Richmond Technologies, Inc. v. Aumtech Business Solutions

11-cv-02460
July 1, 2011
Federal Court
California
United States District Court for the Northern District of California

Although California Business and Professions Code §16600 generally voids non-compete provisions, the District Court for the Northern District of California narrowly construed an ambiguous non-compete provision to find it enforceable in Richmond Technologies, Inc. v. Aumtech Business Solutions. Richmond Technologies, Inc. (“Richmond”) provides software for financial service companies who provide credit card terminals to merchants. In 2007, Richmond entered into a Memorandum of Understanding with Aumtech Business Solutions (“Aumtech) and in 2009, the same parties entered into a Confidentiality and Non-Disclosure Agreement (“NDA”). The NDA contained three broad provisions regarding non-solicitation, non-interference and non-competition. These provisions broadly prohibited Aumtech from doing business with Richmond’s clients or employees, or competing with Richmond, for a year unless that client or employee had ceased his business relationship with Richmond for at least six months. Richmond alleged in its complaint that in 2010, Aumtech solicited and worked with a former employee to market competing services to Richmond's clients.

In its analysis, the Richmond court acknowledged a non-compete may be enforced to protect a former employer’s trade secrets. It declared that the non-solicitation and non-interference clauses in the NDA were unenforceable because they were drafted more broadly than necessary to protect Richmond’s trade secrets. However, it construed the non-compete to bar the use of Richmond’s trade secrets, such as “confidential source code, software or techniques developed for [Richmond’s] products or clients" and therefore found it enforceable.

Lucy H. Koh
INC., Richmond Technologies
Aumtech Business Solutions
Uniform Trade Secrets Act