In one of the biggest non-compete cases filed late last year, a Seattle federal judge has now rejected Amazon.com, Inc.’s effort to enforce its covenant not to compete against former cloud computing manager, Daniel Powers, who had joined Google three months after Amazon terminated him. There are a number of noteworthy holdings in the December 27, 2012 decision by U.S. District Court Judge Richard A. Jones, a copy of which is attached as a PDF below. However, what was most significant to me was the manner in which Google and Powers so effectively preempted potential claims of potential misappropriation and irreparable injury by taking steps to protect Amazon’s trade secrets and customer relationships.
Background: Powers had served as Amazon’s vice president in charge of global sales for Amazon Web Services before he was terminated by Amazon. Last October, Amazon sued Powers to enforce its 18 month non-compete after it learned that he had become Google’s director of cloud platform sales.
However before Powers joined Google, he and Google both agreed that Powers would not (1) use any of the trade secrets or confidential information of Amazon; (2) perform any cloud computing work for his first 6 months with Google; and (3) contact any of his former customers from Amazon. Significantly, there was no evidence that Powers took anything from Amazon or that he had used any of the trade secrets that the district court concluded he likely had learned while at Amazon.
Those steps proved instrumental, as Judge Jones repeatedly emphasized the steps that Google and Powers had undertaken to safeguard those trade secrets, noting that Powers and Google had agreed to “virtually every restriction Amazon seeks in its injunction.” These safeguards, and the absence of any misappropriation, further undermined Amazon’s ability to present a compelling argument as to irreparable injury, since the district court noted that a probability of the threat of irreparable injury was simply not present on this record. As a result, he denied most of Amazon’s request to enforce its covenant not to compete and simply ordered that Powers not solicit Amazon customers through March 2013, which amounted to 9 months from the date of his termination.
Key Takeaways: No. 1: Google and Powers wisely defused Amazon’s non-compete. Using Hewlett Packard’s playbook from the IBM v. Visentin case, Google and Powers left Amazon with very little room to maneuver. They addressed Amazon’s legitimate interests in its trade secrets and customers by taking them off the table and their willingness to have him perform no cloud computing work for 6 months not only made them look reasonable but gutted Amazon’s ability to demonstrate the threat of irreparable injury.
No. 2: Amazon’s decision not to conduct discovery cost it dearly. For reasons that are not clear, Amazon elected not to pursue expedited discovery against Powers and Google, a fact that Judge Jones repeatedly emphasized in knocking down Amazon’s arguments as lacking. For example, because Powers had not been at Amazon for the previous six months, Judge Jones noted that some of the information could conceivably be stale at this point in time; expedited discovery would have assisted in demonstrating that Powers had access to and had retained viable trade secrets. Moreover, Amazon’s efforts to argue that Powers would inevitably disclose its trade secrets suffered because they could not demonstrate what he actually knew or retained, or show that the similarity of his old position and new position would lead to that inevitable disclosure.
No. 3: Amazon did not identify the specific trade secrets it believed were at risk. Perhaps for the same reason it was reluctant to engage in discovery (and thus expose its own trade secrets to Google), Amazon apparently elected not to provide evidence of specific trade secrets it believed were at risk and instead elected to rely more heavily on the protections it felt it had under the covenant not to compete. Judge Jones identified this as a further ground for denying Amazon’s trade secrets claim.
No. 4: An overly broad non-compete hurt Amazon. The district court was troubled with the non-compete which had no geographical limitation and which covered all of Amazon’s business lines, even the ones in which Powers had never worked. Consequently, the broad non-compete served to reinforce the reasonableness of the non-solicitation provision, which the court was willing to enforce. The absence of specific trade secrets and threat of irreparable injury were the final nails in the coffin of the non-compete.
To sum up, this case shows the importance of solid planning and imposition of safeguards to protect an opposing party’s trade secrets and customer relationships. For more on this important case, see the fine posts of Jonathan Pollard, Kenneth Vanko and Russell Beck.