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The recent “DeLorean” case gives us interesting food for thought with reference to unfair competition by former employees and the protectability of corporate know-how.
Karma automotive, a California-based electric car manufacturer, a few days ago sued in federal court in Houston four of its former employees, accusing them of misappropriation of confidential information. More specifically, the accusation is that they misappropriated plans related to “Project 88” aimed at bringing the DMC-12 DeLorean (i.e., the sports car from “Back to the Future“) back to life in an electric version.
According to Karma’s side of the story, the company DeLorean Motors Reimagined LLC, where Karma’s four former employees had recently assumed the roles of CEO (Joost de Vries), chief operating officer (Alan Yuan), marketing director (Troy Beetz) and brand and creativity (Neilo Harris), would also benefit from the misappropriation of confidential information.
De Vries was quick to react by stating that «the Court will soon see that the allegations are completely unsubstantiated».
Well, how would an Italian court act should it face a similar case?
In our legal system, in addition to the use of patented information being prohibited (Art. 2 IPC) as well as the use of trade secrets (Art. 98 IPC), the misappropriation of company information – e.g., technical and planning information – can only be deemed unlawful should the individual employee’s own experience and know-how be overstepped by misappropriating more systematically structured company know-how.
Italian law imposes rules of fairness and loyalty under Article 2598 CC so that no competing company can take advantage by adopting methods contrary to business ethics, e.g., exploiting former employees of others’ companies. In addition, in order to have protection, it is not required to prove the actual production of a damage, but it is sufficient that the unfair act is abstractly capable of producing it.
Article 2598, No. 3 of the Civil Code states that «Without prejudice to the provisions concerning the protection of distinctive signs and patent rights, anyone […] who directly or indirectly makes use of any other means that do not comply with the principles of professional fairness and are capable of damaging another person’s business shall commit acts of unfair competition».
Article 2598 on acts of unfair competition is placed in our Civil Code within Book 5 on labor and, in particular, within Title X, Section II on the discipline of competition.
The former employee must be able to rely on the experience/competence gained at the former employment, but cannot take away more than his or her normal mnemonic capacity allows (however, see what will be said below in more detail about withheld information and non-competition agreements).
By misappropriating aggregate information, such as databases or information printouts, the employee would in fact be making the new employer (competitor of the previous one) richer far beyond what would be his or her individual merit.
Since it is contrary to professional fairness (pursuant to Article 2598, No. 3 CC), Italian Law prohibits the misappropriation of know-how, even when there is no infringement of patents or misappropriation of trade secrets (Articles 2 and 98 ICC).
Our Supreme Court of Cassation has clarified that: «A body of business information not constituting the subject matter of a genuine industrial property right as ‘confidential information’ and now as ‘trade secrets’ under Articles 2 and 98 of the IPC, because it lacks one or the other of the three requirements prescribed by law, can still be protected against competitive abuse in the face of acts contrary to the professional fairness of the competitor.
It is necessary, however, that an organized and structured set of cognitive data be present, albeit unclassified and protected, which exceeds the mnemonic capacity and experience of the individual ordinary person and thus configures a database that, by enriching the competitor’s knowledge, is capable of providing him with a competitive advantage that transcends the ability and experience of the acquired worker».
Knowing where the boundary line lies between individual/personal and corporate know-how should make one think about how important it is to efficiently organize and manage confidential corporate information.
Article 98 ICC explicitly states that: «Trade secrets shall constitute the object of protection. Trade secrets shall mean business information and technical-industrial experience, including commercial information, subject to the legitimate control of the holder, provided that such information
In order to prevent the theft or misappropriation of know-how, it is therefore important to have technological (such as cybersecurity systems) and legal (such as NDAs and other confidentiality-binding contracts) tools in place to effectively and proactively contain the risk of misappropriation.
On top of that, when specific ways of protecting certain types of know-how seem to be beyond reach, it is important to remember that it is always possible to use the instrument of a non-competition agreement with the employee for the period after the termination of employment.
Article 2125 of the Italian Civil Code provides that «The agreement by which the performance of the activity of the employee is restricted, for the time following the termination of the contract, is null and void if it is not in writing, if no consideration is agreed upon in favor of the employee, and if the constraint is not contained within certain limits of object, time and place.
The duration of the bond may not exceed five years in the case of executives and three years in other cases».
This instrument is particularly fitting, while having to be specifically remunerated by the company, in corporate situations where there are employees in strategic positions.