On 14 July 2010, the High Court ruled in Jones v Ricoh UK Limited that a clause in a confidentiality agreement breached Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) and was therefore unenforceable.
Jones owned CMP Group Limited (“CMP”). CMP offered large corporate clients centralised management of their photocopying and related requirements and negotiated on behalf of its clients with manufacturers of multi-functional office automation devices (“MFDs”) to obtain the best terms and provide smooth delivery, installation and servicing of the devices at the clients’ premises.
In 1998, CMP entered into a trading agreement with Ricoh, one of the world’s largest suppliers of MFDs. Ricoh rapidly became the preferred manufacturer recommended by CMP and over 90% of the devices that CMP recommended to clients were Ricoh devices.
CMP became aware of the importance of being in control of its client relationships and so to avoid being cut out of those relationships by Ricoh, entered into a formal Confidentiality Agreement with Ricoh in 1999. The Confidentiality Agreement concerned confidential information relating to CMP’s clients (which CMP needed to disclose to Ricoh during the course of their trading relationship) and restricted Ricoh from using this customer information to trade directly with them.
A major client of CMP was ADtranz. In 2000, ADtranz became Bombardier Transportation (“Bombardier”). Bombardier wanted to extend the UK model of its MFD arrangements and issued an invitation to tender (“ITT”) in 2003. Both CMP and Ricoh were invited to tender and bid separately for the contract. As CMP was bidding separately from Ricoh, its bid was based on supplying Toshiba machines. The CMP/Toshiba bid was successful however due to problems with implementation, Bombardier issued a further ITT in 2007. This time the ITT was for the supply of MFDs to the whole Bombardier group on a world-wide basis. CMP was not involved, but in June 2008 CMP learnt that Ricoh had been selected to be Bombardier’s global supplier of MFDs.
Jones sued Ricoh alleging that it was breaching its Confidentiality Agreement by responding to Bombardier’s 2003 and 2007 ITTs, and also by supplying MFDs to Bombardier from June 2008.
Ricoh defended the claim on the basis that, amongst other things, a clause in the Confidentiality Agreement was in breach of Article 101 TFE
Clause 7 of the Confidentiality Agreement provided that:
"no approach or contact direct or indirect in connection with or during our discussions or whilst any Confidential Information remains in the possession or under the control of any Relevant Person [any connected company] shall be initiated, accepted or made by or on behalf of any Relevant Person to or with any employee, client or supplier of yours or any government body or regulatory or other authority or to or with any other person who to our knowledge has any actual prospective connection with you without your prior written consent."
The High Court interpreted Clause 7 to mean that so long as any confidential information remained in the possession of Ricoh, Ricoh would be in breach of contract if any of the 150 companies in the Ricoh group made or accepted any approach to or from any contact with any of the following:
(i) any client of CMP;
(ii) any governmental body or regulatory or other authority; or
(iii) any other person who to Ricoh’s knowledge “has any prospective connection” with CMP.
The Court noted that there were “a number of instances of sloppy drafting” in the Confidentiality Agreement and that the extent of the prohibitions had little if any commercial justification. The Clause was very broad, unlimited in place, of uncertain and extensive ambit in time and applied to dealings by Ricoh that were not only plausible but very likely to occur.
The Court ruled that the scope of the Clause breached competition law both by object (as the Clause went further than necessary to protect CMP’s confidential information) and effect. If Clause 7 were enforceable, Bombardier would be precluded form receiving a competitive bid from one of the world’s leading supplier’s of MFDs. The Court held that whatever the precise definition of the relevant market, the Clause had the potential effect of appreciably restricting competition. Therefore the Court concluded that Clause 7 fell within Article 101(1) TFEU and was void and unenforceable.
Jones attempted to argue that Clause 7 fell within the vertical agreements block exemption regulation (Regulation 2790/1999). However the Court held that for the purpose of the Confidentiality Agreement, CMP and Ricoh were not operating at different levels of the supply chain, and on that basis Jones could not rely on the block exemption.
This decision serves as a reminder to businesses to ensure that their confidentiality agreements are commercially justifiable, as any provisions that go beyond what is reasonably required to protect confidentiality could be in breach of competition law, and will therefore be void and unenforceable