Employers are increasingly relying on IP and related rights to prevent ex-employees who take valuable data from using it to unlawfully compete.
Given the computerisation of information and data it can be an easy task for employees to take valuable information or data prior to leaving their employment. Businesses are increasingly at risk of being damaged by departing employees who have unlawfully taken information or data in order to set up in competition with their old employer.
Due to difficult market conditions in many sectors, employers seem particularly vulnerable to this activity at the current time.
Against this, it is encouraging that the courts are ready and willing to grant relief to employers whose rights are infringed by ex-employees. First Conferences Services Limited v Richard Bracchi/Inspire Conferences Limited is the most recent example of this, where the employer was able to deploy a range of IP and related rights against its ex-employee, securing the necessary injunctions from the court to prevent further unlawful damage to its business.
The departing employee had taken an electronic copy of the employer’s contacts database. The employer’s business involved organising conferences and it had developed a large volume of contacts which were fundamental to this business. The data was gathered by various methods, including by collating details of respondents to advertising and service offerings, and through use of the LinkedIn networking site.
The employee worked for the employer as a conference organiser for a couple of years before resigning to start his own company (which he had stated was not in the events industry).
In fact, he set up in direct competition with his old employer, having taken a large amount of the employer’s customer database to his new business venture.
The rights asserted
The employer relied on a number of rights to secure effective enforcement against the ex-employee, including breach of confidence, infringement of database rights, and passing-off.
The result of a search order against the ex-employee revealed that a considerable amount of the employer’s database existed on his system. The employee attempted to explain the presence of the data in various ways, including that he had obtained the information from other sources. However, the employer’s forensic computer records showed that the employee had managed to download the data and send it to himself both during and after he had left employment. Also, the employer’s contact database had been ‘seeded’, a number of these seeds being found in the employee’s database, for which there was no reasonable explanation other than the employee’s database had been taken from the employer’s.
It was acknowledged that some of the material was not strictly confidential (in that some of it could be found by spending time searching available sources). However, having it available in database form from the employer had given the employee an unlawful ‘springboard’ for his new business, enabling him to compete in a way that he would not have been able to do otherwise. The court ruled that this was a breach of confidence.
The Database Regulations provide a form of intellectual property protection over databases where there has been a substantial investment in the obtaining, verifying, or presenting of the contents of the database. The court held that the employer had spent considerable time and expense in obtaining the contents of the database and so it qualified for protection. It went on to find that the ex-employee had infringed the database rights by ‘extraction’, in that he had extracted a substantial amount of customer contacts, sales information and other data from the database.
The court determined that the ex-employee had clearly sought to pass his new business off as being somehow connected or associated with his old employer. The website he set up advertising his new conference services suggested that the forthcoming speakers at the conference were ‘previous speakers’. Clearly they could not be previous speakers of the employee’s new venture as it had not previously existed.
He had also tried to poach his old employer’s speakers from the previous year by approaching them and indicating that their speaking at his conference would be a follow-up to last year’s engagement.
The court held that these activities were clear examples of passing-off by use of misrepresentations in order to misappropriate goodwill of his employer’s business.
Employers may have a range of rights to deploy against ex-employees who steal data and other information to give them an unlawful ‘springboard’ for their new business.
This case highlights a number of steps for employers to consider in order to maximise chances of protecting against this activity:
- Increase data and information security systems, particularly to avoid any prospect of an ex-employee being able to get access once they have departed.
- Place tracking ‘devices’ in the database, such as seeding it with some fake contacts: if these show up in the defendant’s database it is very difficult for it to argue that it assembled the data from another source.
- Take steps to properly mark confidential material with confidentiality notices.
- Act quickly once there has been a breach. This is for two reasons: firstly to reduce the risk that valuable digital evidence of downloads, emails, etc, are lost or destroyed; and secondly so that the ex-employee’s unlawful activities can be stopped quickly before further damage can be caused. The courts will expect an employer to act quickly if it is seeking urgent holding injunctions to protect the position pending a full trial - delay can be fatal to such applications.