A recent US$3.1 million award by a Florida jury in favour of a Canadian engineering services and manufacturing enterprise against a high-ranking Dubai-based employee who stole trade secrets demonstrates the significance of a strong employment agreement with well-drafted confidentiality provisions.
“Having a well-drafted confidentiality clause in an employment contract is vitally important for employers whose business relies on the competitive advantage gained by their trade secrets,” says Hendrik Nieuwland, a labour and employment litigator and partner with Shields O’Donnell MacKillop LLP and who wasn’t involved in the case.
The defendant, Maged Mostafa, was general manager of Pliteq Inc.’s Dubai subsidiary, a member of the company’s corporate executive council and its vice-president of corporate development and marketing.
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An employment agreement containing a strict confidentiality clause governed Mostafa’s relationship with Pliteq. It specifically prohibited the disclosure of each category of information ultimately misappropriated by Mostafa, who also acknowledged the sensitivity of his position by later signing a stand-alone confidentiality agreement that expressly limited his use of the information to “reasonably completing his or her employment or contractual duties.”
The evidence at trial revealed that Pliteq terminated Mostafa in November 2023 after discovering that, following a series of unfavourable performance reviews, he had effected a massive download of Pliteq’s highly confidential trade secrets to his personal accounts.
The data included proprietary information about Pliteq’s factory and manufacturing processes, factory design and equipment, and “recipes” for its products; consultants’ identities; customer lists; and sales and product testing information.
Mostafa refused to return the data or confirm its destruction. He also threatened to disclose or sell the information to Pliteq’s competitors. And when Pliteq repossessed the company laptop in Mostafa’s possession, he complained to Dubai police that his personal property had been stolen. He maintained his innocence until the pre-trial conference, at which point he admitted liability for all violations except those that were wilful, leaving damages as the sole issue for trial.
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In many trade secret cases, damages are assessed by the extent to which the defendant’s new employer or the purchaser of the secrets benefited from the data. Pliteq acted quickly to prevent further disclosure by Mostafa, but still claimed that the misconduct damaged its reputation and devalued the more than $26 million it had invested in research and development of its valuable trade secrets.
Although Pliteq believed that Mostafa was working with a competitor, it could not yet prove that allegation at trial. But the company’s lawyers emphasized to the jury that damages might not be apparent for years, as it would take a competitor some time to utilize the information, particularly the machine designs.
The jury agreed, awarding $500,000 in compensatory damages as well as exemplary damages of $1 million based on Mostafa’s “willful and malicious” misappropriation and $1.6 million in punitive damages for “intentional misconduct” resulting in breach of fiduciary duty and unfair competition.
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