Software company Jolly Technologies has halted all activities at its Indian R&D centre after an employee emailed herself copies of source code using an online Yahoo account.

The company - which produces labelling and card software for the printing industry - reported that portions of the source code and confidential design documents relating to one of its key products had been stolen by a recently hired software engineer. The centre has only been running for three months.

The source code theft comes on the back of a hacker group offering for sale the source code to several applications including Enterasys Networks' Dragon IDS (Intrusion Detection System) and the Napster client and server.

The hacking operation, calling itself the Source Code Club (SCC), swiftly disappeared from its website only to pop up on Usenet a few days later.

In May, Cisco suffered a massive loss of source code for its router operating system. And in February, Microsoft suffered the same, with Windows NT and Windows 2000 source code posted on the Internet.

Jolly Technologies, meanwhile, is far less happy than its name suggests and reported that the engineer had used her Yahoo e-mail account - which now allows 100MB of free storage space - to upload and ship the copied files out of the research facility.

The vast majority of US-based software companies require their employees to sign an employment agreement that prohibits them from carrying, or transferring in any way, the company's source code out of a development facility.

Though the Indian branch requires employees to sign a similar agreement, the sluggish Indian legal system and the absence of intellectual property laws make it nearly impossible to enforce such agreements, the company said.

Representatives of the company are working with the local authorities to try to sort out the situation. Whether it will succeed in changing the fundamentals of the legal system in India is hard to say but at this stage, Jolly Technologies has decided to delay further recruitment and halt development activities in India until further safeguards are in place, the company said.