Posted on July 6, 2009 by David Clark

Court Denies Preliminary Injunction Sought by IBM Because Former Employee Signed Non-Compete Agreement in Wrong Place

A recent decision illustrates the importance for employers of making sure non-competition agreements are correctly executed by employees.

On June 1, 2009, IBM sought a preliminary injunction in the United States District Court, Southern District of New York, enjoining its former Vice-President of Corporate Development, David L. Johnson, from continuing his employment as Senior Vice President of Strategy at Dell Inc.  On that date, doubt was raised as to whether Johnson’s alleged non-competition agreement with IBM had ever been duly executed, and the Court ordered expedited discovery on the issue and another hearing on June 22, 2009.

At the June 22 hearing, the evidence showed that at the time Johnson was first asked to sign the agreement, he was hoping to be promoted, and so in an effort to extend the time during which he could consider whether to enter into the agreement, Johnson purposefully signed the non-competition agreement not on his own signature block, but on the signature block designated for IBM.  Johnson testified that he believed that doing so would prevent the agreement from becoming valid and would allow him more time to consider whether to commit to the IBM non-compete agreement.

As the Court noted, Johnson’s “gambit appears to have worked just as he envisioned.”  Although IBM argued to the Court that the non-competition was valid, on numerous occasions IBM had sought to have Johnson properly sign the agreement, indicating that IBM did not actually consider the incorrectly signed agreement to be valid. Moreover, with respect to Johnson’s incorrectly signed document, IBM had not followed its usual protocols of sending it to an IBM representative for signature or retaining an original copy of the document in its files.

In view of the evidence, the Court found that IBM could not show a likelihood of success on the merits of its breach of contract claim.  The Court also found that the balance of equities favored Johnson, and it denied the preliminary injunctive relief sought by IBM.

A lesson for employers from this decision is that no ambiguity should be accepted as to whether the employee has assented to a restrictive covenant.  Particularly given the public policy of New York and other jurisdictions disfavoring non-competition agreements, when it is time to seek enforcement of such an agreement, the employer must be able to show that the employee unequivocally agreed to its terms.
 

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Posted on May 27, 2009 by Barry Guryan

The Beat Goes On - Massachusetts Court Modifies Preliminary Injunction Allowing Former EMC Executive to Work for HP in California, But...

In recent weeks, we have been following the fascinating case between Massachusetts-based EMC Corp. and Hewlett Packard Co., located in California.  EMC won the first round by stopping a former executive, David Donatelli, who was VP in charge of EMC's Storage Division, from starting his job at HP.  The Massachusetts Court held that to allow Donatelli to work for HP would violate a non-compete agreement he signed at EMC.  The Massachusetts Court enforced the non-compete even though Donatelli had filed an action for declaratory relief in California asking that Court to declare the non-compete unenforceable under California law.  In the Massachusetts action, however, the Judge allowed Donatelli to present additional evidence in a subsequent hearing to demonstrate that his job at HP would have minimal overlap with his former position at EMC.

On May 26, 2009, after hearing additional evidence, the Massachusetts Court modified the preliminary injunction it had issued against Donatelli by allowing him to start working for HP in California.  However, both sides are claiming victory because Donatelli will not be able to take the job he wanted, i.e., Executive VP of StorageWorks, due to the restrictions in the order.  While HP expressed its pleasure with the Court's decision to allow Donatelli to start working at HP as a Senior VP of Enterprise Servers and Networking, EMC stated it was also pleased with the Court's ruling because it upheld "the terms of EMC's key employee agreement."  EMC's statement went on to say that, "The judge entered an order as proposed by EMC that precludes Mr. Donatelli from being engaged in any aspect of HP's business that overlaps or competes with EMC's storage business for a 12-month period."  The case is EMC Corp. v. David A. Donatelli, case number 09-1727-BLS2 in the Suffolk County Superior Court in Massachusetts.

We don't know if the case is over, but for now, it appears that everyone got something of value from the case. The Massachusetts Court issued a narrow order tied to the protectable interest of EMC while at the same time, not depriving Donatelli his opportunity to pursue his livelihood in a competitive business.
 

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Posted on March 17, 2009 by David Clark

Second Circuit Vacates Injunction and Refines Analysis of Whether Irreparable Harm May be Found When Trade Secrets Have Been Misappropriated

Many New York attorneys, when seeking a preliminary injunction against a party that has misappropriated their clients’ trade secrets, will argue that a presumption of irreparable harm to their clients automatically arises upon the determination that a trade secret has been misappropriated, citing Ivy Mar Co. v. C.R. Seasons, Ltd., 907 F. Supp. 2d 547, 567 (E.D.N.Y. 1995). A recent decision of the U.S. Court of Appeals for the Second Circuit, however, holds that misappropriation of trade secrets does not automatically lead to irreparable harm. The aggrieved party only faces irreparable harm if the misappropriator will disseminate the secrets to a wider audience or otherwise irreparably impair the value of the secrets.

In Faiveley Transport Malmo AB v. Wabtec Corporation, __ F.3d __, 2009 WL 636020 (2d Cir. March 9, 2009), Wabtec had manufactured subway brakes under a contract with Faiveley and its predecessor from 1993 through 2005. Faiveley alleges that after expiration of the contract, Wabtec impermissibly continued to use Faiveley’s proprietary information (including various technical specifications, designs, plans, and patents) to produce subway brakes for the New York City Transit Authority. The District Court granted an preliminary injunction enjoining Wabtec from disclosing Faiveley’s proprietary information to the Transit Authority.

On appeal, the Second Circuit vacated the injunction because Faiveley had not demonstrated that it faced irreparable injury. Although the Second Circuit agreed that Wabtec had misappropriated trade secrets, it held that misappropriation alone does not give rise to a presumption of irreparable harm, noting:

Where a misappropriator seeks only to use those secrets - without further dissemination or irreparable impairment of value - in pursuit of profit, no such presumption is warranted because an award of damages will often provide a complete remedy for such an injury. Indeed, once a trade secret is misappropriated, the misappropriator will often have the same incentive as the originator to maintain the confidentiality of the secret in order to profit from the proprietary knowledge.

The Court went on to note in dicta that even where irreparable injury has been shown, only a narrowly drawn preliminary injunction that protects the trade secret from further disclosure or use may be appropriate, and admonished courts in all cases to strive to avoid unnecessary burdens on lawful commercial activity.
 

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