Neil Sadler

Director and CEO engaging in serious misconduct in seeking to use company IP to pursue a separate venture

Neil Sadler

14 May 2018

Competition and Consumer Law

Matter Technology Limited v Mrakas [2018] NSWSC 507

A recent decision offers a timely reminder of the importance of having written employment agreements that set out who owns the IP in technology companies.  Any update required can be rolled up into the next performance review.

In this case the business of the technology company, Matter, focussed on the provision of installation, metering, billing and repayment services for rooftop solar panels and the development of new business concepts and technologies associated with those services.

Mrakas was the CEO and a company director of Matters.  He entered into one employment contract and then, after a short period when the parties acted on the basis that a new contract would be put in place in the same terms, a second contract.  Each contract contained clear and widely drafted provisions assigning confidential information and intellectual property to Matter, including inventions conceived of or developed by Mrakas in the course of his engagement.

Disputes arose over the silly season after Mrakas and other employees started working on ‘Project Platipus’ which was to be launched via a ‘cryptocoin play’. It involved blockchain applications and funding of solar systems to ‘seed the network’. Mrakas saw this as complimentary to (but separate from) Matter’s main business, with the potential for Matter to supply resources to the new business.

An Initial Coin Offering was to take the place of an IPO in raising funds.  Technical documentation was to be released and a new cryptocurrency coin or token was to be offered to participants at a set price.  The incentive for purchasers was that if the technology was successfully implemented, then market forces would increase the demand for the token resulting in a windfall for investors.

For reasons not entirely clear, Mrakas asserted that he had the rights to the IP underlying Project Platipus and sought funding from Matter on the basis that collateral benefits would flow to that company.

Funding was not forthcoming but there was no positive assertion of rights by Matter until the New Year when things had become acrimonious.

By this time Mrakas had launched a White Paper on a Project Platipus website describing the technology, asserting copyright and offering the sale of tokens. $35,000 was collected.

At a Board meeting on 17 January 2018 Mrakas was removed as CEO.  He was removed as director on 30 January 2018.

By solicitor’s letter dated 31 January 2018 Mrakas continued to assert that he held the IP relating to Project Platipus, and the matter came before the Court.

The Court concluded that:

  • Mrakas had engaged in serious misconduct;
  • he had improperly used his position as a director or employee to gain an advantage for himself or to cause detriment to Matter in contravention of ss182 and 183 of the Corporations Act;
  • by this time “Mrakas had lost his way [and] was hopelessly conflicted and oblivious to the contractual and statutory duties he owed to Matter as one of its directors and as its CEO”; and
  • Matter was entitled to dismiss Mrakas summarily without a payment in lieu of notice.

Thanks to the Board level responsibility and clear IP provisions in the employment contract, this was a great outcome for the employer in question.  However, without the Corporations Act and employment contract provisions, the result could have been very different.

Lower level, non-Board or non-executive level employees routinely manage a business’ IP on a day to day basis and this decision reinforces that a company can protect the use of its IP and minimise the risk of exposure to employees in disputes, but only where appropriate documentation is in place.

The timing of this decision could hardly be more helpful.  The lead up to performance reviews is a perfect time to review what arrangements are in place, so that a business can make any increase in benefits conditional on signing a new agreement that contains clear, up to date and appropriate protections for the business.