Shutting down unfair competition
In a preliminary injunction decision of 25 October 2021 (LE-2021-109412), Eidsivating Court of Appeal found that two former employees were prohibited from operating a business competing with their former employer for a time-limited period. The preliminary injunction decision serves as an example of how a company can act quickly to stop further infringement on their trade secrets and breaches of confidentiality clauses by former employees.
By Thomas Hagen and Anna Eide
The company was an importer, producer, seller, and installer of data centers, uninterruptible power supply, and power supply aggregates for companies with critical infrastructure and had long-term service agreements with its customers. The former employees had worked in the company and had access to confidential information. In addition, both former employees were employed under employment agreements containing confidential clauses prohibiting them from making use of the company's confidential information after the termination of the employment agreement.
The former employees had terminated their employment agreement with the company. One of the former employees had sent documentation from their company email address to their private email address during their notice period. The documents included information regarding the company's prices and budget, technical drawings of the company's products and services, and information regarding the company's suppliers. Shortly afterwards, the documentation was forwarded from their private email address to the other former employee. The former employees discussed the nature of the documentation and their strategy for their new business. In addition, the former employees held meetings regarding one of the company's projects concerning supplemental services to a customer of the company.
The former employer filed a motion for a preliminary injunction claiming that the former employees were prohibited from running a competing business for a time-limited period due to it being a breach of section 25 of the Norwegian Marketing Control Act and the Norwegian Trade Secret Act. The main question in the case was whether, by establishing a business that competed in the same areas of service as their former employer's business and taking the obtained information into account, the former employees had breached their employment agreement, the Norwegian Trade Secret Act and section 25 of the Norwegian Marketing Control Act. The Court of Appeal ruled in favor of the former employer. It concluded that the former employees were prohibited from pursuing business within the same business areas as their former employer for a time-limited period.
Section 25 of the Norwegian Marketing Control Act
According to section 25 of the Norwegian Marketing Control Act, actions in business that breach good business practices are prohibited. Whether a competitor is acting in breach of good business practices must be determined by carrying out an overall assessment, taking both objective and subjective factors into account. Section 25 of the Norwegian Marketing Control Act aims to govern a healthy business environment and enforce loyal business practices. According to case law, there is a threshold for what actions can be viewed as a breach of good business practice, and the rule should not be interpreted so strictly that it inhibits competition in the market.
Former employees establishing a competing business is not in itself a breach of section 25 of the Norwegian Marketing Control Act. The Court of Appeal stated that, as a starting point, employees are allowed to prepare their transition to a start-up company by, for example, establishing a new company and domain, as long as these actions are not visible in the market or by the former employer's customers, suppliers, and contracting partners. However, the Court of Appeal pointed out that the new company must be able to reach its position in the market based on the former employees' own ability to contribute effectively to the market. Former employees shall not establish a competing business by unlawfully exploiting their former employer's business. In such cases, the new competing business could breach good business practices and therefore be prohibited cf. section 25 of the Norwegian Marketing Control Act.
The Court of Appeal stated, as a general point, that an employee's subjective knowledge falls outside of the scope of protection of trade secrets. This includes the employee's right to use general knowledge and competence concerning technical insight and professional experience obtained during employment. It is the unlawful use of trade secrets that is prohibited. A central point in the case was that the former employees were employed under employment agreements containing confidentiality clauses. The confidentiality clauses stated that confidential information included "any information of confidential or a secret nature concerning the business of the Company". Therefore, the central question before the Court of Appeal was whether the information forwarded to the former employee's private email address contained "information of confidential or secret nature concerning the company's business".
The Court of Appeal found that the information forwarded to the former employees' private email addresses breached the confidentiality clause in the employment agreement. The documentation contained information that would have commercial value to a competing business. In addition, some of the information constituted trade secrets according to the Norwegian Trade Secret Act.
Key takeaways from the case
It is important for companies that their confidential information and trade secrets are kept secret in order to compete on the market. However, it is difficult for companies to ensure that former employees do not start a competing business taking advantage of this competitor-sensitive information. In case of such infringement, time is of the essence. However, filing a regular lawsuit is time-consuming and sometimes inefficient. The case highlights that filing a motion for a preliminary injunction is a practical legal measure to prevent former employees from pursuing or continuing an infringement.
Therefore, the preliminary injunction decision showcases the importance of collecting evidence and pursuing legal actions quickly. Thus, a company suspecting former employees of using trade secrets or planning to infringe on the company's intellectual property rights should seek legal advice promptly. In addition, the case illustrates the importance of including confidentiality clauses in employment agreements. This is an important tool for safeguarding against the misuse and infringement of a company's competitor-sensitive information.