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Case law: employer liable for employees' unauthorised use of rival's customer database

Employers should make sure their employees are subject to appropriate restrictions on using confidential information, or disclosing it to unauthorised persons, following a recent ruling on Database Rights.

Legal Alert

This update was published in Legal Alert - December 2013

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

An employer was held liable for its employees' unauthorised breach of a rival's Database Rights after the employees copied and used the database to target their rival's customers. A person has Database Rights if he has made a 'substantial investment' (financial, human or technical) in obtaining, verifying or presenting the data in the database.

Database Rights are automatic and do not need to be registered. If they apply, it means the database owner can stop someone else extracting or reusing all, or any substantial part, of the database (except in certain limited circumstances).

An ex-employee of gas company Flogas passed an unauthorised copy of a database of Flogas customers to his old sales director which included customers' names, addresses, contract dates and the prices they were paying. The sales director went to work for a competitor and passed the database its head of marketing who used it to mailshot Flogas's customers - with offers designed to entice them to switch suppliers.

Flogas complained and the rival company took action against the staff involved, stopped the mailshots and destroyed the relevant marketing materials. Flogas claimed compensation for breach of its Database Rights by the rival's employees on the basis it was vicariously liable for their actions.

The High Court found that a substantial part of Flogas' database had been extracted from the company's systems and its Database Rights had, therefore, been infringed - despite the rival's attempts to put things right. It also ruled that the company was vicariously liable for its employees' actions as their wrongful conduct could "fairly and properly be regarded as effected by [the two employees] while acting in the ordinary course of the firm's business or the employee's employment". The rival company was ordered to pay £250k compensation.

Employers must make clear to workers what information is confidential and cannot be used and disclosed to third parties. Policies and procedures should be reviewed to make sure they make clear any data brought into the business (particularly by new employees) are identified and checked for potential breaches of third party database rights and/or other intellectual property rights to avoid the risk of litigation.

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Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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