Thursday, January 26, 2012

Recent Decisions of Interest (No. 2)

Today, a decision out of Georgia (always a good source of entertainment), a New York court opinion on non-recruitment clauses, and an Ohio case on trade secrets.

Paragon Techs., Inc. v. Infosmart Techs., Inc., 312 Ga. App. 465 (2011). In a technology staffing contract, a covenant that prohibited the staffing provider from working directly with the contractor's client for a period of one year was unreasonable under Georgia law. The reason? This arms' length contract was still judged under the strict scrutiny standard, which invalidates covenants prohibiting unsolicited work with a client.

Renaissance Nutrition, Inc. v. Jarrett, 2012 U.S. Dist. LEXIS 2490 (W.D.N.Y. Jan. 9, 2012). A federal court in New York held that under New York law, a non-recruitment provision barring solicitation of employees must be judged under the traditional three-part restrictive covenant analysis. However, the court also stated that because a non-recruitment covenant does not impinge on an individual's livelihood, it is "inherently more reasonable" than non-compete covenants. This follows the trend in most states. It is surprising that so few cases in New York, which generally produces the most non-compete opinions, have weighed in on the issue.

Finally, we have Columbus Bookkeeping & Bus. Svcs., Inc. v. Ohio State Bookkeeping, LLC, 2011 Ohio App. LEXIS 5655 (Ct. App. Dec. 30, 2011), where the Court of Appeals of Ohio reversed a preliminary injunction in a trade secrets case. The plaintiff had claimed that its list of clients was a trade secret, and that by competing for those clients, the defendants misappropriated trade secrets. The trial court agreed and imposed, in effect, a non-compete as to those clients.

The Court of Appeals found this to be an abuse of discretion, noting that "plaintiff enforce a non-existing noncompetition agreement against defendants by invoking the statutory provisions governing trade secrets." The trial court's order was amplified by the expiration date it placed on the defendants' ability to service customers, as the Court of Appeals found that this was more in line with what courts would do for non-compete agreements (which have expiration dates).

A true trade secret should be protected for as long as it is secret and valuable. Finally, the court correctly found that client lists are usually trade secret when accompanied by a host of other non-public data, such as contact information and other particulars known as a result of the client relationship.

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