New job? Could you be arrested for taking your know-how with you?

By Graeme Burton
30 Jul 2014 View Comments

Nothing suggests that an "exit interview" has gone badly wrong than when the departing employee leaves in handcuffs, but that's what happened to Kang Gao when he was about to leave Two Sigma Investments, a New York-based hedge fund, for its Chicago-based rival Citadel LLC.

The reason? Two Sigma suspected that the 29-year-old was going to take his knowledge of the high-frequency trading algorithms that he had worked on at the firm straight over to Citadel. Instead, with the help of the Manhattan District Attorney's Office, he was arrested on charges of attempting to steal the company's trade secrets.

Further reading

Today, he languishes in jail, awaiting trial, and potentially faces a four-year term in prison.

The case raises many questions, particularly about where the line ought to be drawn between personal knowledge and know-how, and corporate intellectual property - and the wielding of intellectual property laws to stifle the rights of departing technical staff.

American exceptionalism

Fortunately, says Iain Connor, partner at Pinsent Masons, the US is very much "a law unto itself" on such matters. "It wouldn't happen over here," he says.

In the UK, he adds, such a dispute would be regarded primarily as a civil matter and the police certainly wouldn't be turning up at the exit interview to make an arrest. "As a civil matter, it would be dealt with by the appropriate 'restrictive covenant', which would mean that the person would not be able to work for a competitor for a period of time deemed reasonable.

"That would certainly be no longer than 12 months - probably shorter than that - and employment law in the UK is designed as a broad matter of public policy, the law is deliberately designed to allow people who have got skills in a particular sector to exercise those skills in order to make a living," says Connor.

Such covenants normally work both ways, with the former employer obliged to pay "gardening leave", while the departing member of staff twiddles his or her thumbs.

"You're a programmer and a mathematician, working in finance. For one financial institution to effectively prevent you from working in your chosen trade simply wouldn't happen in the UK. And for a financial institution to get the police interested in this sort of thing - and there is a specialist intellectual property crime unit these days - they would have to have evidence that the theft was fundamental and blatant," he says.

Indeed, given that software piracy is rarely prosecuted, it would seem a bit unfair for the intellectual property crimes unit to target software developers at the behest of hungry hedge funds seeking to keep their privileged gravy train on the rails.

Know-how and Intellectual property

Furthermore, continues Connor, the US is unique in that it enables business processes and know-how to be patentable and copyrightable. In the UK and across Europe, it is questionable whether a trading algorithm could even be regarded as proprietary intellectual property.

Connor references the case of analytics software maker SAS Institute against start-up World Programming Ltd (WPL). One of the findings in that case was that the intellectual property protection that SAS claimed for the 'mathematical methods' and algorithms in its analytics software, could not be protected under UK intellectual property laws.

"Ways of doing business, mathematical models, statistical analysis are freely available for the world to use - it's not deemed appropriate to grant monopoly protection over them," says Connor. "Unlike the US, the UK does not protect 'know how' as a specific class of intellectual property."

Indeed, in the case of SAS versus WPL, the EU Court of Justice ultimately ruled that copyright protection does not extend to software functionality. That is to say, it is perfectly lawful for a company to simply study what a piece of software does and to create another application with the same functionality.

And because individual know-how is protected courts will generally come down in favour of employees' rights to seek work over a seemingly vexatious organisation seeking to protect what it regards as its intellectual property, especially when its intellectual property is so nebulous.

"Can you, for example, stop a carpenter from creating a window frame? Plainly the answer is 'no'. That's his know-how. He might have learnt how to do that in his last job, but the fact is that he's a carpenter and that it's his profession. The company that employs him cannot stop him from becoming a carpenter for his next employer," says Connor.

Whether a software developer, mathematician or carpenter, though, he or she ought, perhaps, exercise tight-lipped discretion in their exit interview - especially if there's a police van parked outside and a prospect that what is said could be used in evidence at a later date.


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