If, after an employee leaves the company, the employee’s new employer – or even a company newly founded by that former employee – brings a competing product to market, there is often a suspicion that trade secrets have been misappropriated. Even though it can sometimes be difficult for the plaintiff to present evidence, the defendant may also face challenges when defending against unfounded claims. The key is to document the company’s own development.
Use of experiential knowledge is permissible
Not every activity undertaken by a poached employee constitutes an impermissible act of exploitation by the new employer. As the Federal Court of Justice (BGH) clarified once again in its decision “Hohlfasermembranspinnanlage II” (see here, para. 46), reaffirming its earlier case law, a former employee may, in principle, use the knowledge acquired during the employment relationship without restriction. An exception to this principle applies only to the extent that the former employee is subject to a non-compete clause. However, such a non-compete clause may be agreed upon for a maximum duration of two years (Section 74a (1) sentence 3 HGB) and requires the payment of compensation for the duration of the restriction. The right to utilize knowledge acquired in good faith applies to all information retained in the former employee’s memory.
The use of experiential knowledge is impermissible only if the former employee relies on documents he or she created during the employment relationship to “refresh” his or her memory. It is, of course, even more impermissible if the employee copies and takes the former employer’s documents for this purpose.
To the extent that the former employee uses only information from his or her memory, he or she may also systematically attempt to “reconstruct” his or her former employer’s technology. It is in the nature of trade secrets that the legal protection afforded by the GeschGehG does not provide absolute protection. Accordingly, Section 3(1) no. 1GeschGehG expressly clarifies that a trade secret may be obtained through “an independent discovery or creation.” Within the legally permissible framework, that is, in particular, without taking documents, the knowledge of former employees may also be utilized in this context.
Documentation of independent development
However, significant difficulties may arise if a bona fide entrepreneur is held liable for the unlawful acquisition and/or use of trade secrets due to external similarities. A successful defense against an unfounded accusation of taking documents requires thorough preparation.
There are conceivable situations in which a large number of similarities in technical details may constitute evidence of unlawful conduct. To avoid a lack of evidence in such cases, all development work should be carefully documented and archived. Relying on proper documentation – starting with initial drafts and sketches, through further planning, design drawings, and subsequent development steps – significantly facilitates the defense against allegations of infringement. Without such documentation, there is, in the worst-case scenario, a risk that a bona fide entrepreneur will be unable to substantiate their own development.
Burden of proof in proceedings under the GeschGehG
Before an entrepreneur finds themselves in the position of having to demonstrate and prove an in-house development, the trade secret owner must first substantiate the existence of a trade secret and an act of infringement. Depending on the facts of the case, such a substantiated demonstration could result from the fact that a specific product or the sequence of a process exhibits striking similarities to the owner’s own (confidential) product.
If the trade secret owner is unable to substantiate the act of infringement, the alleged infringer generally does not bear a secondary burden of proof. To establish a secondary burden of proof, it is not sufficient that the alleged infringer had the theoretical possibility of acquiring trade secrets based on their prior activities. Such a secondary burden of proof exists only in exceptional cases with respect to specific details falling within the scope of knowledge of the affected party, if the party primarily responsible for presenting evidence (i.e., the plaintiff who is the trade secret owner) is outside the sequence of events to be proven, has no detailed knowledge of the relevant facts and cannot obtain such knowledge, while the opposing party can provide more detailed information and disclosure is both readily possible and reasonable for that party.
This requirement is unlikely to be met in most cases. As an employer, the secret holder is not usually outside the scope of the events to be presented. Typically, the allegation relates to documents that are physically located within the company or stored on its servers. An unlawful copying act – for which the secret holder bears the burden of presentation and proof – would, under these circumstances, have had to take place entirely within the company and under its potential observation, so to speak, right before its eyes. In that case, there is no lack of presentation or proof that would justify a secondary burden of proof.
However, if the claimant can sufficiently substantiate an act of infringement, the tables turn. In this case, according to general principles of substantiation, a counterargument is required that is at least as detailed as the infringement claim. A successful defense is therefore only possible if the entrepreneur can substantiate his own development accordingly. This typically requires the submission of documents regarding the company’s own development processes.
If a complaint from a former employer is foreseeable, it may even be advisable to divide the development work among several teams. More on the role of the “clean team” in the next post on the Secret Blog. We reported here on the possibility of conducting an on-site inspection in preparation for legal proceedings. The collection of evidence through a search of a departing employee’s email inbox is discussed here.
Conclusion
Every company is entitled to utilize, within the scope of its development activities, the experiential knowledge its employees have acquired from previous employers. Nevertheless, defending against an unfounded lawsuit alleging the misuse of trade secrets can present significant challenges. It is important to carefully document one’s own development work.