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Going to work for the competition

As technology develops, employees become increasingly more mobile and able to capture key information in a portable way. While this has many advantages, there are obvious threats for employers, both new and old.

May 2014

With this backdrop, the protection of databases becomes increasingly important for businesses, given the increased large amount of business critical information now stored in electronic databases.

General principles on use of information and data post-employment

Where a former employee takes his or her former employer's information, data or materials to a competitor, the former employer will normally have a range of options open to it.

copyright, IP, patents wordsearchUnder English law, an employer will usually own intellectual property rights created by the employee in the course of their employment.1 This means that, subject to any agreement to the contrary, the employee is not entitled to make use of the rights when he or she leaves. As far as materials are concerned, it may be that the employer will own the physical document and also the copyright in those documents such that they cannot be used by the former employee. As far as inventions are concerned, it may be that the employer will have a registered patent that can be enforced against the former employee and its new business or employer. In this article, we look at situations where a former employee (or new employee) has taken know how or key documents from their employer. In these situations, it is most likely to be breach of confidence claims and/or a database infringement claim that will arise:

Is the information confidential?
  • In order to bring a breach of confidence claim, the employer would need to show that the information in question (i) has the "necessary quality of confidence" and (ii) was imparted in a "situation imposing an obligation of confidence". Examples of confidential information include customer lists, pricing details and profit margins.
  • In addition to any express duties in their employment contracts, during their employment, employees owe their employers implied duties of confidence and of fidelity or good faith (even if their employment contract is silent on the point). Following termination of the employment relationship, there are certain implied restrictions2 on the former employee about the use of information obtained from their former employer:
    • An ex-employee can use information that is trivial or easily accessible from public sources;
    • An ex-employee is also permitted to use confidential information that necessarily remains in his or her head and becomes part of the employee's own skill and knowledge. This is subject to any restrictive covenant that may be in the employee's employment contract.
    • However, an ex-employee is not able to make use of information that is highly confidential (even if it is in their head) and is referred to as "trade secrets" or their equivalent: for example, chemical formulae, designs or special methods of construction. Aerodynamic designs relating to Formula 1 cars3 and technical information relating to mobile phone technology4 have recently been held to be trade secrets.
Is it a database?
  • In order to bring a database right claim, the employer would need to demonstrate that it has a database. The law defines a database as a collection of independent works, data or other materials which are arranged in a systematic or methodical way and are individually accessible by electronic or other means. Client, customer and contact lists would normally satisfy this definition. A database will be protected by database right where there has been a "substantial investment" in obtaining, verifying or presenting the contents of the database.
  • It can be difficult to establish whether a particular piece of information is one that can be classed as part of the employee's skill and knowledge. Courts have considered factors such as; the steps taken to protect the information, the separability of the information from other information, the commercial value of it, uses and practices in the trade.
  • It is an infringement to extract or reutilise all or a substantial part of the contents of the database or to repeatedly and systematically extract or reutilise insubstantial parts of the contents of a database. An employee who, without permission, takes customer lists with them when they leave and subsequently uses them for their own benefit is likely to infringe database right.

Case studies

There have been a number of recent cases that illustrate the parameters of these rights, after termination of an employment contract:

Flogas Britain Ltd v Calor Gas Ltd5

Calor Gas admitted that it had used customer details obtained from Flogas' database. It had obtained these details from a former employee of Flogas who went to work for Calor. The former employee provided Calor's Head of Marketing with an Excel spreadsheet with customer information. Calor admitted liability in relation to Flogas' breach of confidence action but not in relation to database right infringement. The judge found that the customer list was protected as a database and that database right had been infringed6 by two of Calor's employees (including the former Flogas employee). Calor was found to be vicariously liable for its employees' actions, despite having dismissed the two individuals concerned and pleaded that they had effectively been on a frolic of their own. Here, the breach of confidence claim had been admitted by Calor. Given it had admitted vicarious liability for breach of confidence, by implication, it was difficult to say that vicarious liability could not exist for the database right infringement claim. 

Vestergaard Frandsen A/S and others v Bestnet Europe Ltd and others7

The claimant manufactured insecticidal fabrics used in mosquito nets. Mrs Sig had been employed by the claimant, initially as a sales and marketing assistant, and later as a regional sales manager for Europe and Latin America. She left the claimant to set up a rival business with another of her colleagues, Mr Larsen.

Mrs Sig and Mr Larsen then started to work with Dr Skovmand who was a former consultant of the claimant. He had developed techniques for the claimant (including identifying ways of preventing insecticide from being lost during manufacturing process). This information had then been stored in a database.

The trial judge found that Mrs Sig, Mr Larsen and Dr Skovmand were liable for breach of confidence, namely trade secrets. Mrs Sig appealed.

The Supreme Court upheld a Court of Appeal finding that Mrs Sig was not liable. The confidential information wrongly used was not information gained by her in her employment but by Dr Skovmand. Mrs Sig did not know Dr Skovmand had used this information. The Supreme Court refused to imply a term into her employment contract that she would not assist another to abuse trade secrets owned by her employer in circumstances where she was unaware they were being misused. As for Vestergaard's submission that Mrs Sig had a common design to infringe (a common intention to infringe) "common design", there was no common design. Mrs Sig neither had the trade secrets nor knew that they were being misused. Vestergaard could not be entitled to damages from Mrs Sig in respect of losses suffered from misuse of their trade secrets at a time when she was honestly unaware there had been any misuse. However, a person who receives and uses confidential information can be liable for using that information once he or she appreciates that it is confidential.

Pintorex Ltd v (1) Nasser Keyvanfar (aka Hamid Kay) (2) Parax Office Limited (3) Djahanshah Akhavane-Zanjani8

Mr Kay, an employee of stationery business, Pintorex, agreed to form a new stationery business with an associate, Mr Zanjani. They incorporated a new company with Mr Zanjani as its sole director. Mr Kay then resigned from his position at Pintorex and went to work for the new business, Parax Office.

Pintorex sued Kay, alleging that he had copied its entire Sage accounting database prior to leaving and had developed opportunities for Parax whilst an employee of Pintorex. The database contained information such as goods bought by customers, prices paid, quantities ordered, customer enquiries etc.

Pintorex was successful in establishing that Kay and Parax Office were liable for misuse of confidential information.

The judge found that the database Kay had copied onto a computer given to him by Parax Office, contained confidential information. Even though Kay took the information before he was an employee of Parax, he was found to have acted as an agent for Parax and was not on a "frolic of his own", such that Parax was liable with Kay.

Pintorex was unsuccessful in establishing that Mr Zanjani was liable on the basis that Mr Zanjani was the controlling force behind Parax. Mr Zanjani, while the judge found that he may be said to have been "somewhat careless" in giving Mr Kay a free hand, was not aware of the precise nature of Mr Kay's obligations to Pintorex. There was no strong evidence that Mr Kay had, on the balance of probabilities, "dishonestly" turned a blind eye or ignored the possibility that Mr Zanjani was misusing confidential information.

SMI Group Limited v (1) Daniel Levy (2) Marta Levy (3) IB Consultancy BV (4) Mr Ilja Bonsen9

Two former employees of SMI Group went to work in Singapore for IB Consulting BV. In competition with SMI Group, the two former employees organised a conference for their new employer in Singapore. SMI Group alleged that its former employees had extracted substantial amounts of commercially confidential and valuable data from its servers and/or database and used them to organise the conference.

In deciding that the English court had jurisdiction to hear the dispute, the judge had to consider whether SMI had a good arguable case on its claims which were for breach of the Levys' employment contracts, breach of fiduciary duty (against Mr Levy only), breach of confidence, and infringement of copyright and/or database right. The judge thought that the claimant had a good arguable case that the claimant's database was protected by database right and that this right was infringed by the defendants. The judge also thought there was an arguable case that Mr Bonsen, who controlled the third defendant, could be personally liable for the database right infringement. He might also be a joint tortfeasor with the new employer, IB Consulting.

Lessons:

  • A trade secret can include a piece of information that is memorable. There may well be a misuse of information even when a former employee or consultant makes use of a key piece of information it has memorised10.
  • Database right is likely to protect customer lists. In some cases, it may protect a LinkedIn network of contacts. To read more about this, read our article, The LinkedIn effect: the employer's or the employee's account?
  • A former employee will only be liable for misuse of confidential information where he or she uses information gained in the employment. When working with others who are misusing confidential information gained from a former employer, the former employee will only be liable where they are aware of this or become aware of it.
  • The new employer may well be vicariously liable for the activities of its new employee even where those activities took place when the employee was still employed by its competitor. Has the employee acted on a frolic of his own or as the new employer's agent?
  • Equally, board members of the new employer might also be personally liable where they are the controlling force of the company and are aware of the employee's infringing activities or misuse.

Tips:

  • Obviously, it is a good idea to have a robust confidentiality clause in employee and consultant contracts and to spell out the details in any staff handbook.
  • Restrict access to confidential information such as by using password protection. For example, can data be encrypted or stored so that large amounts of data cannot be downloaded?
  • Label confidential information: an employer must ensure that the employee is aware that the information, when disclosed to him or her, is to be treated as confidential. Marking documents with "confidential" can achieve this. If the Trade Secrets Directive is adopted in its current form (see below), note that the current draft suggests that, when considering granting remedies such as an injunction to prevent use of a trade secret, the court must take into account factors such as the measures taken to protect trade secrets. Encryption and labelling documents "confidential" may become all the more important.
  • Limit dissemination as far as possible, ensuring confidential information is only shared with as narrow a group as necessary.
  • It can be difficult to identify the dividing line between "confidential information" and "trade secrets". The importance is as explained above: a former employee cannot use its employee's trade secrets but can use confidential information contained in his or her head (and which has become his or her general knowledge) after the expiry of any restrictive covenant. When considering whether information is a trade secret, the court will have regard to the nature of the employment and of the information itself, whether the employer impressed on the employee the confidential nature of the information and whether the relevant information can be easily isolated from other information which the employee is free to use and disclose.

contractAs an employer, to minimise the risk of being vicariously liable for infringements and misuses, ensure that your employment contracts stipulate that it will be a disciplinary matter to use information or data in the course of employment where the employee knows or should know it to be infringing or a misuse.


For the future, the European Commission has adopted a proposal for a Directive on the protection of trade secrets. If the draft directive is passed, it will then need to be implemented into the national laws of each of the European member states. As the draft stands at the time of writing, there would be few changes to English law on trade secrets. Strangely, the law governing trade secrets will be codified in statute but not the remainder of the law on confidential information. For other countries, the changes in substance are likely to be more far reaching, for example, changes to Slovakian law. To read more about the draft Directive generally, see our article, A new European trade secrets regime takes shape.

If you have any questions on this article please contact us.

1 There are certain exceptions to this rule.

2 See in particular, Faccenda Chicken v Fowler [1987] Ch 117

3 Force India Formula One Team Ltd v Aerolab SRL and another [2013] EWCA Civ 780, 3 July 2013 - In this case, the Court of Appeal had to consider (among other things) whether there had been a misuse by the defendants connected with the Lotus Formula One team of confidential information relating to car design and belonging to the rival team, Force India. At first instance, the trial judge had found that a precise, but memorable, dimension could be regarded as part of the Aerolab's employees' skill, knowledge and experience such that it could not be confidential. The Court of Appeal disagreed, finding that an identified piece of confidential information did not cease to be confidential simply because it was memorable.

4 HTC Corporation v Gemalto SA [2013] EWHC 1876

5 [2013] EWHC 3060 (Ch), 16 October 2013

6 The judge relied on British Sky Broadcasting Group Plc v Digital Satellite Warranty Cover [2011] EWHC 2662 finding that time and effort put into the creation of a database including customer details as well as other information such as client history as to orders and deliveries (information that already exists and is not created by the person inputting the data) is the right sort of investment and can be protected by database rights.

7 [2013] UKSC 31, 22 May 2013

8 [2013] EWPCC 36

9 [2012] EWHC 3078. 9 October 2012

10 As was the case in Force India Formula One Team Ltd v Aerolab SRL and another [2013] EWCA Civ 780, 3 July 2013

Handshake with jealous audience
Lorna Caddy

Lorna Caddy


Lorna Caddy looks at recent cases where a business' former employee goes to work for a competitor and takes know how or key data with them. In what circumstances will a former employee be liable for breach of confidence and/or database right infringement? In what circumstances will their new employer be liable for any breach by them?

"A trade secret can include a piece of information that is memorable. There may well be a misuse of information even when a former employee or consultant makes use of a key piece of information he or she has memorised."

"Obviously, it is a good idea to have a robust confidentiality clause in employee and consultant contracts and to spell out the details in any staff handbook."