Paris Court of Appeal, No. 17/03739

Paris Court of Appeal, Pole 1 - First Chamber, 26 March 2019, No. 17/03739

Mr. I H Z B
vs.
SYNTHES GMBH

Mr. H Z B is a medical doctor and consultant in spinal orthopaedics, specialised in spinal surgery. He practices in Egypt and has previously worked in Ireland and Canada.

Synthes GmbH is a company under Swiss law, specialised in the development, production and marketing of instruments, implants and biomaterials for the surgical fixation, correction and regeneration of the human body. It belongs to the international Johnson & Johnson Group.

In July 2008, Mr. A X, at the time head of Synthes' Vertebral Innovation Department, came into contact electronically with Mr. Z B, who was introduced to him by one of his distributors in Egypt as having developed a new technical approach in the field of spinal disc implants. Following a telephone conversation, the parties agreed to draw up a draft confidentiality agreement. The draft was sent by Synthes to Mr. Z B at the beginning of August 2008 and, after some modifications, was signed by Mr. Z B on 14 August and by Synthes on 19 August 2008.

This agreement contains an arbitration clause which provides as follows: “This agreement shall be governed by Swiss law in accordance with the provisions of the ICC Rules of Arbitration. The International Court of Arbitration in Paris shall have exclusive jurisdiction.”

Mr. X, accompanied by Mr. Y, Director of the Spinal Implant Development Center and responsible for the entire portfolio of spinal disc replacement devices for Synthes, and Mr. Z B, met on 10 September 2008. Following this meeting, Mr Z B sent a letter with various documents to Synthes on 19 September 2008.

On 5 November 2008, Synthes informed Mr Z B that it would not follow up on the technical approach presented and, at Mr Z B’s request, returned the documents he had sent to it.

Taking the view that Ranier Technology launched a new product on the market in 2012, the application of which involved the implementation of the know-how and new techniques he disclosed to Synthes, and that Synthes obtained an international patent covering the two major innovative ideas he had disclosed to it. Mr. Z B filed a request for arbitration under the supervision of the ICC on 29 May 2013, on the basis of the arbitration clause in the confidentiality agreement.

The arbitral tribunal, composed of Mr E Z C and Mr F G, co-arbitrators, and Ms Martine Karsenty-Ricard, President, issued the ICC arbitral award on 13 January 2017 in Paris No. 19514/MCP, together with a dissenting opinion by Mr. Z C, in which the arbitral tribunal held that:

“1. No information communicated by the Claimant to the Defendant covered by the Confidentiality Agreement has been used by the Defendant or disclosed by the Defendant to a third party in breach of the provisions of the Confidentiality Agreement.
2. the Confidentiality Agreement has not been entered into in bad faith by the Defendant and/or none of the obligations contained therein have been breached by the Defendant. Accordingly, the Claimant’s claims are dismissed in their entirety."

Mr Z B filed an action for annulment before the Paris Court of Appeal on 21 February 2017.

By final submissions notified on 27 April 2018, he requested the court to:

• declare that the Arbitral Tribunal raised ex officio arguments of fact and law, namely:
• the method of objective or subjective interpretation of the disputed confidentiality agreement,
• the notion of confidential information contained in Article 1 of the disputed confidentiality agreement,
• the “theory of absorption” under Swiss law;
• to hold that the Arbitral Tribunal never requested the parties to discuss the mentioned grounds of fact and law raised ex officio;

Consequently,

• find that the Arbitral Tribunal manifestly violated due process (in French: Principe de contradiction) and declare the ICC Award No. 19514/MCP null and void in its entirety;
• order Synthes GmbH to pay EUR 150,000 pursuant to Article 700 of the ICC Rules. code of civil procedure;
• order Synthes GmbH to pay all the costs.

In its final submissions notified on 30 November 2018, Synthes GmbH requests the court to rule that the action for annulment brought by Mr. Z B against the arbitral award of 13 January 2017 in ICC case No. 19514/MCP/DDA is unfounded, dismiss his application under Article 700 of the Code of Civil Procedure, order Mr. Z B to pay him EUR 200,000 under Article 700 of the Code of Civil Procedure and order him to pay the entire costs.

UPON WHICH:

On the ground of breach of due process (in French: Principe de contradiction) (1520-4 of the Code of Civil Procedure):

M. Z B, the claimant, seeks the annulment of the award on the basis of Article 1520-4 of the Code of Civil Procedure for failure to comply with due process (in French: Principe de contradiction) by the arbitral tribunal, alleging that the tribunal based its decision on numerous factual and legal elements raised ex officio and which did not form part of the adversarial debate between the parties. Those elements are, firstly, the rule of law governing two so-called objective or subjective methods of interpreting contracts, secondly, the attribution of the legal qualification of business secrets and know-how to the notion of ‘confidential information’, and finally, the unilateral application of Swiss legal theory of the “absorption” of contractual claims, the arbitral tribunal manifestly violated due process (in French the principe de contradiction).

In its reply, Synthes argues that the arbitral tribunal did not commit any violation of due process (in French: Principe de contradiction), that the reasoning adopted by the arbitral tribunal is based on grounds debated between the parties, which were necessarily in the debate, that the disputed reasoning, which is purely illustrative or over-abundant, cannot be the basis for setting aside the award and that Mr Z B, under the guise of a ground alleging violation of due process (in French: Principe de contradiction), attempts to obtain a review of the merits of the award.

The first part of the ground:

M. Z B argues that the reference by the arbitral tribunal to Article 18(1) of the Swiss Code of Obligations as a basis for its reasoning, a provision not mentioned by any of the parties, constitutes a violation of due process (in French: Principe de contradiction) as provided for in Articles 1510 and 16 of the Code of Civil Procedure, in French case law and international arbitration practice. M. Z B also asserts that a debate on a contract cannot be deemed to include a debate on its interpretation, and even less so on the specific rules of interpretation. In the present case, the tribunal introduced into the arbitral award a new legal ground under Swiss law concerning the choice of the “subjective or objective” method of interpreting the terms of the confidentiality agreement, which ultimately formed the fundamental and determining basis for all subsequent developments leading to the final decision.

He disputes that the two questions relating to the contract posed in general and abstract terms during the debates can be equated with the introduction into the debate of the objective and subjective method of interpretation, as recognised by Swiss law in the aforementioned Article 18(1), and which are based on specific standards and guidelines applied according to the particular criteria established by Swiss case law.

Synthes replied that Swiss law was the law applicable to the merits of the dispute in accordance with the Terms of Reference, that it is neither disputed nor contested that the debate before the arbitral tribunal concerned the interpretation of the provisions of the confidentiality agreement, in particular the notion of “confidential information,” and that the question of the method of interpretation of the confidentiality agreement was discussed between the parties during the arbitral proceedings.

The Confidentiality Agreement concluded between the parties provides as follows:

“1. For the purposes of this Agreement, the term “Confidential Information” means all information in the Domain, including, but not limited to, data, computer software, samples, technical and economic information, marketing, development and research techniques, and other trade secrets and know-how disclosed or communicated by one Party to the other in accordance with this Agreement.

2. Each Party shall undertake to limit its use of the Confidential Information transmitted by the other Party solely for the purposes of assessing the merits of the business relationship and negotiating, for a complementary purpose deemed appropriate by the Parties, the terms and conditions of the agreement concluded between them to the exclusion of any other purpose, unless otherwise agreed in writing between the Parties.

3. The recipient Party shall keep strictly confidential all information transmitted in writing or orally by the Party communicating such information or by any affiliate of that Party as well as all information obtained through personal examination, whether or not such information is marked “confidential” and it hereby undertakes not to disclose confidential information to third parties and to use such information only for the purposes described in Article 2. […]

4. The obligation under Article 3 shall not, however, apply to information for which the receiving Party can demonstrate by documentary evidence that such information:
(a) Was in its possession prior to disclosure;
(b) Had fallen into the public domain by publication or otherwise prior to the disclosure below, or subsequently, without violation of this Agreement by the receiving Party;
(c) Were transmitted to the recipient Party by a third party entitled to communicate them without breaching an obligation of confidentiality;
(d) Shall be disclosed pursuant to law or a judicial or legal process, subject to the recipient Party informed the other Party in writing of this obligation prior to disclosure and assisting the disclosing Party to obtain, prior to disclosure, an order for the protection of the information ;
(e) was developed by the recipient Party or its employees without access to the Confidential Information […]”.

Due process (in French: Principe de contradiction) only requires that the parties should be able to state their claims in fact and in law and comment those of the opposing party in such a way that anything which influenced the decision of arbitrators was subject to adversarial debate. The arbitrators do not have to submit their reasoning in advance to an adversarial discussion between the parties.

Noting the disagreement between the parties on the nature of the confidential information protected by the confidentiality agreement, the Arbitral tribunal considered that it was necessary to define the methodology for interpreting this agreement.

The court then refers to the text of Article 18(1) of the Swiss Code of Obligations relating to the interpretation of contracts by indicating that if the parties to an agreement governed by Swiss law disagree on the interpretation of certain elements of their agreement, the genuine intention of the parties must first be ascertained by virtue of the general principle set out in that article. This principle states that “In order to assess the form and terms of a contract, the genuine and common intention of the parties must be ascertained, without focusing on any inaccurate expressions or designations which they may have used, either by mistake or to conceal the true nature of the agreement”. The arbitral tribunal stated that this constitutes the ‘subjective method of interpretation of contracts’ (Award §103-107).

It further explained that if the genuine and common intention of the parties cannot be established with certainty or if the respective genuine intentions are contradictory, the subjective method cannot be applied and that it will be necessary in such a case to apply the objective method of contract interpretation according to which:

• The relevant contractual provisions must be interpreted by determining how they could and should have been understood in good faith, based on their wording and context, including the circumstances preceding the agreement and under which the agreement was concluded. Such an interpretation must begin with the wording of the agreement” (Award §111),
• The interpretation must also be made in the light of the overall objective of the agreement and the interests sought by the parties in the conclusion of the agreement",
• the purpose of the agreement must also be taken into account so that it can be generally presumed that the agreement was made to achieve a reasonable result, and appropriate (sentence §112).

After analysing the witnesses' statements, the arbitral tribunal concluded that ‘no evidence was provided in the course of the proceedings as to the genuine intentions of the parties to the dispute and their understanding of the disputed terms and conditions of the CA (confidentiality agreement) and in view of the fact that the parties do not agree on how the terms and conditions are to be interpreted, the Arbitral Tribunal shall interpret the AoC in accordance with the objective method of contract interpretation".

Firstly, Swiss law was the applicable law on the merits of the dispute as stated in the Terms of Reference, and the confidentiality agreement was expressly governed by Swiss law. The parties concluded before the arbitral tribunal by referring to provisions of the Swiss Code of Obligations and the Swiss Civil Code and by referring to Swiss case law.

Secondly, it follows from the statement of the parties’ positions in the Terms of Reference itself that the parties had contrary views on the nature of the ‘Confidential Information’ covered by the agreement and the articulation of the obligations resulting from the different articles (Terms of Reference § 38 to 44).

As the parties disagreed on the interpretation of ‘confidential information’ pursuant to the agreement, the rules of interpretation of the contract were necessarily in dispute before the arbitrators, without being necessary for the parties to expressly rely on them and for the tribunal to specifically request the parties to comment on Article 18(1) of the Swiss Code of Obligations. The application of that provision was ultimately excluded by the arbitral tribunal.

Thirdly, the method of interpretation was indeed discussed between the parties during the arbitral proceedings, and Mr. Z B himself cited in his statement of claim dated 1 September 2014 a decision of the Swiss Federal Supreme Court of 14 October 2002 (§ 60, Appellant’s Exhibit 4) which refers to the rules of interpretation of contracts to which the arbitral tribunal referred in the award.

The first branch of the ground is therefore unfounded.

On the second part of the ground:

Mr. Z B argues that the arbitral tribunal ex officio noted to interpret the notion of ‘Confidential Information’ in the agreement:

• the definitions taken from the Cambridge Dictionary of the notion of secrecy and know-how,
• the conception of the concepts of business secrecy and know-how derived from Swiss case law to which reference was made by the court on the basis of an article of Swiss doctrine,
• a reference to an article of doctrine, written entirely in German without a translation, despite the fact that German is not the language of the arbitration and is not spoken by the claimant.

He considers that due process (in French: Principe de contradiction) was violated since the arbitral tribunal did not invite the parties to discuss the notion of ‘business secrecy and know-how’, which allowed it to adopt a particularly restrictive interpretation of the notion of ‘confidential information’, and that it is not established that these means raised ex officio would have been over-abundant in nature.

Synthes replied that the court’s reasoning and conclusion were based exclusively on a combined interpretation of Articles 1 and 4 of the agreement, that there was no violation of due process (in French: Principe de contradiction) when the arbitrators refer to documents not submitted to the adversarial debate only to corroborate their interpretation and to clarify their point of view and that therefore this overabundant motivation cannot be a ground for annulment. It follows from both the Terms of Reference (§45) and the Award itself (§ 118 et seq.) that, faced with differing positions of the parties on the nature of the ‘Confidential Information’ covered by the confidentiality agreement, the arbitral tribunal considered that the interpretation of this notion was fundamental to understand the scope of the agreement and determine whether there had been a breach of the agreement. Mr. Z B acknowledges this in his submissions and admits that the parties thus discussed “the articulation of the clauses of the disputed Agreement and their respective interpretations of the sweeping clause contained in Article 1 defining the notion of Confidential Information” (§ 85 of his final submissions).

The arbitral tribunal, in order to decide whether Article 1 of the agreement protected “all types of information without any conditions as to the content of the information itself, i.e. without any obligation of novelty and/or public availability of the information or whether the condition of the art should not be taken into consideration within the scope of the agreement” (Award §134) and after having recalled the position of each of the parties, began by giving a definition of the term ‘confidential'.

He specified that “according to its ordinary meaning (which is relevant according to the objective method of interpretation of contracts), the term ‘Confidential’ implies a notion of secrecy (see, for example, the definition of Confidential in the Cambridge Dictionary) so that a secret is information which is known only to one person, or even to a few persons, and which must not be revealed to other persons”.

It then confirmed its interpretation of the notion of confidential information referred to in Article 1 of the Agreement by expressly referring to the non-exhaustive list of items that may be considered confidential information under that Article (Award §140), which includes in particular “other trade secrets and know-how”.

Following its reasoning, the arbitral tribunal noted that “Art. 1 of the CA does not contain a definition of the terms ‘trade secrets and know-how’ which are used in this provision. Their definition must therefore be inferred objectively by reference to Swiss law governing the CA. According to Swiss law, the definition of these terms implies the confidentiality / secrecy of the information concerned: …] the Federal Court considers that this is the case if the knowledge in question is not public knowledge and is not easily accessible”, referring to Swiss case law and citing an article of Swiss doctrine at the bottom of the page (§142 of the Award).

He therefore considered that “An objective interpretation of the CA and, in particular, of the definition of Confidential Information (Art. 1 of the CA) leads to the conclusion that the notion of Confidential Information does not cover information known to the public”.

The arbitral tribunal then carried out a systematic analysis of the various clauses of the agreement, considering that “based on the objective method of interpretation of contracts, the agreement must be interpreted in a consistent and logical manner”.

It was in the context of this analysis that the arbitral tribunal noted (§ 148 of the award) that “the exceptions to the protection of confidential information defined in Art. 4 are in accordance with the principles of Swiss law according to which it is not permissible to contractually introduce the use of information that has fallen into the public domain. This confirms the interpretation of the CA made here by the Arbitral Tribunal “referring in a footnote to an article of doctrine in German.

The arbitral tribunal concluded (§150 of the award) “that confidential information in accordance with the CA concluded between the parties corresponds to information which is not already publicly available, which may belong to one of the categories of the non-exhaustive list set out in Article 1 of the CA and which does not meet the requirements of one of the cases of exclusion referred to in Article 4”.

In order to reach this definition of ‘Confidential Information’ under the agreement, the arbitral tribunal, based on the confrontation of the parties' divergent positions, conducted a thorough and detailed examination of the clauses of the confidentiality agreement. This conducted the tribunal to seek a logical and coherent interpretation of the concept of ‘Confidential Information’ in the combination of the articles of the agreement, and to note that the articles of the agreement did not provide for different definitions and rules of protection of ‘Confidential Information’ according to these different articles, contrary to what M. Z B (§ 121 to 128 of the award).

Firstly, it appears from the reasoning of the arbitral tribunal that the definition given by the ‘Cambridge Dictionary’ clearly intended only to illustrate the common meaning of the term ‘confidential’ without the arbitral tribunal bringing into the proceedings a new ground which should have been submitted to the parties. This reference said in passing cannot be a ground for annulment.

Secondly, the non-exhaustive list of confidential information includes “other trade secrets and know-how”. Mr. Z B argued before the arbitrators that any know-how disclosed at the Strasbourg meeting fell within the protection of the agreement pursuant to its Article 1 and that “if the information is new to the recipient Party, even if it is in the public domain, the recipient Party shall undertake not to disclose it”. On the other hand, Synthes argued that any idea belonging to the prior art and falling into the public domain cannot be considered confidential information under the agreement (Award §121 to 133).

The arbitral tribunal complied with due process (in French: Principe de contradiction) when it based its reasoning on an analysis of the provisions of the agreement, in particular of Article 1 and of the articulation of the clauses of the agreement between them. Moreover, the arbitral tribunal rightfully cited two articles of doctrine and cited a decision of Swiss case law, by making superabundant references to support its examination of the factual and legal elements submitted and discussed by the parties.

The second part of the ground is therefore unfounded.

On the third part of the ground:

Mr. Z B alleges that the arbitral tribunal rejected his claim based on the pre-contractual liability of Synthes, by raising ex officio, without requesting the parties to discuss it, the “legal theory of absorption” under Swiss law. This theory provides that “any claim resulting from the conduct of the parties during the negotiations is absorbed by the contractual claims”.

Mr. Z B argues that the arbitral tribunal changed the basis it invoked to the advantage of a theory that was not discussed by the parties and that he was deprived of the possibility to discuss the application of this legal theory.

Synthes replies that the entire reasoning of the arbitral tribunal relates to the basis discussed by the parties, namely its alleged bad faith in concluding the confidentiality agreement.

Mr. Z B argued before the arbitrators that Synthes concluded the confidentiality agreement in bad faith without ever having intended to enter into a business relationship at a later date. Indeed, Mr. Z B considered that the company should have requested additional information from him, that bad faith would also result from the fact that during the Strasbourg meeting “the novelty of the invention of the I Z B and its know-how [would have been] recognised by Synthes”, and that during that meeting D Y and A X informed him of the information and patents of which they were aware (Award § 327 to 329).

Synthes argued that the ideas presented by Mr. Z B were vague and misleading, that the Strasbourg meeting “was an informal discussion during which the Applicant did not bring any documentation and no prototype”, and that it did not recognise novelty at that meeting and that it drew the Claimant’s attention to existing patents (Award § 330-333).

To rule on the bad faith of Synthes alleged by Mr. Z B, as a preliminary matter, the arbitral tribunal stated that Mr. Z B’s claim was based on pre-contractual liability whereas according to the jurisprudence of the Swiss Federal Supreme Court known as the ‘absorption theory’, there can be no additional pre-contractual liability when a contract is in force.

The arbitral tribunal then said that:

• The confidentiality agreement is a binding agreement, so that the parties are not in a typical situation of pre-contractual negotiations. They must, in any case, act in good faith in accordance with the general principles of Swiss private law (Art. 2 para. 1 of the Swiss Civil Code)”.
• the claimant had the burden of proof of the defendant’s bad faith,
• At the hearing, it was established that only very few confidentiality agreements result in subsequent business relationships (5%),
• At the Strasbourg meeting, the Synthes representatives requested additional elements and informed Mr Z B of the existence of the Synthes internal review process,
• Synthes explained in its reply why Mr Z B’s ideas were not interesting for it, and Mr Z B did not reply or provide any further elements of response to this,
• The succinct comments made by D Y and A X during the Strasbourg meeting are not sufficient to demonstrate Synthes' recognition of the novelty of Mr Z B’s ideas.

In order to find that Mr. Z B did not prove that Synthes acted in bad faith, the arbitral tribunal held that even if the parties were not in a pre-contractual situation, they had to act in good faith in accordance with the general principles of law provided for in Article 2 of the Swiss Civil Code, which was expressly invoked by Mr. Z B in his statement of claim of 1 September 2014 (§ 58 Exhibit 4 of the Claimant’s Statement of Claim).The over-abundant reference to the absorption theory when the arbitral tribunal ruled on the legal and factual arguments raised and discussed between the parties cannot lead to the annulment of the award.

The third branch of the plea is therefore unfounded.

It follows from all the foregoing that the ground alleging failure to comply with due process (in French: Principe de contradiction) must be rejected and that the action for annulment against the award must be dismissed.

On costs and compensation under Article 700 of the Code of Civil Procedure:

The unsuccessful claimant must bear the costs of the proceedings and cannot benefit from the provisions of Article 700 of the Code of Civil Procedure.

Equity requires to order him to pay compensation of € 50,000 to Synthes under Article 700 of the Code of Civil Procedure.

FOR THESE REASONS:

Dismisses the action for annulment of the ICC arbitral award No.19514/MCP issued between the parties on 13 January 2017 in Paris.

Orders Mr. H Z B to pay the costs and to pay Synthes GmbH an indemnity of € 50,000 pursuant to Article 700 of the Code of Civil Procedure.

Dismisses all other claims.