Noncompete agreements are nothing new, in fact, 18% of all U.S. workers are subject to noncompetes while an estimated 70% of senior executives and 43% of engineers are bound by noncompetes. Employers frequently use noncompetes—which may restrict former employees from working for or starting competing businesses for a set period of time—to protect a company’s goodwill and trade secret information and as an effective tool for retaining talented employees from making a move to a competitor. Employees subject to these agreements may also be subject to a provision that provides for “garden leave,” which requires that an employee who is in the process of terminating their employment stay away from the workplace or work from home or another location during their notice period. In some cases, such “garden time” may not be paid. Recently, Massachusetts weighed in on the issue of “garden leave.” In first-of-its-kind legislation, Massachusetts signed into law House Bill No. 4714 stating that former employees in Massachusetts serving required “garden time” under noncompete agreements may be entitled to pay. Under this legislation, employers are required to pay former workers serving out their “garden leave” at least 50% of the workers’ base salary or, alternatively, provide “mutually-agreed upon consideration.” This reflects a compromise between opponents of noncompete agreements, who argue that they restrict economic growth, and the business community, which views noncompete agreements as necessary to protect legitimate business interests. In addition, this new legislation places Massachusetts squarely in the middle of a divide between states like California, which prohibits noncompete agreements except in certain limited contexts, and the many states that allow for their enforcement. However, as a practical matter, it remains to be seen how frequently former employees on “garden leave” will actually receive compensation since the bill does not define or restrict adequate consideration. Stay tuned…

As first reported in a C&M Trade Secrets Blog Post last week, IBM filed a lawsuit in New York federal district court in early February against Microsoft’s newly hired diversity executive, Lindsay-Rae McIntyre. Ms. McIntyre had been at IBM more than 20 years, finishing her employment as its Chief Diversity Officer. She also signed a one-year non-compete and non-solicit agreement set to expire on January 29, 2019.

When Ms. McIntyre left IBM to join Microsoft, IBM filed the lawsuit and sought an order to prevent her from working at Microsoft until January 29, 2019. IBM argued that “it is inevitable” that McIntyre would use IBM’s confidential information and trade secrets to further Microsoft’s diversity practices. IBM further argued that McIntyre can work virtually anywhere except a direct competitor of IBM, so her move to Microsoft was “especially serious, and unnecessary.”

On February 12, 2018, the U.S. District Court granted IBM’s request to restrain Ms. McIntyre temporarily from commencing employment with Microsoft, setting a hearing date of March 12 to determine whether that restriction would become permanent through January 29, 2019 based on the non‑compete agreement.

However, on March 5, one week before the hearing on the preliminary injunction hearing, the parties filed a notice to the court that they had settled the case. No settlement details were immediately made public or provided to the court.

On January 14, 2018, IBM’s Chief Diversity Officer resigned to go work for Microsoft in the same role. The caveat: she had a twelve month non-compete clause.

On February 12, 2018, IBM filed a lawsuit to enjoin its former diversity officer to honor her non-compete agreement with IBM and to recover damages. The suit, filed in Southern District New York court, alleges that the IBM non-compete agreement that the defendant signed has a New York federal and state choice of forum provision and is, therefore, enforceable. In addition to a breach of the non-compete agreement, IBM asserts a claim for misappropriation of its trade secrets. According to IBM, if its former diversity officer “is permitted to work for Microsoft, [she] will inevitably (if inadvertently) use and/or disclose IBM trade secrets for her own benefit and for the benefit of Microsoft.” In addition to injunctive relief (seeking an order requiring its former employee to honor the non-compete agreement), IBM is also seeking compensatory damages. It has also demanded that its former employee remit to them her equity compensation because of this alleged breach of her employment agreement. As to the demand that the employee return the equity compensation she had earned as an employee, IBM’s theory is that the employee is engaging directly in a business which is competitive with IBM. Furthermore, IBM asserts that this is considered a “detrimental activity” under the Long Term Performance Plan agreement in which the employee’s equity awards are governed by and, subject to cancellation and in certain circumstances like this, are subject to repayment. Continue Reading Diversity is Important – But Is It A Trade Secret?

In addition to federal and state‑specific hurdles facing employers who wish to utilize non‑compete agreements, the Appellate Division of the New Jersey Superior Court has provided a warning to employers across the country that those agreements can be stricken for seemingly unrelated employment issues.

On September 22, 2017, in the case of SpaceAge Consulting Corp. v. Maria Vizconde et al. (case no. A-3444-15T1), the Superior Court of New Jersey, Appellate Division, held that an employer had no ability to prevent its former employee from working for its direct client despite the existence of a non‑compete agreement expressly covering that client.  The Court noted that the employee was not paid properly by the employer during her training period and thus found that because the employment and non‑compete “agreements violated federal law, they were void and unenforceable.” Id. at *12. Continue Reading Can Your Non Compete Agreement Be Invalidated Based on Wage-and-Hour Violations? One Appellate Court Says Yes.

Last month, Panera, the sandwich company perhaps best known for its “You-Pick-Two”® soup-salad-sandwich offering, brought suit under the Defend Trade Secrets Act (DTSA) against Michael Nettles, a former Panera executive who left the bread bowl purveyor for employment with Papa Johns. In its suit, Panera alleges that Nettles breached his employment agreement (which specifically identified Papa John’s as a competitor for whom Nettles could not work within one year after leaving Panera) and stole valuable trade secrets when he departed for Papa John’s.

According to the complaint, Panera and Papa Johns “compete with each other as a ‘food alternative’ … [and] fight for customers during the lunch and dinner hours … [by] selling products made from dough.” Nettles – Panera’s former Vice President of Architecture in its Information Technology department – took valuable trade secrets regarding Panera’s “Panera 2.0” initiative, Panera alleges. The initiative consists of “enhanced to-go and eat-in options enabled by a series of integrated technologies” and is designed to “reduce wait times, improve order accuracy, and minimize or eliminate crowding; and create a more personalized experience.” Simply put, Panera is seeking to protect its “strategic technology plan” which Nettles “intimately knows” and consists of “[Panera’s] use of technology to enhance guest experience, its successes in the delivery business, and its use of powerful and integrated systems and processes.”

Earlier this month, Judge John A. Ross of the Eastern District of Missouri granted Panera’s motion for a temporary restraining order. In its opposition to the TRO, Papa John’s had argued that Nettles’s non-compete agreement was unenforceable under Missouri law because Papa John’s and Panera are not actually competitors. Judge Ross was not persuaded – Panera demonstrated (through Papa John’s marketing materials) that both restaurant chains target a so-called “clean ingredient consumer” and that the chains compete in the market for carryout meals among this consumer base.

This case presents an atypical fact pattern: in a case between two restaurants, one might expect that a relevant trade secret would be a recipe or a new way of baking bread faster or more efficiently. This case demonstrates that sometimes the IP used to optimize delivery or consumer experience is just as valuable as the core product itself.

The preliminary injunction hearing is set for November 16, 2016 and the case is titled Panera, LLC v. Nettles and Papa John’s International, Inc., Case No. 4:16-cv-1181-JAR (E.D. Mo.).

 

On June 15, Crowell & Moring hosted a trade secrets webinar, “What the New Federal Trade Secrets Law Means for Your Clients.” The panelists, Mark Klapow, Mark Romeo, Mike Songer, and Vince Galluzzo provided an overview Defend Trade Secrets Act (DTSA), signed by President Obama in May. The panelists also discussed how the courts are likely to interpret certain provisions and provided best practice guidance how to use DTSA to your client’s advantage.

Key Takeaways:

  1. The DTSA creates the first federal civil cause of action for trade secret litigants. Litigants can now freely access federal courts, including technology savvy judges, broad subpoena powers, and straightforward discovery rules and procedures.
  2. There is no preemption, so Uniform Trade Secrets Act (UTSA)-based state law claims remain independently viable. The definition of trade secrets and the test for misappropriation remain largely unchanged from the UTSA.
  3. Ex parte seizures are available on a heightened showing to stop imminent threats and attach assets.
  4. Notice requirements need to be incorporated into new and amended employee agreements to obtain enhanced damages and fees.

Please click on a link below to access webinar materials. (Note: to listen to the full recording you will need to sign-in or register with ON24.)

Presentation Deck [PDF]

Webinar Recording [ON24]

If you have any questions or would like additional information, please contact our team.

 

Tort claims of trade secret theft, fraud, unfair competition, tortious interference with contract, and civil conspiracy can fall within the scope of an overly broad arbitration clause. Medversant Technologies, LLC v Leverage Health Solutions, LLC, et al., 114 F. Supp. 3d 290 (E.D. Pa. 2015). In this case, the district court looked “not to the labels or legal theories attached to the claims,” but rather “focused on the factual underpinnings of the claim” when assessing whether these claims fell within the scope of the arbitration clause of a business development and marketing consulting agreement.  Id. (citing CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 , 173 (3d Cir.2014)).

In this case, the plaintiff (“Medversant”) hired the defendant (“Leverage”) to provide Continue Reading Beware of a Broad Arbitration Clause

On December 7, 2015, Mercedes’ suit against Benjamin Hoyle, one of its former engineers who allegedly breached his employment contract and misappropriated confidential, trade secret information, was made public. Since 2012, Hoyle had been a member of Mercedes’ Performance Engineering Department working on the Mercedes’ High Performance Powertrain (HPP) Limited Formula One (F1) racing engines. Last year, Hoyle informed Mercedes that he would not be renewing his contract set to expire at the end of 2015, and was planning on joining Ferrari.

Continue Reading Vroom vroom! Mercedes v Ferrari-bound Engineer

Earlier this month, the District Court for the Northern District of California addressed the scope of the Computer Fraud and Abuse Act (“CFAA”), drawing a firm line between causes of action based on improper access of an employer’s computer, and causes of action based on improper use of the employer’s data.  Because of the narrow view taken within the Ninth Circuit as to the scope of claims properly falling under the CFAA, the district court held that there was no viable claim under the CFAA.

Continue Reading Access v. Use: An Important Distinction in the Computer Fraud and Abuse Act

Last week, ProLogic, Inc. (ProLogic) voluntarily dismissed — without a settlement — the last of the claims remaining in its lawsuit against Aquarian Systems, Inc. (Aquarian) and two former employees who became employees of Aquarian. A team of Crowell & Moring lawyers successfully represented Aquarian and, after the claims against Aquarian were dismissed by ProLogic in May, the individual defendants. What began as a complaint seeking $25 million in damages for alleged trade secret misappropriation, tortious interference, and breach of contract, ended with a dismissal of all claims against Aquarian and the individual defendants, without any settlement or payment.

Continue Reading ProLogic Drops $25M Trade Secrets Lawsuit Against Clients of Crowell & Moring