Unfair competition and misuse of trade secrets – can an employer defend its infringed rights?

Since this EUR 500,000 damages case I won is hidden under numerous confidentiality marks, I will try to highlight a few aspects that need attention in disputes of this kind.

A company employee left his job, set up a competing business, and is using the trade secret entrusted to him, taking over customers, suppliers and employees, and encouraging partners to terminate contracts – how can the employer defend its infringed rights in such cases?

If a non-compete agreement was concluded and the trade secrets were properly described in the agreement (if this is relevant too), then of course a claim can be brought in court for damages and for a prohibition of acts of unfair competition (e.g. a prohibition on supplying certain goods or services to the market, importing or exporting them, etc.). The benefit obtained from unlawful acts is the actual improvement in the infringer's financial position resulting from the unlawful acts, which does not necessarily coincide with net profit. The benefit obtained from unlawful acts may also include what the infringer saved as a result of the infringement, even if in economic terms no profit was made (e.g. by using a trade secret, the infringer increased the productivity of its business and thereby reduced the company's losses). Where a claim is made for the recovery of a benefit unlawfully obtained through acts of unfair competition, indirect losses should be calculated and awarded on the basis of the income the infringer actually obtained from using the trade secret, i.e. the infringer must be made to surrender the part of the benefit that it obtained as a result of the unlawful acts.

Just recently I finished representing a client in court in a damages case concerning a breach of a non-compete obligation by setting up a company competing with the employer, and today I again have several disputes, which only goes to show that this problem – i.e. the growing number of unfair competition disputes – is becoming increasingly relevant. 

A few of my observations and “tips” on what not to forget:

1. the parties to an employment contract have the right to agree among themselves on the definition of competing activity and to choose which elements to include according to the specific business model;
2. payment of compensation is mandatory (during the term of the non-compete obligation) – don't forget that;
3. In addition to the non-compete period and the compensation, the activities prohibited for the employee and the non-compete territory must be specified.

What activities can be recognised as competing in such an agreement:

1. Employment with a competitor;
2. Carrying on activities identical or similar to those of the employer;
3. Acquiring or managing a company identical or similar to the employer's company, etc.;
4. Being a member of a management body or a partner in a competing business entity;
5. Promoting and/or developing companies that compete with the employer;
6. Luring the employer's suppliers, employees, customers or other persons and encouraging them to take or refrain from certain actions (e.g. to terminate contracts with the employer).

These agreements may be interpreted broadly and are unique each time the relationship turns into a dispute and court cases for damages. I notice that business owners and managers are currently quite active in defending their rights when such infringements occur, and for me it is always a new challenge to apply the knowledge gained in other cases to resolving a new dispute in court.

LAWYER