This case of intrigue may seem like it belongs in a spy novel, but in this case, it is winding up in the Board Room and the court room.
Here is the story. Chicago based Guaranteed Rate courted the employee of a much smaller rival mortgage company, Benjamin Anderson. While still employed at the smaller company, Mount Olympus Mortgage, Anderson signed an employment contract with Guarantee Rate. While an employee considering moving to a new job wants assurances that if he or she quits his or her current job, there will be a job waiting at the new company, this is usually done via written offer letter, not a signed employment agreement. Once he signed the agreement he was, in fact, working for two competing mortgage companies at the same time.
While this may be unethical – and possibly a violation of his contract with Mount Olympus – it may not be illegal. What happened next, however, was illegal.
Over a period of weeks, Anderson downloaded and transferred loan files – hundreds of them – to his new employer. Anderson’s new contract with Guaranteed Rate paid him a much higher commission during his first few months, encouraging him to close as many loans as possible during that time-frame. Some of those loans closed before he even left Mount Olympus.
Eventually, Mount Olympus discovered what he was doing and sent cease and desist letters and then, ultimately, filed a lawsuit. It is certainly possible that if Anderson had been less greedy and only transferred tens of loans, he might not have ever gotten caught.
Even though Mount Olympus was small, they were able to detect what was happening. One way to detect this would be when they contacted a borrower and the borrower said that they were no longer working with that company.
The judgement, with a total value of around $25 million includes $13 million in punitive damages, $5.6 million in lost profits and $4.6 million in lost business value. For a company as big as Guaranteed Rate, who funded $18 billion in loans last year, this is a blip, but for smaller companies this could be a death sentence.
There are several messages in this verdict –
First, if you are luring an employee away from a competitor, make sure that they are not working for both you and the competitor at the same time. One strike against Guaranteed Rate.
Second, make sure that compensation is not structured to encourage a new employee to steal intellectual property from the employee’s former company. Strike two against Guaranteed Rate.
Third, make sure that employees understand that bringing their former employer’s (stolen) intellectual property with them will not be tolerated and will be grounds for immediate dismissal. This has to be a policy with teeth. As Uber is learning right now in a lawsuit they are fighting, saying one thing but winking that they don’t mean it will land you in court. Strike three and $25 million later…
Finally, for all companies, the ability to deter and detect the insider threat scenario is critical. The theft of intellectual property can ruin a company. Failing that, it can cost large legal fees on both sides and in some cases multi-million dollar judgments.
In this case it was likely easy to detect the theft, but in many cases you don’t have the obvious smoking gun, which means that logging and alerting becomes much more important.
Unfortunately, it is likely more common than you might guess that employees take at least some intellectual property with them when they leave an employer. Strong policies and good insider threat detection can slow that theft down.
Information for this post came from the Chicago Tribune.