The electronic storage of businesses’ trade secrets and confidential information can make it easy for employees, who are leaving to join a competitor or to set up a rival business, to download vast quantities of data onto disks or memory sticks, and simply walk out the door. It is worth noting that confidential information is much broader than just trade secrets and encompasses things like business plans, customer lists, future plans and business systems.
An employer may have many potential causes of action against an employee who has misused or disclosed trade secrets without permission, including the following:
- breach of duty under employment contract;
- post-termination restrictive covenants;
- breach of confidence; and
- database right infringement.
Guidance as to what constitutes “confidential information” was given in the leading English case of Faccenda Chicken Limited v Fowler.
This information can be protected after the employment relationship has ceased because of an implied duty of fidelity. In determining if the information is protected the judge suggested that the following matters should be considered:
- The nature of the employment: if the employee routinely handles confidential material he may be subject to a higher obligation of confidentiality because he can be expected to realise the sensitive nature of the information.
- The nature of the information itself: information which is so highly confidential as to be classed as a trade secret, for example, secret processes of manufacture, cannot be disclosed.
- Confidentiality: Did the employer impress on the employee the importance of the confidential information?
Generally, an employer cannot insist that information forming part of the employee’s own skill and knowledge be kept confidential once the employee has left the employer (although, during the contract of employment, the employer can require this not to be disclosed to third parties, especially competitors).
Many court proceedings taken by employers against former employees seeking to stop them from misusing or revealing confidential information are lost before the case comes to court because the employer failed to take the necessary basic steps to protect its interests before problems arose.
In June 2009, the UK High Court upheld a claim for misuse of confidential information in the case of Vestergaard Frandsen v Bestnet Europe. Over a number of years Vestergaard had stored its confidential trade secrets in a database. The court concluded that the database was more than just a stock of knowledge that an employee would acquire in the course of his duties and that the information within the database constituted trade secrets. An ex employee who misused the contents of the database in order to give his new employer’s development programme a head start, was held to have breached his duty of confidence.
The judge found that injunctive relief could be granted in respect of misuse of confidential information which subsequently enters the public domain if:
- the defendant’s use of the confidential information gives an advantage over competitors because the defendant does not have to spend the time reverse engineering the product to discover the confidential information; or
- the defendant continues to benefit from a prior misuse of the confidential information.
The Springboard Doctrine
The springboard doctrine was first introduced into UK law in the Terrapin v Hayes case to describe the advantage obtained by one party from having access to another party’s confidential information in creating its own product.
The judge in the Vestergaard case considered that a springboard advantage might provide a basis for restraining a defendant where he had obtained a head start through use of that technical information without having to deduce it through reverse engineering. The injunctive relief could last for the period of time it would have taken them to have reverse engineered the solution themselves.
The judge also concluded that, in principle, a defendant could be restrained from making and selling products derived from misuse of the information but which do not themselves embody or disclose any of the information, although each case must be determined on its own facts.
Ireland: the Spice Burger Case
In recent Irish proceedings, the makers of spice burgers secured a number of High Court injunctions against a former director who it was claimed had been passing off burgers made by him as their product, as well as using trade secrets that were the property of the company. The case was later resolved and the matter struck out with the former director agreeing to leave its production to the company for a period of three years.
Employers should be aware that although the law of confidence is a useful tool to protect trade secrets, it is best practice to obtain express written obligations of confidence from all employees and consultants who are exposed to commercially sensitive information at the outset of their work to avoid arguments about the scope of their obligations in the future.
