Last week I discussed a British legal case involving a large recruiting company called Hays which successfully sued one of its ex-consultants for stealing company information after that consultant issued invitations to Hay’s clients to join his personal group at the Social Network Service (SNS) called Linked In. The ex-employee admitted that he had set up a competing company but defended his actions by saying that he did not remove any data, the clients were able to respond of their own volition, and that Hays was encouraging the use of a public forum (the Linked In SNS) knowing that any data appearing on that forum would be in the public domain.
The British judge ruled against the ex-employee, saying that the ownership to the client data was Hay’s property and that the ex-employee had knowingly misused it for his own gain.
I thought this case was an important one, firstly because the Internet was involved, which introduces a new concept of companies using online tools that by their very nature are in the public domain. Secondly, employees commonly leave their companies here in Japan and expect to take with them their contacts file – something that is almost considered a right (“tools of trade” perhaps?). As a result, I decided to ask a leading Osaka law firm, Kitahama Partners, for their opinion on the matter and how the case may have been viewed by a judge here in Japan. Interestingly, they found that there could have been a different interpretation to the British court finding. I would like to thank Kitahama Partners Jiri Mestecky and Ayumu Iijima, for their kind input for this article.
Kitahama’s comments are as follows:
1. Under the trade secret provisions of Japan’s Unfair Competition Prevention Law, in order to be protected as a trade secret, the relevant information must: (a) be useful for commercial activities; (b) be subject to reasonable efforts to maintain secrecy; and (c) not already be publicly known.
2. Using the above Japanese legal framework to analyze the Hays case, we would conclude as follows:
A. Usefulness: Assuming the Hays database of contacts used by the ex-employee was organized in a commercially useful and valuable manner (as most such databases are), Hays could likely establish the existence of this element.
B. Reasonable Efforts: Reasonable efforts to maintain secrecy under Japanese law basically consist of two elements: (1) clear designation of information as being secret and (2) controlling access to such information. Assuming that Hays was indeed aware of, and encouraged, the ex-employee’s outside use of the Hays contacts database, such facts suggest that these two elements may not have been satisfied and thus it might be difficult to establish that Hays took reasonable efforts to maintain such database as a trade secret under Japanese law.
C. Not Publicly Known: One issue which often accompanies trade secrets and contact information is whether such information could be obtained from public sources, such as a company website. For example, if the e-mail address of a CEO contained in Hays contact database could also be obtained from the CEO’s company website, such fact might weigh against such e-mail address being considered a trade secret. On the other hand, if the contact information database itself is organized in a commercially useful format that is not disclosed to the public and is properly maintained as a trade secret, a Japanese court might find that such database is itself a trade secret, despite the fact that certain information contained therein can be publicly accessed.
3. Based upon the foregoing analysis, under Japanese law, Hays’ biggest obstacle would likely be proving that the contacts database was subject to reasonable efforts to maintain secrecy. If Hays could not do so, the contacts database would not be considered a trade secret, and Hays would not prevail.
4. If Hays were to be able to prove the above elements and prevail in a lawsuit for trade secret misappropriation, the available relief could be monetary damages and/or an injunction. However, we believe that proving monetary damages would be very difficult if the Hays case were to be tried in Japan. With respect to injunctive relief, Hays might be able to obtain an order preventing the ex-employee’s use of the relevant contact information as well as an order for the ex-employee to return any relevant contact information in the employee’s possession. Nonetheless, we believe that it would be difficult for Hays to obtain a court order to shut down the website, as the ex-employee invited Hays clients to join his network of their own volition.
5. It is also worth noting that liability in a case like Hays could possibly also arise under Japan’s Personal Information Protection Law as a result of Hays’ client information being used by an ex-employee without the clients’ permission. Nonetheless, any legal action in this regard would have to be taken by the clients themselves against Hays and/or the ex-employee, and could not be taken by Hays against the ex-employee. Moreover, in order for the Personal Information Protection Law to apply, Hays would have to maintain a personal information database of over 5,000 individuals.