the remedies available for breach of confidence.

The judgment is on line at (http://www.droit.umontreal.ca/doc/csc-scc/en/rec/html/fbi.en.html).

Lionel