Protecting your IP from former employees

In Leica Geosystems Pty Ltd v Koudstaal (No 3) [2014] FCA 1129, the Employer was part of a group of companies who sell software products and provide services to the mining sector.  The Employee was employed with the Employer for about 18 months before he resigned in November 2011.  Following his resignation, the Employee went to work for a competitor of the Employer.

The crux of this particular matter was that during the month prior to the Employee handing in his resignation, and in particular the days’ immediately prior to his resignation, the Employee deliberately copied a huge amount of confidential information and intellectual property belonging to the Employer onto his personal hard drive.

In his decision, Justice Collier noted that it was not in dispute that on the day before handing in his resignation, the Employee downloaded some 190,000 files over 7 hours and then, on the final day of his employment, downloaded a further 190,000 files over 5 hours.  The total ‘size’ of the information downloaded was over 60GB of data.

Critical to this case was the fact that the Employee had copied ‘source code’ belonging to the Employer.  During cross examination, the Employee conceded that this code was ‘at the heart of [the Employer’s] business’.

Employee’s Evidence

In his evidence, the Employee claimed that he did not take the Employer’s files for personal benefit.  The Employee stated:

“…At the time, I felt a deep sense of ownership of that code. It was – it was code that I had worked on. It was unfortunate in the way that I copied it that I should have been more discriminatory perhaps in copying it. Instead, I got lazy. I had all the copies of the source code including things that I had worked on, on my desktop computer while I was employed at Leica, and instead of going through and saying, “Hey, maybe I shouldn’t have had this or ….. this”, I said to myself, “Well, I’ve worked really hard on this material. I feel some ownership of it even though, yes, in the strict legal sense I have no ownership.” I fully admit that. But I wanted some reference for myself of the hard work that I had done and, as I’ve said in my opening statement, it was very stupid, it was very thoughtless…”

The Employee denied that he had incorporated the code into code that he had written for the Competitor.

Copyright Infringement

The Employer pursued a number of claims against the Employee.  Justice Collier was satisfied that the Employee had infringed copyright laws by taking the material of the Employer, and reproducing a substantial part of that material without the licence, consent or authority of the Employer.

Breach of equitable duty

Justice Collier then moved on to find that the Employee had breached his equitable obligation of confidence.  Justice Collier noted that the material taken by the Employee was clearly confidential and that the Employee had ‘a duty of confidence in respect of his possession of and access to that material’. 

Justice Collier also noted that the Employee falsely stated following his resignation that he did not possess any property of the Employer.  In finding that the Employee had breached his duty to the Employer, Justice Collier stated:

“It is clear that the source code and materials ancillary to the source code were communicated to [the Employee] in circumstances importing an obligation of confidentiality to him. Certainly there is no evidence that the applicants authorised [the Employee] to copy and permanently remove copies of this material from the applicants. The sheer volume and complexity of the material taken by [the Employee] from the applicant negates a finding that this material was information [the Employee] took with him as part of his general knowledge, such that he owed the applicants no duty of confidentiality. That volume and complexity of material, considered in light of the fact that [the Employee] took this material in the final two days of his employment when there is nothing before me to support an inference that [the Employee] needed to download the entirety of the applicants’ source code, point to a breach of [the Employee]’s duty of confidentiality.”

Breach of Employment Contract

The issue of the Employee falsely stating that he did not have any property of the Employer in his possession was raised again when Justice Collier contemplated whether the Employee had breached his employment contract.

Justice Collier considered the terms of the employment contract which contained detailed duties and confidentiality clauses providing for the protection of the Employer’s confidential information.  She also considered the clauses providing for post-employment obligations of the Employee and the clause requiring the return of company property on termination.  Finding that the Employee had acted contrary to all these provisions, and falsely stated his position upon his resignation, the Court accepted that the Employee had breached his employment contract.

Breach of Corporations Act

Justice Collier also found that the Employee had breached his duties under section 183 of the Corporations Act 2001 (Cth) which prevents a person who is an employee of a corporation from improperly using the information acquired during their employment to gain an advantage for themselves or someone else or to cause detriment to the corporation.

Damages Sought

Whilst the Company sought $250,000 damages, Justice Collier awarded the Company $50,000 for the Employee’s breaches of the Copyright Act. The Company did not pursue damages for any of the other claims made out against the Employee, but Justice Collier did issue an injunction which restrained the Employee from using, reproducing or disclosing that stolen material.  Justice Collier required the Employee to return the Company’s property within 7 days and ordered him to pay the Company’s costs.

Lessons for Employers

This case is an important reminder as to the value of having properly drafted confidential information, intellectual property and post-termination clauses in your employment contracts.  Although there is limited legislation that exists to protect the confidential information and intellectual property of a business post-termination, where such clauses exist in the employment contract, the employer can pursue an employee who has taken confidential information after their employment had ended and potentially sue for damages.