How Businesses can Protect against Employees' theft of Intellectual Property

One of the most important assets of a company is its intellectual property. It identifies and defines the business. All aspects of intellectual property should be protected and monitored for theft by rivals and former employees. Every effort should be made to ensure that intellectual property is adequately protected from the onset.

Challenging intellectual property theft is a costly and lengthy experience, even if the matter is heard in the Intellectual Property Enterprise Court (“IPEC”) which is designed to hear small low value claims. It is far better to focus on making sure that all steps have been taken to prevent the theft of your intellectual property. In a number of intellectual property theft cases former employees on leaving a successful company have taken the knowledge they gained and started up a rival company that uses some or all the intellectual property of their former employer. It is important to include clauses in your employment contracts to expressly prevent employee theft of intellectual property to ensure the protection of a business's trade secrets, confidential information, and proprietary data.

Alessandra Paduano, an Associate, commented “The first steps to preventing a rival from accessing your intellectual property are, depending on the nature of the breach, is sending a warning to immediately “cease and desist” all activities considered to be breaching your intellectual property rights as the rightful owner“. Alessandra further pointed out “there are legal remedies to employee theft of intellectual property but it is infinitely better to discourage the potential for this to happen.”

Protect Intellectual Property

• Non-Disclosure Agreement (NDA) - an NDA is a specific agreement within or separate from the employment contract where the employee agrees not to share or misuse confidential information, even after leaving the company. NDAs should be signed by all employees, especially those working with sensitive information and should outline clearly what constitutes confidential information and set out the consequences if employees do share this information without authorisation.
• Intellectual Property clauses can be inserted in employment contracts, explicitly stating that any IP created during the employment ultimately belongs to the employer. This covers copyrights, trademarks, patents and trade secrets. This is essential in cases where employees develop software, inventions, designs, or creative works.
• Confidentiality Clause – this obliges the employee to keep all knowledge of business information, such as trade secrets, client lists, and other confidential material, private during and after their employment
• Restrictive Covenants/Non-Compete Clause - a restrictive covenant such as a non-compete clause restricts the employee from working for competitors or starting a competing business within a certain timeframe and geographical area after leaving employment. Also, that they shall not engage in any business that competes directly with the Employer’s business or solicit the Employer's clients. However, a non-compete clause must be reasonable to be enforceable.
• Non-Solicitation Clause – which prohibits employees from soliciting the company's clients, customers, or employees for a certain period after leaving the company.
• Garden Leave Clause – this is where the exiting employee serves their notice period without working in their employer’s premises. This clause distances the employee from access to clients and information about ongoing projects.
• Return of Company Property Clause – should be drafted to include intellectual property
• Post-Termination Restrictions – this clause explicitly defines what the employee can and cannot do regarding intellectual property after leaving the company.
• Monitoring and Auditing Clause – this provides the power to monitor and audit the employee’s use of the company’s intellectual property to ensure compliance during and after employment.
• Implementing a trade secret policy to protect valuable proprietary information could be helpful, restricting access to sensitive date on a need-to-know basis and defining what constitutes a trade secret and how to handle such information.
• Ensuring that the Company has registered all IP, including trademarks, patents and copyrights. It is easier to protect registered IP in case of a breach. Further, you should keep records of development processes to prove ownership in case of a dispute.

The theft of intellectual property by employees is far more prevalent than is generally expected and often amounts to a vast amount of information that may be or is delivered to a rival. For instance, in the case of a Yahoo employee who received a job offer from a direct competitor of Yahoo’s technology arm, The Trade Desk, the Yahoo employee, a senior leader, downloaded to his own devices, 570,000 internal documents as well as intellectual property consisting of data related to source code, backend advertising architecture, algorithms that control ad placement and associated earnings tracking. 

Similarly, an employee of Google’s self-driving division Waymo stole 14,000 files relating to the self-driving technology prior to joining Uber. Waymo alleged that the information contained in the files was used to improve Uber’s own vehicle programme. The matter was settled between the two companies with Uber paying $245 million to Waymo and the former employee received an 18 months prison sentence for trade secret theft.

The following laws in England and Wales govern intellectual property

• Trade Marks Act 1994
• Intellectual Property Act 2014
• Copyright Designs and Patents Act 1988
• Registered Designs Act 1949
• Patents Act 1977
• Trade Marks Rules 2008
• Trade Secrets (Enforcement, etc) Regulations 2018
• Video Recordings Act 2010, Sections 9 to 14

Alessandra Paduano is an Associate in our Manchester office. She's a solicitor in England and Wales, and a New York attorney. Alessandra's expertise extends to a variety of areas. She has extensive experience helping clients who have had accidents at work that have resulted in suffering serious life changing consequences. She has a meticulous eye for detail and strong analytical skills, which coupled with her personable approach, allow her to work efficiently and to a high standard.

Alessandra also has a wealth of experience in a wide range of commercial matters including all aspects of intellectual property.

She believes in establishing a good relationship with clients and strives to exceed their expectations. Alessandra understands each client has different needs and ensures that she tailors her advice and approach in acknowledgement of this. 

14 October 2024

If you would like to know more about how to protect your organisation's intellectual property please click here.