Trade Secret / Noncompete : Business, Employment, Intellectual Property, and Litigation Attorneys Focused on Trade Secret/Noncompete Issues

Simply combining two obvious public domain concepts does not result in a protectable trade secret, even if the resulting idea has not yet been exploited in the marketplace.  In a recent decision, Take It Away, Inc. v. The Home Depot, Inc., 2009 U.S. Dist. LEXIS 14279, the U.S. District Court for the District of Massachusetts granted summary judgment to The Home Depot on all claims because the business idea that the plaintiff alleged was misappropriated did not constitute a valid trade secret. 

Take It Away, a waste removal services firm, and its principals approached The Home Depot on multiple occasions from 1996 through 2002 with a dumpster rental proposal.  Under the proposal, Home Depot would rent dumpsters to its customers, while Take It Away would provide the product, services, and customer support.  Additionally, Take It Away would remove the waste generated by the program for a separate fee.  In connection with these meetings, Take It Away would sometimes ask The Home Depot to consent to a non-disclosure or confidentiality agreement.  On one occasion, a confidentiality agreement was signed, but usually it was refused or not signed by representatives of The Home Depot, and sometimes it was not requested by Take It Away at all.  Although The Home Depot requested that Take It Away submit an alternative proposal to lease space to conduct its own on-site dumpster rentals, such a proposal was never made, and no contract was ever executed.

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Cases and issues making the headlines*:

Cool Beans (October 24)
As is frequently the case in noncompete disputes, Starbucks has resolved its dispute with its executive, who left to join Dunkin’ Donuts allegedly in violation of his noncompete agreement.  Story here.

2^nd Circuit Affirms Unenforceability of Noncompete Signed in Wrong Place (October 24)
Several months ago, an IBM senior executive, David Johnson, left to go to Dell.  IBM sued, claiming Johnson violated his noncompete agreement. Johnson defended, in part, by pointing out that the agreement was not properly executed.  He won.  After more wrangling in the district court, IBM appealed.  The 2nd Circuit, however, affirmed the district court’s decision.  Story here.

Trade Secret Theft Results in Criminal Charges (October 16)
A former Ford product engineer was reportedly indicted for theft of trade secrets, attempted theft of trade secrets and unauthorized access to a protected computer.  Story here.

Time to Smell the Coffee (October 12)
The battle between Starbucks and Dunkin’ Donuts has expanded from personal taste to the courtroom.  Starbucks has reportedly sued a former executive for joining Dunkin’ Donuts allegedly in violation of his noncompete agreement.  Stories here and here.

Computer Fraud and Abuse Act Used to Attack Spam (October 12)
Craigslist has reportedly filed suit against alleged spammers, relying on the Computer Fraud and Abuse Act. Story here.

Yogurt Trade Secret Case Going to Trial in NH (October 10)
According to reports, Agro-Farma Inc. sued Stonyfield Farm Inc. for, among other things, misappropriation of trade secrets, specifically, aspects of the manufacturing process for a certain type of yogurt. While manufacturing processes fall squarely within the definition of a trade secret, it is rare for such cases to make it all the way to trial.  Nevertheless, the case has been scheduled for trial on the trade secret claim (as well as other claims and counterclaims). Story here.

Continued Hearings in Citadel/Teza Case (October 10)
As covered several months ago in In the News…, hedge fund manager Citadel Investment Group LLC sued a competing hedge fund company and its founder, alleging, among other things, a violation of the founder’s noncompete agreement. The lawsuit was filed on the heels of reports that one of Teza’s employees had been arrested for allegedly stealing secret trading software from Goldman Sachs. The lawsuit now continues with hearings on the alleged destruction of evidence.  See Former Citadel Executive Denies Deliberately Erasing Evidence (on Bloomberg.com) and Citadel Calls Former Head of HFT Trading’s Current Venture, “A Veritable Pirate Ship of Illegal Activity.”

NECN Story on MA Noncompete Bill (October 9)
NECN reporter Peter Howe reported on the noncompete debate in Massachuestts.  Story, including video, here.

Balancing Trade Secrets and Discovery (October 2)
The Texas Supreme Court holds that it was an abuse of the trial court’s discretion to order the disclosure of trade secrets (rates charged for certain hazardous materials and the methods for their calculation) when the plaintiff could not prove why it needed the information.  Story here.

*For earlier stories, go to the In the News (archives) page.

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Sometimes a new trade secrets decision teaches best practices that clients should follow.  Other decisions demonstrate that when the defendant's behavior is blatant enough, a trade secret plaintiff can prevail despite ignoring common best practices.  A recent case, Miracorp, Inc. v. Big Rig Down, LLC, Johnson County, Kansas District Court, No. 08 CV 9528 (October 2, 2009), definitely falls into the latter category.

The case involved a company, Miracorp, which had put together over time and with much effort a database of service vendors (towing, tire repair, etc.) that truck drivers might need as they hauled their loads across the United States and Canada.  Miracorp not only compiled the vendor names, but also vetted the vendors for quality.  Miracorp made this annotated database available over a free Internet site and through sales of a CD containing the database, and Miracorp's intent was that users of both its website and CD be able to make only specific searches of the database, as opposed to being able to access the entire database.  Apparently, Miracorp's website had no terms of service prohibiting accessing or copying for commercial purposes, nor did Miracorp attempt to impose any limits on what people could do with the CD after purchasing it.  Defendants legitimately obtained a copy of the CD and--as they freely admitted--copied its entire contents, which defendants then used as the basis of their own competing site.

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Yesterday, October 7, the Massachusetts legislature's Joint Committee on Labor and Workforce Development took testimony on the two pending bills to reform Massachusetts noncompete law: one to ban noncompetes (House Bill 1794) and the other (House Bill 1799) to codify, clarify, and improve the existing complicated and unpredictable common law in this area.

The testimony began with the two state representatives, Lori Ehrlich and Will Brownsberger, who had each sponsored one of the two bills (Rep Ehrlich sponsored H.1799 and Rep. Brownsberger sponsored H.1794).  They explained that while, technically, the original two bills were up for consideration, they had been working together on a new "compromise" bill, which they are now sponsoring together.   The representatives then explained the need for and goals of the new bill and laid the groundwork for the ensuing testimony.

I spoke next.  After providing background of my qualifications for the role I played in connection with the bill (i.e., I was the lead drafter and advisor), I explained the current law and its problems; summarized key provisions of the new bill and how the bill addresses many of the problems with the current law; and explained how the bill sought to balance the interests of the employers against the needs of the employees.  In an effort to explain why the bill addresses certain issues and not others, I reminded the committee that the bill takes on almost 200 years of Massachusetts noncompete jurisprudence - which is no easy task.  To do more would have added substantially to an already lengthy bill, which as written codifies, clarifies, and modernizes current law; addresses the most pressing open issues in the current law; and provides much needed predictability for employers and employees alike.

Rob Mantell, who represents only employees (not employers), spoke next, and focused on the original bill to prohibit noncompetes (H.1794), although he also expressed support for the compromise bill.  Most of the rest of the testimony focused primarily on the witness's position for or against the use of noncompetes.  In addition, many of the "usual suspects" were there, including Professor Matt Marx, who provided information about how noncompetes are used in practice, and Bijan Sabet, who spoke eloquently from the perspective of venture capitalists opposed to the use of noncompetes.

From a personal perspective, as I listened to the testimony, what came through was that reform was well overdue and that the balance achieved by the bill was correct.

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