So you've caught a bunch of employees apparently red-handed in the act of sabotaging your company on behalf of a competitor who they subsequently join. How much help will the courts give you in investigating the breach? Can you expect to get an inside view of what has gone on inside your competitor's network? David McGrath how such matters are handled in Australlian courts.

The court's willingness to open the door only goes so far, as a WA company found out in a recent judgment in the Federal Court of Australia.

Justice Neil McKerracher allowed WA importer Alanco to enter the business of a competitor to search their computer systems, commonly known as an “Anton Piller” order. However they were not permitted by the court to view first hand what was discovered.

Search and Seize

2010 was not a good year for Alanco. After losing its general manager, Mr. Golding in December, 2009, its sales manager, Mr. Higgins followed soon after in June 2010.

Following their respective departures, both men took up positions with a competitor, Dasco. Indeed, Mr. Golding was a shareholder. Despite being a relative newcomer, Dasco provided "unusually swift and ferocious" competition which had a “material effect” on Alanco's sales.

A new general manager, Mr. Bollen, held grave suspicions about the actions of Alanco’s former staff.

First, apart from minor cosmetic changes, Dasco appeared to be using Alanco’s 'distinctive’ stock numbering systems.

Secondly, 190 pictures of Alanco's confidential stock and customer management programs had been found on Mr. Higgin’s Alanco laptop in October, 2009. The photographs included top selling product lists, customer lists, product purchase histories, gross margins and product codes.

There had also been a very unusual product delivery to a customer, Abbot Auto Electric (AAE). According to Alanco, AAE's owner Mr. Abbot was friends with Mr. Higgins.

In a marked departure from normal procedure, Alanco had been asked by AAE to pack the delivery in unmarked cartons. AAE also used its own courier, not regularly used by Alanco, to pick up the goods. Alanco dispatched an employee to follow the courier who observed the goods being delivered to Dasco’s warehouse not AAE’s premises.

That sparked an investigation of AAE’s sales history. The investigation revealed that AAE purchase volumes had increased from a few hundred dollars per month between 2004 and 2008 to a few thousand per month in 2009. The order in June 2010 was over $A16,000. Purchases stopped altogether in August 2010. It was also noted that the purchases included many products only available from Alanco which Dasco could not source from anywhere else. Alanco’s margins on the products sold was also low.

On the basis of this evidence, Alanco said that Mr. Higgins had been assisting Dasco, a direct competitor, whilst still employed by Alanco. He did this without the knowledge or approval of management and had tried to cover up those activities.
The court should infer that the 190 photographs were likely held by the defendants and that there was a "real possibility" the defendants might destroy this evidence if it became aware of Alanco’s court actions.

Justice McKerracher agreed that such a risk existed and granted Alanco the right to conduct a search of Dasco's computer systems. The search order was executed on 16 September, 2010 and the defendant's computers were seized.

An independent computer expert made an exact copy of Dasco’s business data and the computers were then returned to the defendant the next day to minimise disruption to its business. The entire operation was carried out under the watchful eye of an independent solicitor.

A Quick Peek?

Although the court granted Alanco secret orders to allow it to seize its competitor's business data, it didn’t go so far as to allow it to be viewed.

The independent computer expert made searches for documents falling with the defined categories in the court order. Although responsive documents were handed onto the plaintiff’s solicitors they had undertook to the court not to pass those documents onto their client.

There were good reasons for this. Whilst some of the information seized may have been relevant to Alanco’s case it was very likely to also contain unrelated, commercially sensitive Dasco information. The point of the search order was to preserve information which could be used by Alanco in its action. The court was not about to allow that process to be abused by giving Alanco access to Dasco’s sensitive trade secrets.

Alanco applied to the court again for access to some of the seized documents, particularly the alleged photographs of Alanco’s systems. Alanco argued that without actually seeing those documents it was very difficult for them to give their solicitors proper instructions to proceed with the case.

In order to protect Dasco’s business interests, they proposed a detailed and restrictive access regime which included the redaction of certain sensitive Dasco information such as price, from the documents before being provided to them. They also argued that having operated so long in the industry they were unlikely to discover any information of commercial significance.

The application was opposed by the defendants who argued that Alanco’s case was much weaker than previously suggested. They said that the ‘confidential stock numbering system’ alleged to have been stolen by Dasco had in fact been designed by Mr. Higgins, and that Alanco had published it on its website for all the world to see. They also referred to statements by judges that once the documents are inspected by a trade rival the information cannot be forgotten and confidentiality is therefore destroyed forever.

Justice McKerracher had to balance the defendant’s interest in maintaining confidentiality of its information against the plaintiff’s right to pursue its case. Although he agreed that not seeing the documents could cause difficulties for Alanco they had failed to show that it was actually necessary.

He gave examples of other ways in which the instructions sought by the solicitors could be taken. He was also wary of permitting access to the trade rival’s data at such an early stage of proceedings. The application was rejected.

Anton Piller orders

Although Alanco was unsuccessful in gaining access to Dasco’s documents, it was successful in being allowed to search the defendant’s computer systems in order to preserve that information in the first place.

This type of order, although now enshrined in the Federal Court rules, is still commonly referred to as an Anton Piller order following the 1975 English appeal case of Anton Piller v Manufacturing Processes Ltd, Wallace and Baker. The orders are most often sought in breach of confidence, trademark and copyright, or patent infringement matters.

The crux of the order is that the court can order a search to be made and evidence to be seized without giving prior notice to the subject of the search order. The person against whom the search order is made either complies with it or risks being held in contempt of court. The simple aim is to preserve evidence.

In order to obtain the order, an applicant has to show (a) a strong prima facie case; (b) that serious damage could flow if the order is not granted; and (c) clear evidence that the defendants both have the incriminating materials, and a real possibility they may destroy it.

In the modern electronic age, there is a new player in the Anton Piller order scene – the independent computer expert - typically a computer forensic investigator who can take copies of information without damaging its evidentiary value and with minimal disruption to the defendant.

The court recognises that the search order is a serious invasion of the defendant’s rights. The granting of an Anton Piller order is regarded as being at the “extremity of a court’s powers” and only to be made where there is no viable alternative. To ensure that the rights of all parties are observed, the court will often appoint an independent solicitor to oversee the process.

As we can see from this matter, the court takes seriously it role in balancing the competing interests of the parties.