Knowledgeable business leaders are well aware that running a successful business increasingly involves sharing information, know-how and intellectual assets with employees and consultants within the organization as well as suppliers, customers and other business partners outside of the organization. While information-sharing is often essential for success, there is the risk that valuable and sensitive information can be illegally used by those privy to it for personal gain and to the detriment of the rightful owner. This is particularly true in today's digitalized and globalized business environment, which is predicated on the open access to information.
To minimize risk, it is useful to establish internal policies on why, when, how and with whom sensitive information, know-how and intellectual assets should be shared and to define protective and remedial measures in the event they are misused. Well-drafted policies alone, however, may not suffice. To protect their business secrets, companies may find themselves having to resort to litigation.
Penalty clauses help deter disloyal behavior
Watertight agreements form the basis for successfully protecting sensitive information, know-how and intellectual assets through litigation. Carefully considering and regulating why, what and how sensitive information may be used by those privy to it, helps ensure that the company has a stronger legal position if employees, consultants and business partners use shared information in bad faith. Since it may be difficult to prove actual damage resulting from such infringements, especially at an early stage, contractual penalty clauses are important and may also deter disloyal behavior.
However, litigation often turns, not on whether the use of shared sensitive information is improper, but on whether it has taken place at all. Ultimately, the question is "What can we prove?" Therefore, it is advisable to implement systems for monitoring and recording how sensitive information is shared within the organization and with external business partners
Investigation can strengthen position in litigation proceedings
If a company suspects that its intellectual property rights (e.g. patented methods or technology, copyrighted material, such as source code and manuals) are being infringed, Swedish intellectual property law provides useful tools for conducting fact-finding inquiries. A court may order a party suspected of such infringements to declare how the products or services in question are sourced and distributed (Sw: informationsföreläggande). Furthermore, a court may also, without hearing the infringing party, order an infringement investigation (Sw: intrångsundersökning). An infringement investigation empowers the Swedish Enforcement Authority (Sw: Kronofogdemyndigheten) to seize evidence (including physical and electronic documents and correspondence) relating to the suspected infringement and to deliver such evidence to the injured party., The outcome of such an investigation may improve the company's legal position considerably in subsequent litigation proceedings involving intellectual property infringements. A similar option regarding trade secrets was proposed back in 2008 but was rejected by legislators.*
In cases where a company's sensitive information is used in bad faith, it is essential to terminate the infringing activities to protect the company from unfair competition and to minimize damage. The Swedish Trade Secrets Act allows courts to order cessation of activities involving the use or disclosure of a company's sensitive information or know-how. Such orders may be combined with sizeable penalties in the event of non-compliance and may be issued both as an interim measure during the proceedings and permanently after a verdict has been reached. Similar orders are available if a company's intellectual property rights are violated.
Companies should not stop sharing their sensitive information, know-how and intellectual assets, but should be aware of the risks of disloyal usage and should take action to minimize such risks. If need be, companies should not be afraid of taking legal action to protect sensitive information. Litigation offers useful tools for unearthing evidence of misconduct and the means to bring a halt to unfair competition and to minimize any resulting damage.
* Swedish Government Official Reports SOU 2008:63