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Non-Compete and Trade Secrets Report

Developments in protecting businesses against unfair competition

$40 Million In Sale of Business Held Sufficient Consideration for Non-Compete

Rochester MedicalA federal court in Minnesota has rebuffed a plea by the founders of medical device company Rochester Medical to invalidate five year non-competes they signed in connection with the sale of their business to C.R. Bard, Inc. Conway v. C.R. Bard, Inc. (D. Minn. Feb. 12, 2015).  Plaintiffs argued that the non-competes were invalid for lack of consideration because the per-share price they received for their stock, $20, was the same as the per-share stock received by other shareholders who did not have non-competes.  A U.S. District Judge in the District of Minnesota dismissed the lawsuit. It noted that C.R. Bard was not wiling to purchase the company at the agreed upon price without the non-competes and therefore at least a portion of the price per share reflected consideration for the restrictions.  That Plaintiffs received only “part” of this consideration, it held, was immaterial. (The Court noted that Plaintiffs were possibly paid as much as $40 million in the transaction, and certainly over $10 million.)

The court’s dictum that the “amount of consideration received by the Conways is immaterial as long as they received some consideration” may be misleading, however. Minnesota Courts will not necessarily enforce a non-compete entered into for token consideration (the mythological peppercorn) and may inquire into the adequacy of consideration in certain circumstances.

The Court noted that the Plaintiffs mentioned “blue penciling” in their moving papers, but not in their complaint, and held that the complaint did not “come close to adequately pleading a blue pencil claim.” The take away, at least in this Court, is that if a plaintiff seeks blue-penciling, he or she must specifically ask for this relief in the complaint.

 

Eighth Circuit Affirms Judgment on the Pleadings in Arkansas Non-Compete Case

arkansasThe Eighth Circuit Court of Appeals has affirmed a lower court decision granting judgment on the pleadings to defendant in non-compete dispute based on Arkansas law. The decision in NanoMech, Inc. v. Suresh rested in part on the fact that the non-compete did not include a geographic limitation and was otherwise overbroad as it would have prohibited defendant from “working in any capacity for any business that competes with the company” anywhere in the world. The district court found that the provision was unreasonable on its face, and therefore unenforceable as a matter of law.

The Appellate court noted that Arkansas does not allow blue-penciling, which may have saved plaintiff from dismissal in a different jurisdiction (“Under Arkansas law, a non-compete agreement must be valid as written; a court may not narrow it.”)

The result in this case was not necessarily obvious, for a few reasons. First, Plaintiff, a nano-technology company, pointed out that the Arkansas Court of Appeals has upheld non-compete agreements without any geographic restriction on at least two occasions. The Eighth Circuit distinguished those decisions, however, because the restrictions were otherwise limited to solicitation of certain customers. (Courts in several other states have held that a customer-based restriction can substitute for a geographic restriction.) Here, however, the agreement stated:

COVENANT NOT TO COMPETE: The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this Agreement by the Company, without or without cause; or for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or consult in any business which competes with the Company.

Second, the decision runs contrary to a trend among at least a few courts to place reduced importance on geographic restrictions in cases involving global or national competition in light of modern technology and transportation. Indeed, the Court in NanoMech quoted the Third Circuit in Victaulic Co. v. Tieman, 499 F.3d 227 (3d Cir. 2007) which observed, “[i]n this Information Age, a per se rule against broad geographic restrictions would seem hopelessly antiquated.” But, the Court still found the provision overbroad under Arkansas law.

Third, the dismissal of the action under Rule 12 of the Federal Rules of Civil Procedure, without the benefit of discovery, was somewhat aggressive, considering the parties were involved in cutting-edge research and development.

Enforcement of non-competes usually turns on the application of state law. In Arkansas, a non-compete must be “reasonable” as to geographic and temporal scope and based on a valid interest to protect. Considering the lack of blue-penciling authority in Arkansas, employers in that state should be careful when crafting restrictions of this kind.

Former Employee in Louisiana Bites Back, Files Suit Against Employer for Threatening to Enforce Non-Compete

Louisiana has strict requirements for enforcement of non-compete agreements which are not “favored” in the Pelican state.   In a recent case, Boudreaux v. OS Restaurant Services, LLC, a former employee in Louisiana preemptively filed a lawsuit claiming a violation of Louisiana’s unfair trade practices statute and intentional interference with business relations after his former employer sent a letter stating its intent to enforce a non-compete agreement.  The district court held that the complaint alleged sufficient facts to support the two claims and survive dismissal.

The plaintiff, Boudreaux, managed the operations of Outback Steakhouse in Houma, Louisiana.  He signed an employment contract that prohibited him from engaging in a competing business that was within a radius of thirty miles of any Outback Steakhouse.  After his termination, Outback sent a letter warning Boudreaux that Outback would be “aggressive” in enforcing the non-compete provision of the Agreement.

After receiving the letter, Boudreaux went on the offensive by filing a suit against Outback for violation of Louisiana’s unfair trade practices statute and for intentional interference with contractual relations.  Outback filed a motion to have the case dismissed for failure to stating a claim.

Unfair Trade Practices

Under Louisiana law, a party can be found to have engaged in unfair trade practices if it is shown that alleged conduct “offends established public policy and . . . is immoral, unethical, oppressive, unscrupulous, or substantially injurious.”  Essentially, a party must show egregious acts that involve fraud, misrepresentation, or other unethical conduct.  Here, the court held it was sufficient for Boudreaux to allege that Outback knew that the agreement was unenforceable at the time it sent the “cease and desist” letter to provide a basis to state a claim for unfair trade practices.

Intentional Interference with Business Relations

To state a claim for intentional interference with business relations, a plaintiff must show that the defendant acted with malice that is demonstrative of spit or ill will.  On the one hand, the court here noted that this tort is rarely appropriate in commercial disputes since business conduct is driven by profit motive, not bad feelings.  Nevertheless, the Court decided that the allegation that Outback acted maliciously and intentionally by trying to enforce an invalid non-compete was sufficient to state a claim of intentional interference with business relations.

Lessons Learned

The Boudreaux case may be the first time a court in Louisiana has allowed claims to proceed against a former employer for sending a “cease and desist” letter regarding a non-compete.  It is not altogether unheard of, however, for allegations of tortious interference to be lobbed back by employees in such circumstances in other states. Employers should always be careful when crafting and sending cease and desist letters, and keep them professional and properly grounded under the law and the facts presented.

Nike Lawsuit Against Former Designers Will Test Company Security Initiative

Athletic shoe manufacturer Nike filed suit on December 8, 2014 in Multnomah County Circuit Court in Oregon against three of its former designers alleging that the designers misappropriated Nike’s trade secrets and conspired with Adidas to start a new, competing business venture.

The three former designers, Denis Dekovic, Marc Dolce and Mark Miner, all resigned from Nike in September 2014, telling Nike that they decided to pursue their own design studio. Two weeks after the three designers resigned, Adidas announced that it would fund the designed studio managed by Dekovic, Dolce and Miner.

The lawsuit, which alleges $10 million in damages, claims that while the three designers were employed with Nike, they “conspired to and developed for themselves, and then for Adidas, a strategic blueprint for a creative design studio to compete against Nike, began consulting with Adidas and misappropriated Nike trade secrets for use in their new business venture.”

In the Complaint, Nike alleges that Defendants knowingly violated several agreements signed with Nike at the outset of their employment. All three Defendants signed non-competition agreements pursuant to which they agreed to: (1) not to compete with Nike during and for a period of one year following their employment; (2) not to use or disclose any of Nike’s confidential information and to return all copies of such information upon leaving Nike’s employment; and (3) not to solicit other Nike employees away from Nike to a competitor.

In addition, the Defendants also signed Employee Invention and Secrecy Agreements, by which each of them “assign[ed] to Nike all…inventions…conceived” during his employment term with Nike relating “in any way” to Nike’s “business…or products.” Defendants further agreed to “disclose promptly and in writing to Nike all [such] inventions…conceived or made by me during the term of my employment with Nike whether or not such inventions are assignable under this Agreement.”

Nike’s Complaint describes the extensive, company-wide efforts taken to protect its confidential information. Since 2012, Nike has invested more than $1.5 million in a company-wide security initiative known as “Keep it Tight” or “KIT.” As described in the Complaint, KIT is a program designed to educate employees regarding the protection of Nike’s proprietary and confidential information, including its product design information. The KIT initiative provides employees with on-line training on social media, information security, device (laptop/mobile) security, and workplace and situational awareness security. Nike asserts that there has been, and continues to be, significant publicity of the KIT principles on postings throughout the Nike campus and on Nike’s internal employee website and social media platforms. Nike has apparently gone to great lengths to prevent leaks of proprietary, confidential and trade secret information and reinforces the company-wide culture of locking down such information.

Nevertheless, Nike claims the three designers stole a “treasure trove of Nike products designs, research information and business plans” in an effort to market themselves to Adidas. Dekovic in particular, had the contents of his laptop copied, which gave him access to “thousands of proprietary documents relating to Nike’s global football (soccer) product lines.”

In addition, just three days before leaving Nike, Dolce sent an email to his personal email account with highly confidential design drawings related to an as-yet unreleased shoe designed for one of Nike’s sponsored athletes. On their final day at Nike, the Defendants allegedly took to social media to announce joining Adidas and to promote the Adidas brand in further violation of their non-compete agreements with Nike.

As a result of Defendants’ actions, Nike claims that it will suffer irreparable harm in the form of lost market share, lost sales, and lost goodwill if Defendants are not enjoined from this continued and ongoing wrongdoing, including from consulting for or launching a creative design studio with Adidas, connecting themselves to Adidas through social and traditional media, and continued use of Nike’s Confidential Information still in their possession in operating the design studio or otherwise.

The lawsuit identifies that the information taken by the Defendants is among the most important and highly confidential information in Nike’s athletic footwear business, particularly its global football business. Disclosure of any of this information, it claims, “would irreparably harm Nike, by, among other things, enabling a competitor to effectively undermine and counter Nike’s performance in the athletic markets for the next three to four years.”

Nike also brings claims of breach of contract, breach of duty of loyalty, and “civil conspiracy,” among other charges.

The lawsuit, involving one of Oregon’s most famous companies, will be an interesting test of its KIT initiative to protect proprietary information and could provide a road map for other employers.

UPDATE:

On December 9, 2014, the day after filing its lawsuit against three former designers, Nike filed a Motion for temporary restraining order and preliminary injunction with the Multnomah County Circuit Court in Oregon. On December 11, 2014, the Court ruled on the motion, issuing a temporary restraining Order on behalf of Nike. The Court ordered a hearing to be held on February 11-12, 2015 during which defendants would have an opportunity to show cause why a preliminary injunction should not issue pending a final judgment on Nike’s claims.

However, on December 24, 2014 both parties agreed to vacate the Court’s temporary restraining order (and the scheduled February 2015 hearing) and instead, stipulated to a preliminary injunction enjoining defendants from the following:

•           Working for or consulting with Adidas or any other company in any industry in which Nike participates. This prohibition includes issuing any public statements, including via social media or traditional media, and in any way referring to any association between themselves, Adidas or any Nike competitor.

•           Using and or disclosing any Nike trade secrets and other confidential or proprietary information;

•           Directly or indirectly soliciting, diverting or hiring away Nike employees or Nike sponsored athletes

Both parties agreed that the above injunction would remain in place until July 6, 2015, ten days after the anticipated conclusion of trial on injunctive and equitable claims. Furthermore, both parties also agreed to incorporate the following provisions from the Court’s December 11, 2014 temporary restraining order, requiring the defendants to do the following:

•          Promptly return to Nike all electronic and hard copies of Nike’s trade secrets and other confidential and proprietary information in their possession, custody or control;

•           Disclose in writing to Nike the identity of any person, persons or business entity to whom defendants disclosed Nike’s trade secrets and other confidential and proprietary information;

•           Having defendant Dekovic return the Nike hard-drive referred to in his declaration in opposition to Nike’s motion for temporary restraining order

Finally, both parties agreed to appear before the Court on June 22-25, 2015, for a trial on Nike’s claims for injunctive and equitable relief. One can only speculate why the defendants would stipulate to such an injunction and lengthy schedule.

 

Missouri Court of Appeals Rules Non-Compete Lacking Geographic Limitation, Not Tied to Confidential Information, Is Unenforceable

A Missouri employer failed in its attempt to enjoin a former employee from working for a competitor after a Missouri appeals court ruled his employment agreement was unenforceable as a matter of law.  In Sigma-Aldrich Corp. v. Vikin, No. ED-100575, (Mo. Ct. App. Oct. 14, 2014), the Missouri Court of Appeals (Eastern District) upheld a St. Louis County trial judge’s ruling that a non-compete without a geographic restriction, that sought to protect information widely known to the public, was unenforceable.

In this case, Sigma-Aldrich employed Omar Vikin in a number of sales and related roles for its products.  Vikin signed a non-compete agreement which provided that he could not work for a competing employer for a period of two years.  The non-compete did not have a geographic restriction. Vikin later resigned and went to work for a competitor in a general manager position.  Sigma-Aldrich sued, and in response Vikin contended that the agreement was unenforceable in part because it was not drafted to protect reasonable employer interests.  The trial court held that the agreement was not enforceable because it contained no geographic limit and was essentially was a world-wide restriction.  The trial court also held that the information Sigma-Aldrich tried to protect in the agreement was not protectable as a trade secret.  Sigma-Aldrich appealed.

Affirming the decision, the Missouri Court of Appeals noted that the lack of geographic limitation in a non-compete agreement does not automatically render an employment non-compete void as a matter law in Missouri.  The Appeals Court held that that an agreement that had no geographic limit required some additional limitation on the class with whom contact was limited: “[T]he lack of a geographic limitation here renders the non-compete provision unenforceable without accompaniment by any specificity of limitation on the class with whom contact is limited. Rather, the non-compete provision creates a global prohibition in which Sigma attempted to ban employees from working for any of its competitors globally in any capacity.”  Given the lack of any limitation on a class of competitors, the Court of Appeals held the agreement unenforceable.

The Court of Appeals then analyzed whether Sigma-Aldrich had met its burden that the agreement protected confidential information or trade secrets.  In order to be valid under Missouri law, a restrictive covenant must seek to protect reasonable employer interests such as trade secrets or customer lists.  Here, Sigma-Aldrich did not contend that Vikin had taken customer lists, but did contend that Vikin had access to its trade secrets, including marketing plans and website development information.  Ultimately, the Missouri Court of Appeals disagreed, finding that the evidence demonstrated that the information Sigma-Aldrich sought to protect was widely known in the industry and that Sigma-Aldrich had made no effort to protect the secrecy of the information.  The Court of Appeals concluded that Sigma-Aldrich had not established that the information at issue was a trade secret.

The Court of Appeals held that Sigma-Aldrich had failed to meet its burden to show that the non-compete was not overly-broad and protected reasonable interests such as trade secrets and customer lists.

Takeaways:

A restrictive covenant with no geographic limitation can still be enforceable in Missouri if some consideration has been given to limiting the application of the restriction to certain types of employers, roles, or customers.  Courts in other states have reached similar conclusions.   Also, given that the employee in this case did not have access to any trade secrets or customer lists, the agreement was viewed as unreasonable by both the trial court and the Court of Appeals.  As always, employers must give careful consideration to which employees or positions should be required to sign a non-compete agreement.

Delay Leads to Denial of Request for Injunctive Relief in New Jersey Lawsuit

A recent decision from the United States District Court for the District of New Jersey highlights the perils of delay before applying for injunctive relief.   In PTT, LLC v. Gimme Games, et al.  No. 13-7161 (JLL/JAD), PTT, a slot machine developer, sued competitor Gimme Games and former PTT executives who started Gimme Games, for misappropriation, unfair competition, and patent infringement.  More particularly, PTT alleges in the pending lawsuit that Gimme Games creates slot machine games with the same look and feel as PTT’s games, especially with respect to “oversize symbols.”

The original complaint was filed on November 26, 2013, with the patent infringement claim filed by amended complaint soon after PTT received its patent on May 27, 2014.  PTT thereafter applied for a temporary restraining order on August 21, 2014, approximately one week after it discovered that the defendants maintained a Facebook page promoting the defendants’ games with oversized symbols.

In denying PTT’s application for injunctive relief, the court referenced two delays by PTT.  First, the court noted that PTT waited two months after becoming aware of the defendants’ alleged breach in September 2013 before filing its lawsuit in November 2013.  The court also noted the delay of about 11 months before PTT’s application for injunctive relief in August 2014.  The court cited its prior decision of Ultimate Trading Corp. v. Daus, where it had previously held a five month delay in seeking a preliminary injunction was too substantial to then make a showing of irreparable harm.  Even putting aside the delay in seeking the injunctive relief, the court concluded that PTT could not substantiate any allegations of “currently existing immediate harm” to justify the injunctive relief it was requesting.

The court’s decision should not surprise those familiar with the exigency standards and requirements generally applicable to injunctive relief applications.  However, the court’s closing comments in PTT drive home the importance of acting quickly, even where there is only a threat of a breach.  The court noted the “function of preliminary injunctive relief is to preserve the status quo pending a determination of the action on the merits …  The status quo to be preserved is that state of affairs existing immediately before the filing of the litigation, the last uncontested status which preceded the pending controversy.”   The district court judge suggested that to grant the injunctive relief requested after competitive activity was afoot, would not preserve the status quo but completely change it, and that “the prelitigation status quo would best be preserved by permitting the parties to remain in the state of free competition in the marketplace.”

Under certain circumstances, injunctive relief could and should be granted even after competitive activities have commenced, to prevent further solicitation and other unlawful activity beyond the date of the application. Still, employers should be aware that some judges in other circumstances might not grant injunctive relief once competitive activities are no longer a threat but a reality.  The more important message here, however, is that employers should be mindful of the adverse risks an unexplained delay will present to an application for equitable relief.

UPDATE

As a follow up to the above post, after the court denied PTT’s application for injunctive relief, the defendants moved to dismiss the amended complaint alleging, among other things, that PTT failed to plausibly allege the existence of a trade secret and its wrongful taking by the defendants, that PTT failed to allege a secondary meaning and that the products features are functional and not protectable, and that PTT had altered its alleged trade secret.  The court rejected these arguments and denied the defendants’ motion as premature (although the court dismissed the induced infringement claim without prejudice and with leave for PTT to amend within 30 days).  The court looked to the pleadings standards of the Federal Rules of Civil Procedure, and held that during discovery, PTT will be required to provide, with precision,  “a description of the trade secrets at issue that is sufficient to (a) put the defendant on notice of the nature of plaintiff’s claims and (b) enable the defendant to determine the relevancy of any requested discovery concerning its trade secrets.”

 

 

Half-Billion Dollar Arbitration Award in Trade Secrets Case Affirmed by Minnesota Supreme Court in Trade Secrets Dispute

The Minnesota Supreme Court has affirmed an arbitrator’s eye-popping award of $525 million plus prejudgment interest totaling $96 million and post-award interest in a trade secrets dust up between Seagate Technology, LLC and Western Digital Corporation, et al. Seagate Technology, LLC v. Western Digital Corporation, et al and Sining Mao, No. A12-1994 (Minn. October 8, 2014).  The Court’s decision is replete with lessons about the legal boundaries, risks, and protections for litigants in arbitration. It is notable also for the magnitude of the award which was, in part, the consequence of falsified evidence.

Seagate designs and manufactures hard disk drives for computers. Sining Mao was a senior director for advanced head concepts at Seagate working on technology that involves incorporating tunneling magnetoresistance (“TMR”) in to read heads to improve storage capacity. When he was hired by Seagate, he signed an employment agreement which included a requirement to preserve the confidentiality of trade secrets and to return company documents. The employment agreement contained an arbitration clause which stated, in part, that the “arbitrator may grant injunctions or other relief in such controversy” arising out of the agreement.  Arbitration was subject to the rules of the American Arbitration Association (“AAA”).

Mao left Seagate in September 2006 to join Western Digital, a competitor. Seagate then commenced a district court action seeking injunctive relief and alleging misappropriation of trade secrets related to TMR technology.  Western Digital invoked the arbitration clause of Mao’s employment agreement with Seagate, and the district court stayed the lawsuit pending arbitration.

Things started to go south for Western Digital and Mao argued that three of the alleged trade secrets had been publicly disclosed before Mao left Seagate because they were included in a PowerPoint presentation he gave at a conference.  Seagate argued that Mao had fabricated and inserted additional PowerPoint slides containing the information after the fact to make it appear as if this information had been made public.  The arbitrator found that “[t]he fabrications were obvious. There is no question that Western Digital had to know of the fabrications and yet continued to represent to the Arbitrator that Dr. Mao did in fact insert the disputed slides at the time of the conferences.” The arbitrator found that the fabrication and Western Digital’s complicity was an egregious form of litigation misconduct that warranted severe sanctions.

Specifically, the arbitrator precluded any evidence or defense by Western Digital and Mao disputing the validity of the three trade secrets or any defense to the allegation of misappropriation or use of the three trade secrets, which resulted entry of judgment on liability and monetary damages in the amount of $525 million, calculated based on an unjust enrichment method. Western Digital brought a motion to vacate the award in district court. The district court granted the motion in part, finding that the arbitrator exceeded the scope of his authority under the arbitration agreement.  The Minnesota Court of Appeals reversed the district court on the ground that Western Digital had waived its right to challenge the arbitrator’s ability to issue punitive sanctions by not raising the issue with the arbitrator himself (and because Western Digital had earlier sought sanctions against Seagate in the same matter).

The Minnesota Supreme Court affirmed the Court of Appeals although based on a different analysis. The Supreme Court held that Western Digital did not waive its right to challenge the Arbitrator’s authority under Minnesota statutes regarding arbitrations and requests for vacatur, specifically Minn. Stat. Section 572.19.   The high Court then went on to conclude that the arbitrator did have the authority to impose the disputed sanctions, looking at the employment agreement, AAA arbitration rules, and case law.

The Court noted that:

Some believe that arbitration has benefits, potentially including faster resolution and less expense than the judicial system as well as a higher degree of confidentiality. But the benefits come with costs, including significantly less oversight of decisions, evidentiary and otherwise, and very limited review of the final award. Here, despite the best efforts of experienced appellate counsel to argue otherwise, Mao and Western Digital’s decision to demand arbitration necessarily limited the availability of the protections and advantages of the judicial system.

It is unclear if a district court could have reached the same result as the arbitrator in the Seagate case, but the Minnesota Supreme Court’s decision suggests that arbitrators can have greater discretion than judges.  The case certainly highlights the fact that arbitration may not always be the best forum, depending on which side of the dispute you are on.

California Court Considers Customer Lists, LinkedIn Contacts, in Trade Secrets Case

A federal district court for the Central District of California has issued a detailed decision regarding customer lists and LinkedIn contacts in ruling on cross-motions for summary judgment in the trade secrets dispute captioned Cellular Accessories For Less, Inc. v. Trinitas, LLC,  No. CV 12-06736 DDP, including a surprising ruling that LinkedIn contacts might be considered trade secrets under California law.  The defendant, Trinitas, is a Texas business founded by David Oaks, a former employee of Cellular Accessories, based in California. As an employee of Cellular, Oaks signed an Employment Agreement and a Statement of Confidentiality generally promising not to use or disclose proprietary or confidential information of Cellular.

Oaks’ employment with Cellular was terminated in December of 2010. Shortly before he left, he emailed himself over 900 business contacts in an ACT file as well as certain other business, purchasing and strategic information regarding specific clients. Oaks also “maintained his LinkedIn contact information after his termination.”

Cellular filed suit in California alleging violation of the California Trade Secrets Act (“CUTSA”), along with several common law claims.  Both sides moved for summary judgment.

In analyzing first the ACT customer list, the Court noted that, in California as well as many other states, a customer list “may constitute a protectable trade secret” but “such lists are not automatically trade secrets, because many customer lists contain no information which is not easily discoverable through public sources.”  Where the employer has expended time and effort identifying customers with particular needs or characteristics, the list can be a trade secret. In Trinitas, as is typical in these cases, the defendant alleged that, “anyone can easily get extensive information about Fortune 1000 companies through a standard internet search.” Plaintiff, in response, asserted that “Cellular hires and pays employees who are tasked with cold-calling companies and working their way past the ‘gatekeepers’ to reach the right procurement officer.” Under the evidence provided, the court in Trinitas ruled that a genuine issue of material fact existed as to whether the customer lists could be a trade secret.

Next, the court reached a similar conclusion as to Oaks’ LinkedIn account. Oaks argued that LinkedIn contacts would have been viewable to any other contact he had on LinkedIn. Plaintiff argued that LinkedIn information is only available to the degree the user chooses to share it. Oaks did not provide evidence as to whether his account was publicly viewable.  The Court declined to “take judicial notice of the functions of LinkedIn” and held that a genuine issue of material fact existed as to whether the account was a trade secret without delving further into how LinkedIn operates. There is no indication as to whether Oaks argued that his LinkedIn account was not property of Cellular in the first place.

The ruling is remarkable considering thousands of employees probably terminate employment and maintain LinkedIn accounts every day.  It remains for a future decision, either in this litigation or another, to look at this question more carefully and to clarify whether LinkedIn contacts can ever be considered a trade secret.

The judge in Trinitas also dismissed several common law claims as preempted by CUSTA and dismissed a breach of contract claim for lack of damages. The decision is a useful one for any party engaged in a dispute about customer lists under California law and has garnered attention for its ruling regarding the social media site LinkedIn.

Learning the Hard Way: Non-Competes and Subsequent Agreements

The Georgia Court of Appeals handed down a tough lesson for an employer in Mapei Corporation v. Prosser, A14A0368 (Ga. Ct. App. July 9, 2014).  The Court of Appeals affirmed summary judgment for an employee on the claim he breached his non-compete with his prior employer.  The Court found a subsequent confidentiality agreement signed by the former employee omitted the non-compete covenant that the prior confidentiality agreement contained.  The Court found the subsequent agreement replaced the earlier-entered agreement containing the non-compete covenant because the subsequent confidentiality agreement covered the same subject matter and contained a superseding-agreement clause stating the agreement “totally replaces all prior contract agreements or understandings… about confidential information or any other subject matter contained herein.”

The take away for employers is to always be careful when having employees sign multiple agreements.  If an agreement contains a superseding-agreement clause, or even if it similar in subject matter to a prior agreement, it is important to determine if there are any prior agreements or covenants within other agreements between the employee and employer that the employer would want to preserve.  If so, new agreements can be drafted to maintain or preserve obligations under prior agreements.

While this decision was based on Georgia law, it was decided with the guidance of basic contract principles that many other states follow.  Therefore, employers nationwide should remember this lesson to avoid making the same mistake.

Kentucky High Court Nixes Non-Compete Supported Only By Continued Employment

The Kentucky Supreme Court has held that continued employment alone is not valid consideration for non-compete agreements.  In Charles T. Creech, Inc. v. Brown, 2014 Ky. LEXIS 233 (Ky. 2014), Donald E. Brown was employed by Charles T. Creech, Inc. for over 18 years before he was asked to sign a non-compete agreement in 2006. When the company’s owner presented the agreement to Brown, the owner stated that Brown needed to sign it in order to “get [the owner’s] daughter off our backs,” but no one told Brown that his continued employment was contingent on signing the agreement, and he received no other consideration for signing. The employer argued that Brown’s continued employment was valid consideration for the non-compete agreement, and relied on two cases in which the Kentucky Supreme Court had held continued employment to be valid consideration.  The Kentucky Supreme Court disagreed and distinguished both of those decisions, explaining that in both cases factors other than continued employment were present that constituted consideration.

The court’s decision did not affect the enforceability of non-compete or similar agreements that are entered into in connection with hiring, as an offer of at-will employment is still valid consideration under the court’s decision. The court also indicated that in the case of non-competes that are supported only by the purported consideration of continued employment, certain factors, including but not limited to specialized training, promotions, wage increases, and other post-agreement changes in the employment relationship, as well as “rehire” situations, may render the agreement enforceable. It remains to be seen if the reasoning of the court will also apply to non-solicitation, confidential information, arbitration, and other agreements entered into with employees after hiring.

Employers with Kentucky non-compete and similar agreements should review the enforceability of their agreements in light of the Creech decision.