A brokerage firm may not lawfully use information relating to the customers of its principal after the termination of the agency relationship, according to a recent ruling of the IP Court of Milan.

In the case decided by the Court of Milan, an insurance company sued one of its former brokerage firms and two of the firm’s employees for having allegedly used privileged information made available to them regarding the plaintiff’s customers (such as customers’ details, contract terms, policy expiry dates) in order to cause a massive migration of customers to the broker’s current principals. The defendants had drafted hundreds of notices of termination addressed to the plaintiff on behalf of the latter’s customers, asking the customers to sign them while promising better conditions with the plaintiff’s competitors.

The plaintiff argued that the defendants’ conducts constituted a violation of trade secrets, infringement of database rights and acts of unfair competition, and sued the competing companies that had most benefited from the massive loss of clients as co-defendants.

The merits proceedings were preceded by an ex parte search and seizure of material evidence at the defendant’s premises, carried out at the plaintiff’s request.

The ex-broker and its employees contended that the information en suit were not trade secrets, nor gave rise to any database rights. They invoked their right to use information acquired during years of activity on the territory, and attributed the mass defection of customers to the plaintiff’s bad business strategies.

The IP Court of Milan, however, upheld most of the plaintiff’s claims. First, the judges recognised that the personal and commercial information pertaining to the contractual relationships between the plaintiff and its customers was protectable as “undisclosed information” for the purposes of the law, finding that it could not be said to be generally known or readily accessible to players in the market area, that it possessed intrinsic economic value and that it had been surrounded by adequate protective measures, both of a technical and regulatory nature.

In point of law, the Court rejected the defendant’s argument that customers’ information collected by a broker during the contractual relationship with the insurance company could be defined as independently obtained. The Court observed that the brokerage firm had collected that information as an agent on behalf of the principal, and had been compensated to do so. It also noted that the obligations of returning and ending the use of any commercial and personal information concerning the principal’s customers at the time of termination were somehow inherent to agency agreements, and were part of both the actual CBAs and individual agreements to which the parties were subscribers.

On the merits, the Court found that, based on the evidence collected during the ex parte search at the broker’s offices, the plaintiff’s trade secrets had, in fact, been unlawfully held and used by the defendants. The judges noted that electronic files containing names, policy numbers and expiry dates matching data contained in the plaintiff’s archives had been found at the ex-broker’s premises and had been used after the termination of the brokerage agreement. Dozens of paper files concerning the plaintiff’s insurance policies had also been found, which had no reason to be there after the termination of the relationship between the parties.

The Court found that these conducts constituted a violation of undisclosed information, unfair competition through unlawful diversion of customers, and, finally, infringement of the sui generis database rights over the database constituted by the personal and business data concerning the plaintiff’s customers. Said database, in the Court’s view, had indeed been formed at the cost of significant investments, and the reproduction of the data it contained was tantamount to a permanent transfer of a substantial part of its content.

The Court found, on the other hand, that the co-defending insurance companies – sued by the plaintiff for having allegedly knowingly benefited from the unlawful diversion of customers caused by the main defendants – could not be held jointly responsible, for lack of any proof that they were aware of the unlawful methods employed by the broker. The Court also ruled out vicarious liability under the doctrine of agency, since the brokerage firm worked for several principals at once and as such would, in the Court’s view, act chiefly in pursuit of its own interests, which did not necessarily coincide with those of any of its principals.

In view of the above, the Milan Court enjoined the main defendants from further using the confidential information of the plaintiff’s current and former customers, subject to a pecuniary penalty, and ordered the prosecution of the trial against them for the quantification of damages suffered by the plaintiff. It rejected, on the contrary, all claims against the current principals of the defendants.