EBay Moves to Dismiss DOJ Antitrust Complaint

Last November, I posted about the Department of Justice suit against eBay for its alleged illegal hiring pact with Intuit. The DOJ contended that the eBay-Intuit agreement not to poach each other's employees violated both the rule of reason and a per se analysis under Section 1 of the Sherman Act.

Predictably, eBay struck back, filing on Tuesday a broad motion to dismiss the case. The motion sets forth a three basic problems with the DOJ theory: (1) the Complaint did nothing more than allege a conspiracy between eBay officers and directors, which is not actionable; (2) the DOJ never attempted to establish any economic harm or anticompetitive impact from the hiring pact; and (3) the pact does not meet the test for a per se Sherman Act violation.

The last point is the most relevant as it relates to non-compete law. EBay's point seems to be that traditional no-hiring pacts have to be judged by a reasonableness standard, and that there is no precedent to equate them with price-fixing or bid-rigging schemes. Essentially, eBay is saying that a no-hiring pact is akin to a non-compete arrangement (though, in fact, it's narrower and rarely subject to marketwide abuse). Non-competes are judged according to whether they're reasonable. And that should be the standard in the DOJ's case. It's pretty clear under the Complaint the DOJ is bypassing any sort of market analysis for why the hiring pact was impermissibly anticompetitive.

A copy of eBay's motion is embedded below.

EBay Motion to Dismiss Antitrust Case by

Non-Compete Case Law Update (And a Tip for Clients)

I've been absent the last several days, so I feel I have some catching up to do. And there have been some really interesting cases and legal issues to report on.

First, though, a practical tip to clients, particularly employees who have to deal with non-compete issues. Assemble your documents. That sounds easy, but apparently it's not. If you leave and stay in the same industry or compete with your former employer, you need to have a handle on your obligations. Those obligations may exist outside of an employment agreement. Here generally are the sources of where you can find documents outlining restrictions or post-termination obligations:

(1) Employment Agreement (including older ones that may (or may not) be superseded)
(2) A separate Confidentiality Agreement (yes, many employers keep them separate)
(3) A Severance or Separation Agreement, which likely applies only if you've been terminated
(4) Any agreement you have to sign to participate in an equity incentive plan (these sometimes contain forfeiture-for-competition provisions, if not outright covenants not to compete)
(5) Employee handbooks

Okay, onto some new decisions of interest...

Non-Competes and the Ohio Merger Statute

I could have woken up at 2 am to write and John Marsh of Hahn Loeser in Columbus still would have beaten me to the punch. The Supreme Court of Ohio held this week, in Acordia of Ohio v. Fishel, 2012 Ohio 2297, that covenants not to compete are not automatically assigned in the context of a statutory merger. Practically speaking, the merger statute - which is common and similar to other business corporation laws, in that all assets and obligations of the merged entity vest in the assigned entity - has to give way to the plain language of the covenant.

This 4-3 decision surprised me. Marsh's post here contains a more extensive discussion. A PDF of the court's slip opinion can be found here.

Wisconsin Kicks Out 3-Year Non-Compete Covenant

Litigating non-competes in Wisconsin is no bargain for employers. And just as Share Corporation had a restrictive covenant tossed last year on a Rule 12(b)(6) motion, so too did the employer in Priority Int'l Animal Concepts, Inc. v. Bryk, 12-cv-150 (E.D. Wisc). The covenant in that case lasted three years and contained no territory or activity limitation, rendering it unenforceable under Wisconsin's restrictive covernant statute, Section 103.465. That statute is highly favorable to employees and often can result in dismissal of contract actions before discovery even begins. The choice-of-law analysis in that case proved fatal, as the employer had argued Ohio law applied and did not appear to contest the fact the agreement was unenforceable under Wisconsin law.

Flat Fee Liquidated Damages Clause - Penalty or No?

I have written a lot about liquidated damages clauses in non-compete agreements, both here and in my home state's bar journal. My recommendation to employers has never been to take the easy route and use a fixed, or flat, fee for computing liquidated damages. They're not per se unreasonable, as the district court's opinion in Kadant Johnson, Inc. v. D'Amico, 2012 U.S. Dist. LEXIS 64237 (E.D. La. May 8, 2012), indicates.

The court, applying Michigan law, held that such a clause - providing for $250,000 upon violation of a non-compete - could be reasonable, or at least was "not unreasonable as a matter of law." This was despite testimony from the CEO of the Plaintiff who stated that it was a "penalty", "a good deterrent", and that there was "no real reason" to choose that number. Honestly, I think the plaintiff got away with one - sounds like the plaintiff admitted it was a penalty.

***

Next up, another trade secrets preemption case extensive discussion on the high-profile case of Capital One Financial v. Kanas. Then we'll get to Capital One v. Kanas.

Illinois Court Describes What Facts State Claim for "Inevitable Disclosure" (Mobile Mark, Inc. v. Pakosz)

Illinois is one of the many states which recognize the "inevitable disclosure" doctrine. As I have written before, the doctrine is a species of the Uniform Trade Secrets Act provision which allows "threatened" misappropriation to be enjoined. A few courts have noted the fine line between a threat of disclosure and the inevitability of such disclosure. Only lawyers would devote such time to parsing this distinction.

With the new heightened federal pleading standard, a trade secrets plaintiff must show facts that demonstrate inevitable disclosure is a plausible theory of misappropriation. In Mobile Mark, Inc. v. Pakosz, a federal district court in Chicago rejected a motion to dismiss on the grounds the plaintiff had not pled the inevitable disclosure claim with enough facts.

Here are some factors the court outlined that are critical to the inevitable disclosure theory:

(1) Evidence of copying the employer's confidential information (usually, this is alleged by way of suspicious downloading activity, e-mails to web-based accounts, unusual printing activity, or off-hours appearances on the employer's premises prior to departure);

(2) The level of competition between the new employer and the old employer;

(3) Whether the employee's position is comparable to the position s/he previously held;

(4) The employer's steps in protecting against the employee's use or disclosure of the prior employers' confidential information (as an example, courts look to warnings, covenants not to use such information in a new agreement, "firewalls" from sensitive projects or clients).

Prior inevitable disclosure cases seem to examine other factors, such as an employee's lack of candor about the new work assignment or shifting explanations about what job duties s/he will be assuming.

--

Court: United States District Court for the Northern District of Illinois

Opinion Date: 9/6/11

Cite: Mobile Mark, Inc. v. Pakosz, 2011 U.S. Dist. LEXIS 99865 (N.D. Ill. Sept. 6, 2011)

Favors: Employer

Law: Illinois

Wisconsin Court Dismisses Claim for Breach of Non-Solicitation Covenant On Grounds of Reasonableness (Share Corp. v. Momar)

Last year I wrote about a dispute between two competitors in the chemical sales industry, Share Corporation and Momar, Inc. This non-compete case is pending in Wisconsin, and last March the federal court hearing the case denied Share Corp.'s motion for a temporary restraining order on the grounds that the client non-solicitation covenants were likely overbroad.

A few weeks ago, the court granted the defendants' Rule 12(b)(6) motion to dismiss those claims, holding effectively that the non-solicitation covenants were unreasonable as a matter of Wisconsin law. The fundamental problem with the non-solicitation covenant was its lack of any backward-looking temporal provision. Put another way, the clause applied to bar client solicitation of any client who the employee may have serviced during the course of his employment. Wisconsin law requires a a backward restriction that would provide, for example, such a restriction to take effect only as to customers the employee serviced during the last year of his or her employment.

The ruling is significant for Wisconsin attorneys and litigants because of the procedural posture of the case. A defendant can and should be aggressive in seeking an early dismissal of a non-compete case where the covenant is facially overbroad, at least in Wisconsin. In other states, the law may not be as inviting for the defense at the initial pleadings stage.

Another word is in order for Wisconsin non-competes. Attorneys have to be really careful in drafting agreements. There are numerous permutations based on Wisconsin case law that must be considered during the drafting process. The dispute in Share Corp. v. Momar, Inc. is but one. Attorneys also must be scrupulous in drafting non-disclosure clauses, as Wisconsin will scrutinize them for reasonableness to a much greater degree than other states.

--

Court: United States District Court for the Eastern District of Wisconsin

Opinion Date: 1/26/11

Cite: Share Corp. v. Momar, Inc., 2011 U.S. Dist. LEXIS 10782 (E.D. Wis. Jan. 26, 2011)

Favors: Employee

Law: Wisconsin

Revised Federal Pleading Standard Heightens Plaintiff's Duty to State Claim (US Bank v. Parker)

Lawyers are accustomed to lax pleading standards available to them in federal court. While discovery and pre-trial obligations are far more exacting, getting a claim to survive the initial pleading stage has never been perceived as that difficult.

However, after the recent Supreme Court decisions in Twombly and Iqbal, that perception is changing.

Those decisions held that simply reciting bare elements of a cause of action and surrounding them with mere labels and conclusions would not allow a plaintiff to survive a motion to dismiss a complaint. Instead, the complaint had to plead enough facts to make a claim factually plausible.

This standard can impact non-compete cases, particularly when the plaintiff may have a reasonable suspicion that a departed employee is violating a post-employment obligation but little in the way of actual evidence.

In a recent case out of Missouri, a federal district court held that Twombly and Iqbal require allegations beyond those qualified as "upon information and belief." The court in US Bank v. Parker found that the plaintiff's sole allegations of breach were all made upon information and belief and contained no facts that would render them plausible.

The case highlights the problem employers often face when deciding whether to pursue a claim for unfair competition: the information gap. For employees who have left no paper (or digital) trail of their post-competitive plans, an employer must have some means to discover wrongdoing. Particularly when there is only a non-disclosure or non-solicit covenant at issue, the employer will need evidence, not just belief, that documents have been taken or are missing, or that protected accounts have been solicited.

--

Court: United States District Court for the Eastern District of Missouri
Opinion Date: 7/9/10
Cite: US Bank Nat'l Ass'n v. Parker, 2010 U.S. Dist. LEXIS 68324 (E.D. Mo. July 9, 2010)
Favors: Employee
Law: Federal Rules of Civil Procedure

Illinois Courts Still Torn Over Sunbelt Rentals (Aspen Marketing Svcs v. Russell)

Illinois may not get a resolution any time soon to whether an employer is required to prove that a non-compete covenant must support a recognized, legitimate business interest. By now, lawyers and commentators are fully aware of the Fourth District's ruling in Sunbelt Rentals, Inc. v. Ehlers and its repudiation of a decades-long test used to determine the validity of non-competes. Though that test had a somewhat bizarre development, courts throughout Illinois recognized it.

Applying the test in practice perversely has made litigation more expensive for employees, as cases frequently devolved into lengthy discovery disputes over the so-called protectable interest and whether it was threatened. Often times the concept of "reasonableness" gets lost in the shuffle. Still, many employers lost cases after failing to prove a legitimate business interest was at stake.

But Ehlers settled his case with Sunbelt Rentals, and so there won't be a decision from the Illinois Supreme Court any time soon on the inter-district conflict. For now, that means that outside of the Fourth District, courts are still applying the legitimate business interest test. District Judge Gettleman recognized as such this week in Aspen Marketing Services v. Russell, when he denied a motion to dismiss a non-compete suit. Gettleman expressly noted the ruling in Sunbelt Rentals and declined to apply it, noting that the Illinois Supreme Court and other Illinois courts outside the Fourth District haven't weighed in.

On a separate note, the idea of challenging the validity of a non-compete on a motion to dismiss is rarely a good one. Almost invariably, this results in an early loss for the defendant, since the concept of "reasonableness" cannot be examined under the pleadings alone. Unless there is some obvious defect (such as a nationwide covenant when the contract specifies a very limited area of responsibility), lawyers ought not to count on dismissal of a non-compete claim until at least summary judgment.

--

Court: United States District Court for the Northern District of Illinois
Opinion Date: 12/3/09
Cite: Aspen Marketing Svcs., Inc. v. Russell, 2009 U.S. Dist. LEXIS 112982 (N.D. Ill. Dec. 3, 2009)
Favors: Employer
Law: Illinois

Wisconsin District Court Follows Citrin in Allowing Computer Fraud Claim to Proceed (Dental Health Products v. Ringo)

The increasing federalization of trade secrets claim in Illinois is a direct result of the Seventh Circuit's 2006 decision in Int'l Airport Centers, LLC v. Citrin. That case, which broadly interpreted the Computer Fraud and Abuse Act, provided a wide open pathway for employers to bootstrap trade secrets actions into federal CFAA claims as long as some act of misappropriation involved computers. These days, virtually all trade secrets claims involve the downloading of data.

The gist of Citrin is the notion that an employee loses his authorization to access protected computers once he violates his duty of loyalty and acquires an interest adverse to his then-employer. Because each CFAA claim mandates a plaintiff to show a defendant accessed a protected computer "without authorization" or in a manner that "exceeds" the employee's authorization, Citrin allows an employer to convert a trade secrets claim into one under the CFAA if the employee downloads or copies company business information before he quits and leaves to compete.

The case of Dental Health Products v. Ringo applied Citrin to an employee competition case that reads like many others. Ringo, a former salesman for a dental supply company, allegedly copied his entire work hard-drive onto an external drive while he was still employed and while he was actively competing for accounts on behalf of a different entity. Presumably, Ringo intended to use this information on behalf of a competing firm. After DHP filed suit, Ringo tried to dismiss the CFAA claim, arguing his access to the computer at the time of the relevant events was authorized.

The district court relied on Citrin to deny Ringo's motion to dismiss. DHP asserted Ringo's conduct violated the three most common provisions of the CFAA that apply to employee competition claims: (a)(2), (a)(4) and (a)(5).

The (a)(2) claim, or the "theft of data" theory, requires an employer only to show the employee improperly accessed a computer to obtain information. That information need not be a trade secret, or even lesser-protected "confidential information." Under Citrin, the court upheld the claim with ease.

The (a)(4) claim is the "intent to defraud" provision, and again the court ruled DHP stated a cause of action. Importantly, a plaintiff need not allege fraud with particularity under this section. For purposes of Federal Rule 9(b), an (a)(4) claim is not a traditional fraud claim and plaintiffs need only allege that the information was taken through dishonest means.

Finally, the court upheld the (a)(5) claim. That provision generally requires a plaintiff to demonstrate unauthorized access to a computer that results in damage. A key question that Citrin seemed to resolve, but on which other courts have been significantly divided, is whether information that is merely copied results in "damage." Clearly, deleted information would seem to meet that definition, but data that is copied stands on a different footing.

The court in Ringo struggled a bit with the allegations made by DHP, but ultimately concluded DHP stated a cause of action. Once a practitioner cuts through the maze of confusing terms utilized in the CFAA, and its haphazardly organized provisions, it is fairly clear the breadth of each section allows plaintiffs to bring a broad range of claims in competition cases involving the taking of electronically stored information. In the Seventh Circuit, this is far easier than in other jurisdictions where the issue of "authorization" is more defendant-friendly.

--

Court: United States District Court for the Eastern District of Wisconsin
Opinion Date: 4/20/09
Cite: Dental Health Products, Inc. v. Ringo, 2009 U.S. Dist. LEXIS 38328 (E.D. Wis. Apr. 20, 2009)
Favors: Employer
Law: Federal

Connecticut Court Allows Non-Compete Agreement to Extend to Potential Customers (Webster Financial v. McDonald)

Non-compete agreements which contain activity restrictions - usually termed non-solicitation clauses - generally are viewed more favorably by courts than outright bans on employment with a competitor. I have previously written that for salespersons and those employees whose primary responsibility is client service, employers should consider utilizing a non-solicitation provision rather than a general non-compete clause.

Despite the fact these restrictions are inherently less problematic, a non-solicitation covenant still is a restraint on trade and must protect the employer's legitimate business interest rather than prevent competition. To that end, courts have taken widely different approaches in assessing the concept of reasonableness when a non-solicitation clause is challenged in court.

For starters, a geographic limit frequently does not work with non-solicitation clauses. Unless a salesperson is assigned a specific territory, a geographic restriction can appear arbitrary. In this respect, courts generally will uphold a non-solicitation clause without a geographic term. In Illinois, the rules are fairly strict - if there is no geographic term tied to a non-solicitation clause, then it must be narrowly drawn to prevent the employee only from contacting those customers with whom he or she developed a relationship during the course of employment. Other states permit non-solicitation clauses that capture a broader range of clients.

In Webster Financial v. McDonald, a Connecticut trial court had occasion to consider this issue when an employee tried to dismiss a non-compete claim at the initial pleading stage. The court refused to do so, holding that the clause, which barred the defendant from soliciting even "potential clients" of his ex-employer, could be reasonable. In Illinois, this would be too broad because the term "potential client" is vague and does not fall within the ambit of protectable relationships.

However, the court in Connecticut held that the case could not be dismissed - at least not without some discovery as to the agreement's reasonableness. The court gave the employer the benefit of the doubt on the contract language, relying on the fact that geographic-based restrictions would logically preclude contact with even potential clients. Because courts have always upheld geographic restrictions that are reasonable, there was nothing wrong with a non-solicitation covenant covering potential clients.

Again, because the was rendered in response to a motion to dismiss, the court had to take all facts as true and was left determining whether the covenant was per se unreasonable. At least at this stage, it could not make such a finding.

--

Court: Superior Court of Connecticut, Judicial District of Waterbury
Opinion Date: 1/27/09
Cite: Webster Financial Corp. v. McDonald, 2009 Conn. Super. LEXIS 169 (Conn. Super. Ct. Jan. 27, 2009)
Favors: Employer
Law: Connecticut

Nebraska Court Sides With Expansive Reading of Computer Fraud and Abuse Act (Ervin & Smith Advertising v. Ervin)

Illustrating the ambiguity and interpretation problems created by the Computer Fraud and Abuse Act, a Nebraska district court has taken an expansive reading of the statute directly contrary to other recent holdings - including the Lugo case and the Bridal Expo case posted below.

Once again, the controversy centers around the meaning of "authorization" in the context of employee appropriation of electronic data during the course of his or her employment. In a conventional (a)(4) or (a)(5) claim under the CFAA, an employer always has to demonstrate that an employee's use of a protected computer was unauthorized. The meaning of that term has been subject to two general interpretations by federal courts.

In this case, the defendants - former executives in an advertising and public relations firm - e-mailed documents to their home computers as they were preparing to compete against their firm. Unlike the Bridal Expo case, there was no dispute in this case that the computer access was done prior to the end of the employment relationship. Arguably, then, the access was authorized.

But following the line of cases in the Seventh Circuit and elsewhere, the court found that principles of agency law - a principle articulated nowhere in the CFAA - essentially rendered the employee's self-interested acts "unauthorized" under the federal statute. The case follows an expansive reading of the CFAA, articulated most notably in the Citrin case from the Seventh Circuit. Many courts have declined to follow Citrin and its progeny.

Please read the entry concerning Lugo for an example of a more narrow reading of the CFAA.

--

Court: United States District Court for the District of Nebraska
Opinion Date: 2/3/09
Cite: Ervin & Smith Advertising and Public Relations, Inc. v. Ervin, 2009 U.S. Dist. 8096 (D. Neb. Feb. 3, 2009)
Favors: Employer
Law: Federal

Purloined Data In Wedding Expo Case Won't Support Computer Fraud Claim (Bridal Expo v. Van Florestein)

With federal courts taking diametrically opposing positions on the reach of the federal Computer Fraud and Abuse Act, it should not be long before the Supreme Court steps in to clarify exactly what type of unfair competition this law actually protects.

As I have written before, courts are split in terms of whether misuse of confidential business data is included within the statutory definition of "damages." Another issue dividing courts concerns what type of employee conduct exceeds "authorized access" to a protected computer for purposes of what is known as an (a)(4) claim.

Under Section 1030(a)(4), an aggrieved employer may pursue a claim for unauthorized access of a protected computer with the intent to defraud. Courts are split over what type of computer access is unauthorized within the meaning of the statute.

The facts of a recent case involving the wedding exposition industry illustrate the legal tension perfectly. Two employees of Bridal Expo, who had announced their departure from the company, were escorted out of their place of employment at 4:30 p.m. on their last day of work. Their boss took their keys. However, later that evening, they returned and began using one of Bridal Expo's computers.

Their boss asked them why they returned, and each claimed she had "more work to do" before leaving. One employee stated she was sending farewell by e-mail to vendors and employees. Importantly, their boss was aware they had returned and that the employees were using work computers.

Eventually, it was clear that the two employees had established a competing wedding expo company, Wedding Showcase, and the employees admitted that upon returning to work after being escorted out, they downloaded a vendor list, brides list, inventory list, company forms, and payment spreadsheet. The forensic analysis of the computer cost $13,000. The defendants' new company used the vendor list and database to mail advertisements to vendors for a new wedding showcase in the Houston area.

After losing a state court injunction proceeding, the plaintiff non-suited the case and refiled in federal court, adding - among other things - a claim under Section 1030(a)(4) of the CFAA for unauthorized access to a protected computer with intent to defraud. The court, noting the tension in the case law, denied a second injunction motion and dismissed the CFAA claim outright.

The court declined to follow the agency theory case law developed in the Seventh Circuit and others, which basically says that when an employee violates an agreement or his duty of loyalty he is no longer a true agent of the employer and exceeds any access previously granted to him. Other courts have viewed this reasoning with a healthy dose of skepticism.

The court in Bridal Expo took the more conservative, literal approach in declining to extend the CFAA's reach under an (a)(4) claim. It would not equate "authorization" with any duty of loyalty. Important to the court's ruling were the following factors:

(1) no confidentiality agreement between the employees and Bridal Expo;
(2) the employees were authorized to use the computers in this manner; and
(3) the supervisor saw them working on the computers after they had been escorted out of the office and did not complain about it.

The last factor may have been the most important. Had the defendants' snuck in to the office, and had their use of a work computer been completely unknown to a supervisor, the court might have had a basis for keeping the (a)(4) claim alive.

--

Court: United States District Court for the Southern District of Texas
Opinion Date: 2/3/09
Cite: Bridal Expo, Inc. v. Van Florestein, 2009 U.S. Dist. LEXIS 7388 (S.D. Tex. Feb. 3, 2009)
Favors: Employee
Law: Federal

Kansas Court Sides With Narrow Application of Computer Fraud and Abuse Act (Us Bioservices v. Lugo)

Another court has weighed in on whether the federal Computer Fraud and Abuse Act can be applied to essentially federalize trade secrets claims. The answer, in the case of US Bioservices v. Lugo, was a resounding "no."

In granting the defendant's motion to dismiss the CFAA claim, the court adopted a narrow reading of the predicate act giving rise to liability under the statute. Though the CFAA has a number of different provisions, the touchstone of liability is that a defendant must use a protected computer without authorized access or in a manner which exceeds the access granted to him.

The Lugo case is based on a fairly typical of fact-pattern under the CFAA. An ex-employer claims that an employee downloaded or accessed confidential business information while on her work computer, e-mailed that to another location (usually a home account), and then permitted a new employer to use or obtain the benefit of the stolen data.

Does this activity equate to unauthorized access?

Lugo held no, noting along the way that federal courts are split on the issue. There are a number of factors supporting this narrow reading of the authorization language:

(1) the CFAA is at heart a criminal statute, and the rule of lenity applies
(2) "without authorization" is not defined but means, basically, "without permission" and there was no dispute that the employee had permission to access the information, irrespective of whether she misused it later
(3) the focus of the CFAA is wrongful procurement of data, not wrongful use of it

The court rejected the reasoning applied in other jurisdictions that principles of agency law can be grafted onto the CFAA. Under cases like the influential Citrin decision from the Seventh Circuit, an employee's "access" to his work computer ends when he is in breach of a duty of loyalty. Therefore, in those jurisdictions where Citrin is the prevailing rule, it is much easier to state a claim under the CFAA for cases involving misuse of data.

--

Court: United States District Court for the District of Kansas
Opinion Date: 1/21/09
Cite: Us Bioservices Corp. v. Lugo, 595 F. Supp. 2d 1189 (D. Kan. 2009)
Favors: Employee
Law: Federal

Georgia Court Dismisses Computer Fraud Claim for Failure to Allege "Damages" (Andritz v. Southern Maintenance Contractor)

In 1996, Congress dramatically extended the reach of the Computer Fraud and Abuse Act by extending jurisdiction over any fraud claim involving a "protected computer", that is, one used in interstate commerce. The result has been a de facto federalization of trade secrets and unfair competition cases, whereby companies file suit against defecting employees in federal court for computer fraud, trade secrets and, often times, breach of a non-competition covenant. Because pre-departure activity frequently involves an employee's use of a computer - normally to access business information - CFAA claims are part and parcel of unfair competition cases these days.

Over the past several years, court decisions have begun to emerge out of federal district and circuit courts interpreting the reach of the CFAA. Many of those decisions involve the application of the statute's jurisdictional requirement that an aggrieved plaintiff show "damage" or "loss." Under the CFAA, "damage" has a specific meaning: "any impairment to the integrity or availability of data, a program, a system, or information that causes loss aggregating at least $5,000 in value during any 1-year period..." The "loss" component is even more narrow; it basically means damage assessment and data restoration costs. It also includes lost revenue from service interruption.

In a recent Georgia federal district court case, the court addressed an (a)(4) claim, known in legal circles as a claim for "unauthorized access with intent to defraud." The court held that neither "loss" nor "damage" can be interpreted to mean "lost revenue caused by the misappropration of proprietary information and intellectual property from an employer's computer." The Eleventh Circuit apparently has not opined on the issue, and the court granted the defendants' motion to dismiss under Rule 12(b)(6) for failure to state a CFAA claim.

This issue has a somewhat tortured history in federal court. Illinois cases out of the Northern District of Illinois yield conflicting results on whether impairment of data in the form of trade secrets theft is qualitatively the same as deleting or destroying that data. Other courts, including a district court within the Eleventh Circuit, hold that misappropration of such data constitutes legal impairment under the CFAA. The parameters of this statute continue to develop, often times with confusing results.

--

Court: United States District Court for the Middle District of Georgia
Opinion Date: 1/07/09
Cite: Andritz, Inc. v. Southern Maintenance Contractor, LLC, 626 F. Supp. 2d 1264 (M.D. Ga. 2009)
Favors: Employee
Law: Federal

Virginia Court Refuses to Dismiss Nationwide Non-Compete Agreement (Senture, LLC v. Dietrich)

Geographic restrictions in non-compete agreements continue to undergo a judicial re-analysis in light of the high-tech, nationwide economy. Most older cases across jurisdictions require an employer to craft a non-compete agreement with a reasonable geographic scope.

However, a recent Virginia case demonstrates the problem when an employer conducts business nationwide. Senture, LLC entered into an employment agreements with Joe Dietrich and Tom Swider. Each contained a Kentucky choice-of-law provision, which the court found was reasonable given Senture's business ties to Kentucky. The agreements also contained nationwide non-compete covenants, which the employees challenged on a Rule 12(b)(6) motion to dismiss.

The court refused to dismiss the claims for breach of contract, expressly noting that nationwide non-competes can be valid if the employer demonstrates that it conducts business throughout the United States. Because of the procedural posture of the case, Senture will still have to demonstrate a nexus between its business and the contractual restrictions.

Employers can always limit a challenge to the scope of a non-compete agreement by instead including an activity restraint requiring an ex-employee to stay away from customers he or she worked with during the course of employment. Such clauses normally mitigate a defendant's arguments as to overbreadth. In Illinois, however, customer non-solicitation covenants also must make sure they do not include all of the employer's accounts as restricted - only those the employee had some responsibility for servicing or supervising.

--

Court: United States District Court for the Eastern District of Virginia
Opinion Date: 9/8/08
Cite: Senture, LLC v. Dietrich, 2008 U.S. Dist. LEXIS 100288 (E.D. Va. Sept. 8, 2008)
Favors: Employer
Law: Kentucky