How safe is your knowledge?

One
in three senior staff who leave their jobs takes their employer’s confidential
information with them. With departures and redundancies rife, what can you do
to protect your intellectual investments? By Sarah Whalley Coombes and
Elizabeth May

Patent rights

Pete Smith runs a small engineering company called Valve-u-Like, with
30 staff. John Brown has been an employee of Valve-u-Like for the past 10
years. He was primarily employed as the company’s accountant, but has recently
helped to design new valves. Brown’s employment contract is short and relatively
out of date.

Smith has heard on the grapevine that Brown has invented a new valve
fitting. As Brown has not been asked to invent a valve fitting, Smith becomes
suspicious and investigates. He discovers that Brown has applied to register a
patent for the valve fitting, along with a UK trademark for Valve-u-like Zotek.

From reading the patent specification, Smith is certain that this valve
fitting will be very successful and could earn his company a lot of money, but
he is concerned that Brown is named as the author and inventor of the patent,
and owner of the trade mark application. Valve-U-Like does not legally own the
patent, and therefore will not be able to exploit it. What can Smith do?

Sarah Whalley Coombes and Elizabeth May comment: Smith should check
Brown’s employment contract to see whether it deals with the ownership of
intellectual property (IP) created by workers. Ideally, an employment contract
should provide that any IP created by the employee will vest in the employer,
and the job description should specifically refer to inventing if that is to be
part of an employee’s job. Unfortunately, Smith’s employment contract has not
been updated since he first began working at Valve-u-Like as an accountant, and
it makes no mention of ownership of IP rights. Smith therefore cannot rely on
the employment contract to obtain an assignment of the IP rights.

Smith can ask Brown to assign the patent application to Valve-u-Like. It is
likely, however, that Brown will require payment in return for the assignment.

If Brown refuses to assign the patent or demands an excessive amount of
money, Smith will have to rely on UK statutory patent law, which provides that
an invention belongs to an employer if the following criteria are met:

– The invention was made in the course of an employee’s normal/specifically
assigned duties and an invention was reasonably expected to result

– The invention was made in the course of a worker’s duties, and there is a
special obligation to further the employer’s interests.

Specifically-assigned duties

As Brown was primarily employed as the company’s accountant but was expected
to assist with the designing, it may be difficult to argue that inventing valve
fittings was part of Brown’s normal/specifically-assigned duties, as his
contract is silent on this issue. Brown may have to apply to the court to
obtain a decision as to ownership of the IP on Zotek.

Smith should also be aware that even if Valve-u-Like eventually owns the
patent, the company could face a claim for statutory compensation from Brown
for the invention. Successful claims are rare as a worker has to show that the
invention’s patent is of outstanding benefit to the employer, not the actual
invention itself. The court will consider what the employer’s position would
have been if the patent hadn’t been granted.

Smith cannot rely on any provision in the employment contract to obtain an
assignment of the trademark application and should ask Brown to assign the
application to Valve-u-Like. If Smith refuses, Valve-u-Like should oppose the
trademark application on the basis that it has been applied for in bad faith,
as Brown has no rights to Valve-u-Like. In addition, as Brown has used the
company name in the trademark application, the company could oppose on the
basis of its earlier rights to the name Valve-u-Like.

Confidential information

Neil is a software developer. He recently left his employer, IT
Solutions, to join a competitor, Software Solutions. His employment contract
did not include any clauses dealing with IP or confidential information. When
Neil left IT Solutions, he took a copy of IT Solutions’ customer list, along
with the software he was developing. IT Solutions believes Neil has given a
copy of the customer list to Software Solutions, and that he is also using the
developed software in his new job.

SWC and EM comment: The departure of a worker to a competitor raises
a host of potential problems for the ex-employer. In this scenario, IT
Solutions is faced with an ex-employee who may have taken confidential
information (the customer list) and copyright material (the software) to a
competitor. This is not an uncommon scenario.

Confidential information is a valuable commodity which provides businesses
with a commercial advantage over competitors. Customer lists are usually
confidential, and their unauthorised use or disclosure to the detriment of the
ex-employer will amount to an actionable breach of confidence. Although there
is no need for a written agreement to protect confidential information, an
employment contract showing that the worker agreed to keep such information
confidential can provide added protection and increase an employer’s chances of
obtaining immediate injunctive relief against an ex-employee.

As for copyright works and materials, copyright arises on the creation of a
work (such as a software program) and is normally owned by the employer if the
work is created by the worker in the course of their employment. Among other
things, copyright is infringed by the unauthorised reproduction or modification
of a substantial part of the copyright work.

What can IT Solutions do to recover its confidential information and
copyright material and to prevent Neil/Software Solutions from using it?

Provided that Neil’s job involved the development of software, the copyright
in the software he developed while employed by IT Solutions would belong to the
company. However, if Neil had been a consultant rather than an employee, the
copyright for the software he was developing would have belonged to him and not
IT Solutions (unless it was assigned to IT Solutions under the terms of the
consultancy arrangement). Therefore, if Neil is using the software in his new
job (or, at least, a substantial part of it), such use will infringe IT Solutions’
copyright.

If Neil disclosed the customer list to Software Solutions, he will be in
breach of his duty of confidence to IT Solutions, and it will therefore have a
cause of action for breach of confidence. If Neil’s employment contract had
included a clause that all know how/confidential information was to be kept
confidential, then IT Solutions will have additional contractual protection.

IT Solutions should act quickly if it wants to put a stop to Neil’s
activities. One way to stop him (and Software Solutions) from making
unauthorised use of the confidential information and copyright material would
be to seek an urgent injunction preventing such use. Where an ex-worker has
moved to a competitor, it is imperative action is taken immediately; a delay of
two months has previously been considered a bar to injunctive relief.

IT Solutions would be in a stronger position regarding the customer list if
it had dealt with confidential information in Neil’s employment contract (this
is because, on an injunction application, it is easier to prove breach of
confidence where there is a contractual provision specifically dealing with
confidential information).

Another useful remedy for IT Solutions would be a search order. The purpose
of such an order is to preserve evidence where there is a real risk that the
evidence will be destroyed. It would be easy for Neil and/or Software Solutions
to destroy the customer lists and software – the key evidence. A search order
may therefore be the best way for IT Solutions to proceed. Such orders are
recognised as particularly powerful tools where software theft is involved.

IT Solutions should have checked that all confidential information and
copyright material was returned before Neil’s departure. In addition, IT
Solutions should have included IP and confidential information clauses in the
employment contract to ensure that all IP works/materials and confidential
documents were returned to the company on termination of his contract.

Sarah Whalley Coombes and Elizabeth May are solicitors at Field Fisher
Waterhouse

Ownership of IP rights

IP right                                    First
owner

Patents
                                    The
employer, provided they are made in the course of the employee’s
normal/specifically-assigned duties and the invention was reasonably
expected to result or was made in the course of the employee’s
duties, and the employee has a special obligation to further
employer’s interests

Copyright                                 Employer,
provided and created by their employee in the course of employment

Registered designs                    Employer,
where the employee creates the design in the course of employment

Unregistered designs                 Employer,
where the employee creates the design in the course of employment

Trademarks                              Legislation does
not deal with employer/employee ownership. But an employer can
apply to cancel a pending application by an employee attempting to
register the employer’s mark/logo

Know how/confidential info       Employer, provided that kept secret

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