Thursday, January 19, 2012

Recent Decisions of Interest (No. 1)

My regular Thursday column will survey recent decisions across the United States which touch upon non-compete or trade secret issues. The four cases I chose this week touch on a wide variety of issues, including those relevant to the corporate counsel drafting non-compete clauses.

AMG Nat'l Trust Bank v. Ries, 2011 U.S. Dist. LEXIS 149130 (E.D. Pa. Dec. 29, 2011). The court, applying Colorado law, found that a liquidated damages provision in a two-year non-compete, which called for payment of ten times the annual gross fees for each wrongfully solicited client, was voidable as a matter of law. I drafted two liquidated damages clauses this week for clients, and my advice is always the same: be able to justify the methodology you select under oath. The more random and arbitrary a clause looks, the more likely a court simply will strike it.

ISCO Indus., LLLC v. Erdle, 2011 U.S. Dist. LEXIS 148907 (E.D.N.C. Dec. 28, 2011). A North Carolina court denied entry of a preliminary injunction motion against a sales employee in the piping distribution business. The employee's covenant was not narrowly tailored to restrict him from selling only products or services competitive with those offered by the ex-employer. This further illustrates why attorneys must be careful in considering the scope of the non-compete restriction. Using hypothetical scenarios during the drafting process can help identify problems of overbreadth.

WIT Walchi Innovation Techs., GmbH v. Westrick, 2012 U.S. Dist. LEXIS 1847 (S.D. Fla. Jan. 6, 2012). A court issued an ex parte temporary restraining order against an employee who allegedly stole a laptop containing proprietary source code and programming for a software product. The court issued a broad evidence preservation order and ordered immediate return of the stolen laptop computer. No commentary necessary here. Firsthand evidence of outright theft of property warrants mandatory injunctive relief, even on an ex parte basis.

Pellerin v. Honeywell Int'l Inc., 2012 U.S. Dist. LEXIS 3781 (S.D. Cal. Jan. 12, 2012). A district court in California sustained a defense objection to the retention of a trade secrets expert on the basis that the expert was a former employee of the defendant. Such objections, usually made under the terms of protective order, are common when the expert may have had prior access to an adversary's confidential information. It may be impossible in such circumstances for the expert to provide legitimate, untainted opinion testimony.

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