Startup Your Privacy, or: on Private Companies

Startup Your Privacy, or: on Private Companies

Doron Afik, Esq.
January 16, 2024

The first rule that almost every high-tech entrepreneur or beginner businessman learns, even before he is weaned of the use of diapers, is that no information should be given before signing a confidentiality agreement. The first law that learns a beginner lawyer in the field is that it usually turns out that no agreements are signed precisely with the parties who get access to the most sensitive information... Is a confidentiality agreement required at all in order to protect a company's right to its information?

When it comes to the relationship between an employee and an employer, Israeli labor laws and the Israeli copyright law create, in principle, a duty of trust towards the employers and the right of the employer to the work products of the employees. When it comes to an external contractor who has access to the digital information of the company, things are sometimes more complex and when there is no proper set of agreements, legal construction is sometimes required, such as basing on the company's right to privacy.

The right to privacy has gained special status and recognition as a constitutional right in Israel and it reflects the democratic nature of the country. In the electronic age, an unauthorized intrusion into a person’s information stored by digital means is a violation of his right to privacy, similar to an intrusion into his private tangible territory, and perhaps even beyond that, whether it is a mobile phone that today, sometimes, holds the entire life story of the owner thereof, or whether it is an intrusion into a computer, which is like rummaging through the intimate objects in the drawer in the personal table.

A lawsuit submitted to the District Court in Tel Aviv, deals with a dispute concerning the collapse of an Israeli startup company in the field of video, which specialized, inter alia, in the development of algorithms and devices for compressing information in video for communication and storage. A German investor filed a lawsuit against managers and directors contending that they led the company to crash, and even tried to profit themselves as a result, while the managers and directors contended that the investor acted deliberately to cause the collapse of the startup company in order to take control of its intellectual property. In a comprehensive and reasoned decision given in January, 2024, by the Honorable Judge Gershon Gontovnik, the Court decided that documents and emails extracted (after the termination of his employment) by a VP of Technology of a technology service provider to the company, from the service provider's servers, should be removed from the Court case because that the retrieval of the materials was by infringement of privacy. The Court clarified that the right to privacy applies not only to an individual but also to a corporation, and that while some of the provisions of the Israeli Privacy Protection Law do not apply to a corporation but only to a private person, with regard to the copying of contents not intended for publication or their use without permission, any corporation has a legitimate expectation that documents and correspondence on its servers will not be released to the world without its permission. This essentially gives the corporation the right to prevent others from using its information, even when there is no formal confidentiality agreement between the parties.

Is the employee-employer relationship or the right to privacy a substitute to a proper confidentiality agreements? Of course not. It is important that every business owner (and certainly businesses in the high-tech field where computerized information is the main asset, but not only them) should be prepared with a set of agreement templates tailored to their needs so that they can sign such with employees, consultants, service providers, customers and others, in order to protect their rights. It is equally important that this set of templates is written by a lawyer with expertise in the field and sufficient experience, because an agreement prepared for one business does not always fully protect another. It is equally important that the agreement be clear and legible and define the rights in the correct and precise manner in order to avoid future and unnecessary conflicts.