Legal news and trends for Canadian in-house counsel and c-suite executives
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COVERSTORY Companies also should regularly monitor the usage and ac- cess of their electronic information, he says. During the breach at Air Canada, court documents show its internal web site was tapped into nearly 250,000 times inside of one year; an astounding 4,973 times in a single day. So most importantly, says Cherniak, once an anomaly is de- tected, counsel and their companies must enact a swift response. "The first thing you need to do is get your ducks in a row before you do anything public," he cautions. Top of the list is to deploy a good investigator, whether in-house or contracted, who knows what evidence a court will require to pinpoint the culprit, and who can obtain an Anton Piller order to exercise a search for evidence that could be used in a trial. But not all cases of corporate espionage are exacted in the spir- it of malcontent or competition. Take the case of Murphy Oil Com- pany Ltd. v. Predator Corporation Ltd. Murphy Oil and two partner companies had invested millions in the exploration and testing of British Columbia's Ladyfern field to find one of the largest-yielding sources of oil and gas in Western Canada. Before its findings were made public, a small company, Predator, appeared on the radar bidding on parcels of Crown land that bordered the Ladyfern field. The oil giant hired an investiga- Says Marshall: "I guess the lesson is you've got to make sure everybody understands this is confidential," adding that, for the most part, professionals involved in oil-patch exploration know the sensitive nature of results. The possible perils of falling victim to espionage or aggres- sive competitive intelligence can increase measurably in an out- sourced division of a corporation. "From the perspective of offshore outsourcing, it's a much "In this case, it's akin to my phoning up your bank and saying, 'You know, she's a friend of mine. We had tor to find out why such an insig- nificant player in the industry was suddenly willing to pay tens of mil- lions of dollars for nearby lands. Something had to be amiss. Indeed there was. Through interviews by the investigator, it lunch the other day, so why don't you give me some of her money?'" — JACK MARSHALL, MACLEOD DIXON LLP was discovered an engineer, who was contracted to conduct the pressure-data testing that disclosed the magnitude of the under- lying reserves, was a buddy of an engineer at Predator; through a bit of prodding, the engineer had turned over the test results. Murphy Oil successfully sued based on the argument that Predator had acquired the information based on the misuse of confidential data. "You spend quite a bit of money to acquire these pressure tests," says Jack Marshall, partner at Macleod Dixon LLP in Cal- gary, who represented Murphy Oil. "An investigator was brought in to find out how was it that an unknown company all of a sud- den bids unprecedented amounts of money to acquire the acre- age offsetting the discovery well. "In this case, it's akin to my phoning up your bank and saying, 'You know, she's a friend of mine. We had lunch the other day, so why don't you give me some of her money?'" In her reasons for judgment, Justice R.E. Nation acknowledges the energy industry is "highly competitive" with much financial risk. In her judgement, she affirms, "Any use of the information against the owners' interest is wrongful." 14 JUNE 2008 C ANADIAN Lawyer INHOUSE bigger risk because the personnel in those countries, their stan- dard of living is much lower than ours, and they may be able to gain much more by disclosing and breaching contracts and not suffer the same repercussions as they would here," says Lisa Abe, a partner at Fasken Martineau DuMoulin LLP in Toronto. "That's why it's also important to investigate the culture of the country. In some countries, the culture of respecting a contract may not be as important," says Abe. Corporate counsel be- come instrumental in deciding the outsource location to en- sure the country's laws are re- spectful of contract obligations "and the enforcement is pos- sible and convenient because, otherwise, if it doesn't have any teeth, it's useless." She notes that trade secrets aren't limited to executive-level innovators or always subject to protections under IP laws; rather, they can be as ubiqui- tous as the residual knowledge of everyday employees. "It's very important they have in place confidentiality agree- ments with the outsource service provider. Especially those that have subcontractors; we have to make sure it flows right down the chain," she says. "Corporate counsel has to watch out for how confidential in- formation is defined and what the exclusions for disclosure are," such as general knowledge at the workplace, she says. She also says the survival terms of a confidentiality agreement should be indefinite and exclusivity is often included in a con- tract to protect proprietary information from possible competi- tors retaining the same outsourcer. Contracts can also include security controls and audits of the books and procedures at the outsource provider, and require specific background checks on employees who are hired to work amidst the division, says Abe. "Then, on top of that, just to make sure the outsource service provider indeed has all these in place, you should have some in- demnities so if there is a breach or a failure, they will indemnify the customer for damages that are suffered," she says. "And when you're drafting indemnities, as a customer you want to make sure that you get covered for the loss of profits or reputation that could cost severe damage." IH