05212012Having just given a presentation on current developments in Ohio Covenant Not to Compete law, it made some sense to write a post summarizing a number of the more recent noteworthy trade secrets and covenant not to compete decisions here in the Buckeye State over the past few months.

Two Big Decisions Due from the Ohio Supreme Court:

The Ohio Supreme Court has two important cases in which decisions are expected soon. Both address issues that are hot topics right now in the trade secret and covenant not to compete community.

The first opinion should be issued in the American Chemical Ass’n v. Leadscope, Inc. case, which addresses whether the plaintiff ACS’s unsuccessful trade secrets case against its former employees and their fledgling company should give rise to a claim for malicious litigation. As two high profile cases have been brought recently against law firms and former employers for allegedly bringing trade secret actions in bad faith, this may prove to be a bellwether opinion. The ACS case also provides a lesson in the dangers of potentially overreaching in a weak trade secrets case, as well as the power of the “David v. Goliath” theme for juries.

As you might expect, the facts are fairly involved but essentially, ACS brought a claim against its former employees and their company, Leadscope, for allegedly stealing technology from ACS. In conjunction with the litigation, ACS also made it known that the technology was in dispute and made statements to others that Leadscope had improperly taken it from ACS, which substantially impacted Leadscope’s ability to get financing and run its business. 

At trial, the jury awarded over $26.5 million in compensatory and punitive damages to the defendants for their counterclaims of unfair competition (which was premised on a theory that the underlying litigation was malicious and in bad faith), intentional interference, and defamation; the judgment has swelled to $40 million with interest and attorneys fees. The individual defendants and Leadscope argued that ACS had commenced the litigation as part of a larger plan to disrupt, if not destroy, their new business. 

The Supreme Court is most likely grappling with the issue of whether unfair competition may include a theory of malicious litigation, a contention that has troubled the State of Ohio enough that the Ohio Attorney General’s Office filed an amicus brief and appeared and argued in support of ACS’s position. Oral argument took place in September, so a decision should be forthcoming soon. For a good summary of the oral argument and some handicapping of how some of the Justices might rule, please see former Appellate Judge Marianna Bettman’s Legally Speaking blog post on this decision.

The other case, Acordia of Ohio v. Fishel, involves another hot topic — namely, whether non-competes with four employees survived a series of successive mergers. (See my post on the OfficeMax v. Levesque case out of the First Circuit, which grappled with a similar issue).

In Acordia of Ohio, the trial court refused to enforce the non-competes because they were confined to the specifically named former employers, which had changed over time after a series of successive mergers. After each merger, the company holding the specific non-compete disappeared. According to the trial court, this effectively terminated employment under each non-compete and triggered the time period of each non-compete. By the time the four employees decided to leave and join a competitor, each of their non-competes had expired under this analysis.

The First Appellate District in Hamilton County (the county where Cincinnati is located for you out-of-staters) affirmed the ruling late last year, looking not only at the language of the agreements in question but relying on Ohio statutory law to support its holding (citing in particular, Ohio R.C. 1701.82(A)(3)), which deals with the legal effects of a merger of Ohio corporations). The First District relied on older Ohio Supreme Court authority holding that “the absorbed company ceases to exist as a separate business entity” and that “[b]ecause the predecessor companies ceased to exist following the respective mergers, the Fisher team’s employment ceased to exist following the respective mergers, the Fisher team’s employment with those companies was necessarily terminated at the time of the applicable merger.”

As I wrote last fall, this case pits the shortcomings of the covenant’s language against the common sense notion that something worth protecting survived the merger. Judge Bettman has a post on the oral arguments on this case as well. Again, a decision should be forthcoming soon.

Other Noteworthy Decisions:

The Tenth District Court of Appeals (which covers Franklin County, the county that includes Columbus, Ohio) issued two trade secret decisions on December 30, 2011. I wrote about one, Columbus Bookkeeping & Business Services, Inc. v. Ohio State Bookkeeping, Case No. 11AP-227 (Dec. 30 2011), in which the Tenth District took the unusual step of reversing a preliminary injunction issued against several former employees who were alleged to have misappropriated a customer list. The Tenth District was unimpressed with the trade secret bona fides of that customer lists and seemed troubled about the absence of a non-compete.

The Tenth District also issued an opinion in Columbus Steel Castings Co. v. King Tool Co., 2013 Ohio 6826 (10th Appellate Dist. Court of Appeals, Dec. 30, 2011), affirming the trial court’s entry of a permanent injunction imposing a royalty even though the jury had declined to award damages for the misappropriation of trade secrets by the defendant. For more on this case, see Seyfarth Shaw’s Trading Secrets blog post discussing this opinion.

In February, U.S. District Court Judge Michael R. Barrett denied a motion for a TRO because the plaintiff had publicly posted its alleged trade secret information online. In Allure Jewelers, Inc. v. Ulu, No. 1:12cv91, 2012 WL 367719 (S.D. Ohio Feb. 3, 2012), Judge Barrett emphasized that Allure’s Complaint failed to show any reasonable efforts of secrecy regarding pricing information, which was made publicly available on Allure’s website. Seyfarth Shaw’s Trading Secrets has a post on this case, also.

Finally, as I wrote last month, the Stark County Court of Common Pleas (Canton, Ohio) issued a ruling that may have significant repercussions within the radio and television industry and the manner in which they draft their non-competes in the future. In DeLuca v. DA Peterson, Judge Charles E. Brown, Jr. found that a radio station’s covenant not to compete did not prevent two radio co-hosts from launching an online streaming music website. 

Judge Brown reasoned that the covenant only prohibited the former employees from running a business that was “the same or essentially the same as a commercial radio station.” He concluded that that the new online venture fell outside the language of the non-compete because it did not use the public airwaves, required no FCC license, was not regulated by the FCC, and was not subject to the 60 mile transmission radius restricting radio stations. (A PDF copy of the opinion, which came out several days after his ruling from the bench, can be found here).