When former employees become a vector for IP infringement, trade secret misappropriation and unfair competition

Manuel Durães Rocha
Abreu Advogados, Lisbon
manuel.rocha@abreuadvogados.com

António Andrade
Abreu Advogados, Lisbon
antonio.andrade@abreuadvogados.com

Margarida Castillo Silva
Abreu Advogados, Lisbon
margarida.c.silva@abreuadvogados.com

Introduction

The right to change employers and the freedom to recruit are fundamental to any market economy. Courts are accordingly cautious about treating the mere departure of employees to a competitor as anything other than ordinary labour market movement. Yet there are situations where the pattern of events, namely the timing of incorporations, the scale of recruitment and the suspiciously rapid replication of operational systems, leaves little room for innocent explanations.

This article examines the legal questions involved in a paradigmatic factual scenario: a company that has invested heavily in building a specialised operational methodology and trained workforce finds, shortly after losing a contract with a client, that a new competitor has absorbed its former staff and appears to be operating based on its tools and processes. The convergence of unfair competition law, trade secret protection and copyright in this scenario is the subject of what follows.

The paradigmatic scenario

The factual configuration is straightforward. A service company has, over several years, developed a quality control and sorting methodology — covering layout design, logistics processes, control files, team structures and labelling systems — tailored to a large industrial client. This methodology is the product of internal investment and continuous improvement, not something adapted from market-standard resources. The company’s employees have signed confidentiality agreements as part of their contract.

The client relationship ends. Within months, a newly incorporated entity is providing the same services to the same client, having recruited a large share of the original provider’s operational staff. Document templates at the new entity closely resemble those of the original provider. A tool developed by the original provider appears to be in active use. This is the factual nucleus from which three distinct legal claims arise.

Employee diversion as unfair competition

Hiring a competitor’s employees is not, per se, a legally problematic act. What the law prohibits is something narrower.

Under Article 311(1) of the Portuguese Industrial Property Code (IPC) (Decree Law No. 110/2018), unfair competition consists of any act contrary to the ‘honest norms and practices’ of a given sector, with the list of prohibited acts being illustrative rather than exhaustive. What the law condemns is the use of disloyal means to compete and not competition itself.

The threshold for classifying recruitment as unlawful employee diversion is deliberately high. The conduct must be so systematic or intense that it results in the disorganisation of the injured competitor, preventing the regular functioning of its business. The analysis must, therefore, consider the intention revealed by the competitor; the number, proportion and functions of the employees recruited; and the practical consequences of their departure. A single defection, or even several overtime, will not cross this line. The Court of Appeal of Porto confirmed as recently as 2024 that the disloyalty of employee recruitment is only established where the conduct aims to cause serious harm to the other company, that is, disaggregating or disorganising it, and not where it amounts to a normal act of workforce renewal.^[1]

A further distinction, often overlooked in practice, is drawn up by the Supreme Court of Justice. According to the latter, a breach of the duty of loyalty owed by an employee under Article 128(1)(f) of the Labour Code has legal consequences in regard to the employment relationship, but it does not automatically generate civil liability. Civil liability for unfair competition requires separate proof of all the elements outlined in Article 483(1) of the Civil Code (Código da Propriedade Industrial or CPI), assessed against the standard of the CPI. Where that proof is absent, as it was in the Supreme Court’s own decision on this point, the claim fails on the threshold element of unlawfulness, regardless of any established breach of employment duties.^[2]

The Lisbon Court of Appeal has confirmed that unlawful employee diversion additionally requires a subjective element (animus nocendi), that is, the intention to disorganise the competitor, assessed in reference to the number and proportion of employees recruited, their functions within the company and the impact of their departure.^[3]

Where the timing of events — for example, a contract termination, the swift incorporation of a new entity and the coordinated absorption of the original provider’s workforce — all converge, inferring animus nocendi becomes considerably easier based on the evidence.

Trade secrets: protecting operational methodology

The IPC defines, in Article 313, a trade secret as information that is: (1) secret — not generally known or readily accessible to those who normally deal with such information; (2) commercially valuable by reason of its secrecy; and (3) subject to reasonable steps to keep it secret. These requirements, transposing Article 2 of European Union Directive 2016/943, are cumulative.

The Lisbon Court of Appeal has confirmed that all three elements — the confidential character of the information, its commercial value and the holder’s objective intention to keep it secret — must be present simultaneously for trade secret protection to apply.^[4]

Applied to an operational methodology, each requirement bears separate examination. In regard to secrecy, the question is not whether the general type of service is publicly known, but whether the specific combination of processes, control files, templates and logistics tools is available to the company’s competitors. Where the methodology was built internally for a particular operational environment, the answer is ordinarily negative. In regard to commercial value, the speed and precision with which the new entity has replicated the original provider’s operations speaks for itself: if the know-how were freely available elsewhere, there would have been no need to acquire it through the departing workforce. In regard to reasonable steps, confidentiality agreements satisfy the legal threshold, and employees who have left their employer, absent an express non-competition clause, recover their freedom to work but must still remain within the limits of lawful competition.

The IPC further establishes in Article 314(3) that a person who acquires, uses or discloses a trade secret while knowing, or having reason to know, that the information was obtained from a third party in breach of a confidentiality obligation incurs liability as a secondary infringer. Where the scale and precision of the replication make independent development implausible, constructive knowledge of that origin is readily inferred.

Copyright in operational tools

Copyright adds a dimension that the other two claims cannot replicate. Protection under the Portuguese Copyright and Related Rights Code (Código do Direito de Autor e dos Direitos Conexos or CDADC) (Decree Law no. 63/85) arises automatically on creation, without any requirement to prove secrecy or prior protective steps, which is a practical advantage that should not be understated. However, this automaticity must not obscure the fact that copyright protection is conditional on a substantive threshold: originality.

Under Article 1(1) of the CDADC, the work must constitute the author’s own intellectual creation. Abstract ideas, processes, methods and systems of operation are excluded from protection as such. What the law protects is their specific expressive form, provided it reflects creative choices attributable to the author. The application of this criterion to functional or operational tools, such as a logistics management file developed for a particular industrial environment, is far from self-evident. Even where such a file incorporates a bespoke structure, field configuration and control logic, it remains necessary to demonstrate that these elements result from genuine creative choices rather than from purely technical constraints or standard industry practice. The burden of proving originality lies with the party claiming protection, and courts will scrutinise whether the specific expression goes beyond what is dictated by the functional purpose of the tool. The outcome of that assessment will depend on the facts of each case.

Where such a file is found to meet the originality threshold and was created by an employee in the course of their duties, Article 14(1) and (3) of the CDADC provide that the economic rights may vest in the employer, but only where such attribution has been expressly stipulated and the work does not identify its author. Any reproduction of the file by a former employee’s new employer, even partially, constitutes an infringement, without any need to establish that the infringer was bound by a specific confidentiality obligation in relation to that work. This is the copyright claim’s structural advantage: it bypasses the evidentiary complications of trade secret litigation entirely.

Remedies and procedural strategy

Substantive claims are only as effective as the procedural tools used to enforce them.

Disclosure orders are indispensable where, as is typically the case, the key facts are in the defendant’s hands. Under Article 344 of the IPC and 210-F of the CDADC, the court may order the alleged infringer — or third parties who participated in the production or distribution of infringing goods or services at a commercial scale — to provide information about the origin and extent of the infringing activity, including names, addresses, quantities and prices. In the scenario described here, relevant disclosure would cover the defendant’s complete workforce composition, revenues generated using the original provider’s know-how and the provenance of the operational tools currently in use.

Provisional measures are available in regard to both limbs of the action. Article 345 of the CPI and 210-G of the CDADC permit the court to grant preliminary injunctions restraining imminent or continuing infringement, with a compulsory periodic penalty to ensure compliance.

Damages, across all three heads of action, are governed by Article 347 of the IPC and 211 of the CDADC, which together direct the court to consider the infringer’s profits, consequential losses and lost profits, with an equitable fallback where precise quantification is not possible. Practitioners must be careful to avoid double recovery: each head of loss should be attributed to the most appropriate legal basis, since the three claims are complementary rather than cumulative in a way that permits the same damage to be compensated twice.

Conclusion

The paradigmatic scenario examined in this article is increasingly common, and the legal response requires coordinating three distinct bodies of law. The unfair competition claim addresses the macro-level conduct, that is, the systematic replication of a competitor’s business organisation through coordinated recruitment and imitation. The trade secret claim, under Articles 313 to 315 of the IPC and Directive (EU) 2016/943, protects the specific embedded methodology. The copyright claim provides automatic protection for creative operational tools, without requiring proof of secrecy. None of these claims is self-sufficient. Instead, together, they provide a framework commensurate with the harm caused.

Critically, the enforceability of all three claims depends heavily on the court’s willingness to deploy disclosure orders: the mechanism that brings the underlying facts into view and makes the quantification of harm possible.