Knowing how we do what we do and who may be interested in it is essential for any service-oriented business.
Confidential know-how, detailed manuals, templates and precedents, along with customer databases with information about their investment patterns help ensure that business is processed as efficiently as possible and investments and services are targeted at the right people to maximise return on marketing spend.
Indeed, they are so valuable, that this information is one of the things that would sit at the heart of any discussion about the value of a business if it was up for sale or if inward investment were being sought.
It can pay, literally, to have your ducks in a row when it comes to what the law calls intellectual property.
However, lawyers regularly see disputes arising on the exit of an adviser, senior employee or executive, involving such intellectual property or confidential and proprietary information.
The vast majority of people who leave a business do so in an orderly way.
However, lawyers spend a lot of time dealing with disputes about who ‘owns’ customers when an adviser leaves a firm or over what information about a firm’s practice belongs to whom.
Sometimes people leaving a business will email information to third parties or personal email addresses and seek to extract some of that value from the business they are leaving. At other times, a departing adviser will have a legitimate claim that some or all of that value is value they brought into the relationship and which they are entitled to take out or share.
There are some default rules about who owns intellectual property in certain circumstances.
For example, the author of the text in a manual will be the first owner of copyright in it. If a party is allowed access to the manual for the purpose of processing business in an ongoing relationship and uses text in that manual for that purpose, and there are no express contractual terms about that arrangement, the default law is likely to be that the person enjoying access has an implied licence for that access only while the commercial relationship continues.
However, this is an area where effort at the beginning of a relationship can make life a lot smoother and save on legal costs at the end of a relationship.
In the above example, if there were clear contractual terms and conditions which made the nature of the access to the manual clear, including an express obligation to return the manual at the end of the relationship, there is much less scope for any dispute.
If a dispute does arise, it often involves the imminent departure of an adviser or executive to a competitor, with the risk that confidential information will be used at that competitor to benefit the other business.
In that situation, the typical approach of a disputes lawyer will be to seek undertakings from the departing executive and, if these are not given, an injunction from the court to protect such confidential information/intellectual property and seek its return.
This sort of action takes you towards the big ticket end of litigation where the amount of work involved is high, the timescales are short and intense, and the costs can very quickly mount into tens of thousands of pounds.
One of the most common disputes we see in the financial services sector is around who owns the clients when an adviser leaves a firm. The legal answer is clear: no one owns a client – they are not an asset capable of ownership.
Instead, relationships with clients can be protected by maintaining contractual agreements (usually called restrictive covenants) that apply on the termination of a relationship and by the security of the underlying data (via the database right recognised in intellectual property law) and by making it clear, contractually, that access to any such database is allowed to networks confidentially.
It is also useful and sensible, on the entry into a relationship, to acknowledge expressly who brought who and what to the table, what happens to intellectual property created during the life of the relationship and what happens at the end.
Aside from the legal response – and the importance of making terms and conditions clear – the other important thing you can do is control access to information, in a traceable fashion, and maintain that practical control.
There are a number of ways in which your IT teams can earn their keep in this respect, ranging from things as simple as password protection or read-only access, up to traceable logs
of access and the flow of critical information.
In any case, while running the business efficiently and in a sensible way must be the focus. Some thought about how you protect what’s yours never hurts. You would not leave the office unlocked when you leave, after all.
Peter Singfield is partner at Foot Anstey