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Plug gaps

Plug gaps

Genevieve Gill, Auckland-based IT lawyer, says the key problem with enforcing rights around leaked trade secrets is around evidentiary difficulties (i.e. proving it) and the costs associated with proving trade secret rights have been violated.

Plug gaps

Genevieve Gill, Auckland-based IT lawyer, says the key problem with enforcing rights around leaked trade secrets is around evidentiary difficulties (i.e. proving it) and the costs associated with proving trade secret rights have been violated.

For some organisations, this may require a balancing exercise?–?including any positive or negative implications of the problem being made public, associated with a decision to seek to enforce?–?against the likelihood of recovery.

Evidentiary considerations are particularly relevant in relation to trade secrets held in the “neck-top”?–?information retained by employees in their heads as knowhow?–?as opposed to information obtained or retained in hard copy or electronic form.

On the positive side, Gill says recent advances in technology, transparency and sophistication in communications systems have made it easier to “monitor, track and trace” the communication and use/misuse of trade secrets and other intellectual property. Increased sophistication with monitoring and audit capabilities of modern IT systems has been beneficial, and may have a deterrent effect in organisations where employees know their actions are being tracked.

Gill points out amendments to the New Zealand Crimes Act in 2003 make it an offence in certain circumstances to take, obtain, retain or copy any information knowing it to be a trade secret. Previously, trade secrets were only enforceable in NZ by taking a civil action such as for breach of confidence or breach of contract.

Gill, however, disagrees with the concern of “overloading” employees by putting all this information in front of them at the outset. It is key that company policies and procedures regarding confidentiality, intellectual property and trade secrets are communicated to employees at the time they enter into their employment contracts. New Zealand law requires employers to provide employees with the opportunity to seek independent legal advice on proposed employment agreements prior to the employee signing an employment agreement, and employers should actively encourage prospective employees to do so.

Gill agrees communicating information and relaying information regarding trade secret policies should be part of a general compliance program. “When drafting these policies, it is really helpful to give practical examples of what types of behaviour and actions will fall afoul of this policy. These should be set out in practical plain English terms?–?this is the rule and this means you can not do A, B, C, D and E. If you are unsure whether your proposed action will comply with the policy/rules, here is the person to contact.”

Gill says special issues arise when dealing with independent contractors particularly in projects involving IT systems, marketing and research and development. These independent contractors tend to work within the same general industry and often go from company to company. Businesses engaging contractors should be mindful of the possibility that their contractor may well work for a competitor at some future date.

The law states employees have a fiduciary duty of confidentially to their employer. But companies “don’t have the same added layer of protection” with independent contractors.

She says when dealing with independent contractors, employers should take particular care they document the arrangements and expectations with respect to trade secrets and property. If the contractor is engaged through a third party or agency, make sure you don’t just rely on the agreement the agency provides. “At a minimum, the contractor should be required to comply with the same internal policies as employees.”

For instance, if a company outsources after-hours IT support or customer service, make sure there is a contract with the third party provider making them liable for acts of the people that work for them. This “single point accountability” is important. “Terms of engagement should incorporate an indemnity from the supplier or service provider for any breach of confidentiality or other terms of engagement. It is their responsibility to train, monitor and supervise their employees or contractors.”

But whether working with regular employees or independent contractors, Gill says it is helpful to maintain detailed records, particularly in IT developments, of “who is involved, who brought in what, for evidentiary purposes downstream”.

By Divina Paredes

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