Hiring a senior person from a direct competitor is often a sign that a business is gaining traction. It can also trigger a dispute that has nothing to do with whether anyone has done anything wrong.
This is how that played out for one of our clients.
The business
A UK-based software company with turnover of approximately £6 million, scaling quickly. The business had recently hired a senior employee from a direct competitor to support product development and commercial growth. The hire was seen internally as a significant step forward.
The trigger
Within a few months, the former employer issued a letter before action alleging that the employee had brought confidential information and trade secrets into the new business and that these had been used in developing a competing product. The claim included threats of injunctive relief, damages and orders relating to the use of specific technology.
The business believed it had acted entirely appropriately. The new employee had been careful. Internal processes were in place. But none of that removed the need to respond.
The exposure
The immediate risks were threefold. An injunction could halt product development at a critical moment. The cost of defending the allegations was substantial. And the existence of a live dispute created reputational exposure with customers and investors at exactly the wrong time.
Without insurance, the likely response would have been to limit the new employee’s role, pause aspects of development and look for an early settlement to contain costs. Not because the claim was strong, but because fighting it was too expensive to contemplate.
How insurance changed the position
The business had an IP insurance policy in place covering defence of trade secrets and confidential information claims, including legal costs and access to specialist advisers.
The matter was notified promptly. Specialist solicitors were appointed, a clear evidential position was established documenting the internal processes and safeguards that had been followed, and the defence was progressed without financial constraint.
This allowed the business to respond firmly rather than reactively. The other side knew immediately that cost pressure would not force a quick settlement.
The outcome
The matter was resolved without the need for a full court process.
The business continued operating without significant disruption, protected its development roadmap and avoided making commercial concessions driven purely by the cost of defending itself.
The broader point
Trade secrets claims following a senior hire are rarely straightforward questions of right and wrong. They are frequently about perception, timing and the overlap between what someone knew at their old employer and what the new employer is doing. A well-resourced former employer can use the cost of litigation as leverage regardless of the underlying merits.
The ability to respond quickly and robustly, without being constrained by what the defence costs, changes that dynamic entirely.
If your business is hiring from competitors or scaling a technical team, understanding how trade secrets risk can arise and how insurance responds to it is worth doing before a claim arrives rather than after.
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This article is provided for general information purposes only and does not constitute legal advice. Readers should seek independent legal advice on their specific circumstances before taking any action.
