First Conferences sued a former key team member when he set up competitor Inspire Conferences and seemed to be making free with their customer database and trying to divert speakers to his equivalent events. But were any specific rights of First Conferences being infringed? Mark Smith reports.
Topic: Competition
Who: First Conference Services Ltd v. Richard Bracchi & Others [2009] EWHC 2176
When: 26 August 2009
Where: High Court
Law stated as at: 24 September 2009
What happened:
A recent action brought by First Conference Services Ltd against their former employee Robert Bracchi struck a blow for businesses who find that valuable company information, such as customer contact details, has been copied and then used by an ex-employee to set up a rival business.
The claimant carried on a business of organising conferences and had developed a huge number of contacts fundamental to its business.
The defendant was employed by the claimant as a conference organiser from March 2006 until November 2008, when he left the company having given one month's notice of termination of his employment. During his time working for the claimant he was assigned to various projects, although his main focus in the last year or so of his employment was as a developer of the Forecasting sector.
Following his departure the defendant set up a competing business organising conferences. The claimant took legal action, alleging that the defendant had breached their rights under Regulation 16 of the Copyright and Rights in Databases Regulations 1997 by transferring large amounts of the claimant's customer database and details of their sales records in the Forecasting area to his new business. Furthermore, the claimant alleged that the defendant had passed his conferences off as being conferences associated with the claimant.
Database right
Database right is derived from the Copyright and Rights in Databases Regulations 1997, which implement the EC Database Directive (96/9/EC), and exists in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database (Regulation 13). It is infringed if a person extracts or re-utilises all or a substantial part of the contents of the database without the owner's permission (Regulation 16(1)). "Extraction" is defined in Regulation 12 as "the permanent or temporary transfer of all or a substantial part of the contents of a database to another medium by any means or in any form".
The claimant alleged that during his employment and after, the defendant made extractions from the claimant's database with the intention of making and keeping copies of parts of the claimant's database for use in his business.
The defendant's method was to e-mail the database extractions to his personal e-mail account. He then uploaded them into a "vertical response" mailing account and performed mail shots. It was found that a substantial amount of the claimant's database was received into the defendant's personal e-mail account, including thousands of contact names, and the defendant could offer no reasonable justification for this occurring. One evidential point which was of real help to the claimant's case was that it had "seeded" its database with some covert identifiers. The judge felt that it was plain that the defendant had misappropriated the claimant's confidential information in order to give himself a springboard from which to launch a competing business.
The claimant demonstrated that a considerable amount of time and expense had been spent by them in creating their database, and the judge held accordingly that the claimant had breached their database rights under Regulation 16.
Passing off
The law relating to the tort of passing off is derived from the principle that "a man is not to sell his own goods under the pretence that there are the goods of another man". To establish a classic case of passing off claimant must prove (1) goodwill or reputation in their relevant goods or services; (2) a misrepresentation by the defendant to the public (whether intentional or unintentional) that will lead or be likely to lead the public to think that his goods and services are those of the claimant; and (3) damage to the claimant by reason of that misrepresentation.
It was clear from the evidence that the defendant set up conferences to rival those of the claimant for September and October this year, in the same locations and covering the same topics. He approached previous speakers from the claimant's previous conferences and invited them to speak at his conference. This was of course not actionable per se, as in the absence of a restrictive covenant the claimant had no right to restrain competition of itself. Furthermore, they could not stop him from using information that was not a trade secret or that had not been improperly obtained, but which was, for example, memorised in his head or available in the public domain. The details of speakers from the claimant's previous events were of course already in the public domain.
However, the defendant went further than trying to poach speakers from the claimant's previous conferences. In doing so he stated in various e-mails to prospective speakers that his conference was in fact a follow-up of the claimant's previous one. He even rather ironically suggested in one e-mail that the claimant's conference was a "poor imitation event". In addition, the defendant suggested on his website that the speakers at his Pharma Forecasting Innovation 2009 conference were "previous speakers" when none of them had previously spoken at a conference held by the defendant. Most of them had in fact spoken at the claimant's previous conferences.
Consequently the judge held that the claimant's passing off claim was clearly established, and awarded the claimant an injunction and damages.
Why this matters:
As pointed out by the judge in the case, due to the computerisation of so much information, it is becoming increasingly common for employees who intend to set up their own competing business to help themselves to their employer's confidential business data. Instead of using their own initiative they simply take the material that their employer has put time, effort and expense into gathering, and use it as a springboard to launch their own operation.
First Conference Services Ltd v. Richard Bracchi illustrates that employers can take action against these individuals under the Copyright and Rights in Databases Regulations 1997 and bring them to account. In doing so it highlights the importance of utilising data security options such as "seeding" a database with covert identifiers, such as fake names or contacts, as in many cases an ex-employee may falsely claim to have put together the records himself.
The case also shows that the old tort of passing off can be very useful where those ex-employees decide to go one step further and try to ride off the reputation of their former employer and mislead the public.
However, it also demonstrates that businesses should always consider putting a non-compete clause in the employment contracts of key employees, to prevent them launching a competing business in the months following their departure. Whilst such clauses can only offer protection for a limited period (generally up to a maximum of 12 months depending on the seniority of the employee) they offer much wider protection than passing off, as there is no need to prove that the ex-employee has misrepresented his goods or services as being those of the claimant, and are much more straightforward to invoke.
