Trade Secrets and Noncompete Blog : Non-Compete Lawyer & Attorney : Epstein Becker Green Law Firm : Trade Secrets & Confidentiality Agreements

On January 23, 2012, the Canadian National Railway Company filed suit against its former Chief Executive Officer, E. Hunter Harrison, for allegedly violating certain non-compete and non-disclosure obligations. Peter A. Steinmeyer was interviewed about the lawsuit on the Business News Network’s show, “Headline with Howard Green.” To see the interview, click on this link: http://watch.bnn.ca/headline/january-2012/headline-january-24-2012/#clip606360.

On Monday, January 9, 2012, Governor Chris Christie signed into the law the New Jersey Trade Secrets Act (NJTSA, http://www.njleg.state.nj.us/2010/Bills/S2500/2456_R1.HTM), the Garden State’s version of the Uniform Trade Secrets Act (UTSA). New Jersey, thus, becomes the forty-seventh state to adopt some form of UTSA. While the New Jersey Act will promote some level of uniformity in the approach to trade secrets issues, New Jersey specific changes to the uniform act promise that this statute will build upon, rather than depart from, New Jersey’s common law tradition of protection of trade secrets and other valuable business information.

Some New Jersey specific points in the legislation:

• The definition of “trade secret” under NJTSA is broader than under UTSA, as NJTSA incorporates the broader protections of New Jersey common law principles;

• NJTSA supplements, rather than displaces, New Jersey common law, as the statute states that the rights, remedies, and prohibitions under NJTSA “are in addition to and cumulative of any other rights, remedies, or prohibitions provided under common law or statutory law of this State”;

• NJTSA prohibits acquisitions of the trade secrets of another by “improper means,” and contains definitions of that term and “proper means” not found in UTSA;

• NJTSA makes mere or threatened acquisition by improper means of another’s trade secret actionable, and enjoinable, even if there is no concomitant likelihood of disclosure to or use by third party.

These NJTSA-specific provisions combine with UTSA’s allowing for recovery of attorneys’ fees and punitive damages to provide the holders of trade secrets a powerful new tool in New Jersey. Those who helped frame, over a multi-year time period, the bill as adopted in New Jersey included its sponsors, employer groups, and the New Jersey Law Revision Commission and its legal advisors, including the author of this post.
 

Co-authored by Viktoria Lovei.

A federal judge in Chicago recently refused to issue an injunction based upon either the “inevitable disclosure” of trade secrets doctrine or a geographically broad, 24-month non-compete that did not have a narrowly drawn activity restriction. Triumph Packaging Group v. Ward, et al., No. 11-cv-7927 (N.D. Ill. Dec. 2, 2011).

The case was brought by Triumph, a manufacturer of packaging for consumer goods suppliers. It sought, among other things, to enjoin Ward, its former Chief Operating Officer, from assuming a position with AGI, a manufacturer of packaging primarily for the media and entertainment industries.

Triumph argued, among other things, that Ward’s employment with AGI would require him to inevitably use or disclose Triumph’s trade secrets. In evaluating Triumph's claim under the Illinois Trade Secrets Act (“ITSA”), the Court found that Triumph was reasonably likely to succeed in proving the existence of certain trade secrets. However, the Court concluded that Triumph was unlikely to succeed in establishing that the disclosure of such trade secrets by Ward was inevitable because the evidence demonstrated that Ward's role at AGI presented no reasonable danger of him using or disclosing Triumph's trade secrets. Specifically, the Court relied on its findings that: (1) Triumph and AGI were neither “fierce” nor “even direct” competitors because they focused on the manufacture of different types of packaging for mostly different industries and do not currently share any customers; (2) Ward's position at AGI was dissimilar from his position at Triumph in “a variety of ways”; (3) “there is no evidence in the record that Mr. Ward’s new position will require him to use or disclose Triumph’s trade secrets, and he testified credibly that he will not do so”; and (4) Triumph’s trade secrets were not applicable to AGI’s business.

With respect to Ward’s post-employment non-compete, the Court held that it was “extremely overbroad and likely unenforceable.” First, the Court held that it was “extremely broad in geographical scope” because it prohibited Ward “from working with any competitor ‘within any geographical area’ of where Triumph or its subsidiaries engage in business or have plans to engage in business.” Additionally, the Court noted that “the qualifying term ‘within any geographical area’ is unclear and does not provide any degree of certainty as to where Mr. Ward may work without violating the provision.” Second, the Court held that the “duration of the non-compete clause -- 24 months by default and 30 months if Mr. Ward breaches his obligations under the agreement during the prior 24 months – is very lengthy.” The Court agreed with Ward that where “temporal and geographic restrictions on an employee’s conduct are broad . . . the agreement’s activity restrictions should be correspondingly narrowly drawn to protect the employee’s ability to be employed in his chosen field.”

Because the Court found that the non-compete was “significantly overbroad in several ways,” it refused to modify or “blue-pencil” it.

Though not a path breaking decision, this case is nevertheless a reminder about the narrowness of the inevitable disclosure doctrine and the need to draft non-compete clauses as tightly as possible to address a company’s legitimate needs.

In an exhaustive opinion, dated December 21, 2011, in the case Aon Risk Services, Northeast v. Cusack, Index No. 651673/11, 2011 WL 6955890, Justice Bernard Fried of the Supreme Court of New York, New York County, awarded a preliminary injunction sought by Plaintiffs Aon Risk Services, Northeast and Aon Corporation (collectively, “Aon”) against Aon’s former employee Michael Cusack and its competitor Alliant Insurance Services, Inc. (“Alliant”).

The case arose from a raid upon Aon’s business by Mr. Cusack, a senior executive and Managing Director at Aon, who resigned with several other senior executives on June 13, 2011 to join Alliant. That same day, 38 Aon employees left Aon to join Alliant, and 15 Aon clients soon followed. In the ensuing few months, 60 employees in total resigned from Aon to join Alliant, and Aon received more than 100 broker of record letters from clients transferring more than $20 million in revenue from Aon to Alliant.

After issuing temporary restraining orders in September and October 2011, the Court held a two day preliminary injunction hearing in November 2011, and in December 2011 issued its preliminary injunction, barring Mr. Cusack, Alliant, and other former Aon employees who were subject to restrictive covenants from, during the pendency of the litigation, (1) soliciting business or entering into any business relationship with any Aon client on whose account they worked, or (2) soliciting any Aon Construction Services Group employees to work for Alliant.

The substantial scope of the damage suffered by Aon provided the basis for the Court’s finding of irreparable harm. The Court found credible Aon’s assertions that “the loss of 60 employees and dozens of clients doing business with [Aon] in hundreds of lines of insurance and surety harms Aon’s goodwill, reputation in the marketplace with its clients and prospects, and relations with its remaining employees, because it causes clients to question Aon’s ability to service the business” and that competitors would be encouraged to solicit Aon’s employees, clients and prospects because they believe Aon to be “wounded.” Aon also argued, credibly to the Court, that monetary damages could not compensate for the loss of expertise and relationships of both employees and clients suffered by Aon, and that it was impossible to put a value on the loss of 60 Aon employees in one week.

A company that has been raided and is seeking an injunction sometimes hesitates to articulate in court filings the true extent of damage to its business, for fear that it will suffer reputational harm in the marketplace. If, however, the damage is already well-known and the loss of marketplace confidence is clear, a comprehensive recounting of such facts could help to secure some relief from a court as the company tries to rebuild its business, as shown by this recent court New York decision.
 

Co-authored by Viktoria Lovei.

The U.S. Court of Appeals for the Eighth Circuit recently held that compilations containing only minimal secret information nevertheless qualified for trade secret protection because the substantial investment involved in preparing them gave their owner a competitive advantage and because the owner undertook reasonable efforts to maintain their secrecy by labeling them with a proprietary legend and only distributing them to parties which signed a confidentiality agreement. AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corporation, Case No. 10-3444 (8th Cir. Dec. 13, 2011).

The case concerned FAA approved procedures developed by Rolls-Royce for the overhaul and repair of its helicopter engines. The procedures, including techniques and material specifications, were included in Distributor Overhaul Information Letters (“DOILs”) which, starting in 1994, were provided by Rolls-Royce exclusively to its Authorized Maintenance Centers (“AMCs”). While access to pre-1994 DOILs was not tightly controlled, later versions were issued subject to confidentiality agreements with AMCs and contained a proprietary rights legend. AvidAir, a company in the overhaul business, was not an AMC but nonetheless obtained updated DOILs which it was not authorized to receive.

The parties filed separate lawsuits against each other which were eventually consolidated. Among the issues raised were whether the DOILs are trade secrets and whether Rolls-Royce’s efforts to protect the DOILs constituted a “sham lawsuit” in violation of antitrust law and tortious interference.

The Eighth Circuit, applying the Uniform Trade Secrets Acts of Indiana and Missouri, held that AvidAir had misappropriated Rolls-Royce’s trade secrets. The Court rejected AvidAir’s argument that the revised DOILs did not qualify for trade secret protection because they contained no engineering advances and only a trivial amount of information that was not readily ascertainable from prior public versions. The Court explained that compilations are valuable if they afford a “competitive advantage” and are “not readily ascertainable,” even if “some or even most of the information [is] publicly available.” “Unlike patent law, which predicates protection on novelty and nonobviousness, trade secret laws are meant to govern commercial ethics” and prevent valuable information “from being misappropriated despite reasonable efforts to keep it secret.”

The Eighth Circuit found that the DOILs were trade secrets because they had value that resulted from Rolls-Royce’s “own research and testing” which allowed Avid Air to avoid the “burdensome expense of reverse engineering the updated specifications.” The Court further noted that AvidAir’s repeated attempts to obtain the information “without Rolls-Royce’s approval belies its claim that the information in the documents was readily ascertainable or not independently valuable.” In addition, the Court held that the documents qualified for trade secret protection because Rolls-Royce had undertaken reasonable efforts, which do not need to be “overly extravagant,” to maintain their secrecy by labeling them with a proprietary legend and only distributing them to parties which had signed a confidentiality agreement. The Court concluded that AvidAir’s unauthorized use of the documents constituted misappropriation and affirmed an award of damages and injunctive relief.

Having found in favor of Rolls-Royce on the issue of whether the DOILs were trade secrets, the Court held that AvidAir had no claim for tortious interference or violation of anti-trust law stemming from Rolls-Royce’s efforts to protect the confidentiality of the DOILs.
 

We are pleased to announce that an updated version of our guide, “Non-Compete Laws: Illinois,” is now available in PDF format. The updated guide reflects the recent decision of the Illinois Supreme Court in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois. The guide is part of a series of guides written and published by our firm, EpsteinBeckerGreen, and the Practical Law Company.

On December 1, 2011, the Illinois Supreme Court issued its opinion in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois.

The Confusion

For years, Illinois courts consistently explained that they would only enforce a non-compete agreement if: it was no more restrictive than necessary to protect an employer’s legitimate business interests; enforcement would not impose an undue burden on the employee; and enforcement would not injure the public. As a result, substantial case law focused on what would, and what would not, constitute a legitimate business interest sufficient to support the enforcement of a non-compete agreement.

In 2009, however, the Illinois Fourth District Appellate Court issued its opinion Sunbelt Rentals, Inc. v. Ehlers, 394 Ill. App. 3d 421 (2009). In that case, the court dismissed the requirement of a legitimate business interest as “judicial gloss” and explained that a non-compete agreement simply should be enforceable where its time and territory restrictions are reasonable. (According to the court, that analysis included consideration of whether enforcement would create an undue hardship on the employee or hurt the public.) The next year, the Illinois Second District Appellate Court issued its opinion in Steam Sales Corp. v. Summers, 405 Ill. App. 3d 442 (2010). While declining to directly address whether the Fourth District was correct in Sunbelt Rentals, the court nevertheless intimated that a 2006 Illinois Supreme Court case had imposed a standard different than the commonly used legitimate business interest test. Because Illinois courts generally follow the appellate courts in the jurisdiction in which they are located, after Steam Sales, the five appellate districts in Illinois were using at least three different approaches to analyze the enforceability of non-compete agreements.

The Fix

In May 2011, the Illinois Supreme Court agreed to hear an appeal in the case of Reliable Fire Equipment Company v. Arredondo, et al. to resolve this confusion.

On December 1, 2011, the Illinois Supreme Court issued its decision in Reliable Fire. In that decision, the court rejected the analyses of Sunbelt Rentals and Steam Sales Corp. and reaffirmed that a non-compete agreement is enforceable in Illinois only if: it is no greater than required to protect a legitimate business interest; it does not impose undue hardship on the employee; and it does not injure the public. The court also explained that whether or not an employer has a legitimate business interest depends on the totality of the facts and circumstances in each case. Some of the factors to be considered include the near-permanence of customer relationships, the employee’s acquisition of confidential information through employment, and the time and territory restrictions. However, the court also explained that those factors are merely some of the considerations, that they are not meant to be an exhaustive list of considerations, and that none of those factors carries any more weight than any other. Additionally, the court expressly stated that appellate court precedent concerning what will, and what will not, constitute a legitimate business interest remains intact, but that those cases should only be considered non-conclusive guidance.

The Practical Implications

While the Reliable Fire decision puts to rest any confusion caused by Sunbelt Rentals and Steam Sales, it provides little guidance to employers who are trying to craft or enforce non-compete agreements. Accordingly, employers will still need to pay close attention to the responsibilities of each position in crafting appropriate non-compete agreements, and pay close attention to the facts and circumstances of each potential violation to determine whether and how to enforce their non-compete agreements.

Several attorneys from the national law firm of EpsteinBeckerGreen contributed to the December 2011 issue of the Practical Law Company’s “Labor and Employment.” In that periodical’s “State Q&A” section, addressing the reasonable duration and geographic scope of non-compete agreements in various states, Peter A. Steinmeyer and David J. Clark authored the section regarding Illinois and George B. Breen, Frank C. Morris, Jr., and Casey M. Cosentino authored the section regarding Virginia.

Invalidating a non-compete agreement it found enforceable over 20 years earlier, on November 4, 2011 the Supreme Court of Virginia, in Home Paramount Pest Control Companies, Inc. vs. Shaffer, No. 101837, 2011 Va. Lexis 222 (2011) reaffirmed the position that a non-compete is enforceable if it is “narrowly drawn to protect the employer’s legitimate business interest…”.

Justin Shaffer, an employee of Home Paramount Pest Control Companies, Inc. (“Home Paramount”) signed an employment agreement containing a non-compete provision. The relevant portion of the provision was as follows:

The Employee will not engage directly or indirectly or concern himself/herself in any manner whatsoever in the carrying on or conducting the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, director or stockholder of any corporation, or in any manner whatsoever, …”

About 7 months after signing the non-compete, Shaffer resigned and subsequently became employed by a competitor. Home Paramount sued alleging, among other things, that Shaffer had violated the non-compete. Shaffer responded by challenging the non-compete on the basis that it was overbroad and therefore unenforceable. The Circuit Court agreed.

On review, acknowledging that it had enforced an identical non-compete provision involving the same company in 1989, the Supreme Court noted that it considers the “function, geographic scope, and duration” elements of the restriction together, rather than as three separate issues. Looking at the function element, the Court reminded that it consistently examined whether “the prohibited activity is of the same type as that actually engaged in by the former employer”. Finding, on its face, that the agreement prohibited Shaffer from working for any business in the pest control industry in any capacity, even from engaging in an indirect manner, the Court held that the agreement was unenforceable. While it noted that this was a change from its prior holding, the Court pointed to a gradual refinement of its position over the years. It further noted that the clear overbreadth of the agreement rendered it unsaveable by a narrow tailoring of geographic scope or duration.

Home Paramount reminds employers seeking to utilize non-compete agreements that to be valid and enforceable, those agreements must be narrowly drawn - prohibiting activity of the same type as that actually engaged in by the employee while employed by the former employer.
 

In Sybase, Inc. v. Superior Court of Alameda County, No. A132541, 2011 WL 5117117 (2011), the Court of Appeal of the State of California First Appellate District found, in an unpublished opinion, that the trial court abused its discretion when it ordered the production of a trade secret source code. The court found that the real party in interest did not meet the evidentiary burden imposed by the California Supreme Court in Bridgestone/Firestone, Inc. v. Superior Court, 7 Cal.App. 4th 1384 (1992) (“Bridgestone”) which set forth the standards governing whether a trade secret must be disclosed in litigation.

Plaintiff in the underlying action, Sybase, Inc. (“Sybase”), a developer of data management software, sued ANTs Software, Inc. (“ANTs”) for, among other things, breach of a written contract and unfair competition arising out of the alleged breach of an employee non-solicit provision.

Sybase sought damages based, in part, on the reduced functionality of its product due to the departure of the key engineer (Mathew) who was solicited. Sybase claimed that because of the engineer’s departure it would never be able to release the product it originally intended to develop and, therefore, it developed a different product (code named “Aries”), which it asserted was much less functional and drew less customer interest.

ANTs sought disclosure of the Aries source code, which the parties agreed was a trade secret, Sybase objected and ANTs moved to compel, claiming that it needed the Aries source code to defend against Sybase’s claims. ANTs supported its motion with, among other things, excerpts from the deposition transcripts of two Sybase engineers, which testimony indicated that certain integration issues were unrelated to Mathew’s departure. Sybase argued, in part, that it needed to examine the source code to determine whether the integration failure issues had anything to do with Mathew’s departure. The trial court issued an order compelling the production of the Aries source code, finding that ANTs could not adequately defend the case without access to the source code. The court subsequently entered a protective order, which set forth specific procedures to protect the source code.

Sybase filed a petition for writ of mandate with the Court of Appeal, which found that ANTs had not met the particularized showing required by Bridgestone. The court noted that in Bridgestone expert testimony showed a review of the trade secret formulas at issue would be “helpful” to the defense of the action, but the expert did not describe with precision how and why the formulas were a “predicate” to his ability to reach conclusions and disclosure was ultimately denied. The Court of Appeal found that ANTs likewise failed to establish with sufficient particularity that the disclosure of the trade secret was necessary for a fair resolution of the action.

 ANTs contended the source code was necessary to determine why its product was not integrated. The court rejected this argument because ANTs failed to demonstrate the source code for Aries would in fact provide the information it sought and because ANTs’ own evidence showed it would be able to obtain deposition testimony that addressed this issue.

The court also found that ANTs did not present sufficient evidence to show that the Aries source code would reflect the extent to which it incorporates or was influenced by another software product, and suggested that that expert testimony could have been submitted to establish that threshold question.

Finally, the court rejected ANTs’ theory that it needed to examine the Aries source code to refute or evaluate Sybase’s claim that the product it had ultimately brought to the market lacked the robust features and was less functional than an integrated product would have been. The court found that ANTs did not have to examine the product’s source code in order to defend against the allegation that the product itself was less functional and that an expert could reach any necessary conclusions about the product’s functionality by examining the product instead of the source code.

Importantly, the court declined ANTs’ request to remand to the trial court with directions, which would have allowed it to present specific expert declaration evidence to establish why the source code was necessary to its defense. The court stated that existing law reasonably identified the applicable standards and it would not grant “a second bite at the apple.”

The take away here is that before a litigant moves to compel trade secret information which it deems critical to its prosecution or defense of a claim, it must fully develop the trial court record and present particularized evidence to establish why the information is relevant and necessary. If it does not, it may not get a second opportunity to do so.
 

Co-authored by Viktoria Lovei.

The Supreme Court of Kansas recently issued an opinion in Wolfe Electric, Inc. v. Duckworth and Global Cooking Systems, LLC, No. 99,536 (Ka. Oct. 21, 2011), a trade secret misappropriation and restrictive covenant case brought by a manufacturer of conveyor pizza ovens, Wolfe Electric, against its former president, Duckworth, and his new conveyor pizza oven company, Global Cooking Systems. At trial, the jury had found in favor of Wolfe Electric on all causes of action, including breach of contract and misappropriation of trade secrets in violation of the Kansas Uniform Trade Secrets Act (“KUTSA”), and awarded it damages in a variety of categories. The defendants appealed the jury verdict on numerous grounds and the Supreme Court reversed the jury verdict and remanded the case back to the trial court. While there were numerous issues before the Supreme Court, the court’s reversal was based on its finding that multiple jury instructions were erroneous. In particular, the Supreme Court held that the jury instructions did not properly conform to KUTSA by allowing defendants to be held liable for misappropriating confidential information when KUTSA only prohibits the misappropriation of trade secrets. The court found that the trial court also erred by providing various instructions which allowed the jury to find defendants liable for actions (e.g., merely forming a competitive business) which were not prohibited by the narrow restrictive covenants in Duckworth’s employment contract. In that regard, the Supreme Court also held that because the interpretation of a contract is a question of law for the court to decide, the trial court erred by allowing the jury to interpret Duckworth’s employment contract.

While not presenting any new substantive trade secret or non-compete issues, the decision reaffirms that erroneous jury instructions are ripe grounds for appeal and potentially reversal and should therefore be scrutinized closely to ensure that they accurately state the law.

Co-authored by Viktoria Lovei.

Following up on a recent post, U.S. v. Pu presents another instance of a trade secret theft case with an international component that the federal authorities have decided to prosecute. Yihao Pu, a former quantitative financial engineer for Citadel LLC, was arrested last Wednesday for allegedly stealing proprietary information related to the Chicago-based company’s trading system as part of a plan to launch his own hedge fund in China. After filing its own civil suit against Pu on August 29, 2011 and obtaining a temporary restraining order, Citadel brought the matter to the federal authorities. In this instance, the company chose both to take rapid action on its own to protect its trade secrets as well as to refer the matter to federal law enforcement authorities. The civil case is Citadel LLC v. Yihao Ben Pu, 11CH30493, Cook County, Illinois and the federal case is U.S. v. Pu in the Northern District of Illinois.

* Co-authored by Viktoria Lovei.

As we have noted in prior blog posts, alleged thefts of trade secrets are generally handled through the civil court system, and rarely result in criminal prosecution. Nevertheless, where there is an international component to the case or where the magnitude of the alleged theft is particularly significant, the prosecuting authorities will step in, as recently happened in Chicago.

Last week, Chunlai Yang, a former senior software engineer for Chicago-based CME Group, Inc., was indicted in federal court in Chicago and charged with two counts of theft of trade secrets. In the indictment, the government alleges that Yang stole the global exchange operator’s proprietary source code while pursuing, and in furtherance of, business plans to improve a chemical electronic trading exchange in China. Each count against Yang carries a maximum penalty of 10 years in prison and a $250,000 fine. The government also seeks forfeiture of computers and equipment allegedly used by Yang as well as any property or proceeds derived from his alleged criminal actions. Yang pled not guilty earlier this week.

In a press release, U.S. Attorney Patrick J. Fitzgerald stated: “This case is an excellent example of how law enforcement and corporations can work together to protect trade secrets. CME Group brought this matter to the attention of federal authorities and fully cooperated with the investigation. Economic espionage is a crime that effects [sic] both the interests of corporations and our national interest in protecting intellectual property. We will continue to working [sic] collaboratively with the private sector to investigate and prosecute trade secret theft.”

Notwithstanding the government’s willingness to step in to protect trade secrets in appropriate cases, private companies face a dilemma when deciding whether to bring in the government. On the one hand, government prosecution is much cheaper than civil litigation and such prosecutions send a strong message. On the other hand, the company loses control of the case when the government takes over. With that loss of control, the company also loses control over the information and the true trade secret nature of it comes under heightened scrutiny -- and not necessarily in a closed courtroom.

Restrictive covenants such as non-compete and non-solicitation agreements are frequently used in connection with acquisitions to protect the underlying value of the transaction. After all, an acquiring company typically values the target company based in part on the revenue it generates from its stable of customers. Therefore, the acquiring company often requires the target company’s employees to execute restrictive covenants that limit their ability to “jump ship” after the acquisition closes and erode the value of the transaction by luring away customers. Recently, the United States Court of Appeals for the First Circuit issued a decision which underscores the importance of carefully examining and understanding any restrictive covenant that may be acquired through a transaction.

In OfficeMax, Inc. v. Levesque, et al., Case No. 10-2423 (1st Cir. 2011), a company called LS&H had required employees to execute restrictive covenants in 1996 just before it was acquired by Boise Cascade. The agreements provided that the restrictive covenants would continue for “12 months after termination of…employment with LS&H.” Under the agreements, the employees also agreed that they would sign restrictive covenants in “substantially the same form” if requested by Boise Cascade after the acquisition. After the transaction closed, Boise Cascade did in fact request that the employees execute restrictive covenants in “substantially the same form,” but they refused. When OfficeMax later acquired Boise Cascade, OfficeMax too requested that the employees execute new restrictive covenants, but again they refused. In 2009 and 2010, two employees who had executed the restrictive covenants with LS&H terminated their employment with OfficeMax. OfficeMax sued them and obtained a preliminary injunction based on those agreements from the trial court. On appeal, however, the First Circuit vacated that injunction. The Court observed that the plain language of the agreements did not state that they ran for “12 months after termination of…employment with LS&H or any of its successors or assigns.” Furthermore, the Court explained that there would be no reason for the agreements to require that the employees sign substantially similar agreements with the successor if the restrictive covenants were already designed to run from 12 months after the employees separated employment with that successor. As a result, the Court concluded that the restrictive covenant period ended 12 months after Boise Cascade’s acquisition of LS&H in 1996, and had already expired by the time the employees left OfficeMax in 2009 and 2010.

The opinion thus serves as a cautionary tale for companies to make sure that they review the language and structure of restrictive covenants that they may be purchasing as part of an acquisition.