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.