What Should You Do if an Employee Steals Your IP?

There is the risk of a disgruntled employee stealing your business’ intellectual property (IP) or commercially sensitive material such as templates, client data and source codes. Employees may do this for their own benefit or the benefit of a competitor. Unfortunately, as technology continues to evolve, this kind of theft has become an increasingly simple process: click and drag. This article will explain what you can do if an employee steals your IP. It will also set out the steps you can take to prevent this kind of theft from happening.

1. Determine Where IP Lies

As a general rule, you own the IP your employees create in the course of their employment. 

Take this scenario for example. You run a software engineering company licensing programs to your clients. You employ a software writer, Margaret, to write a new software program to monitor a company’s accounts receivables and automatically make payments as they fall due. Margaret quits after writing the software program as a result of a personal issue. She then starts working at a competitor’s business. You have now been informed that the competitor licenses a similar program to the one Margaret created for you.

In this situation, the IP remains with your business because Margaret created it in the course of her employment with you. In some cases, however, an employee may own what they have created.

2. Enforce Your IP and Contractual Rights

If you have a Margaret in your business, you can either:

• terminate the employee’s employment by way of disciplinary action; or
• pursue legal action against your former employee through the courts and seek injunctive relief and damages to compensate you for your losses.

Litigation is an expensive and timely process and should therefore be a last resort. However, if the breach is severe enough and your business has suffered significant detriment, you should consider legal action against the employee.

The court may then order the employee to:

• comply with an injunction, which is a court order requiring an individual to do, or refrain from doing, a specific action;
• pay damages for breach of contract;
• pay damages for copyright infringement; and
• repay you for any legal costs incurred.

Detection and Prevention

Every company should have mechanisms in place to prevent IP theft. If the theft has already happened, you should have the means of detecting it early on to respond quickly.

Detection requires you to create and maintain a sufficient electronic trail of evidence, so consider investing in data leakage prevention software. You can also use encryption technology to prevent others from receiving your data. Furthermore, it is a good idea to check your emails, as leaks can happen online. 

Employment Agreements

In addition, prevention is best achieved by having a well-drafted employment agreement with the following essential terms.

Ownership of IP

You should make it clear that any IP the employee create during the employment relationship is owned by the company.

Signing Documents to Record the Employer’s Ownership of IP

You should ensure the employee signs a document, such as a deed of assignment, when reasonably required.

Confidentiality Clause

This clause provides that the employee will not disclose to a third party any confidential business information. The employee should also be required to use the information only for their employment.

This obligation should extend to both the period of the employment relationship and a sufficient period after the relationship finishes.

The Scope of Confidential Information

The scope should be as broad as possible, including any information and IP that has commercial value.

Restraint on Competition

You may decide to include a restraint of trade clause, which precludes an employee from competing with your business or attempting to solicit your existing clients once they have left. This will depend on the employee’s position in the business.

Key Takeaways

Your business’ IP is a valuable asset and should be protected both proactively and reactively. The best way to ensure protection is to have a comprehensive employment agreement in place. In the event your employee steals your IP or confidential information, you may be able to protect your rights in court.

If you have any questions, contact LegalVision’s employment lawyers or LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.