Ex-employees and IP protection

The importance of protecting your intellectual property cannot be overstated.  Various threats are posed to the confidentiality and exclusive use a company enjoys with their intellectual property.  One (1) such threat is when an employee, informed of the company’s intellectual property, ceases to be an employee of the company.  How can you protect your company’s intellectual property from this ex-employee?

Contractual protections

Contractual obligations ought to be the main mechanism through which a company protects their intellectual property from ex-employees.  The most practically necessary clauses include:

• restraint of trade;
• intellectual property generation; and
• return of confidential information.

Restraint of trade

Intellectual property rights can be protected from a recalcitrant ex-employee through a restraint of trade clause in the employment contract.  In the context of employment, these clauses aim to prevent a person from undertaking activities (such as working for competitors or with current clients/customers) which would harm their former place of employment.  Maxwell P in Birdanco Nominees Pty Ltd v Money [2012] VSCA 64 held the following at [2]:

“It is well established that those who carry on a business of providing professional services are entitled to impose restraints on their employees, directed at protecting the goodwill of the business following the departure of an employee.”

It is clear to see that a company’s goodwill could be substantially impacted if their confidential and exclusive intellectual property rights were disseminated or even utilised by an ex-employee in their subsequent place of employment.

To ensure a restraint of trade clause is effective and enforceable, an employer must show that at the time of the agreement:

• there was a legitimate interest of the employer to protect its intellectual property;^[1] and
• the restraint imposed was no more than reasonably necessary to protect that interest.^[2]

It follows that, to protect their intellectual property, companies should utilise restraint of trade clauses which are specifically worded and proportionally respond to the risks posed by ex-employees.  It is important that these clauses are worded to specifically protect an interest, like rights in intellectual property, because if the clause is too broad the Courts are unlikely to enforce it.^[3]

Intellectual property generation

As a matter of course, employees generate new intellectual property as a result of their employment.  Without the governance of a strict contractual relationship, that intellectual property may fall into the possession of that employee.  In such case, they would be free to utilise that intellectual property when they commence employment at a new company.  Thus, it is important that a contract of employment underpins the specific relationships the company, its employees, and intellectual property.

Intellectual property generation clauses need to:

• specifically allocate to the company ownership in respect of any new knowledge created by employees and contractors; and
• govern existing intellectual property and its use in the course of an employee’s employment.

Such clauses should explicitly cover intellectual property rights in respect of trademark, copyright, patent and design.

Return of confidential information

Similarly to intellectual property generation clauses, a return of confidential information clause should be drafted to bar an ex-employee from retaining any and all intellectual property, except for particular patents, once their employment with the company has ceased.  In particular, such clauses should mandate that, on or before the employee’s last day of employment, the employee is to return or destruct (as instructed by the company) all intellectual property that the employee holds in relation to the company.

The above contractual clauses, utilised concurrently, will substantially protect a company’s intellectual property.

Takeaways

The primary method which employers can use to protect their intellectual property from unsanctioned use or dissemination by ex-employees is through contract.  Clauses in an employment contract restraining trade, governing intellectual property generation and requiring the return of confidential information are an employer’s strongest safeguards against recalcitrant ex-employees.

Links and further references

Cases

Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288

ASPL Pty Ltd v Rajakaruna [2019] WASC 269

Woolworths Ltd v Olson [2004] NSWCA 372

Further information about intellectual property protection

If you need advice on protecting intellectual property which an ex-employee may have access to, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Woolworths Ltd v Olson [2004] NSWCA 372 [38].

[2] Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd(1973) 133 CLR 288.

[3] ASPL Pty Ltd v Rajakaruna [2019] WASC 269 [78].

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