Legal liability of an employee whose startup employer is infringing on intellectual property

Answered May 12, 2009 10:19. The below does not constitute legal advice, does not form an attorney-client relationship, and should not be relied upon to take or refrain from taking any action.

I have a different take. Employees working within the scope of their employment cannot normally be held liable for conduct that infringes a copyright -- the "infringer" is the company. There are exceptions for officers and directors but not for other employees. In any event, the employer is very likely obligated to defend and indemnify its employee (which, granted, is only meaningful if the employer has money or insurance coverage).

In addition, while the publisher of the "financial market data" may claim that the information is "proprietary" that does not necessarily make it so.

And as for copyright, little, if any, attaches to the facts being copied. Copyright attaches to the particular displays of those facts. Is it an infringement to copy those displays and then extract the factual data in order to reformat it into new displays? Yes.

I think that your complaint with your company managers ultimately comes down to a disagreement over what it means to be a good corporate citizen. IF what you're being asked to do is unlawful, then you need to decide if working there is worth the bad karma and the risk of becoming involved in a lawsuit. [Note - the likelihood of criminal charges being brought are so small that it can be essentially ignored].

Answered October 01, 2009 12:15. This is an increasingly common dilemma facing employees of small start-up and even mid-market companies. Even sophisticated, successful high ranking executives sometimes are unfamiliar with the various types of intellectual property issues that arise when one company "captures and repackages" market data from pre-existing sources (whether or not the sources are denoted as proprietary). The employees who actually perform the day-to-day production work often are more sensitive to intellectual property rights of other than their bosses.

In fact, methods of "capturing" or "packaging" market data could be protected by valid business method patents. In addition to patent issues, federal copyright law provides for both criminal and civil penalties for willful copying of someone else's work (although the underlying factual information is not protected--copyright law does not protect ideas or data, only the format or lay-out in which it is presented). An employee could be personally liable if he violates intellectual property rights of others during the performance of his duties. This is true even if the employer directs the employee to do so. As a practical matter, however, it is rare for an employee to be prosecuted or held liable in a civil suit for violations of intellectual property rigths, when the employee can show that he was following directions from his employer. Rare---but certainly not impossible.

Criminal prosecution for violating intellectual property rights involving proprietary data is relatively rare. A more likely scenario would be a civil suit by the company that owns the intellectual property against the employer and employees. In most cases like this, the employer usually would have a strong incentive to defend its employees against charges of violating intellectual property rights, since the employer will be unlikely to dispute that the employee was following directives from his superiors.

There may be cases, however, in which the employer blames the employee---throws the employee under the bus--in order to escape the full scope of potential liability for the employee's actions. The employer might allege that it instructed its employees as a matter of company policy to avoid violating intellectual property rights of others. The employer will argue that it cannot be held liable for willful violations of an employee because the problem arose from a renegade employee who was "out of control." Note, however, that even if the employer is not deemed liable for willful patent or copyright infringement, it could still be held liable for actual damages (and in the case of copyright infringement, statutory damages). The issue of "willfulness' only comes into play when determining whether the Court should also award enhanced or punitive damages. Actual or statutory damages are available for violations of patent and/or copyright laws regardless of the state of mind of the infringer---an infringer who innocently believed that it was not violating any intellectual property rights of others can still be held liable.

As a practical matter, most companies in this type of business regularly obtain legal advice of in-house or outside counsel on intellectual property issues. An employee who suspects a violation of intellectual property rights would be well-advised to raise the issue with appropriate senior executives within the company--chances are they will be very appreciative if the employee flags the issue because the executives will recognize that the employee may be saving them a bundle of money in damages and legal fees. If, however, the executives are not receptive to this, then the employee should find his own lawyer to help him navigate through his personal legal obligations, taking into account state law.

Answered May 12, 2009 06:37. If you are certain that your employer is in fact willfully copying materials for commercial advantage or financial gain, with the key word being willfully, you could be an accessory to criminal infringement under Sec. 506 of the Copyright Act. That's bad.

I would tread carefully here as you need to make sure of all of the facts. And you should contact an employment lawyer (in NY) to see what your rights would be to ask to be re-assigned, or whether your protestations will get you fired and not be deemed retaliation.

I think the short answer is, if you are 100% sure that this is willful infringement, you should look for another job.

Disclaimer. I am not your attorney. The information provided is for educational purposes only. Please contact a lawyer in your State regarding this matter.