Improper Use of Company Data Yields Large Damage Award

April 24, 2012

I.          Introduction

Most companies consider the proprietary information that they develop in the course of business is an asset worthy of protection. One area of concern is the use or misuse of such information by former employees, and by the employers who hire them.

A degree of protection is afforded by employment agreements that limit post-employment competition by former employees, and seek to maintain the confidentiality of proprietary information. Canadian courts, however, encourage competition and so narrowly interpret restrictive covenants that limit an employee’s ability to compete against the former employer. The courts often support the right of employees to re-create customer lists from memory so long as they don’t appropriate the data itself.

The proprietary data of a company can be protected by contract and by the rigorous application of protocols to limit the access and use of such data by employees and contractors in the course of providing their services. In a recent BC Supreme Court decision in Cruise Connections Canada v. Cancellieri, Meridian Travel Limited, et al., the plaintiff recovered almost $500,000 in damages for the misuse of its proprietary information.

II.         Facts

Cruise Connections operates a travel agency specializing in the sale of cruises and associated travel and accommodation. In the course of its business, it had built up a database of some 80,000 names of clients and potential clients which were generated through extensive newspaper advertising in local, national and international newspapers. The database included client contact information, and personal information such as cruise preferences. The profiles of cruise customers were developed in part by cruise booking specialists who were in direct contact with the customers in the course of arranging for their travel requirements.

The cruise specialists all signed agreements in which they agreed that all customer leads and lists would remain the property of the company. The contracts also prohibited solicitation of these clients after the termination of their service. The cruise specialists were considered to be independent contractors. They worked as partners in groups of three, under firm names such as “High Tide Holdings.”

As a result of a dispute over marketing to a particular cruise company, certain of the cruise specialists had their access to the database restricted. As a result, a group of cruise specialists left the plaintiff’s service and took with them some of the plaintiff’s support staff. They marketed themselves to another travel agency on the basis they could deliver a cruise data service including a data base of existing and potential customers. The defendant travel agency agreed to engage the cruise specialists and former support staff employees of the plaintiff based on their assertion that they could deliver a ready-made cruise booking service. The plaintiff sued the cruise specialists, the former support staff employees that left with them, and the travel agency that engaged them to provide a cruise service.

III.        Court Judgment

Judgment was obtained against all of the defendants. The Court found that the cruise data system belonged to the plaintiff as it had spent a considerable sum of money in advertising to build up the data on the system.

As well, the agents and employees of the plaintiff had signed contracts acknowledging that the data system belonged to the plaintiff. The description of the “proprietary” data in the contracts was not too vague or incapable of definition. Steps taken such as limiting access to the data showed that the plaintiff had protected its proprietary information against unauthorized usage.

The Court also found that the defendants had deliberately attempted to appropriate the cruise data from the plaintiff. As such, they were in breach of their contractual and common-law obligations, including the obligation of good faith and confidentiality.

Substantial damages were awarded based on the hypothetical retention rate of 60% of the plaintiff’s cruise clients, with damages assessed over three years for lost bookings. As well, damages were awarded for cancelled bookings.

IV.       Takesaways

This case illustrates how carefully crafted employment and independent contractor agreements can protect the proprietary information of a company.

It is important to clearly describe and define the proprietary information. Vague descriptions will make enforcement of these contracts more difficult.

In addition to contracts, a company should take active steps to protect both access to and use of proprietary information at all times. Active steps such as the plaintiff took in this case serve the practical goal of safe-guarding proprietary data, while at the same time demonstrating to a third-party that the information was not public knowledge or in the public domain.

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