Monday, February 15, 2010
First Circuit Affirms Denial of Preliminary Injunction In Non-Compete Dispute (ANSYS, Inc. v. Computational Dynamics North Am.)
Last year, I wrote about a decision from a federal district court in New Hampshire, which denied an employer's attempt to enjoin an employee, Dr. Doru Caraeni, from violating a non-compete agreement. That case, ANSYS, Inc. v. Computational Dynamics, served as a nice illustration of the difficulty in applying the legitimate business interest test to employees who are not in a client-facing position. In particular, the situation in the ANSYS case involved a source code developer who went to work for a direct competitor.
The First Circuit, in affirming the district court's order denying injunctive relief, did not provide a whole lot of clarification for what New Hampshire law might say regarding the protectable interest claimed by ANSYS in seeking to enforce the non-competition covenant. It effectively punted back to the district court's findings that ANSYS had not proven at a preliminary injunction hearing that Dr. Caraeni actually used, or threatened to use, anything proprietary during the course of his new employment.
For its part, ANSYS claimed that it only needed to show two facts for the non-compete to be enforceable: (a) that Dr. Caraeni had access to certain proprietary information; and (b) that he was employed in a position to use this knowledge or information for a competitor. Though the circuit court was not overwhelmingly persuaded by this logic - calling it "not irrational" - it was careful to note that New Hampshire had never adopted this standard as the prevailing law.
ANSYS' theory sounds an awful lot like the "inevitable disclosure" theory of trade secrets misappropriation. This doctrine, which can be used in certain circumstances to create an enforceable non-compete or even create a de facto restraint in the absence of a contract, is narrowly applied and by no means universally adopted.
For employees who have deep proprietary knowledge, but have little ability by themselves to cultivate client goodwill, the risk associated with enforcing general non-competes is quite high. Other types of restraints can achieve the same goal, with lower risk of non-enforcement. ANSYS may have been better off having Dr. Caraeni sign a garden-leave clause or paying him to sit on the sidelines for a short period of time.
Court: United States Court of Appeals for the First Circuit
Opinion Date: 2/12/10
Cite: ANSYS, Inc. v. Computational Dynamics North America, Ltd., 2010 U.S. App. LEXIS 2858 (1st Cir. Feb. 12, 2010)
Law: New Hampshire