The row between Arnab Goswami and The Times Group (Bennett Coleman & Co.) elucidates some problems an employee turned entrepreneur may face from her/his erstwhile employer. Arnab Goswami was the star of Times Now, a television news channel, and his catch phrase, “The Nation Wants to Know,” is extremely popular, to say the least. At the end of 2016, Goswami decided to quit Times Now on what appears to be not very amicable terms. In the first week of May 2017, Goswami launched his television channel called ‘Republic TV’ from his venture, ARG Outlier Media.
Goswami’s new venture received great public attention, but the channel’s progress has not been very smooth so far. The Times Group decided to go after Goswami on trademark, copyright, proprietary information, and other grounds for use of the phrase, Nation Wants to Know, as a program title, and for alleged misuse and misappropriation of information and audio recordings (relating to news about Laloo Prasad and Sunanda Pushkar) collected during Goswami’s employment with Times Now. To add to Goswami’s woes, the National Broadcasters Association recently filed a complaint before the Telecom Regulatory Authority of India (TRAI) alleging that Republic TV’s listing on cable networks under different genres amounts to a violation of interconnection regulations of the Authority, and sought action against the TV channel.
Though very few of them receive publicity like Goswami, instances of employers going after employees are more common than one might imagine. Among others, intellectual Property violation is one of the common grounds based on which employers go after employees. Ignorantly or intentionally, employees turned entrepreneurs use intellectual property of their ex-employers, providing the employer a basis to pursue legal action. Irrespective of whether a particular ground is valid or not, any legal action or its threat can pose hurdles to the employee turned entrepreneur at the startup stage.
Legal actions against employees may arise from contractual provisions, employment relationships, confidentiality obligations and/or unauthorized intellectual property use. Legal grounds such as misappropriation, unjust enrichment, breach of trust, unfair business interference, etc., may be thrown in to add fuel to the aforestated primary grounds.
The first reported action against Goswami came in the form of trademark enforcement. The Times Group objected to the use of the phrase, Nation Wants to Know for Goswami’s television program, claiming in a legal notice that it owns trademark rights over the phrase and that Goswami’s use would amount to trademark infringement. With the intention of using “Nation Wants to Know” for television programs and entertainment services, Goswami filed trademark applications for the phrase in January 2017. Defying The Times Group’s objections, Goswami went ahead with advertisements saying, ‘Nation (Still) Wants to Know’ on hoardings and social media.
The strategy to use trademarks of employers, or trademarks similar to those of employers is not uncommon among employee turned entrepreneurs, who are in the same line of business as their ex-employers. The obvious plan is to capitalize on the good will and identity of the employer by establishing consumer connection through similarity of marks. Such an act will most certainly give rise to trade mark infringement, passing off and dilution liability and the nexus of prior employment compounds the liability by adding malicious and dishonest adoption to the equation. Even if the employee coined the mark and was responsible for making it famous, the trademark rights will still vest with the employer by contract or by law except under certain limited circumstances.
It is therefore legally right and prudent for entrepreneurs to stay away from trademarks of their ex-employers while choosing a mark for their businesses. A trademark infringement decision against the entrepreneur at the startup stage may put an end to what probably is a promising business enterprise by inflicting financial losses, loss of credibility, and psychological distress among others. It must be borne in mind that addition of a word, removal of a letter, or any deceptive use of a trade mark can give rise to liability, and trademark risk cannot be mitigated by adopting a mark with a small change. From a long-term perspective, a distinctive trademark that differentiates entrepreneurs’ business from not only the prior employer, but also third parties can go a long way in protecting business interests of the startup and building financial value from trademarks.
For technology and knowledge driven entrepreneurs, patent risks may be higher than risks from any other IP of former employers. An entrepreneur providing similar products or services to that of the employer is under higher patent risk than one, who offers services or products different from those of the prior employer. While improving prior patented technology/inventions, appropriate care must be exercised to avoid patent infringement, Performing patentability and FTO analysis at the right time, and working with a patent attorney to identify opportunities and mitigate risks can go a long way in avoiding problems from former employers while starting up. Employment agreement obligations and other contractual obligations during exit from important inputs for risk assessment.
In addition to trademarks, The Times Group also decided to go after Goswami and his entity based on copyrights. The Group filed a criminal complaint against Goswami and his associates alleging copyright infringement and information misappropriation. They alleged that Goswami and his associates were using audio recordings and proprietary information owned by The Times Group, which was collected during the course of employment with Times Now. The recordings and information relate to news about Laloo Prasad and Sunanda Pushkar’s death.
Infringement of copyrights gives rise to both civil and criminal liability and entrepreneurs may be subject to serious deterrence using copyrights as a tool. Entrepreneurs often end up copying a variety of works from their former employers ranging from website content and brochures to photographs and drawings without a second thought. It must be borne in mind that copying content, documents, brochures, drawings, photos, and so on of the employer can give rise to copyright infringement, even if those were created by the entrepreneur as an employee, and entrepreneurs must stay away from such actions.
Over the years, several promising startups had to shut down because they copied content, a relatively insignificant element of the business, and it is not only prudent but also beneficial to create original content and materials for the startup. Unique content can go a long way in promoting, marketing and building credibility for the business. Copying facts and public domain works, and fair use of copyrighted works of former employers is exempt from copyright infringement, and a copyright attorney will be able to help an entrepreneur determine what can and cannot be used.
Confidential Information and Trade Secrets
Obligations in employment contracts and the law require employee turned entrepreneurs maintain secrecy and confidentiality of trade secrets and confidential information of prior employers. Confidential Information and Trade Secrets may include a wide range of information from business, technical and financial data to client lists, processes, and future ideas. Like copyrights, confidential information and trade secret misappropriation may give rise to both civil and criminal liability. Confidential Information misappropriation not only gives rise to legal liability, it can also kill the startup’s credibility by branding it as an untrustworthy and/or unethical organization.
Entrepreneurs must, therefore, stay away from using any confidential information and trade secrets of former employers. Though it is difficult to produce evidence to prove confidential information misappropriation, the entrepreneur may be held liable by a Court based on circumstantial evidence. Having said that, entrepreneurs are free to use technical knowledge gained during employment and may seek attorney advice to clearly identify what they can use, and what they should avoid using from their ex-employer.
Most employment contracts have non-compete clauses, which prohibit employees from starting a competing business while working with the company, and also for a period of time after quitting. The validity of such clauses has been questioned time and again before Courts, and the extent of validity of such clauses is still ambiguous. At a general level, reasonable non-compete clauses with short time periods and limited restrictions, which do not unduly block employment opportunities are considered to be valid and enforceable. The higher the designation and remuneration of the employee, the greater is enforceability of such clauses.
Entrepreneurs must analyze non-compete clauses in their employment agreements to identify and strategize their startup activities around technology, field, time and other restrictions in the said clauses. It is worthwhile to consult a qualified attorney to understand risks if any, In addition to advising with respect to risks from the provisions, the attorney will also be able to advise if the clauses are valid/enforceable in the first place.
Non-Solicitation clauses restrict employees from hiring away their colleagues after leaving the company. In other words, an entrepreneur cannot solicit or hire employees from her/his prior employer. Though these clauses do not normally pose serious risks, they may prove to be problematic when combined with other violations. If a non-solicitation clause exists in the employment agreement, entrepreneurs must understand its scope and extent before starting up with colleagues or hiring employees from their ex-employer.
To Summarize, starting up is fraught with several inherent risks, and the last thing an entrepreneur would want is legal action from her/his prior employer, which may be indefensible. Taking steps to mitigate the risks from former employers can go a long way in reducing the probability of failure. Having said that, a disgruntled, vengeant employer may initiate action irrespective of the measures, and employees turned entrepreneurs must always be prepared to handle them strategically.
This short article for entrepreneurs is only educative and does not amount attorney advice or solicitation. The reader is advised to seek professional attorney advice before taking any action based on information or opinions provided in the article. The reader is free to contact any attorney for the said purpose.
Authored by Dr. Kalyan C. Kankanala
Image Author: Debastein