On Monday, I wrote about recent media reports describing Delaware Chancery Court Judge Leon Strine, Jr.’s Opinion enforcing two confidentiality agreements between Martin Marietta and Vulcan to bar Martin Marietta from undertaking a hostile bid for Vulcan for the next four months (that post is below). I have since been able to get a copy of the Opinion, which is attached as a PDF at the end of this post. While it is not a light read (138 pages long), it is well written, well reasoned, and thoroughly entertaining.
Given the prominence of the Delaware Chancery Court, the high profile nature of the dispute and the law firms involved (Skadden Arps and Wachtell Lipton), Judge Strine’s Opinion has generated tremendous media interest (see recent analyses provided by The Wall Street Journal and The New York Times to name just a few). While it does not apply a traditional trade secret analysis (i.e., reasonableness of safeguards, readily ascertainable, valuable to competitors, etc.), it is still an important decision in an important jurisdiction laying out sound principles for enforcing a non-disclosure agreement (NDA). As a result, it provides four important lessons for those in the trade secret community.
First, the Opinion should remind us that in the context of written confidentiality agreements, we should not hesitate to make forceful public policy arguments for their enforcement. It is easy to get caught up in defending the language of a contract, but it is always important to emphasize the intent and goals of the contract at issue. To that end, Vulcan’s counsel did a fine job of hammering the need for the enforcement of these agreements in the financial market so that future commercial parties could be confident that their disclosure of proprietary information would not be used against them.
Judge Strine’s Opinion repeatedly emphasized those goals. In particular, Judge Strine repeatedly wrote about the need for ensuring that these agreements continue to be meaningful as risk-reducing devices to enable companies to more readily consider voluntary, value-maximizing M&A transactions. He also focused on the parties’ expectations and the importance of discouraging future parties from trying to “end-run contractual pre-disclosure procedures.”
Second, in commercial contracts subject to Delaware law, contractual stipulations that acknowledge irreparable injury in the event of a material breach will be enforced. In the post-eBay v. MercExchange world, many courts have increasingly been unwilling to presume irreparable injury and have required parties to make a showing of irreparable harm to justify an injunction.
However, in the wake of the Martin Marietta decision, commercial parties that rely on Delaware law are now armed with a powerful and well-reasoned decision that should make it easier for them to secure a presumption of irreparable harm provided their agreement includes this stipulation. In essence, Judge Strine gave Vulcan a pass on irreparable injury As these stipulations are frequently in license agreements and commercial NDAs, this could be a significant ruling for the trade secret community when enforcing contracts applying Delaware law.
Third, the Opinion reinforces the importance of making a reasonable request for injunctive relief. At the trial/preliminary injunction hearing, Vulcan made what the court deemed to be a measured request for injunctive relief — namely, a four month injunction that would prevent Martin Marietta from offering its slate of directors at an upcoming Vulcan shareholder meeting. Judge Strine commended Vulcan for that request and I suspect it also helped Vulcan win a number of close calls on credibility in what was a well-argued and hard-fought case. Moreover, that request was particularly shrewd as it appears unlikely that an appellate court will be able to do anything before that June meeting.
Finally, it reminds us that courts are still willing to impose what amounts to a non-compete (or cooling off period) if they find that a defendant has misbehaved and substantially breached a confidentiality agreement. Martin Marietta forcefully argued that Vulcan was trying to impose a condition not found in the agreement (in this case, what is known in the M&A community as a standstill agreement) but Judge Strine found that this remedy protected the expectations of both parties going into the NDA. In this respect, this case mirrors many trade secret cases where a plaintiff argues that a non-disclosure agreement should be enforced to forbid future conduct to ensure that the goals of the agreement are met (most notably, the recent Allergan v. Merz case).
Not surprisingly, Martin Marietta has announced it will appeal from this ruling. I will continue to monitor the case as there is sure to be future fireworks.