In light of technological developments as witnessed by the onset of the ‘digital age’, the fight to stem IP theft and to protect corporate goodwill between businesses and former employees is becoming one of the largest areas for commercial disputes and litigation in the area of intellectual property relating to confidentiality and commercial law.
People are increasingly hearing terms such as “theft”, “literary larceny”, “open piracy”, and “robbery” connected with the development, use and ultimate misappropriation of IP by individuals from enterprises. These terms are increasingly used by commentators and the courts alike in respect of stigmatising those activities associated with infringers of IP rights.
With IP being at the heart of nearly every modern business enterprise today, whether large or small and across any industry sector, the issue of IP theft by employees or former staff remains pressing and the question of protecting IP remains as a critical commercial concern.
The potential for IP theft has been aided and abetted by the modern techno-industrial revolution ushered in by the digital age which shows no signs of slowing. The ever-growing reliance by enterprises on technology means that the opportunity for IP theft will only continue to grow and become even more sophisticated and difficult to prevent. Various forms of modern digital media enable electronic storage and retrieval of data and communication at unprecedented levels.
Added to this is a workforce that is equipped with notebooks, MP3 players, mobile phones, flash drives, external hard drives – hardware that when combined with the right opportunity and software now means that it is both simple and easy for employees or executives to misappropriate an enterprise’s IP and trade secrets.
IP theft can span a range of potential sins, from the alleged copying of works (details of an inventory management project, internet sites, manuscripts, submissions, etc), appropriating a company’s client database, copying a design for a new dress, copying email or supplier lists, taking corporate ‘know-how’, pinching a corporate brochure copy and layout to the passing off of a business name or infringing a registered trademark. To put it plainly, the range of IP which is up for a ‘smash and grab’ by individuals is extensive.
The statistical evidence bears out the increasing tendency of employees to seek the spoils and benefits of this potentially lucrative but ultimately forbidden fruit. Over the 12 month period up to January 2007, Ferrier Hodgson Forensics IT has reported a 100 per cent increase in the number of its IP-related litigation assignments. The key lesson that this firm has drawn from such experience is that “employers could be doing so much more to protect their valuable IP. The complacency we have seen – through naivety or ignorance to the dangers – is disturbing.” (forensics@ferriers, Issue 11, January 2007). This is not an isolated view as both here in Australia and overseas the trend for IP theft is continuing to grow.
A UK study of 400 businesses by forensic specialists IBAS has found that in nearly 70 per cent of cases business professionals had stolen some form of corporate IP from their employer when leaving a job. The main forms that the information took as identified by the study included email addresses, sales proposals/presentations and customer databases/contact lists and information.
While the rough practical test the courts have adopted has been “what is worth copying is prima facie worth protecting”, the following are some areas that any enterprise should look to as part of an IP audit/protection strategy to minimise the risk of exposure against IP theft:
Brand protection – A brand may be just about anything that can be used to distinguish goods or services of one business or trader from those of another. Many people tend to focus on brand protection narrowly by confining their approach to the question of “trademark” registration. While this is fundamental, it is only part of a comprehensive brand protection strategy. An effective brand protection strategy encompasses many facets of an IP strategy including selection and registration of an appropriate trademark/s, a consideration of business names exposure and risk, ongoing and timely reviews of all key contractual documents (include ‘terms and conditions’ and related supplier/client agreements) as well as other IP-related areas set out below.
Copyright – This is an area of IP law that is increasingly coming before the courts. The function of copyright is that it offers protection and reward for “authors” in relation to putting an original idea into material form. Copyright is essentially a bundle of economic rights that belong to an author. Copyright rights subsist in many types of works, including written works, pictures, photographs, music films and computer programs. The general rule is that ownership of copyright vests in the person who is the author of the work. If the work is jointly authored, then ownership of the copyright will also be joined.
Confidential information – Confidential information can take many forms. It can consist of financial reports and analysis, resumes, client reports, financial information, strategic business development plans, contents of business documents, including lists of customers or suppliers, tender or ‘pitching’ documents. In one sense there is no limit to the form that confidential information can take in relation to the operation of a commercial enterprise. In order to protect confidential information the courts have established a three stage test, however, there are steps which an enterprise can take to further protect its confidential information.
Trade secrets – There is a growing list of cases coming before the courts where employers are seeking to prevent former employees from using their trade secrets, know-how and other proprietary information being used in competition against them by former employees or their new employers. Conversely, new employers need to be mindful and seek guidance as to the obligations that former employees continue to bear and many cases can be averted if employers seek appropriate legal advice. This is a complex area of the law and knowing the appropriate legal steps to take from both sides of the legal fence is essential.
Patent and design registration – The registration of designs and inventions unlike copyright in Australia are both ‘registrable rights’ and with recent changes being introduced in the legislation relating to patent and design registration, enterprises should seek legal advice in relation to effectively protecting these two fundamental areas of IP rights.
Service agreements and restraint of trade – Many executives and employees are subject to service agreements when contracted by modern enterprises. These agreements set out the terms and conditions of the employment between the parties including confidentiality and restraint of trade. Many modern day agreements contain restraint clauses which seek to limit the time (and sometimes location) in which a former employee can work within a geographic area or with a competitor. These clauses are subject to the common law doctrine of restraint of trade which proscribe undue interference with the freedom of trade including the right to sell one’s personal labour. In the employment context, a post employment covenant will be generally unenforceable unless the employer is seeking to protect trade secrets or to prevent the solicitation of established customers by an employee who has had personal contact with those customers.
In light of IP theft, there clearly has been a shift in the direction that many enterprises have taken when confronted with the realities of the digital age. While many have traditionally considered the threat/risk matrix to be driven from outside the organisation by intruders including ‘hackers’ and other unidentified IT assaults; a need has now clearly emerged to make an assessment and take appropriate steps from the exposure from within and the potential lure of employees and other staff of illegally appropriating an enterprise’s IP and trade secrets.
In Australia, there have been an increasing number of cases involving claims by companies and businesses against former employees and senior executives.
Recent Australian cases relating to IP theft or alleged theft illustrate the growing incidence of litigation in this area have included disputes over:
• The ownership of customer database lists and confidential information relating to distributors and suppliers;
• Restraint of trade clauses involving former employees working with competitors across a range of industry sectors including IT, financial services, manufacturing and the services sector;
• Allegations of piracy in the music, television and video industries;
• Allegation of misappropriation of the ideas and ‘architecture’ of an original copyright work;
• The use of corporate promotional brochures and copyright;
• The copying of PowerPoint presentations and content;
•The use of another enterprise’s trading name and breach of its trademark; and
• The theft of operational guidelines in the supermarket sector.
McMahons National Lawyers is able to assist clients and enterprises in addressing their IP requirements by providing a full range of IP services. For more information, contact William Mulholland, special counsel at McMahons National Lawyers on 03 9602 6044 or wmulholland@mcmahons.com.au.
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