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Corporate Espionage And Unauthorized Use Of Proprietary Information – Corporate/Commercial Law | #espionage | #surveillance | #ceo | #businesssecurity | #



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Introduction

Recently, a colleague and I were having dinner on a Sunday
evening when he got an SMS from a new client operating in the tech
space asking to meet urgently. The client appeared to be in panic
mode, so my colleague rushed off to meet with him, leaving his
unfinished grilled chicken and avocado salad behind.

At the office the next day, the report my colleague gave me when
I asked what warranted the urgent meeting between him and the
client, made me understand why the client had gone into panic mode.
It was a matter of suspected corporate espionage and unauthorised
use of proprietary information. Apparently, the matter was quite
severe, given that some of the client’s key personnel had
resigned without notice, to join a competitor, taking with them
valuable information about the client, its business processes and
strategies. The client’s competitor had even started working on
a project using a particular business model some of the
client’s ex-employees had helped developed whilst under
employment with the client. The client was so sure that the
ex-employees had disclosed information relating to the business
model to the competitor even before terminating their employment
with him. He just could not prove it!

The client’s reaction reiterated how distasteful it is for
proprietary information to fall into the wrong hands. Hence, I
would like to shed light on some measures that can be implemented
to prevent and or curtail unauthorised use of proprietary
information. But first, it is necessary to understand the meaning
and nature of proprietary information.

Nature of proprietary information

Proprietary information, also known as confidential information
or trade secrets, is information of commercial value that is not in
the public domain and which is usually regarded as the property of
a party who desires to keep such information secret, confidential
or away from the public domain. Proprietary information can include
secret formulae, processes, and methods used in production or goods
and services. It can also include business and marketing plans,
customer lists, contracts, and particulars of computer systems. In
many cases, the knowledge and information that an employee has
obtained on the job are considered to be an employer’s
proprietary information.

For example, the fast food restaurant that sells what most
people would agree is the best tasting grilled chicken, may have a
secret recipe used to prepare the chicken and would definitely not
want the recipe revealed to the public. The technology company that
developed that new artificial intelligence technology which makes
its business process more efficient than its competitors would not
want particular details about the technology or its business
process revealed publicly. Client lists or contact information
would also pass as proprietary information in some cases because
the owner of the business would not want the list used or shared by
the receiver of the information.

Protection of proprietary information

The rationale behind protection of proprietary information is to
prevent a receiver of proprietary information or a person who has
access to it from using it in such a way that would be detrimental
to the owner of the information. The law has developed over time to
protect proprietary information and prevent parties that are in
relationships where such information is disclosed, from unlawful,
unauthorized and sometimes, illegal use of the information. Such
relationships could be partners in joint ventures,
employer-employee, investor-investee and auditor-audited
relationships. For example, recently an audit was conducted on our
firm and the auditors had to sign non-disclosure agreements before
commencing the audits, because they were going to have access to
proprietary information about our firm which we did not want
disclosed.

Where proprietary information is protected, it enables the owner
of such information retain a competitive advantage commercially,
enabling the owner’s business model remain unique and
commercially viable and or profitable.1 The owner of proprietary information
has the exclusive right to its use and enjoyment; and like any
other property right, it may be sold, assigned, licensed or used
for monetary gain.

In relation to protection of proprietary information, taking the
story I narrated above about the ex-employees who joined the
client’s competitor as an example, the ex-employees would be
deemed to be under an implied obligation not to disclose
information about their employer’s business which they came
into contact with during the course of their employment. And where
it is possible to prove that they breached or intend to breach
these obligations, remedies exist in law (as shown below) to
address such breaches.

Essentially, when a person in a relationship with the owner of
proprietary information has access to such information and exceeds
the scope of actions allowed in relation to the information, the
person would be said to have breached the terms of use of the
information.

Basic requirements for protection of proprietary
information

  • The necessary quality of
    confidence and discretion –
    It is generally accepted
    that for proprietary information to be protected, the owner of such
    information must believe that unauthorised use of the information
    would affect his position significantly. This must be enough to
    reasonably require a degree of confidentiality or discretion, and
    the information must be of such a nature that would not be made
    available to just anybody.2 If the
    owner of proprietary information knowingly permits it to enter the
    public domain, he may be deemed to have waived the right to its
    exclusive use and enjoyment.

It is pertinent to note that all a party would be required to
demonstrate is that he has taken every reasonable step to keep the
information private if such party hopes to enjoy protection under
the law. The law does not require absolute secrecy or that a party
takes all measures conceivable to maintain secrecy.

  • Obligation of confidence
    the receiver of proprietary information would usually be
    expressly or impliedly precluded from disclosing or using it
    without authorisation. In other words, the information would be
    given under circumstances that imply an obligation of confidence on
    the receiver. This is usually under a form of contract between the
    giver and receiver of the information.
  • Unauthorised use of the
    information –
    Where information is confidential and
    given under circumstances that impose the obligations of
    confidentiality or non-disclosure, a breach would occur if the
    receiver of the information violates the obligation not to disclose
    the information or use it in the stipulated way.
  • Execution of confidentially,
    non-disclosure and non-compete agreements by employees and business
    partners –
    Key employees and business partners with access
    to such information may be required to sign contracts in the form
    of confidentiality, non-disclosure, or non-compete agreements
    (Restrictive Contracts). These naturally prohibit them from
    revealing information to outsiders, using the information for their
    benefit or competing with an employer or business partner (as the
    case may be) for a certain period of time due to the advantage
    access to the information has given them. Restrictive Contracts are
    usually enforced by the Courts. It is however important to mention
    however that this protection is not automatically guaranteed, as
    the Courts will have to be satisfied that the restrictions are
    reasonable bearing in mind length of time, and or the geographical
    boundaries.

How to protect proprietary information

  • Establishing good internal
    control measures –
    Corporate espionage is an activity that
    seeks to obtain trade secrets by illegal or restricted methods and
    companies must develop security systems to protect their
    proprietary information from being stolen by external or internal
    parties or competitors. A corporate system for protecting
    proprietary information would include a comprehensive plan ranging
    from restricting employee access, to data protection, to securing
    telephone lines and meeting rooms. In some cases, a Chief
    Information Officer (CIO) may be appointed to implement such a
    plan. Employees must also be taught to watch out for signs of
    corporate espionage and report irregularities to the relevant
    administrative authorities.
  • other ways of protecting
    proprietary information include
    : marking documents as
    “confidential”, prohibiting people from making
    photocopies of documents that constitute trade secrets or removing
    them from company premises, limiting access of employees to
    sensitive materials, creating a written trade secret protection
    plan, and filing suits for theft of trade secrets.
  • Departing employees
    – Conducting exit interviews with departing employees, securing the
    return of all information and electronic equipment, and reminding
    the departing employees of their obligations to maintain
    confidentiality of trade secrets.3

Remedies available for unauthorised use of proprietary
information

A party whose proprietary information has been wrongfully
disclosed or used may generally pursue two remedies: injunctive
reliefs and damages. An injunction (a court order restraining or
compelling certain action) would be the appropriate remedy when the
owner of proprietary information desires to prevent its on-going
use by the party who wrongfully used it. Monetary damages on the
other hand would be appropriate when unauthorized use of the
information results in quantifiable monetary loss to its owner.

The Final Analysis

When the word ‘espionage’ is mentioned, the images that
come to mind most times are images of the activities of the Central
Intelligence Agency, the Russian KGB, the Isreali Mossad, even the
James Bond movies, and the likes. But yes, espionage does occur in
business and professional circles. Imagine investing time and other
resources into a business and valuable information relating to the
business ends up in the wrong hands or in the hands of a
competitor. In this light, the need to implement the necessary
safeguards to prevent such espionage or breaches from occurring
cannot be over emphasized.

Oladimeji Akindele is a Senior Associate with TNP and a core
member of our Corporate & Commercial practice. He is generally
involved in Private Equity, Project Finance, and Corporate Finance
transactions and specializes in advising on investment and
financing transactions cutting across diverse industries in Nigeria
and Sub-Saharan Africa

www.tnp.com.ng

Footnotes

1
http://nigerianlawtoday.com/protection-of-trade-secrets-towards-a-viable-nigerian-economy-what-has-intellectual-property-got-to-do-with-it-1/

2 Commercial Law- George
Etomi

3
https://www.pressreader.com/nigeria/thisday/20161220/282003262074968

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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