Employee trade secrets theft - EU Directive "shines occasional light" on English law

The Intellectual Property Enterprise Court (IPEC) recently handed down what we believe is the first judgment[i] to consider the relationship between common law rules on breach of confidence and the recent EU Trade Secrets Directive[ii].

As widely expected, the decision supports the idea that English common law rules do not conflict with the Directive and are largely unaffected by it. However, the judge suggests that clear wording used in the Directive can provide a good guide to deciding whether information is to be regarded as confidential or not, effectively shining a light on the interpretation of English law in this respect. It is helpful that this guidance comes in the context of a dispute with employees, which is one of the most frequent types of trade secrets disputes met in practice. In such cases, the question of whether information taken by employees moving to a new job is to be regarded as confidential to the original employer is often key.

What qualifies as confidential information?

Under Article 2 of the Directive information is to be regarded as confidential if three conditions are met[iii].  First, it must be secret in the sense that it is not generally known among or readily accessible to persons within the circles that normally deal with that kind of information. It will be seen from this that the requirement is not for absolute secrecy. The Directive also makes it clear that a collection of information may be regarded as secret even if individual elements of it could be found from public sources.  This is most relevant to collections of data but may also apply, for example, to individual components of a larger design.  The second condition is that the information must have commercial value because it is secret. This is a very practical test in a business context[iv]. The third condition is that the information must have been subject to reasonable steps under the circumstances to keep it confidential.

The case

Employees of the well-known travel agent, Trailfinders, moved to work with a competing travel agent, Travel Counsellors Limited (TCL).  The Court found that, before they left their employment, they had copied customer information from their employer’s computer systems and had arranged for these to be uploaded to TCL’s systems. They had also accessed information in Trailfinders’ customer systems after they left for use in their new enterprise. The Court held that they had acted in breach of confidence both before and after their employment ended. Key to this finding was that the information taken was in fact confidential, and to decide on this issue the Court referenced the test set out in the Directive in parallel with English case law.  Important factors in the finding that the information was confidential included that it was stored on a password protected Trailfinders’ system to which only Trailfinders’ employees had access and that it was the kind of information which would be valuable to any travel business. A suggestion that the information was not sufficiently protected from public disclosure to be the subject of a breach of confidence action was rejected: although system security may not have been as rigorous as it ought to have been, there had nevertheless been an attempt to limit access. Finally, the Court rejected the argument that Trailfinders had not sufficiently informed its staff of the confidentiality of the information as it was clear that the employees were in fact aware of the need for confidence.

How can the employer improve its position?

The first line of defence is, of course, practical measures to discourage employees from stealing information in the first place including systems security, activity logging and exit procedures. In cases that do come to court, evidence of such security and procedures will be important in demonstrating that reasonable steps to protect the information have been taken.  Restricting information on a need-to-know basis and marking relevant files and documents as confidential is also helpful, as is evidence of relevant staff training or communications which underline the need to keep certain types of information confidential. Where, as in the Trailfinders case, employees have built up customer contacts themselves, confusion may sometimes arise as to the extent to which former employees may take lists of contacts with them, so it may be helpful to ensure that employees are made aware at an early stage that downloading – or deliberately memorising – such lists for use in the new job may result in legal liability. Confidentiality obligations and restrictive covenants in employment contracts should also be drafted carefully to ensure that these are enforceable and provide as much protection as possible where the employee moves job.

Our Employee Competition, IP and Data Protection experts offer practical guidance on how best to protect your business and deal with the immediate aftermath of employee exit. If you have any questions or would like to discuss any of these issues, please contact Tom Lingard or Hannah Ford or your usual contact at Stevens & Bolton.