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What Legal Grounds Do You Have to Recover Damages for Corporate Espionage?

by | Insights

You hire an employee that used to work for a competitor only to find out too late that the employee is a spy stealing your business secrets to give to his “former” boss. Corporate espionage is nothing new, and in fact is prevalent in this day and age. Many businesses have dealt with attempts by employees and competitors to steal their confidential business information. Typically, companies sue for misappropriation of trade secrets. However, there are other grounds that could allow the business to recover damages for corporate espionage. These alternatives are important because some claims may be easier to prove than others depending on the facts of the case.

Tortious Interference With Contractual Relations

If someone tries to disrupt a contract between two parties which results in damages, there may be grounds for suing for tortious interference with contractual relations. This may come up in corporate espionage because a third-party may intentionally interfere with the relationship between a business and one of its customers.

In order to establish a claim for tortious interference with contractual relations, a plaintiff must demonstrate:

(1) a valid contract between the plaintiff and a third party;

(2) defendant’s knowledge of that contract;

(3) defendant’s intentional procurement of the third party’s breach;

(4) actual breach; and

(5) actual damages.

An important fact is whether the plaintiff’s interest was in an enforceable contract. Accordingly, if the contract interfered with was voidable, unenforceable, or terminable at will, the claim will not survive. Practically, this means that the plaintiff cannot win on these grounds if the defendant attempted to interfere with an agreement between the plaintiff and one of its employees which was at will.

Tortious Interference With Prospective Business Relations

While the above claim requires an existing valid contract, tortious interference with prospective business relations involves an expected relationship which has not been reduced to a contract. To establish a claim, a plaintiff must show:

  • the defendant knew of the proposed contract between the plaintiff and [a third party];
  • the defendant intentionally interfered with that proposed contract;
  • that were it not for the defendant’s interference, the proposed contract would have been entered into;
  • the defendant’s interference was done by wrongful means; and
  •  the plaintiff suffered damages as a result.

Usually, the most difficult element to prove is the defendant’s culpable conduct. Typically, the defendant must be engaged in “criminal conduct, conduct that constitutes an independent tort or possibly any other wrongful means employed to harm another’s prospective contractual relations. … It could also mean [a] breach of fiduciary duty.”

One of the advantages of this type of claim is that it can still survive even if there is interference with an at-will employment relationship.

Aiding and Abetting a Breach of Fiduciary Duty

Another possible action where corporate espionage has occurred is suing for aiding and abetting a breach of fiduciary duty. Certain relationships in business involve a heightened level of trust or reliance of one party on another. These are known as ‘fiduciary’ relationships. Someone who knowingly participates with a fiduciary in a breach of trust is liable for aiding and abetting and must pay the full amount of the damage caused thereby.

The elements of aiding and abetting a breach of fiduciary duty are: (1) a breach by a fiduciary of obligations to another; (2) that the defendant knowingly induced or participated in the breach; and (3) the plaintiff suffered damage as a result of the breach. Participation in the breach of the fiduciary duty must constitute a “substantial assistance” to the primary violator. In that regard, “substantial assistance” occurs when the defendant affirmatively assists, helps, conceals, or fails to act when required to do so, thereby enabling the breach to occur. Mere inaction constitutes substantial assistance only when the defendant owes a fiduciary duty directly to the plaintiff.

Conclusion

When corporate espionage occurs, it is important to seek experienced legal counsel. There may be several different grounds for suing and a skilled lawyer can evaluate which ones are most likely to result in recovery for the losses. Defendants also need good legal advice as there are valid defenses to all of these actions.

If you need assistance in this area, contact us to learn how we can help.

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