Federal Court of Australia Decision in Leica
Geosystems Pty Ltd v Koudstaal (No 3)  FCA
An ex-employee was recently ordered to pay his former employer AUD50,000 in damages after the Federal Court (Court) held that the employee had infringed copyright and breached his employment agreement and duty of confidentiality and acted in breach of the Corporations Act 2001. What did he do? When he left employment he took a little too much with him, in the form of source code and electronic files.
Andrew Koudstaal was employed by the applicants Leica Australia (Leica) as a software engineer from 10 May 2010 to 3 November 2011. On 3 November 2011, Mr. Koudstaal resigned from his role at Leica to commence employment in a similar capacity at Leica's competitor Automated Positioning Systems Pty Ltd (APS).
Before he left Leica, Mr. Koudstaal copied over 60GB of Leica's data onto an external hard drive which he took with him when he left employment. The material taken included source code, which Mr. Koudstaal built into executable program files during his employment, and 'Virtual Machines' which contained all the tools to allow the source code to be made into a product.
After a former Leica colleague noticed a folder called "Leica" on Mr. Koudstaal's television screen (which was attached to an external hard drive) when visiting Mr. Koudstaal's home, Leica sought, and was granted, a search and seizure order which was executed at Mr. Koudstaal's home. During the execution of the search order, forensic images were made of Mr. Koudstaal's desktop computer and external hard drive, and subsequently a forensic image was made of his laptop.
Mr. Koudstaal acknowledged that in the period between 24 to 27 January 2012 (during which time he was working for APS) he installed three pieces of computer software onto his laptop, which were necessary for developing source code, and on 27 January 2012 he ran the Virtual Machine in a simulator to look at Leica's database files.
Leica made the following claims against Mr. Koudstaal:
- Breach of copyright by reproducing a substantial part of Leica's works without its licence, consent or authority, pursuant to s36(1) of the Copyright Act 1968 (Cth).
- Breach of the equitable duty of confidentiality that he owed as an employee by virtue of his access to Leica's confidential information during the course of his employment, and which he breached by copying the volume of material taken in the days leading up to his resignation.
- Breach of certain terms of his employment contract, including the obligation not to place himself in a position of a conflict of interest.
- Breach of s183(1) of the Corporations Act 2001 by improperly using information obtained through his position with Leica for his own advantage or the advantage of another (APS).
Leica successfully established all of its claims. In a judgment delivered on 23 October 2014, her Honour Justice Collier made the following key findings.
Mr. Koudstaal had copied Leica's copyright protected materials (source code) for his own purpose, and removed it from Leica's possession. Mr. Koudstaal's claim that he was authorised to copy certain materials as part of his duties was negated by the fact that the materials were taken on his last days of employment with Leica, and were reproduced between 24 and 27 January 2012 when Mr. Koudstaal was working for APS.
Duty of Confidentiality
By copying and permanently removing confidential information which he had access to by virtue of his employment with Leica, Mr. Koudstaal breached the equitable duty of confidentiality that he owed to Leica. The confidential information included source code, material ancillary to the source code and customer version lists. None of this confidential information fell within Mr. Koudstaal's "stock of general knowledge and information" which he was entitled to take with him when he left Leica to work for APS.
It was a telling fact that on Mr. Koudstaal's final day of employment at Leica he falsely stated that he did not have any of Leica's property in his possession.
Justice Collier noted:
"That volume and complexity of material, considered in light of the fact that Mr. Koudstaal took this material in the final two days of his employment when there is nothing before me to support an inference that Mr. Koudstaal needed to download the entirety of the applicants' source code, point to a breach of Mr. Koudstaal's duty of confidentiality."
Mr. Koudstaal was held to have breached the following provisions of his employment contract with Leica:
- To dedicate his time during working hours to Leica's business and affairs.
- To faithfully and diligently perform his duties and exercise the powers consistent with the position he held.
- To use his best endeavours to promote Leica's interests.
- To protect Leica's property from theft, loss, damage or neglect and to give immediate notice to Leica if any of these matters came to his attention.
- To not enter into another employment or business activity which could reasonably conflict with Leica's interests or the performance of his duties, or that could make use of the confidential information imparted to him.
- To return Leica's property in his possession, power or control on termination of his employment or at Leica's request.
Justice Collier noted that:
"The evidence before me supports a finding that Mr. Koudstaal copied these materials (which were at the heart of the applicants' business) to provide him with, among other things, a reference point to assist him in subsequent employment with competitors of the applicants."
Corporations Act 2001
There was no evidence before the Court that Mr. Koudstaal disclosed any of the material that he took to APS or that Leica suffered any detriment as a result of Mr. Koudstaal's conduct. Despite this, the Court was satisfied that one reason for taking the material was that it could potentially prove useful for Mr. Koudstaal as a reference source for future work with APS. This was held to be an improper purpose and Mr. Koudstaal was therefore found to have used information he obtained through his role at Leica to gain an advantage for himself, or someone else, or to cause detriment to Leica.
The following four issues were relevant to this finding:
- Mr. Koudstaal "was discriminating in respect of the Taken Material which he copied to his external hard drive, and was fully aware that the relevant source codes were at the core of the applicants' business". The volume of material taken meant that he would be able to run Leica's source code on the Virtual Machines.
- There was undisputed evidence before the Court that working source code was of enormous benefit when developing software for the same purpose.
- Ms. Vella, Mr. Koudstaal's former colleague at Leica, was a credible witness and gave evidence that Mr. Koudstaal had acknowledged on previous occasions that he took source code from past employers and that he considered this practice to be normal. Further, Mr. Koudstaal had made comments to Ms. Vella that he had looked at the Leica source code to help him fix problems with APS' drill program and that at APS they spoke about what Leica did and how they might follow suit.
- Part of Mr. Koudstaal's motivation for operating the Virtual Machines on the Australia Day weekend in 2012 related to work he was performing for APS.
Damages,/br> Even though Mr. Koudstaal didn't pass on any of the materials that he took from Leica to APS, and Leica didn't suffer any detriment as a result of Mr. Koudstaal's conduct, the Court was prepared to conclude that he acted to benefit himself and potentially also APS as a result.
Mr. Koudstaal was ordered to pay AUD1 in compensatory damages to Leica. The Court was unable to award anything other than nominal compensatory damages as:
- the materials taken were unique and valuable, however, this alone was not enough of a basis for the Court to order damages
- Leica's source code or associated materials had not diminished in value as a result of Mr. Koudstaal's conduct
- there was no evidence that Leica lost any profits or market share or any customers to APS as a result of Mr. Koudstaal's conduct
- there was no evidence that Mr. Koudstaal's use of Leica's materials had any impact on his work at APS to Leica's detriment
- any inconvenience Leica suffered as a result of the proceeding was properly compensated by an order for costs.
The Court was, however, prepared to order that Mr. Koudstaal pay Leica AUD50,000 in additional damages for his copyright infringement. This amount represents the flagrancy of Mr. Koudstaal's conduct which was in complete disregard of Leica's rights, and was designed to deter similar infringements of copyright. While Leica's senior officers were rightly anxious at the prospect that software at the core of its business was potentially available for a competitor to obtain benefit, the Court noted that Mr. Koudstaal did not appear to have benefitted financially from his infringement. He also expressed remorse for his wrongful conduct.
The Court made declarations relating to Mr. Koudstaal's wrongdoing and restrained Mr. Koudstaal from keeping, using or reproducing and publishing or disclosing Leica's materials and ordered Mr. Koudstaal and his former solicitors to deliver up these materials in their possession or under their control.
Mr. Koudstaal was also ordered to pay Leica's costs.
Lessons to Learn
Employers can take comfort in the fact that the Courts take a very serious view when it comes to employees misusing their position for their own benefit. This case sends a strong message to employees who are about to leave their jobs that they should only take their general knowledge and information with them. Anything they may have created for their employer during the course of their employment will be owned by the employer. They will not be permitted to take these materials or confidential information imparted to them when they leave.
Even if an employee is acting in his or her personal capacity, and may not have obtained any benefit from his or her employer's materials which they have taken, the Courts will not shy away from ordering an employee to pay a significant damages sum to punish this wrongdoing and send a message to other employees who might stray on the wrong side of the law in a similar situation.
Any employers who believe their copyright works and confidential materials might have been taken or misused by a former employee(s) should contact Lisa Egan, Partner, for advice on what recourse they may have.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.