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Claiming Damages when an Ex-Employee “Steals” Confidential Information

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.

25/05/2017

By Law Central Legal

In Bulletin 475 we discussed the effects of s183 of the Corporations Act 2001 (Cth) (‘the Corporations Act’) in preventing a former employee from utilising certain types of company information after the termination of their employment. In this Bulletin, we look at how s183 of the Corporations Act and the Copyright Act 1968 (Cth) (“the Copyright Act”) can work together to provide remedies against ex-employees who improperly use confidential information obtained during their employment.

Section 183(1) of the Corporations Act states:

(1) A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:
  (a) gain an advantage for themselves or someone else; or
  (b) cause detriment to the corporation.
 

Note 1:     This duty continues after the person stops being an officer or employee of the corporation.

Note 2:     This subsection is a civil penalty provision (see section 1317E).

In addition to the Corporations Act acting as a de facto trade restraint, it can be argued that s115 of the Copyright Act, also provides an additional avenue for obtaining damages against ex-employees who use confidential company information with their next employer.

Sections 115(1) and (4) of the Copyright Act state:

(1) Subject to this Act, the owner may bring an action for an infringement of the copyright.
(4)

Where, in an action under this section:

  (a) an infringement of copyright is established; and
  (b) the Court is satisfied that it is proper to do so, having regard to:
 

 

(i) the flagrancy on the infringement; and
    (ia) the need to deter similar infringements of copyright; and
    (ib) the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and
    (ii) whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and
    (iii) any benefit shown to have accrued to the defendant by reason of the infringement; and
    (iv) all other relevant matters;
  the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

In an age where employees are able to acquire a copy of confidential or copyrighted material quickly with no obvious physical trace, the Court has shown willingness to award additional damages pursuant to s115(4) of the Copyright Act in cases where the defendants behavior is deceitful or easily replicated. The connection between s183 of the Corporations Act and the Copyright Act was illustrated in SAI Global Property Division Pty Limited v Johnstone.

Application of s 115(4) of the Copyright Act in SAI Global Property Division Pty Limited v Johnstone [2016] FCA 1333.

In this case, SAI Global Property Division Pty Ltd (“SAI Global”) employed Mr Johnstone as a business development manager. Mr Johnstone terminated his employment a mere three months later, not long before commencing employment with a rival company. SAI Global was concerned about Mr Johnstone’s behavior and discovered that he had electronically transferred confidential information from his work computer to a personal USB stick. SAI Global brought an action against Mr Johnstone for breach of his fiduciary duties under s182 and s183 of the Corporations Act. However, SAI Global also sought damages for breach of copyright under s115(4) of the Copyright Act. This turned out to be a successful tactic and an interesting development in the law of damages for s183 of the Corporations Act.

SAI Global was unable to establish any injury as a result of Mr Johnstone’s breach. As such, they were awarded nominal damages of $1 pursuant to the damages available under the Corporations Act. However, the Court awarded SAI Global $5,000 in additional damages under s115(4) of the Copyright Act because of the flagrancy of Mr Johnstone’s actions and a need to deter similar behavior in the future.

The SAI Global case demonstrates that where the beach of a fiduciary duty does not give rise to any ascertainable injury, the person in contravention may still be required to pay a significant amount in damages under s115(4) of the Copyright Act if the information is the subject of copyright. Copyright protection will be discussed in a future newsletter.

Gold and Platinum members read on for a full case summary of SAI Global Property Division Pty Limited v Johnstone and a table of recent cases.


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Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.

 

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