Pothole formula ‘not a trade secret’
A construction company ’ s legal challenge to stop a former employee from using a formula for fixing potholes hit a cul de sac after the high court ruled that it did not own the formula.
Universal Blending claimed it had developed the product, called Roadsaver, and took former employee Sarel Henderson to court for using his inside knowledge to produce a similar product.
Henderson, who was a director at Universal Blending before resigning in 2020, denied the company was the owner of the formula and the high court ruled in his favour.
The difficulty many may have is knowing the line between using personal knowledge in a new job and insider knowledge gained from a previous one.
“Intellectual property is protected in SA law,” says Professor Marthinus van Staden, Associate Professor at the Wits School of Law. “The unauthorised use of another’s trade secrets is unlawful competition and can be interdicted.”
Dale Hutchison, head of the internal research unit at law firm ENSafrica said an employee can use knowledge which is a trade secret, but “only with the consent of the former employer”.
In this case, the court found that the company itself was not the owner of the formula. Indeed, as Van Staden notes, “the court found that another company, Pilot, was the owner.”
The evidence in court showed that Universal Blending itself had told third parties it wasn’t the owner, and judge MA Wesley held: “I must accept [Henderson’s] version that the Roadsaver product was owned by Pilot and find that [Universal Blending] has not proved that it is the owner.”
Hutchison noted that the company opted for legal proceedings that precluded the ability to call witnesses. The entire matter was decided on court papers. “There was insufficient evidence on the papers alone to establish that [the company] was indeed the owner of the product,” says Hutchison.
If witnesses had been called, the result might have been different. Van Staden stressed that a worker who creates intellectual property does not become the owner of that property. “In terms of the SA common law, ownership in intellectual property created by an employee within the course [of] employment automatically vests in the employer,” Van Staden said.
In this case, the employee was not found to have created the intellectual property. This was due to Henderson’s claims being inconsistent with the evidence presented to court, such as a resignation letter indicating another person gave him the formula ingredients.
Nevertheless, the case is a warning that companies can exercise rights over former employees. To avoid facing legal headaches, employees should read their contracts carefully.
“It is common [practice] to require an employee to agree to a restraint clause in their employment contract,” said Hutchison. “[This prohibits] them from being employed by a competitor for a limited period and within a limited area where they would have the temptation and opportunity to use the former employer’s confidential information in competition.”
Courts would enforce contractual restraints in this instance, he said, if the former employee had access to trade secrets or information and the restraint duration and area was reasonable.
“But even absent such a restraint,” says Hutchison, “the law of delict prohibits the use of another person’s confidential information ... in competition against the owner of that confidential information.”
Van Staden agreed: “The unauthorised use of another’s trade secrets is unlawful competition and can be interdicted, even in the absence of a restraint of trade.” He also found the judgment “problematic”.
Universal Blending claimed Henderson had created the product during the scope of his employment and knew the full recipe. In fact, Henderson himself claimed to be the only one who knew the full recipe.
“[However,] if this knowledge was obtained out of the course and scope of his employment,” Van Staden says, “the former employer may have been correct in claiming that this information was in fact [his] property — even if the product itself was not.”