WebMD Health Corp. v. Anthony T. Dale

2:11-cv-05827
September 15, 2011
Federal Court
3rd Circuit
Eastern District of Pennsylania

Plaintiff, WebMD Health Corp., sued Anthony T. Dale, a former employee, alleging by accepting employment with Health Grades, Inc., Dale breached his Restrictive Covenant Agreement, violated Delaware’s Uniform Trade Secrets Act, engaged in unfair competition, and converted WebMD’s trade secrets and confidential information. Plaintiff then moved for a preliminary injunction to enjoin Dale from employment with Health Grades for one year.

WebMD’s complaint alleged that in Dale’s ten years of employment, including three years as Group Vice President, he was exposed to, and involved in the development of, highly confidential information such as pricing policies, product development plans, business plans, sales strategies, and market positioning. Further, it stated that Health Grades was a direct competitor as defined by the terms of the restrictive covenants that Dale signed and that he could not perform the role he has planned at Health Grades without using WebMD’s confidential information, either consciously or inadvertently.

The District Court for the Eastern District of Pennsylvania, applying Delaware Law, granted WebMD’s motion for a preliminary injunction, finding that WebMD was likely to succeed on the merits. However, the court also found that that the definition for “competing businesses” in the restrictive covenants was overbroad and thus it “blue penciled” the definition to only restrict Dale’s involvement online advertising of health and wellness-related products, which constituted a marginal portion of Dale’s responsibilities at Health Grades.

WebMD Health Corp
Anthony T. Dale
Uniform Trade Secrets Act

Filings from this case

Case Report

Facts

Plaintiff, WebMD, is a Delaware corporation with its principle place of business in New York. It provides health information to consumers and healthcare professionals through websites and mobile device applications, and derives its revenue from advertising on its websites, sponsorships, and services on its websites.

The defendant, Anthony T. Dale, worked for WebMD from 2000 to 2011. Throughout his employment, Dale worked in sales and, in the last year of his employment, was promoted to Sales Group Vice President. In the position, Dale was exposed to significant amounts of confidential information, such as confidential market research about WebMD’s websites; strategies for sales, marketing, and product development; and pricing strategies.

Dale also signed a restrictive covenant in July 2011, in which he agreed to not work for any competitive business, anywhere in the world, for a period of one year after the end of his employment with WebMD. It went on to define “competitive businesses” broadly as:

"(i) any enterprise engaged in developing, selling or providing (via the internet or other means) health or wellness information, decision support tools or services or application and/or communication services, directly or indirectly, to consumers, health and/or benefit plan members or employees or healthcare professionals, including but not limited to products or services that provide information on diseases, conditions or treatments, store health care information, assess personal health status, and/or assist in making informed benefit, provider or treatment choices; and (ii) any enterprise engaged in any other type of business in which the Company or one of its Affiliates is also engaged, or plans to be engaged, so long as I am directly involved in such business or planned business on behalf of the Company or one of its Affiliates."

In September 2011, Dale left WebMD to work at Health Grades, Inc., which runs two websites: www.HealthGrades.com and www.BetterMedicine.com. The first provides consumers with information about healthcare providers, while the second provides them with information on diseases and conditions. Health Grades generates most of its revenue from products it sells to hospitals that are meant to connect them to patients, such as online appointment making and physician profiles, but also generates revenue from selling advertising on BetterMedicine. As Senior Vice President of Client Development for the Hospital Division, Dale’s duties included selling these products to hospitals and direct mail campaigns, and Dale avoided interaction with the advertising sales division, although on one occasion, he negotiated a contract where he sold both products and advertising.

Procedural Background

WebMD sued Dale in the Eastern District of Pennsylvania based on diversity of citizenship, alleging four counts: breach of contract, inevitable disclosure of trade secrets, unfair competition, and conversion. Shortly after filing its complaint, plaintiff moved for an injunction to enjoin Dale from working at Health Grades under the “inevitable disclosure” doctrine, which allows for such enjoinment when there is a “substantial likelihood” that the party will inevitably disclose the original employer’s confidential information as part of its new employment.

Conclusions of Law

In ruling on WebMD’s motion, the court may grant a preliminary injunction only if (1) the plaintiff is likely to succeed on the merits, (2) denial will result in irreparable harm to the plaintiff, (3) granting the injunction will not result in irreparable harm to the defendant, and (4) granting the injunction is in the public interest.

To determine the likelihood of success on the merits, the court first determined that the agreement met the basic contract law requirements of mutual assent and consideration. Next, it found that one year was a reasonable period of time and the worldwide scope of the agreement was reasonable because of the internet-based nature of WebMD. Third, the court determined that WebMD has a legitimate economic interest in preventing competitors from learning information such as pricing strategies, product development, and market research. However, the court found that WebMD would be unlikely to prove that protection of these interests required the broad definition of “competitive businesses” in the restrictive covenant, because the “definition could describe nearly any business that provides its employees with . . . detailed information about health care benefits.” Thus, the court invoked its power under Delaware law to “blue pencil” the covenant to make it enforceable and limited its reach to only companies that actually compete with WebMD. Finally, in balancing the equities of the parties, it determined the modified covenant, limiting restrictions on Dale to a small portion of his duties at Health Grades, would protect WebMD’s interests, without unduly harming Dale.

Next, the court determined that not granting the preliminary injunction would result in irreparable harm to WebMD, stating several reasons. First, Dale stipulated in the agreement that his competition would result in such harm. Next, Health Grades would not monitor Dale’s compliance. Last, quantifying the effects of a breach would be “exceedingly difficult.”
Further, it determined that granting the injunction, as modified, would not result in irreparable harm to Dale, because he would still be permitted to perform the majority of his duties at Health Grades.

Finally, the court found that the injunction would serve the public interest because it would discourage unfair competition, misappropriation of confidential information and trade secrets, and preserve the sanctity of freely contracted obligations.

Significance of Decision

Although the court found that the restrictive covenant in this case was drastically overbroad, Delaware’s allowance of the Blue Pencil rule permitted the court to substantially edit the language of the covenant. Thus, the overbroad covenant was saved and enforceable, albeit to a limited degree.