The art of uncovering a former employee, business partner or competitor competing unfairly
You think you have experienced unfair competition or unlawful use of confidential information, but you do not have clear and direct evidence of this? What will you do – give up on those who wish you ill or fight for your business?
An increasing number of companies face this dilemma. In this article, we share some tips on what circumstances and evidence may be relevant if you think your former employee, business partner or competitor has undertaken unfair competition actions by, for example, disclosing confidential information about your clients, deliberately soliciting your existing employees to join a competing company, using your trade secrets, or otherwise taking advantage of your market presence (free riding).
It is essential to understand that unfair competition litigation is rather specific. Court cases of this type rely mainly on indirect evidence, i.e. evidence that does not necessarily allow an unambiguous conclusion to be drawn as to the existence or non-existence of the fact being proved. This leads to a lower standard (burden) of proof in unfair competition cases, since too high of a standard would often make it impossible to prove the fact of unfair competition and the causal link between the loss suffered and the unlawful acts. For example, usually, even if a former employee is suspected of having used and “taken away” the employer’s confidential information, the employer will not have direct evidence of such “taking away” simply because the information is stored electronically and can be reproduced without leaving any physical trace. Thus, in such cases, the task of legal counsel is to detect individual facts and piece them together to form the overall picture, which reveals whether the protection of fair competition guaranteed by many legal acts, such as the Constitution of the Republic of Lithuania, the Law on Competition, the Law on the Legal Protection of Trade Secrets, as well as other national and international legal acts, have been violated.
The praxis of Lithuanian courts over the last five years shows a trend that courts of both lower and higher instances increasingly emphasise the specificity of unfair competition litigation and are generally inclined to uphold claims for damages based on indirect evidence if all other conditions are proven.
So, what circumstances (indirect evidence) can help to prove that unfair competition actions have been taken? Below is a sample list of circumstances that the courts assess, and which can help answer the question of whether it is worth initiating legal proceedings against a former employee, business partner or competitor:
- Reasons for termination of former employee’s employment contract and on whose initiative it was terminated. If there were no objective reasons for the termination of the employment contract and the employee did so on their own initiative, this may indicate unfair competition, in addition to other evidence of unlawful acts.
- The period between the termination of the employment contract at the former working place and the beginning of a new employment contract of the former employee. The shorter the period between these events, the more likely it is that the former employee/competitor is unfairly competing by using the former employer’s confidential information.
- Whether one or more employees left. If more than one former employee left to join a competitor or if several former employees set up a competing business, this may indicate an attempt to compete unfairly.
- Purposeful actions. It may be assessed whether there is evidence showing that the former employee was preparing to compete unfairly before the termination of the employment contract. For example, legal significance may be given to the instances of the former employee forwarding the employer’s information to their personal email, the extent to which the former employee was actively involved in the establishment of the competing company, whether the former employee was actively communicating with the competing company while still working at the former working place, etc.
- Employee’s competences. Assessment should be made as to the competences, qualifications, significant experience or technical know-how of the former employee, whether such information was confidential information of the employer and whether using this information would give the competitor a competitive advantage.
- Steps that have been taken to protect confidential information. The more valuable the information, the more intensive the actions must be taken to protect it. In the event of a dispute, the courts will assess whether the company had confidentiality agreements with its employees, whether confidentiality obligations were enshrined in local company-wide regulations, whether the company had an approved list of confidential information and whether technical and IT solutions were taken to protect it. Such actions and documentation strengthen the protection against unfair competitive practices and increase the likelihood of success in the event of a dispute.
- Information that is published on the company’s website. Confidential information must be kept secret in order to be protected. Posting service fees, detailed pricing lists and client identities on the company’s website allows the opposing side to argue that this information is public and, therefore, not protected.
- Overlap in client lists. If a competing company where the former employee is employed suddenly starts to provide services to a significant proportion of former employer’s clients, this may indicate that confidential information has been disclosed.
- Who initiated the provision of competitor’s services to the clients? The fact that a former employee, who is currently employed by a competing company, initiated communication with the clients of a former employer may be considered as an unlawful use of confidential information.
- Competitor’s financial situation. The financial situation of the former employee’s (business partner’s) newly established company in the short term after establishment may be assessed. High revenues and profitable operations from the very start of the operation, coinciding with the suspected disclosure of confidential information, may indicate unfair competition.