The end of the year always brings a number of thoughtful (and some not so thoughtful) reflections on the top ten major events of the past year (Top Ten News Stories, Top Ten Songs, Ten Worst Movies, etc.). As 2011 comes to a close, it’s clear that it has been a remarkable year for the trade secret and non-compete bar, so I couldn’t resist assembling a Top Ten List of the most significant trade secret and non-compete decisions for 2011.
As I worked on my list, what struck me most was the number of strong contenders for 2011 (the honorable mention list will bear this out). Even though I confined my list to civil cases (leaving out a number of high profile federal prosecutions) and decided not to include recent legislative developments (such as the proposed amendment to the Economic Espionage Act, New Jersey’s enactment of the Uniform Trade Secrets Act (UTSA) and Georgia’s recent Non-Compete Statute), I could have easily put together a compelling top twenty list.
That being said, without further ado, here are Numbers 10 through 7:
10. TCW Group Inc. v. Jeffrey Gundlach (Los Angeles County Superior Court)
This high profile trade secret dispute between TCW, the asset-management affiliate of Societe Generale SA, and its former star bond trader, Jeffrey Gundlach, had a lot to offer: significant media coverage, salacious allegations (TCW had a field day detailing Gundlach’s left-behind stash of pornography, sexual devices and drug paraphernalia for the media circus; despite TCW’s gallant effort to slip those vices into evidence, the trial court properly excluded them), and, of course, a very large verdict. After a six week trial, the jury awarded $66.7 million to Gundlach for unpaid wages but also found that he stole TCW’s trade secrets. The valuation of those trade secrets, which TCW claimed exceeded $81 million, was to be decided in post-trial proceedings before the trial court.
The sheer theatrics of this case, which apparently settled yesterday, compel a seat at the Top Ten table. However, the absence of a seminal ruling kept this entertaining soap opera out of the Top Five.
9. Marsh USA Inc. v. Cook (Texas Supreme Court)
Texas has been perceived as ambivalent when it comes to enforcing non-competes, but the Texas Supreme Court’s decision in Marsh USA Inc. v. Cook on June 24, 2011 appears to signal that Texas is now moving away from its previous strict enforcement. In Marsh USA, the Texas Supreme Court abandoned a formalistic approach to analyzing consideration supporting a non-compete, rejecting the former employee’s argument that his non-compete lacked appropriate consideration because the consideration in question (stock options) did not reasonably relate to the interest that the former employer sought to protect.
The decision does not break any new ground, at least outside of Texas. Rather, what merited its inclusion in the Top Ten boiled down to demographics — namely, the fact that the highest court of the second most populous state is now more readily willing to enforce covenants not to compete. As the Texas economy continues to chug along (Forbes identified Austin (No. 1), San Antonio (No. 4), Houston (No. 5) and Dallas (No. 7) in its top ten projected boomtowns earlier this year) and Texas continues to grow, its legal decisions may come to increasingly shape the national debate, just as California has for the past several decades.
8. Reliable Fire Equip. v. Arredondo (Illinois Supreme Court)
As one of the more populous states having adopted the UTSA and recognizing non-competes, Illinois has long been an important bellwether state for trade secret protection. Not surprisingly, when the Illinois Supreme Court issued its ruling in Reliable Fire Equip. v. Arredondo on December 1, 2011, resolving a split that had emerged among the intermediate courts of appeal within Illinois, many followed the decision closely.
As I wrote earlier this month about this decision, the Illinois Supreme Court held that a company must come forward with proof of a legitimate business interest to justify the imposition of a non-compete. While this decision will likely lead to more litigation due to the fact-based nature of that inquiry, it will ensure that companies do not wield their non-competes without supporting trade secrets, customers or other legitimate reasons to justify enforcement of the restrictive covenant at issue. Look for other courts to follow the Illinois Supreme Court’s lead in this era of employee mobility.
7. Hewlett-Packard v. Perez, Perez v. Hewlett-Packard and Cisco’s Blog (Santa Clara County Superior Court, California and Harris County, Texas)
High profile trade secret cases frequently involve a race to the courthouse as the former employer and ex-employee jockey to secure a definitive ruling from the forum they believe will adopt their legal position on the non-compete in question. This year’s featured “race to the courthouse” was the dispute between Hewlett-Packard and its former Chief Technologist, Paul Perez, who left HP in November to join Cisco.
As regular readers of this blog will remember, this dispute generated tremendous interest because of the unusual step taken by Cisco’s General Counsel, Mark Chandler, of issuing a blog post calling out what Cisco perceived to be HP’s repeated efforts to prevent its former employees from working for Cisco. Chandler’s blog post challenged HP’s new leadership to adhere to its previous values of mobility and opportunity.
The case was also noteworthy because the Texas trial court refrained from the opportunity to rule first on the Perez non-compete, despite the fact that the Perez had been a Texas resident and had suddenly moved to California, ostensibly to secure the protections of California law. The Texas court’s abstention appears to have been rooted in its irritation at HP’s failure to notify Perez’s counsel of the TRO conference and to advise the Texas court of a previously-scheduled conference set to go in California later that day on these same issues (at least this was the account provided in Chandler’s blog post; there was no ruling on the Harris County docket when I last looked). The California court subsequently allowed Perez to work for Cisco so long as he did not use or reveal any of HP’s trade secrets or confidential information.
Stay tuned for Nos. 6 through 4 in my next post.