Earlier this year, iPhone app developer Zynga Game Network Inc. sued rival game-maker Playdom Inc. and a number of ex-employees in California state court. Among the causes of action were: misappropriation of trade secrets, breach of contract, breach of the duty of loyalty, tortious interference with contracts and unfair competition. Zynga alleges that Playdom hired away four key employees who allegedly took with them key information and planning documents when they left Zynga, including “The Zynga Playbook”, a document which would contain valuable trade secret information in the fiercely competitive app industry. The court granted an initial request for a temporary restraining order against Playdom and the other defendants. Those defendants are prohibited from destroying any of the files allegedly misappropriated. (To see the court documents, link here.)

Under Canadian law, the misappropriation of trade secrets has been scrutinized in several high-profile cases, including the RBC v. Merrill Lynch case, where virtually all of the investment advisors at an RBC branch joined competitor Merrill Lynch.  The law is clear that departing employees owe a duty of “good faith” to their employer, and can also owe a  “fiduciary” duty – a special category which applies to employees such as senior managers, executives, directors and officers.  In the RBC case, the departing employees were not fiduciaries, and had the legal right to leave RBC and to compete with their former employer. But note that employees owing a fiduciary duty will be held to a higher standard.

The lessons for business? Ensure your standard employment agreements contain appropriate non-competition and confidentiality clauses to prevent unfair competition and improper use of confidential information.
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