Cases from New York

Southern District of New York
Injunction to enforce non-competition agreement denied in managerial transfer - Disclosure of trade secrets not inevitable at new job

The 2nd Circuit Court of Appeals, on November 3, 2011, affirmed the Southern District’s denial of a preliminary injunction for IBM, citing the lower court’s “thoughtful and well-reasoned opinion” in finding no evidence of abuse of discretion.

On Jan. 19, 2011, Giovanni Visentin, a senior executive at International Business Machines Inc. (IBM), announced his intention to leave IBM to become senior vice-president at Hewlett-Packard Company (HP). On Jan. 20, IBM filed a complaint alleging breach of contract and misappropriation of trade secrets, and moved for a preliminary injunction in the U.S. District Court for the Southern District of New York. Visentin had signed two non-competition agreements with IBM, one in 2009 and one in 2008, in which he agreed not to work for a competitor for the first year after the termination of his employment. IBM alleged that Visentin was in possession of trade secrets including “highly confidential and commercially sensitive information about the strategic plans and financial performance of the business he is leaving, competitive bidding strategies, internal price and cost models, new client opportunities and targets for 2011, perceived gaps in IBM’s products and services, and the proprietary tools processes and methods IBM uses to win client contracts…” The requested preliminary injunction would be to enforce the non-competition agreements as written.

A primary basis for IBM's trade secrets claim was the inevitable disclosure doctrine, which protects against misappropriation of knowledge when an individual changes employers and it is found to be "inevitable" that the individual will use the knowledge in his or her new position.

On Feb. 16, 2011, the court denied IBM's motion, finding that Visentin's position at IBM required general managerial expertise as opposed to highly technical, secret, or proprietary knowledge and that the likelihood that Visentin would disclose IBM's proprietary information to HP was minimal.

The doctrine of inevitable disclosure provides a three-factor test as to whether or not trade secrets will inevitably be disclosed after a change in employment: Whether (1) the employers in question are direct competitors providing the same or very similar products or services; (2) the employee's new position is nearly identical to his old one, such that he could not reasonably be expected to fulfill his new job responsibilities without utilizing the trade secrets of his former employer; and (3) the trade secrets at issue are highly valuable to both employers. See Finding of Fact and Conclusions of Law at 41-42. In addition, the nature of the industry and the trade secrets at issue should be considered on a case-by-case basis. Id. at 42.

The court, evaluating these factors, noted that while the first prong is satisfied in that IBM and HP are direct competitors dealing in similar products and that the industry tends to produce many trade secrets, the second two factors “heavily weigh[ed]” in favor of Mr. Visentin. Id. at 43.

First, the scope of Mr. Visentin’s position was found to far exceed his previous post at IBM and included many geographic responsibilities that he didn’t have at IBM. While some overlap did exist, the court was confident that the non-competition agreement’s restrictions on working with former clients dealt with this satisfactorily.

Second, the trade secrets were not of such value to HP that Visentin would inevitably disclose them to HP. While IBM contended that Visentin would be eventually so pressured by HP that he would disclose the trade secrets, despite being legally bound not to do so, the court disagreed. His knowledge of IBM’s desired profit margins would not be so useful because he did not have any detailed documentation and could not possibly remember every detail. Additionally, his knowledge of pending deals would be marginally useful at best as his team was responsible for between 5000 and 9000 deals a quarter and therefore he was not in possession of many of the pertinent details.

Accordingly, the court denied IBM’s request for a preliminary injunction.

Southern District of New York
2FA's claims against Oracle for misappropriation of trade secrets is stayed pending partial summary judgment in a related action

In 2010, 2FA Technology sued Oracle Corporation and Oracle Systems Corporation, formerly Passlogix, a wholly-owned subsidiary of Oracle merged with Oracle Systems Corporation, for misappropriation of trade secrets and breach of contract. 2FA alleges that Passlogix's senior engineers misappropriated 2FA's source code and incorporated the code into Passlogix's products. 2FA alleges that Oracle continued to knowingly sell products containing misappropriated 2FA technology after it acquired Passlogix.

On January 31, 2011 the defendants filed a motion to stay the proceedings pending the outcome of a partial summary judgment motion filed by Passlogix in an earlier related action in the Southern District of New York, Oracle Systems Corporation v. 2FA Technology, LLC, docket number 08–cv–10986. There, the partial summary judgment motion seeks to dismiss each of 2FA’s counterclaims in the entirety, which could spell doom for the pending similar claims in this action. 2FA filed a memorandum in opposition to the motion to stay on March 17, 2011 but the motion was granted on April 6, 2011.

On July 25, 2011, the parties stipulated that the action be dismissed with prejudice, with each side bearing its own costs and expenses, including attorneys' fees, incurred in connection with the action. The related action was similarly dismissed.

New York County, Supreme Court of New York
Chico’s reaches settlement with rival Caché following allegations that former Chico’s employees had misappropriated trade secrets regarding seasonal clothing lines

Florida-based apparel company Chico's (which acquired White House/Black Market stores in 2003) accused rival company Caché of hiring two former Chico’s employees and using their intimate knowledge of upcoming White House/Black Market lines to create similar seasonal lines for Caché. Caché and the two former employees, Rabia Farhang and Christine Board, were accused of breach of contract and misappropriation of trade secrets.

The case was remanded to state court on July 27, 2010. In September 2010, Chico's withdrew its motion for a preliminary injunction because it felt that the proceedings could not be completed in time to stop Caché from selling products that Chico's alleged were developed using stolen confidential documents. Chico's stated that it planned to continue with its lawsuit. Ultimately, the parties settled in April of 2011.

Eastern District of New York
Allegation of misappropriation of valuable customer information by independent contractors

Plaintiff, Liberty Power Corp. (LPC), brought suit against Defendants, Stewart Katz, Stewart A. Katz, Inc. (SAK) and Foundation Energy Services, LLC (FES), alleging misappropriation of certain customer information protectable as trade secrets. LPC is a supplier of electricity in states with deregulated energy markets that employs an in-house sales staff, as well as independent contractors, to carry out its work. Defendants, SAK and FES, are entities owned by defendant Stewart Katz that served as independent contractors to Plaintiff. Plaintiff alleges misappropriation of trade secrets and unfair competition, contending that certain customer specific information constituted trade secrets. Defendants contend the specific information at issue can be obtained from the customers and acquired from a commercially available sales lead list.

The court determined this information likely would constitute a trade secret and had been misappropriated by defendant. On Jan. 26, 2011, the court denied Plaintiff’s motion for a preliminary injunction on the grounds that it failed to sufficiently establish that it will suffer irreparable harm if the court does not issue a preliminary injunction.

Southern District of New York
New York Office of the Chief Medical Examiner moves for summary judgment in a suit filed by Gene Godes Forensics for improper sharing of trade secrets

Gene Codes Forensics, Inc. (GCF), a Michigan-based company, has accused the New York Office of the Chief Medical Examiner (OCME) of improperly sharing proprietary information about its software with the FBI. The software, named Mass-Fatality Identification System (M-FISys) was used to help identify victims of the September 11, 2001 (9/11) attacks. According to GCF, OCME employees were extracting information from M-FISys software in order to help the FBI develop its own software. In response, the city claims that 1) it obtained a "perpetual, royalty-free" license to use the M-FISys software for noncommercial purposes; 2) it helped developed the software; and 3) had some ownership rights. The court is currently deciding the defendant's motion for summary judgment.

Southern District of New York
Alleged exploitation of "technological resources" by Oracle competitor

Oracle Systems Corporation, formerly Passlogix (a wholly owned subsidiary of Oracle Corporation that has since dissolved), sued 2FA Technology, LLC. alleging that 2FA threatened illegitimate legal action, breached contractual obligations, exploited Passlogix’s resources, and sought to injure Passlogix's competitive position and reputation. Oracle Systems Corp. filed a motion for partial summary judgment, which is currently pending before the court.

This case is related to 2FA Technology, LLC v. Oracle Corp. (10-cv-9648), a later-filed case by the defendant in this action, currently stayed pending the disposition of the summary judgment motion here.

United States District Court for the Western District of New York
WDNY denies summary judgment to defendants seeking to avoid enforcement of “anti-raiding” provision in employment contracts

The Western District of New York recently denied summary judgment to defendants Jarrett and Kurtz, former employees of plaintiff Renaissance. Renaissance, a company working within the dairy industry to provide vitamin and mineral supplements for cows, alleged that the defendants conspired to resign simultaneously to form a competitive company, “Cows Come First,” and to take several former Renaissance employees with them. Renaissance asserted that this was in violation of a “non-recruitment” or “anti-raiding” clause incorporated into the defendants’ contracts. The clause essentially prohibited any attempts to “solicit, divert or take away” employees of Renaissance to competitive ventures for 5 years after leaving. The court denied the defendants' motion, stating that the plaintiff had a legitimate interest in protecting client relationships developed at its expense, and that it had provided enough supporting facts regarding the alleged breach to survive summary judgment. The court also noted that other defensive arguments, such as geographic and temporal overbreadth and coercion, were accompanied by insufficient preliminary evidence and would be best left to a trier of fact.