A Vancouver company’s lawsuit against a former employee has raised questions about intellectual property protections during hard economic times.
The potential for intellectual property theft can go up in times like this when more layoffs are occurring, said Todd A. Mitchell, a shareholder in law firm Bullivant Houser Bailey PC’s Vancouver office.
“If a company’s practices put it at risk before, it’s even more at risk now, as terminations can create the circumstances for a former employee to misuse intellectual property,” Mitchell said.
Vancouver-based large format graphic company Techjet Imaging filed a lawsuit against the former salesman claiming, among other things, that he misused intellectual property for personal gain.
The parties have settled the suit amicably, but comment was not available from those involved with the dispute. All details about the suit are from court records and a disclosure sent to Techjet customers.
Severing ties
According to the lawsuit filed Jan. 21 in Clark County Superior Court, it was less than two weeks before Christmas in 2008 when, reportedly faced with economic hardship and lagging sales from lead outside salesman Jeff Hartup, Techjet leaders asked him to make a choice: accept a lower base pay rate with potential for higher commissions or leave the company.
Hartup declined the new pay structure. He claims in court documents that he was fired that day, while Techjet maintains that he quit.
Within two weeks, Techjet customers contacted the company saying Hartup had emailed them to offer services similar to Techjet’s through his independently owned company, Ballyhoo Inc. Hartup openly operated Ballyhoo as a noncompetitive side business during his time at Techjet.
More than one of those clients said they didn’t know Hartup, according to court records. Techjet’s leaders wondered if he had access to their client database, though he had returned his company laptop and facility keys.
Techjet Co-owner Don Bloodworth saw further cause for alarm when he visited BallyhooInc.com and saw several images of Techjet projects posted as examples of Ballyhoo’s offerings, according to court records.
And when Bloodworth visited Ballyhoo’s page for digital file transfers, he found files allegedly containing Techjet images and a link to its customer database portal.
The lawsuit came after Bloodworth emailed Hartup, asking that he cease competitive actions, return stolen company assets and sign non-compete and confidentiality agreements. Hartup acknowledged that he had Techjet client information on his personal laptop, but said he had accidently emailed Techjet clients he had not worked with, according to court records.
Techjet’s attorneys, Kelly M. Walsh and Phillip J. Haberthur of Schwabe, Williamson and Wyatt’s Vancouver office, alleged that Hartup’s actions caused economic harm to the company and could interfere with its future business.
But Hartup’s attorneys, Kurt M. Rylander and Mark E. Beatty of Vancouver-based Rylander and Assoc., maintained that because Techjet did not adequately protect or define its confidential data and didn’t require Hartup to sign a confidentiality agreement in the beginning, Techjet tried illegally to retroactively impose a non-compete agreement, according to court documents.
Techjet hired Hartup in 2006 after he refused to sign a non-compete agreement as a term of employment.
Per terms of the settlement, Hartup returned or destroyed all of Techjet’s confidential information and property, and disputes about wages and commission owed to Hartup have been resolved. Neither party admitted fault.
Business lessons
In general, companies that want the most intellectual property protection should consider entering into employment contracts specifying that the employee assigns all intellectual property to the employer, as well as non-competition and confidentiality agreements, Mitchell said.
Attempting to negotiate a non-compete or similar settlement agreement after an employee leaves or is terminated can be very difficult, he added.
Mitchell also recommends clearly identifying and marking forms of confidential or proprietary information within a company, including customer lists, pricing methods, strategic business relationships, secret formulas and other strategic information that is not made available to the public or competitors.
Intellectual property can include any information that an employer maintains as confidential, but it must be recognized and treated as such, he said.
“I can’t say that the Vancouver phone book is my confidential customer list,” he said.
A company also should consider what intellectual property it should seek copyright, patent or trademark protection for, and do so in consultation with legal counsel, he said.
Tiffany Couch, a forensic accountant who handles employee fraud cases at Vancouver-based Acuity Group, suggests that along with non-compete agreements, companies review job applicants’ educational, professional and financial backgrounds – especially if they will have access to sensitive company information.
“If they’re not willing to go through a background check or credit check, it might be a warning,” she said.
Couch recommends running such agreements by an attorney or human resources professional to make sure they are enforceable. She also advises having employees sign a code of conduct annually.
“I don’t think there’s any substitute for creating a culture of ethical behavior,” Couch said. “You have to exemplify the behavior you want from your employees.”
Couch recommended compliance checks on those in company leadership, including those in supervisory positions.
“If you let one person have control of everything, then a lot can get by you,” Couch said.
Protect your company from intellectual property theft:
• Form employment agreements to specify a company’s rights to intellectual property (IP) developed by employees. Form work-for-hire agreements to do the same with independent contractors.
• Seek legal counsel before employee terminations to develop protocol and limit terminated employees’ access to sensitive materials.
• With layoffs, include IP agreements with severance agreements.
• If you’ve experienced IP misuse and have no protection agreements, the Washington Uniform Trade Secrets Act can help stop the misuse and recover damages and attorney fees.
Source: Bullivant Houser Bailey PC
Charity Thompson can be reached at cthompson@vbjusa.com.
