Back in June I posted on IBM’s lawsuit against it’s former M&A chief, David Johnson, here. IBM sought a preliminary injunction to prevent Johnson from performing his duties at Dell. The Judge denied the preliminary injunction on June 26, 2009, saying that it would unfairly hurt Johnson’s career.
IBM appealed the ruling. However, not satisfied, IBM also sought to revive its motion for preliminary injunction based on the discovery of new evidence against Johnson. The New Brunswick Business Journal is now reporting that U.S. District Judge Steven Robinson denied IBM again. Robinson wrote, “The court shall not allow IBM to litigate this matter through piecemeal, seriatim motions requesting the same relief.” According to Robinson, such a method “is vexatious and does a great disservice to the interests of Mr. Johnson and of the court.”
The litigation appears to center around the validity of a 2005 agreement, specifically, whether it is valid even though it wasn’t properly signed by Johnson and IBM never followed through on threats to take away his equity in the company if he didn’t re-sign it. According to Johnson, he deliberately signed the agreement in the wrong place.
Take away message: Make sure your employees sign any agreements in the correct place. There really is no reason for an employee not to do so, unless he plans on creating wiggle room for himself as Mr. Johnson has done.
A great article over at Computerworld.com regarding the treatment of non-competes given today’s economy. It is very interesting reading. According to the article, courts have been reluctant to enforce non-compete agreements (in those states where enforcement is typical) because of the bad economy and the difficulty that people are
The article then provides several alternative tools to protect your company’s trade secrets which do not revolve around non-compete agreements. having just finding a job, in general.
The article first suggests that all companies perform a “trade secrets audit”–a suggestion I wholeheartedly endorse. A trade secret audit can provide the following: “Once all such assets are identified and valued and the risk of their loss has been assessed, the company designs and implements a comprehensive protection program, typically involving some combination of written agreements (called “restrictive covenants”), written policies concerning the appropriate use of company information, defined security measures and a detailed enforcement scheme, including not only enforcement of each of the applicable agreements, but also reliance on both established and novel legal claims and theories.”
The article then identifies some of the alternative forms of protection that may help in an economy where non-competes are not being enforced:
* “Garden leave” clauses: A type of noncompete agreement that compensates an employee during the period that the employee’s competitive activities are restricted. In a traditional garden leave clause, the employment relationship technically continues during the restricted period. However, the legality of such an obligation remains dubious.
* Forfeiture-for-competition agreements and compensation-for-competition agreements: Agreements by which an employee either forfeits certain benefits or pays some amount of money if he engages in activities that are competitive with his former employer.
* Forfeiture agreements: Agreements by which an employee forfeits benefits when his employment terminates, regardless of whether he engages in competitive activities.
* Nondisclosure/confidentiality agreements: Agreements by which an employee agrees not to use or disclose an employer’s confidential information.
* Nonsolicitation agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to accept — business from the employer’s customers.
* Antipiracy agreements: Agreements by which an employee agrees not to solicit — and, if well drafted, not to hire — the employer’s employees.
* Invention assignment agreements: Agreements by which an employee assigns to the employer any potential inventions conceived of during employment.
Any or all of these can be important for your business. While the requirements for enforcement are similar to non-competes, “courts are nevertheless more likely to enforce these agreements than noncompete agreements. For example, garden leave clauses are more likely to be enforced because of the palliative effects of the compensation paid during the restrictive period. Similarly, forfeiture-for-competition and compensation-for-competition agreements are more likely to be enforced because they impose only financial disincentives — not a bar — to an employee’s employment by a competitor.”
Read the whole thing. If you have any questions about your own trade secrets protection plan, please contact me and I would be more than happy to discuss.
Websphere Journal is reporting that IBM has sued its former M&A chief, David Johnson, for taking a job with Dell Computers. The suit is based on a 2005 non-compete agreement signed by Johnson–IBM accuses Johnson of misappropriating trade secrets.
“the complaint against Johnson says the information he possesses is “among the company’s most competitively sensitive information, is carefully guarded, not made accessible to the public or IBM’s competitors, and is disclosed even to IBM employees on a strict ‘need to know’ basis.”
Johnson knows what companies and technologies IBM plans to invest in, when, what ROI it expects and what it may divest.”
It appears that IBM is basing its claims on the “inevitable disclosure doctrine” as there are no actual allegations of misappropriation. This will bear watching…
The Trade Secrets Vault has an article posted on the Bally/24 Hour Fitness row. It looks like the case will bring up issues of the enforceability of Non-compete clauses and the inevitable disclosure doctrine. One to watch.
According to this article in the Chicago Tribune, Clear Channel filed suit against Tribune Co. and former employee and VP Andrew Friedman on May 19, 2008, based on allegations that Mr. Friedman had taken documents, data and files belonging to Clear Channel with him and that Mr. Friedman would use knowledge of Clear Channel’s strategies for the benefit of Tribune Co. Tribune Co. was taken private last year by Sam Zell and has been restructuring its operations since. This is only the latest hire by Tribune Co. of former Clear Channel high-level executives and apparently Clear Channel is fed up.
The article states: “Friedman was deeply involved in the formulation and implementation of the confidential plans and strategies that Clear Channel uses to develop, market, implement, and distribute its online offerings,” the suit said. The information “is of particular competitive significance and value.”
“Before leaving Clear Channel, Friedman allegedly shared information with Tribune employees about business strategies and vendors, said court papers, which included alleged transcripts of e-mails. Friedman also deleted thousands of files from his computer, Clear Channel claims.”
Clear Channel also sought a Temporary Restraining Order (TRO) which would restrain Mr. Friedman from beginning work for Tribune Co.
ChicagoBusiness.com is now reporting that U.S. District Court Judge Joan Gottshall in Chicago granted the TRO and made findings that Clear Channel would “undoubtedly suffer irreparable harm if the (temporary restraining order) is denied and (Mr.) Friedman uses the knowledge of interactive content strategies for the benefit of Tribune.” Mr. Friedman, she wrote, “will suffer little to no harm, other than being unable to work in his chosen profession for a few weeks.”
ChicagoBusiness.com further reports: “Mr. Friedman is also temporarily barred from using confidential information he gleaned during his employment at Clear Channel Communications Inc. and from hiring away other Clear Channel employees. He is also to “immediately return” to Clear Channel any documents, data and files as well as portable storage devices used to transfer proprietary information.”
The Chicago Tribune reports, “Tribune spokesman Gary Weitman described the suit as worthless. “We’re finding that there are a lot of people who want to come work for the new Tribune, and we’re going to hire the best of them, we’re going to do it lawfully and we’re not going to be intimidated by frivolous lawsuits,” he said.”
The question lies in the last statement–was it done lawfully. Of course the Tribune Co. can hire employees of Clear Channel and Clear Channel can ordinarily not prevent its employees from moving on, but if the employee is sharing confidential information, then the question of lawfulness becomes a little more murky. I don’t find that the suit is frivolous if there is evidence that Friedman shared information with Tribune that he acquired only as a result of his employment with Clear Channel.
I’m sure we will hear more facts about this case in the future–was there a confidentiality agreement, a non-compete agreement (the article appears to state that there was a one-year non-compete). I’m not saying that there is no way to recover in the absence of these trade secret strategies, but it makes it more difficult.
In a scenario that is becoming all too familiar, Coldwell Banker has filed a federal lawsuit in the U.S. District Court in Baltimore, seeking $2 million in damages and a restraining order on soliciting its clients, against two former executives, John and Ann D’Ambrosia, who left to open a branch of GMAC.
The suit alleges that Coldwell Banker lost 10 listing agreements to GMAC within two weeks of the GMAC branch opening. The major evidence that Coldwell is banking on (excuse the pun) appears to be email transmitted using Coldwell Banker email accounts which were sent to future GMAC sales agents who were then working as independent contractors for Coldwell.
According to this article, the email messages discuss “recruitment of Coldwell Banker sales agents; how to convince Coldwell Banker clients to follow their individual brokers to the new GMAC office; and how to transfer data from computers.
“A common thread in the quoted e-mails is the D’Ambrosias’ alleged use of Coldwell Banker to springboard their upcoming affiliation with GMAC Real Estate, which has 1,300 franchised and company-owned real estate offices in the United States and Canada and 22,000 sales associates, according to its Web site.”
Coldwell Banker has alleged 14 counts in its complaint, including violations of the Federal Computer Fraud and Abuse Act, which governs unauthorized access to “protected computers” resulting in a business loss; breach of the duty of loyalty to Coldwell Banker; tortious interference with contractual and prospective economic relations; and violations of state trade secrets law.
This case is interesting because of the heavy reliance on emails as evidence that the D’Ambrosias were planning their business venture with GMAC, and were targeting Coldwell Banker listing agreements and sales agents while working for Coldwell Banker. This is a very typical trade secrets scenario. I have said many times that email is an important part of any trade secret case involving the departure of employees who leave to open a new business in competition with their former employer and begin taking their former employers’ employees, customers and other confidential information. I can’t say it enough, when you believe that this type of situation exists within your business, one of your first priorities should be to backup the email system so that you can prevent the accidental deletion of important emails due to a document retention policy.
It will also be interesting to see what the employment agreements said–were there non-disclosure agreements, confidentiality agreements? These items are critical to an effective trade secrets protection plan.
I was going to post some practical information about the effect and validity of non-compete agreements in California (they’re generally not enforceable) and alternatives that California businesses have to non-compete agreements to protect their businesses from employees who go to work for competitors (hint: it has to do with confidentiality agreements and non-disclosure agreements–which are enforceable), but there is an interesting exchange occurring right now on the net regarding overall policy relating to non-compete agreements which was started by some comments of Bijan Sabet last weekend (Mr. Sabet is a partner at Spark Capital in Boston, Mass.).
Essentially, the invalidity of non-compete agreements in California has been a source of consternation for many business owners trying to protect their businesses from employees leaving for competitors. On the flip side, proponents of non-competes have pointed to the explosion of businesses and technology in Silicon Valley as evidence that the California legislature got it right when they invalidated the non-compete agreement because of its function as a barrier to free markets. So who’s right? Continue reading