Friday, December 4, 2009
Confusion Over Protectable Interest Creates Enforcement Problems (ANSYS, Inc. v. Computational Dynamics North Am.)
Most states require that a non-compete agreement protect a legitimate business interest. Illinois may be moving away from this requirement, as evidenced by the recent Sunbelt Rentals case. However, any attorney analyzing a non-compete dispute must ask what interest the restriction purports to serve.
In theory, this may sound reasonable, but in practice the analysis can lead to weird results, particular if the restrained employee is not one that has extensive client contact. The case of ANSYS, Inc. v. Computational Dynamics North America is a good example of how a court may analyze an employer's interest in "trade secrets" or "confidential information."
Specifically, what must a court do when an employer proves that an employee had access to certain confidential information (in ANSYS, it was source code) but its proofs are less clear as to the employee's attempts or threats to use it?
In ANSYS, the result was employee-friendly; the court held the employer did not prove the employee was likely to use any protected information in the course of his new employment with a competitor. In Illinois (at least assuming Sunbelt Rentals won't be adopted elsewhere), that result is probably correct: an employer must demonstrate an employee attempted "to use" confidential information learned during his or her employment with the former employer.
But Judge Easterbrook in a federal case some years back disagreed with this proposition, effectively noting that no such threatened use must be shown. This is related to the idea that confidentiality agreements are really too hard to enforce; non-competes, though clearly a restraint of trade, carry with it an easier enforcement mechanism. The better analysis would seem to focus on access, not use. If an employer can introduce evidence about the type of confidential information to which the employee had access, then the inquiry should devolve to reasonableness and not get hung up over whether a legitimate interest is at stake.
Court: United States District Court for the District of New Hampshire
Opinion Date: 11/25/09
Cite: ANSYS, Inc. v. Computational Dynamics North America, Ltd., 2009 U.S. Dist. LEXIS 111021 (D. N.H. Nov. 25, 2009)
Law: New Hampshire