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

Unless a business manufactures or sells truly unique items, chances are it will have competitors seeking to secure the same business opportunities.  Competitors often use all tools at their disposal to secure that business, including targeting and offering employment to key employees of competitors and seizing upon those relationships and networks that the employee developed while employed by his or her former employer.

Like other companies that have sued former employees and their new employer for engaging in this type of conduct, Aon Risk Services Northeast, Inc. recently commenced a lawsuit and seeks an injunction against three former Aon employees who went to work for Aon's competitor, Marsh & McLennan Companies, Inc.  The case is Aon Risk Services Northeast, Inc. v. Kornblau, Case No. 10-CV-2244 (March 15, 2010 U.S. District Court S.D. N.Y.)

Aon claims that the former employees, with Marsh's participation, collectively tried to steal Aon's trade secrets, poach Aon's clients, and rob Aon of its key employees so that Aon no longer had brokers with existing relationships with the targeted clients.  Significantly, the complaint alleges that within weeks of the departure of the former employees, Marsh obtained a significant amount of business from Aon clients that transferred their accounts to Marsh.  

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It may soon be a lot easier to enforce noncompete/nonsolicitation agreements in Georgia.  Late last week the Georgia House Judiciary Committee passed a resolution to amend the Georgia Constitution to allow the General Assembly to pass laws governing competitive activities between employee and employer, distributors and manufacturers, franchisors and franchisees and others.   The need to protect company investments in people drove the change, as did the confusing case law on the subject.   The proposed amendment would also allow the Assembly to pass laws which would permit courts to limit the duration, scope and geographic area of such contracts.  In other words, courts would be permitted to rewrite the contracts to make them reasonable.

The Judiciary Committee resolution is not yet the law.  It still needs the approval of the full House, the Senate, the Governor and the voters this fall.  According to the local press, there appears to be a lot of support for the resolution.  See Fulton County Daily Report, February 12, 2010.

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A great deal of discussion has taken place in the legal press recently about the use of the Computer Fraud and Abuse Act as a cause of action against those who take with them information from their former employers for use in subsequent competitive activities.  And rightly so, given the explosion in the number of civil claims brought pursuant to the statute in recent months.  Much less discussion has been heard, however, about a long-recognized cause of action - breach of the duty of loyalty - that can be a crucial component of a well-thought-out attack against the misuse of confidential information by a former employee and his/her new employer.  The importance of this cause of action was highlighted in a recent decision of the Wisconsin Court of Appeals, InfoCorp, LLC v. Hunt, Case No. 2007AP2887, 2009 WL 4800140 (Wis. Ct. App. Dec. 8, 2009).

InfoCorp, LLC (d/b/a "InfoCor") is a reseller of so-called "SMART Boards," interactive whiteboards that combine the functions of an overhead projector, computer projector and a chalkboard.  Hunt started work at InfoCor in 2005.  Before that, he worked for 2 InfoCor competitors selling the same product and had developed a particularly strong relationship with a customer ("CESA 2") that, among other things had a cooperative purchasing program representing a number of Wisconsin school districts.  Hunt was employed by InfoCor for a year.  During that time, CESA 2 entered into an agreement with the manufacturer of the SMART Boards to purchase its products at reduced prices and InfoCor was the only reseller authorized by CESA 2 to provide those products to its member school districts.

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On October 7, the Massachusetts legislature's Joint Committee on Labor and Workforce Development will conduct a hearing on the two noncompete bills sponsored, respectively, by Representatives Lori Ehrlich and Will Brownsberger. While those two bills are technically before the Committee, there is a third bill that reflects a joint effort by the two legislators, which is likely to be the focus of the hearing. The representatives initially made a draft available for public comment in July. Since then, there have been many meetings, emails, and other communications providing input on the draft. We have made an effort to consider them all in drafting the revisions to the July version. We also made an effort to structure the bill in as straightforward a manner as possible, given the complicated nature of the issues and the many interests to be balanced. As before, we have striven to achieve an appropriate balance of protections and incentives to both employers and employees, and make it easier for both sides to predict the outcome of any potential dispute, thereby reducing the need to resort to the courts for resolution of such disputes. The current draft (including changes through September 28) is available here.

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We are pleased to announce a free five part web series entitled, "Trade Secrets and Noncompete Agreements: What You Need to Know."  The series covers the topics below.  For more information please click here or visit Foley.com.  To register, click here. 
 

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To be enforceable, noncompete agreements must, among other things, serve a "legitimate business interest."  What is a legitimate business interest?  Most states recognize trade secrets, other confidential business information, and customer goodwill as legitimate business interests that may properly be protected.  (See Back to the Basics... Terms of Art.)  This is not to say there is not overlap, however, and that's the key:  There is overlap.  

So, what does that mean and why is it significant?  The California Court of Appeal recently issued a decision The Retirement Group v. Galante that explains it.  But first some background...

Two things are important to know about California.  First, California does not permit employee noncompete agreements except (possibly) to protect trade secrets - although the California Court of Appeal had something to say about that too.  (More on that another time.)  Second, California (which is not unique in this regard) treats nonsolicitation agreements as noncompete agreements.  Therefore, in California, they generally will not be enforced, while in other states, they will be analyzed in the same fashion as traditional noncompete agreements are analyzed.  (The scrutiny applied, however, is typically a bit lower, as nonsolicitation agreements do not impede individual choice of employment to the same extent as the outright ban of a noncompete agreement.)

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