Competing against a former employer brings risk of lawsuit


Competing against a former employer brings risk of lawsuit

Employers have little time for employees who use their confidential product information to compete.

Photograph by: Nejron Photo ,

Many dream of leaving their employer, competing against them and becoming wildly wealthy and successful. Such dreams generally prove illusory. Yet, even when employees honour their obligations and their business ventures succeed, their aspirations may still be dashed.

Employers have little time for employees who use their confidential product information to compete. They understandably assume the confidential information was used in developing any directly competing products. Litigation invariably ensues. This struggle played out in a recent decision of the U.K. Supreme Court.

Vestergaard Frandsen SA manufactures insecticidal bed netting, which protects users from being bitten by mosquitoes while asleep. The process to develop these nets was a closely guarded trade secret.

Trine Sig began working as a saleswoman for Vestergaard in 2000. Her employment contract, like most, required her to keep confidential, for all time, all information obtained during the course of her employment. Even without a contract, all Canadian employees have just such an obligation.

After four years, Sig resigned to start a competing company, first in Denmark under the name Intection, and then in the U.K. as Bestnet Europe Ltd. She was joined by former Vertergaard chemical engineer Torben Larsen and former Vestergaard consultant Dr. Ole Skovmand, a biologist.

Skovmand proceeded to develop Netprotect, a directly competing product. The court concluded he did so using Vestergaard's trade secrets. Sig, it said, was innocent. She was a naif, unaware that Skovmand used their former employer's confidential information to produce Bestnet's competing product.

Vestergaard sued Bestnet and all three principals personally.

Only Sig escaped liability - but it was uncomfortably close.

The U.K. Supreme Court crucially found Sig was unaware of the identity of Vestergaard's trade secrets or that they were being used, let alone, misused. It held that the confidential information in question neither related to her employment nor to knowledge she gained in the course of her employment. As result, she was not liable for breaching the confidentiality obligations in her employment contract.

Vestergaard also argued that Sig was liable on the basis of a "common design" alleging that Skovmand, Larsen and Sig all worked together to manufacture and design the products found to contain Vestergaard's trade secrets. In fact, Larsen, who did know that Skovmand used Vestergaard's trade secrets, was held liable on that ground.

Alternatively, Vestergaard argued that Sig should be assumed to have known her colleagues were in possession of Vestergaard's trade secrets and were using them to develop Bestnet's product. She dodged that bullet, too. Sig's non-technical sales role and blithe ignorance of her colleagues' wrongful activity saved her.

It is difficult for any judge to accurately know what Sig was aware of, but it is almost certain she would have denied knowing her colleague used Vestergaard's trade secrets and equally likely her colleagues would have protected her.

In any trial, a judge must decide who is telling the truth. Sig could have been lying, but the judge believed her account. Another judge might well have considered it implausible that Sig was blithely unaware of her partners' conduct.

Whether she avoided liability by good luck or good planning (my bet is the former) the valuable lesson is, when you are starting a business to compete with your former employer, be as pure as Caesar's wife, and then some. And demand rigour in your new associates' conduct.




Photograph by: Nejron Photo,



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