A Leading Canadian IP Case: Juicing Up the Law of Trade Secrets

Cadbury Schweppes Inc v FBI Foods Ltd, [1999] 1 SCR 142 In the late 1970s and early 1980s, Duffy-Mott's tomato juice and clam broth product, better known under the trade mark CLAMATO, was distributed in Canada by a system of local juice manufacturers. Each local juice manufacturer was given a license to use Duffy-Mott's formula and trade-mark, and was obliged to make, distribute and sell the product throughout an exclusive territory. The CLAMATO product included ingredients that could be sourced locally, plus a secret "dry mix" of seasonings, which was provided by Duffy-Mott to the local juice manufacturers; these ingredients were combined using confidential methods of manufacture. Caesar Canning entered into a contract with Duffy-Mott to be the juice manufacturer for western Canada and Ontario. In this agreement, Caesar Canning was permitted to compete with Duffy-Mott after termination of the contract, the only restrictions being that Caesar Canning could no longer use the trade-mark CLAMATO nor could it make or distribute any product including tomato juice and clam broth for a period of five years. Caesar Canning also entered into a contract with FBI Foods for FBI Foods to manufacture the product at its plant in Trenton, Ontario. To enable FBI Foods to make the CLAMATO product, Caesar Canning provided FBI Foods with information about the recipe and manufacturing methods. Though it consented to this arrangement, Duffy-Mott was not a party to this contract. In 1982, Cadbury Schweppes acquired the shares of Duffy-Mott and decided to take back the production and sale of the CLAMATO product in Canada. For this reason, Caesar Canning was given a 12-month notice of termination. On receiving the notice, Caesar Canning began to develop a competing product, starting from the list of ingredients and processing specifications for CLAMATO. Although Caesar Canning did not know the exact recipe for the secret "dry mix", it could obtain a list of key ingredients from the product label required by law. From this work, Caesar Canning managed to develop a product, called "Caesar Cocktail", containing tomato juice, but no clam broth or other seafood. Caesar Canning also ensured that "Caesar Cocktail" was chemically different from CLAMATO. Caesar Cocktail went on the market as soon as the agreement with Duffy-Mott terminated. FBI Foods agreed to co-pack the new product for eastern Canada. Very soon, Caesar Canning ran into financial troubles and became bankrupt. FBI Foods purchased the assets of Caesar Canning, including the Caesar Cocktail brand, and the Caesar Cocktail business was carried on by its subsidiary FBI Brands. In 1988, after considerable delay, Cadbury Schweppes sued FBI Brands on several grounds. However, the trial court focused on Caesar Canning's use of Duffy-Mott's confidential information, and ruled that FBI Foods was liable for breach of confidence. By the time the case reached the Supreme Court of Canada (SCC), FBI Foods did not dispute this finding; the only issue remaining was to determine the appropriate remedies for the breach of confidence. The SCC held that an equitable remedy for a breach of confidence should be crafted in consideration of the character of the interest protected in each individual case. A breach of confidence may have a contractual, tortious, proprietary or trust "flavour", and that character determines the appropriateness of the remedy. Under the facts of this case, the SCC found that a permanent injunction was not justified in view of Cadbury Schweppes’ lengthy delay in commencing the litigation. However, the SCC decided that FBI Foods was liable for damages in an amount that would put Cadbury Schweppes into a position that it (as the disclosing party) would have been in if there had not been a breach of confidence.

Victor Butsky writes: In this case, the SCC confirmed that equitable relief for breach of confidence may be awarded even though a related contract does not specifically address confidential information or the remedies available to the party disclosing the confidential information. This decision also clarifies that a Canadian Court will consider a wide range of equitable remedies for breach of confidence, having regard to the specific circumstances of each case, including the nature of the misappropriated information, and the relationship and conduct of the parties.

Summary by: Cheryl Cheung