Residential property

Employees Absconding with the Company’s Intellectual Property

Has your company been working on something secretly that will massively increase turnover? The downside now is that one of your key employees is leaving to go to a competitor and they know all of your secrets. This is a painful but common scenario.

Here we explain how you can minimise the risk and what we can do to help protect your business.

How do I minimise this risk to my company?

Employment contracts are essential. This should deal with the protection of confidential information; it should assign all Intellectual Property rights from the employee to the company; it should restrict the employee in soliciting the company’s customers and with competing with your business generally.

Consider exactly what you are seeking to protect and insert bespoke drafting to protect it. For example, in the recent case of MPT v Peel, the judge noted that if your definition of “confidential information” is incredibly wide (which you may intuitively think provides more protection), this can actually be counter productive as you can have problems identifying what information you want to prevent being revealed when requesting an interdict / injunction (a court order stopping the employee using the confidential information).

Also remember to audit your employment contracts periodically. The newest version of your contract may deal with all these issues but does the first version you used when the company was on a shoestring budget. The first version of the employment contract is likely to be the contract that needs to bind a key employee - it needs to be equally tight.

What can I do to minimise the risk after the employee confirms they’re going?

Seek disclosure of the departing employee's personal laptop, USB sticks and text messages sent on personal and business mobile phones, in order to build up a fuller picture of what wrongdoing might have taken place. A company can also make a number of court applications in order to protect or gain early sight of key documentary evidence.

Forensic analysis could be important to try to establish an evidence trail linking the departing employee to an unlawful act of IP infringement. Try to avoid instructing the company’s own I.T. team to do this: it could compromise the evidence trail and if done incorrectly could mean that the company risks failing to preserve key evidence.

Legal action may well be needed; usually a company will rely on contractual breach of the terms of the employment contract. However, it pays to think widely about what IP infringements the departing employee might have committed. For example, a departing employee who copies emails from key clients onto his personal USB stick not only commits a breach of confidentiality, but also a copyright infringement each time that employee copies and pastes the content onto a USB and then downloads them onto his laptop, or uploads them on his new employer's servers.

As well as considering potential causes of action, it’s also important to consider what remedies are important to the company. Typically, a company will seek damages for lost profits, lost customers and increased recruitment fees, or alternatively an account of profits from the other side. For this reason, it’s often worth including the new employer of the former employee as a co-defender in any legal claim because the new employer may be vicariously liable.

The most valuable remedy can be an interdict (as described at the start of this note). This can be sought at an early stage in proceedings to keep the former employee and the new employer from using the IP and confidential information, or to mandate the delivery up of the IP and confidential information. If granted, an interdict can have significant commercial implications for the former employee as well as the new employer. Interdicts therefore tend to be a strong inducement to settle the case early on.

In conclusion, Intellectual Property rights can be essential to your company. They create and increase value. They deserve to be considered at the start of the company’s life, periodically reconsidered to ensure continued protection or protection of new ideas and, of course, if there is a problem like a departing key employee. We can advise you on each of these stages. To discuss this further, please contact us.

Michael Cox

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