Theft of confidential information costs employee $50,000

30 October 2014

Sometimes employers seek our assistance because they believe a former employee has taken copies of confidential documents shortly before tendering their resignation.  When that happens, employers are concerned that the confidential information could be released into the public domain or used by the employee to set up a business in competition with the employer.  

Employees who engage in this behaviour often fail to understand that their conduct will place them in breach of their employment contract, the Copyright Act, the Corporations Act and their equitable duty of confidentiality. 

A recent case in the Federal Court of Australia highlights what can happen to employees who take their employer's confidential information without their consent. 

The facts

In the case of Leica Geosystems Pty Ltd v Koudstaal (No. 3), Mr Koudstaal downloaded and copied around 190,000 of Leica’s files from the company’s computers the day before he tendered his resignation. The files included numerous source codes representing the “heart” of the company’s intellectual property.

On his last day of employment, he deleted more than 54,000 of those files but downloaded another 190,000 files (totalling more than 60GB of data) over a five hour period. 

Leica was concerned that Mr Koudstaal had resigned to take up a position with a competitor, Automated Positioning Systems Pty Ltd (APS).  It therefore conducted a review of its information technology systems and uncovered his behaviour.  

During the trial in the Federal Court Mr Koudstaal (who was self-represented) conceded that the files he had downloaded comprised "the heart of Leica's business".  He said he had taken the files as a "trophy" even though he knew that he was not the owner of the material in any "strict legal sense".  The company sued him, alleging he had breached the Copyright Act and the Corporations Act, his employment contract and his equitable duty of confidence. 

The judgement

Justice Collier found that his breach of the Copyright Act was so flagrant that the company was entitled to damages of $50,000, even though Leica had not demonstrated any actual loss as a result of his conduct.  When setting this penalty she indicated that it was necessary to deter similar copyright infringements by employees in the future.  

She also found that Mr Koudstaal had breached section 183 of the Corporations Act.  That section prohibits employees from improperly using confidential information to gain an advantage for themselves or cause detriment to their employer company.  The Judge found that his conduct breached the express terms of his employment contract (which required him to faithfully and diligently perform his employment duties) and also contravened his equitable duty of confidence to his employer.  

Justice Collier issued an injunction restraining Mr Koudstaal from using, copying or disclosing the company's confidential information and requiring him to return it to Leica within seven days.  Mr Koudstaal was also ordered to pay Leica's legal costs. 

What should you do?

If you suspect that a former employee has misappropriated your confidential information it is important that you move quickly to protect your intellectual property and stop any further misconduct from occurring.  If the employee has taken computer files, you should ask a computer expert to examine your computers to determine whether the employee has downloaded or copied files in the lead up to their departure.  The evidence uncovered by a computer expert can be used to seek an injunction to prevent your confidential information being exploited and to support a claim for damages or an account of profits in the future.

It is equally important to ensure that employees are covered by fair and clearly-worded employment contracts which prohibit employees from taking the confidential information in the first place.

If you have any questions about the protection of your confidential information, please contact:

John Sneddon, Partner: (07) 3307 4504 

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