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The case of the disloyal employee who steals confidential company information

Published in: Intellectual Property
by Arlo Canella
Home > The case of the disloyal employee who steals confidential company information

Whenever an employee is suspected of misappropriating confidential company information, surprise legal action is often the only possible course of action. In this article:

The case: the employee who "transfers" confidential information

The Court of Venice, in its order of 10 January 2022, upheld the granting of urgent precautionary measures in a case of theft of secrets. Let’s see exactly what happened.

A company based in the Veneto region, operating in the industrial automation and assembly line sector, had signed a consultancy contract with an engineer who was an expert in the field. The activity carried out by the engineer, indeed, had been quite extensive since it ranged from the technical feasibility of orders to the executive development of certain machinery, up to the actual quotes.  

As a result of an openly positive cooperation relationship, the company had decided to offer the engineer an employment contract, with an indefinite term, and the engineer had accepted. 

Shortly afterwards, thanks to a tip from a supplier, the company became aware that the engineer, relying on one of his old companies and supported by a direct competitor of his new employer, had begun to compete unfairly with it.

What is worse is that the engineer-employee, thanks to his new role, had privileged access to the employer’s technical and commercial know-how: machinery designs, production times and costs, profit margins, discounting, etc. 

Although the company could not have proof of the misappropriation of such information, it very naturally suspected that the engineer had carried out a real “tranfer ” of confidential and strategic information to feed his competing business.

For this reason, the company had gathered some clues and was determined to take legal action. Let’s see how.

Acting by surprise to preserve evidence of the misappropriation

In the present case, the employer had first of all resorted to asking the judge for precautionary and urgent measures to preserve the evidence of the wrongdoing (i.e. the misappropriation and exploitation of secrets). 

Taking the perpetrator of the theft by surprise is the most suitable and profitable strategy since the risk always exists that the perpetrator will make the evidence of the misappropriation of information disappear.

In such cases, the urgent request for the so-called precautionary description (see Art. 129 Italian Intellectual Property Code) is the most suitable specialised legal strategy as it makes it possible, like the seizure, to preserve the evidence “of some or all of the infringing objects… as well as the means used to produce them and the evidence concerning the reported infringement and its extent”.  

When the conditions are met, the judge may grant the request also inaudita altera parte – i.e. by surprise – by appointing a technical consultant who will extract hard or digital copies of the stolen material directly, for example, from the personal computer of the employee or the unfaithful consultant. 

As stated in the aforementioned order ( Tribunal of Venice, 10/01/2022), the Court’s consultant was able to confirm “…the massive exfiltration […] of over 170,000 files […] Among these files are found technical design drawings, commercial offers, contracts and order requests formulated…”.

It goes without saying that catching ‘red-handed’ by acting unannounced whoever appropriates or exploits trade secrets is indeed indispensable, otherwise such evidence would be likely to be eliminated and thus lost.

The liability of those who have "unintentionally" breached secrets

Whereas previously the tort of misappropriation of secrets was limited only to wilful conduct (i.e. of those who acted with the knowledge that they were breaking the law), with the 2018 reform, the protection of secrets has been enhanced since action can also be taken against those who have unintentionally caused damage.

As a matter of fact, Italian Legislative Decree No. 631 of 11 May 2018, amending the Industrial Property Code, strengthened the protection of confidential know-how (‘trade secrets’) against unlawful acquisition, use and disclosure by those who should have known that it was confidential information.

Article 99 Italian IPC provides that: “1. Without prejudice to the discipline of unfair competition, the lawful holder of trade secrets referred to in Article 98 shall have the right to prohibit third parties from abusively acquiring, disclosing to third parties or using such secrets, except where they have been obtained independently of the third party

1-bis. The acquisition, use or disclosure of trade secrets as referred to in Article 98 shall also be considered unlawful where the person, at the time of the acquisition, use or disclosure, was aware or, according to the circumstances, should have been aware that the trade secrets had been obtained directly or indirectly from a third party who unlawfully used or disclosed them within the meaning of paragraph 1.

1-ter. The production, offering, marketing of infringing goods, or the import, export or storage of the same goods shall constitute an unlawful use of trade secrets as referred to in Article 98, where the person engaging in such conduct had knowledge or, according to the circumstances, ought to have had knowledge that the trade secrets had been unlawfully used within the meaning of subsection 1. Infringing goods shall mean goods of which the design, characteristics, function, production or marketing benefit significantly from those trade secrets unlawfully acquired, used or disclosed.

1-quater. The rights and actions deriving from the unlawful conduct referred to in paragraphs 1, 1-bis and 1-ter shall be time-barred within five years”.

What are the circumstances for successful action

When the judge examines an application for urgent measures, pending a final ruling, he or she must first address the need to safeguard the status quo. However, even at the precautionary stage, the analysis of the evidence is still crucial. 

Although the function of precautionary measures such as description is to preserve evidence, their request must still be based on solid and convincing elements. It can be said that such elements were well grounded in the case examined by the Court of Venice. 

According to the Court, the requirements for the granting of the measure are exhausted “in the plausibility of the request or in the non-pretextuality of the request […] the applicant must provide at least a principle of proof of the existence of the technical and commercial information in the hands of the lawful holder … The applicant has precisely attached the type of information of which he sought protection concerning:

  • the technical drawings […] 
  • the profit margins […], 
  • the orders from major customers, 
  • the discounts applied to customers…”

The Court also specified that, “with regard to secrecy, this is information processed internally … [ed. by the employee] and not known nor knowable externally. As secret, it has an intrinsic economic value. Finally, it is information subject to security measures that are reasonably proportionate to the purpose: 

  • access to the company is filtered by a concierge system, 
  • access to the company server can only take place through authentication, which requires each user to enter a username and password, 
  • each employee can only access the areas for which he or she is responsible; 
  • storage is located in a special locked room.”

In interlocutory proceedings, assessing the grounds of the claim (the so-called causa petendi), there are two fundamental elements that the judge is required to examine 

  • the plausibility of the plaintiff’s good right (so-called fumus boni iuris) and 
  • the risk that could arise from a delayed granting of the measures (so-called periculum in mora). 

It can be said that in the present case the requirements for granting were both present. However, it is easy to say this after the measures have been granted and the stolen files have been accessed.

The employee's PC and the acquisition of evidence

In the present case, the company that had been robbed of its know-how would have had no option but to formally obtain – by description or seizure – the content of the computer of its opponents (and in particular that of the employee) in order to compare it with the confidential know-how.

The Court states: “in the present case, in view of the fact that (…) was still employed by S. at the time of execution of the description and that he was authorised to use his own personal laptop, the appellant could not otherwise have acquired the content of the computer of the respondents.”

The content of the laptops is almost always essential to prove both the theft of confidential information and its misuse. Moreover, such information is also indispensable in the subsequent judicial proceedings in order to prove the damage to be compensated.

The order at issue, although not particularly innovative, calls for consideration of the measures that are best suited to the protection of confidential know-how, i.e. description and seizure by surprise (inaudita altera parte), and the concrete elements to be provided when applying to the court.

Companies should not be afraid to act, even as a matter of urgency, to protect their strategic know-how. On the contrary, it can be said that there is no other way to protect secrets than to do so as a precautionary measure inaudita altera parte. As we have seen, the protection is now enhanced by important regulatory updates and, should there be grounds, it is easy to obtain the granting of the measures on condition that the judge is provided with concrete and convincing evidence about the secrets and their misappropriation.

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Publication date: 3 November 2022
Last update: 7 September 2023
Avv. Arlo Cannela

Avvocato Arlo Canella

Managing Partner of Canella Camaiora Law Firm, member of the Milan Bar Association, passionate about Branding, Communication and Design.
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