Who owns an idea?
By Julianne Dowling | theage.com.au | 27 June
Lawyers are reporting a surge in cases relating to trade secrets, intellectual property (IP) and restraint of trade.
But employment laws - by and large - remain on the side of the departing employee, experts say.
According to Rob McInnes, principal of Spruson & Ferguson Lawyers, there has been a rise in queries about what is a reasonable restraint of trade in employment and trade secret misappropriation by former employees.
"Often there is dissent about who owns the intellectual property rights in employee work product," he says. "Actual litigation has increased because of the tightening job market and rise in the 'knowledge-based' economy.
"The knowledge component of jobs has become more important so what gives a business a competitive advantage is its intelligence, but that intelligence resides in the employees."
McInnes advises companies to mitigate their risk by putting as many pieces of information into the category of trade secrets and use knowledge management techniques to corral their property.
"For example, if each of your salespeople had their own personal digital assistant (PDA) and their contacts are listed there and not backed up to a central location and the employees aren't told that these are property of the company, then it would be very hard to stop those people from legitimately leaving and using those contacts," he says.
"But if you backed up the information on a central customer relationship management database and the PDAs were property of the company, then you'd have a greater chance of control."
What is significant for business is that telecommuting and outsourcing work may not be so helpful when it comes to protecting corporate assets.
McInnes says businesses need to be careful of contractors and laptop warriors; they need to take greater steps to ensure that employees' knowledge is the company's knowledge.
"Even with a basic IT system, a small to medium enterprise (SME) could ensure that information gathered by employees becomes known to the business; then it's a contractual process as to what are trade secrets," he says.
"But an employer cannot insist that it's something special if, say, you sold mining equipment to 10 customers and everyone knew those players - that's not a trade secret but to stop an ex-employee from selling to them, you'd need to have a valid restraint-of-trade contract with the employee."
Here, you sign employees up for a limited period or a geographic area or a limited market and they won't approach customers. But employers have to make fair limits, he says.
It is also easier to enforce laws on restraint of trade in NSW, where the court will take a view on what's reasonable and decide on the reasonable time limits and market.
"In other states, lawyers often draft cascading provisions, such as if not 12 months, then six months and so on, so the court can find one that they can uphold," McInnes says.
Other legal queries on the rise relate to those about knowledge management processes and confidentiality.
McInnes warns small companies against using "do it yourself" contracts because they may not reflect the appropriate law.
"A lot of SMEs cut and paste competitor contracts from US companies but these are written for different laws," he says.
"Additionally, a UK case in 2000 changed law on commercial liability clauses and what was understood to be the limitations so a pre-2001 clause may not work.
"Law firms here scrambled to change their contracts, so how would a SME manager even know that they needed to do that unless a lawyer helped them?"
Websites selling alternative legal services, such as provision of standard forms and agreements, are another trap for companies, he says, because the clauses may not work in their situation.
Meaghan Bare, special counsel at Baker & McKenzie and specialist in employment law, also reports more queries over the past five years because of fidelity issues.
Businesses protecting their assets have the right to protect anything confidential or IP "but it's hard to stop employees using their general knowledge", she says.
"Employers need strong evidence of the departing employee's ability to do damage to the business. It is often difficult for employers to obtain evidence of the employee's activities once they leave. Rumour and innuendo is not enough to satisfy the court."
IP clauses remain a hot issue in certain sectors because many Australian technology businesses go on to commercialise their technology through licensing and the other party needs to be satisfied that the IP has been protected from the outset.
"So a larger company doing due diligence will always look at the confidentiality agreements and the employment agreements," says McInnes.
"If you know IP is your main game, then you will try hard to get that right from the start, but normal trading companies may have an employee come up with a fantastic idea but don't have it covered because they don't see themselves in that space."
Many researchers, academics and start-ups are watching a landmark case that could affect their future.
This involves the University of Western Australia in a case that suggests academic researchers may own more of their IP than previously thought depending upon the contracts.
The university says it will appeal against the decision handed down in favour of Bruce Gray by the Federal Court of Australia after the court dismissed the university's claim and found that a researcher could be hired to research but not hired to invent inventions.
McInnes says: "It seems to be based on a 1950s concept of university academics that they pursue their interests without commercial relevance; let's say that everyone in the commercialisation of technology will be watching the final outcome."
He says the case runs counter to an earlier Victorian case where the court held that even where university employees are careful to separately pursue opportunities, the university is held to be the equitable owner of that opportunity.
Here, the court found that the employee has a duty of fidelity to the employer so it is a breach to divert that opportunity away from the employer.
McInnes says that overall the courts are protective of employees.
"They don't want them to be restrained from using their skills or being unable to work in that area," he says.
"Yes, it can be hard to stop (bad behaviour on departure) but ultimately, slavery has been abolished."
First published by TheAge.com.au on June 27 2008
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