Charges of spoliation of evidence are frequently levelled in trade secret cases but rarely result in formal judicial findings of misconduct and sanctions. That may be changing. Last week, on the eve of jury selection, the U.S. District Court for the Eastern District of Virginia in Richmond found that key employees of the defendant, Kolon Industries, Inc., deliberately deleted emails and other evidence and engaged in prolonged efforts to conceal that conduct. The district court has sanctioned Kolon by ordering that an adverse inference instruction will be given to the jury and has awarded DuPont its attorneys fees in connection with the motion. (A special thanks to Mark Klapow for bringing this ruling to my attention).
 
This case has been the subject of significant media coverage already and is shaping up to be the East Coast version of the Mattel/MGA dispute. For the uninitiated, DuPont sued Kolon, a company with its headquarters in South Korea, in February 2009, claiming that Kolon had misappropriated trade secrets relating to the body armor, Kevlar, after Kolon hired a former DuPont employee, Michael Mitchell. 

While working with Kolon, Mitchell served as a go-between with other former DuPont employees and he ferried various DuPont trade secrets to Kolon. After DuPont discovered Mitchell’s actions, it notified the FBI and Department of Commerce, who then launched their own investigations. Mitchell ultimately pled guilty to theft of trade secrets and obstruction of justice. 
 
The Virginia ip Law Blog has a thorough summary of the case, which has generated over 1,200 pleadings and orders. There have been a number of noteworthy rulings that have garnered commentary, ranging from rulings relating to the viability of Kolon’s antitrust claim against DuPont to a recent decision finding the Department of Justice and DuPont did not improperly collude in connection with subpoenas used to gather evidence for the prosecution.

Not surprisingly, given the scope of this case, the July 21, 2011 Order (a link for which is below) is not light reading and spans 91 pages. After finding misconduct by a number of key employees, the district court declined to enter a default against Kolon because of two relatively prompt litigation holds and because the company itself had not systematically engaged in the misconduct. Nevertheless, the district court did find that a number of key employees who interacted with Mitchell deliberately, willfully and in bad faith deleted a substantial amount of emails immediately after the filing of the complaint; it further found that they also set upon a course to conceal their conduct from the court and DuPont. Balancing the fact that many of the emails were recovered while many others were not, the court found that there was more than adequate grounds for a spoliation jury charge.

On these facts, the district court concluded that the best remedy was “to inform the jury that certain Kolon executives and employees, after learning that DuPont had sued Kolon, deleted much electronically stored information that would have been available to DuPont for use in presenting its case.” The district court further held that the “jury then should be allowed to infer that the recoverable deleted information would be helpful to DuPont and harmful to Kolon.” Finally, the district court ordered that “jury should be told that the fact of deletion, without regard to whether the deleted material was recovered, may be taken into account in assessing the element of Kolon’s intent and knowledge” (Opinion at pp. 87-88).

The takeaway? Litigation holds may provide a corporate defendant with some protection but there needs to be follow through within the company to ensure that the litigation hold is not only distributed to the appropriate employees but that it is also followed by those employees. Special care may also need to be taken with key employees located outside the U.S., who may not be as familiar with the severe consequences of preserving email and other electronic information in U.S. litigation.

 DuPont v. Kolon Spoliation Order.pdf (2.24 mb)

A recent trade secret case involving a “love triangle” between three pharmaceutical companies, Amylin Pharm., Inc. v. Eli Lilly & Co., Case No. 11-CV-1061 JLS (NLS), U.S. Dist. Ct. for the Southern Dist. of California, illustrates the challenge of proving irreparable harm. (Many thanks to the Emergency Business Litigation Blog for writing a fine post on this case and bringing it to my attention).
 
The facts are straightforward. Amylin and Lilly had created an alliance to develop a drug, exenatide, for the treatment of Type 2 diabetes. Earlier this year, Amylin learned that Lilly had entered into another alliance with a competitor of Amylin’s, Boehringer Ingelheim GmbH, to develop a similar drug. Amylin then sought a TRO to prevent the disclosure of confidential information by Lilly’s sales staff to that competitor.
 
The district court struggled with the existence of irreparable injury from the beginning. Although the district court granted a TRO (a link to that decision appears below), it avoided any serious analysis of irreparable injury and held that California courts “have presumed irreparable harm when proprietary information is misappropriated.” The district court focused on what it perceived to be a strong showing on the the likelihood of the merits prong necessary for an injunction — namely, that because Lilly’s sales staff had the confidential information, they would inevitably disclose or use that information during the sales process. 
 
After the preliminary injunction hearing and briefing, however, the district court declined to issue an injunction (a link to that opinion also appears below). Citing the Supreme Court’s holding in Winter v. NRDC, 555 U.S. 7 (2008), that a claimant must show that irreparable injury is likely, the district court rejected Amylin’s contention that Lilly’s sales representatives would misuse confidential information as speculative. In particular, it was persuaded by  Lilly’s argument that FDA’s regulations prohibited Lilly’s reps from making statements without any adequate supporting data. Notably, Amylin was unable to show that those reps would be willing to risk the wrath of the FDA during the sales process. The court also noted that money damages could compensate Amylin if it were in fact injured. 
 
Had Amylin been able to proffer any direct or compelling circumstantial evidence of misappropriation, the result may have been different. Remarkably, the district court did not address its concerns about inevitable disclosure, concerns that had figured so prominently in its TRO decision. I suspect that the court was uncomfortable relying on that doctrine in the face of FDA regulations that apparently obviated the court’s previous reservations. 
 
The takeaway? Many of us have expected the holdings in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), and Winter would eventually filter down to trade secret cases. A party seeking an injunction has always been expected to come forward with evidence of improper conduct or misappropriation so that a court is comfortable finding irreparable injury. This means thorough investigation, forensic examination of laptops or other devices, or other means of identifying misappropriation is increasingly important. While many courts recognize the importance of circumstantial evidence in trade secret cases, (see Stratienko v. Cordis Corp., 429 F.3d 592 (6th Cir. 2003)), direct evidence of misconduct or misappropriation may now be critical to proving misappropriation and irreparable injury.
 

 

I will be co-presenting a webinar tomorrow from 1 p.m. to 2 p.m. EST called “Trade Secret Theft: Effective Tools for High Stakes Disputes” through the Practicing Law Institute (PLI) with Victoria Cundiff of Paul Hastings Janofsky & Walker LLP. As many of you who practice in the trade secret area know, Victoria is one of the preeminent lawyers in this space and it is a real privilege to co-present with her. I have learned a lot already just preparing for the seminar with her.
 
Our presentation will focus on best practices and recent case law involving written agreements, exit interviews, hiring employees with non-competes, navigating through the landmines of social media and the internet, multi-jurisdictional challenges for employers, and other topics of interest in trade secret and non-compete law. Registration and pricing information for the webinar can be found at the following PLI link. For those that are available, it should be a practical, thorough and interesting seminar and we hope you can attend.

I have written previously on the challenges of protecting trade secrets in the context of arbitration. A case filed yesterday in New York Supreme Court by the venture capital firm Advanced Equities, Inc. (AEI) reinforces the necessity of getting injunctive relief from a court while an arbitration is pending and an arbitrator is being selected.
 
As Law360 is reporting, AEI sued its former employee, Jared Carmel, and his new employer, Felix Investments, LLC, alleging that Carmel and Felix are misappropriating its trade secrets, among other things.  Like many disputes in the financial services sector, AEI and Felix have a history, as Felix was formed by a former employee and officer, Frank Mazzola (who AEI has also joined as a defendant) and the firms have already been in litigation over Felix’s claims that AEI has defamed it. AEI and Felix have been in the news lately, as they are apparently fierce competitors in a potentially lucrative market of securities: shares of Facebook and Twitter from employees interested in selling them in advance of any initial public offering.
 
While the allegations of the lawsuit are relatively straightforward (i.e., breach of fiduciary duty, theft of trade secrets, intentional interference of contract), what is noteworthy is the fact that AEI has already filed an arbitration proceeding against Carmel before the Financial Industry Regulatory Authority (otherwise known as FINRA). Normally, a court might defer to that pending proceeding and stay any lawsuit filed afterward; however, given the delay that accompanies the appointment of an arbitrator, courts have found that it is appropriate for a party to request an injunction during this process to preserve its trade secrets. See Performance Unlimited, Inc. v. Questar Publishing, Inc., 52 F.3d  1373 (6th Cir. 1994).  
 
The takeaway?  Follow AEI’s example and file for a TRO in court even though your trade secrets claim may be subject to an arbitration provision. While this approach is costly and potentially duplicative in some respects, the alternative is that your client’s trade secrets may be lost during the inevitable delay that comes with the selection and approval of an arbitrator. The better solution, of course, is to draft your agreements to carve out trade secret and intellectual property disputes from any arbitration provision so that added expense and potential motion practice about the appropriate forum is eliminated. 

Many of us are still trying to get our minds around the transformative effect of social media sites on the workplace, on litigation and, for purposes of this post, the trade secret practice area.

 

Social media’s impact has been both practical and substantive. On the practical side, when a a non-compete case comes through the door, one of the first things that I do is check to see if the potential defendant has a LinkedIn profile for background information. More often than not, my client has already scoped that profile out because the client remains “connected” to the former employee and can monitor, to some extent, the employee’s contacts and connections. The Virginia Non-Compete Blog, whose clients are generally employees on the receiving end of non-compete disputes, has likened this curiosity to a form of “cyber-stalking,” effectively using the analogy of a break-up and resulting matrimonial dispute to illustrate that point (it’s a great example, as Facebook and other social media have become an evidentiary boon to the matrimonial bar). As a result, it counsels its clients to take a hiatus from social media sites to avoid potential disagreements during this period of high tension, which is good advice.

 

Substantively, LinkedIn continues to be a topic of discussion in the trade secret community. I wrote a post last month on the Sasqua Group decision out of the Eastern District of New York and its potential impact on the protection of customer lists. Another issue recently raised in the context of LinkedIn is who truly owns the connections information that is listed within LinkedIn’s site. A case that was closely watched last year, TEKsystems, Inc. v. Hammernik, et al. (0:10-cv-00819-PJS-SRN) (D. Minn. 2010), addressed this issue — namely, whether a defendant’s use of LinkedIn was a violation of his non-solicitation agreements. 

 

In that case, TEKsystems accused one of the defendants of using LinkedIn to solicit TEKsystems’ contract employees and clients and identified approximately 20 TEKsystems contract employees that were solicited using LinkedIn. While that defendant admitted using LinkedIn to communicate with those individuals, he denied otherwise having communicated with them. He also argued that TEKsystems’ and its employees’ use of LinkedIn and Facebook for recruiting, promotional and other purposes voided any claim that any information posted on those sites was a trade secret or confidential.

 

No ruling was ever issued on the LinkedIn issues as the parties entered into a stipulated order enforcing the non-solicitation agreement and requiring the return of TEKsystems’ documents; however, the case generated tremendous interest as the first case to attempt to sort out these issues.

 

At the end of the day, the same fundamentals that apply to protecting trade secrets in other areas apply to the use of LinkedIn. First, to the extent that a company uses a non-solicitation or non-compete agreement, that agreement should specify that post-employment communications to customers made through an online social networking website including LinkedIn or Facebook constitute a violation of that agreement. This step will preserve the client’s contractual remedy, whatever the trade secret status of the contact information.

 

Second, any employment or non-solicitation agreement should include a confidentiality provision that expressly defines confidential information to include client identities and contact information and that it is the property of the employer. That provision should unambiguously state that confidential information may not be used or disclosed for any purpose other than on behalf of the employer, including through the use of social media, and again, identifying LinkedIn. 

 

Finally, employers should develop, disseminate, and, if necessary, train employees on company policies addressing the use of social media. Through these policies, employers should make sure that their employees understand which information is considered confidential and what information constitutes a trade secret. This will require companies to be vigilant about their employees’ use of social media and that they monitor that use from time to time to ensure that employees are complying with their written agreements and the company’s policies. Many companies have already created social media officers who are responsible for ensuring the creation and implantation of these social media policies. In the absence of follow-through to ensure compliance, a court may deem that failure as proof that trade secrets do not exist or are not sufficiently important to warrant protection.

Trade secret litigation is contentious by its very nature, and the issue that never fails to cause a litigant’s blood to boil is the effort by an opponent to discover trade secrets not directly at issue in a case. A decision last week in the high profile case brought by Apple over Samsung’s new Galaxy cell phone and computer tablet strikes a welcome blow in favor of confining discovery to the actual issues of the case.  
 
Typically in a discovery dispute over confidential information, the party claiming confidential status must make a prima facie showing of that status and show any disclosure might be harmful (this harm is presumed with competitors); the burden then shifts to the party seeking the discovery to show that such information is both relevant and necessary to the underlying action. Universal Del., Inc. v. Comdata Network, Inc., 2011 U.S. Dist. LEXIS 28963 (M.D. Tenn. Mar. 21, 2011); Spartanburg Reg’l Healthcare Sys. v. Hillenbrand Indus., 2005 U.S. Dist. LEXIS 30594 (W.D. Mich. Aug. 24, 2005). Where both parties meet their competing burdens, “the court then balances the need for discovery of the information against the alleged injury which will result from disclosure.” Universal Del., Inc., 2011 U.S. Dist. LEXIS 28963, at *6.
 
In Apple Inc. v. Samsung Electronics, Ltd., et al., Case No. 11:CV-01846-LHK, U.S. District Court for the Northern District of California, San Jose Division (June 21, 2011), Apple claims that Samsung’s Galaxy cell phones and computer tablets infringe its trade dress, trademarks, and utility and design patents. When Apple moved for expedited discovery against Samsung, Samsung insisted on “reciprocal” discovery on future Apple products, arguing that Apple had “opened the door to discovery of unreleased products” and its trade secrets. 
 
Apple opposed that request and argued its case was expressly limited to infringement of its existing product line, not on any next generation products that it might release in the future, and that those trade secrets as to subsequent product lines were irrelevant. On June 21, 2011, the court rejected Samsung’s motion to compel. Its clean and logical reasoning is best reflected in the following quote:
Ultimately, the essence of Apple’s claims is that Samsung has copied Apple’s products. Common sense suggests that allegations of copying are necessarily directed at Apple’s existing products, to which Samsung has access and could potentially mimic, and not at Apple’s unreleased, inaccessible, next generation products. Samsung has cited no case requiring a plaintiff in a trade dress or trademark case to produce its future products in a context similar to this one. Given these circumstances, the Court agrees with Apple that it simply has not put is next generation products at issue, at least with respect to its anticipated motion for a preliminary injunction, and Samsung does not need access to these products in order to oppose such a motion. 
(Opinion at p. 9) (A link to that opinion can be found below).
This decision benefits trade secret plaintiffs and defendants alike. Too frequently, a party perceives that it can gain leverage by trying to use discovery on this basis as a pressure point to secure an unfair tactical or strategic advantage. The purpose of the request may be to cause delay, distract the court from the merits of the dispute, to squeeze the opposing party to make him or her feel further at risk, or to simply wear down an adversary with the potential cost associated with this discovery. Although there will always be parties who will insist on pushing this envelope, one can hope that the clean and unassailable logic of this decision will be followed in other trade secret cases.

Apple Samsung Disc Ord.pdf (109.70 kb)

In a significant ruling for employers, the Texas Supreme Court held on Friday that stock options could serve as valid consideration to enforce a covenant not to compete. This is a pretty big decision as Texas has long been viewed as one of the more difficult jurisdictions to enforce a non-compete.
 
In Marsh USA Inc. and Marsh & McLennan Cos. Inc. v. Rex Cook, Case No. 90-0558 (June 24, 2011), Rex Cook, a long-time employee of over 20 years, signed an agreement with Marsh permitting him to exercise stock options in exchange for two-year non-solicitation agreement. Under the terms of the agreement, Cook agreed to be bound to that two-year non-solicitation period if he left the company within three years after exercising the stock options. When Cook left the firm less than two years later and joined a competitor, Marsh sued to enforce the non-solicitation agreement.
 
After both the trial and appellate court levels refused to enforce the non-solicitation agreement, the Texas Supreme Court reversed in a 6-3 opinion. The Supreme Court found that under Texas’ Covenants Not to Compete Act, “the consideration for the noncompeting agreement (stock options) is reasonably related to the company’s interest in protecting its good will, a business interest the Act recognizes as worthy of protection. The noncompete is thus not unenforceable on that basis.” The case has been remanded to the trial court for further proceedings.
 
The Texas Supreme Court’s opinion is not yet available online, but the parties’ briefs can be found here.  I will get a post out on that opinion once it becomes available.
 
John’s December 30, 2011 Edit:  From the “better late than never” file, I realized that I had not followed up with a post on this decision so I have now attached a PDF of the Texas Supreme Court’s decision below.
 

 

 

Marsh USA Inc. v. Cook.pdf (155.13 kb)

When protecting their trade secrets, many companies rightly focus on the agreements and safeguards that they have with their employees and business partners. However, an overlooked relationship that they should consider scrutinizing more closely is their relationship with their vendors and prospective vendors. 
 
Take the highly-publicized dispute that Goodyear had with its vendor Wyko Tire Technology. In 2007, two engineers from Wyko visited Goodyear’s Topeka, Kansas plant under the auspice of servicing Wyko equipment being used in that plant. According to the indictment in that case, they lied to their Goodyear escorts to get into the plant, they carried a cell phone camera into a restricted area, and one Wyko employee took seven photos of a highly proprietary roll over-ply down device while the other stood at a distance to look for Goodyear employees. The employees then emailed those pictures to others at a Wyko subsidiary, who later used them to design a similar process for Wyko’s use. The two Wyko engineers were prosecuted and convicted of 10 felony counts for trade secret theft and wire fraud last year. 
 
Employees may also be tempted to overreach in their relationships with vendors, which are inherently more difficult to monitor than relationships with co-workers or formal business partners. For example, in February, a senior manager of Home Depot plead guilty to stealing its secrets and turning them over to a vendor. According to the U.S. Attorney’s Office, while working as a senior manager in product engineering for the home improvement retailer in 2008, the manager “gave out confidential and proprietary pricing information, including the price that the company was paying the vendor’s competitors for the products that the vendor wanted to sell to the company.” He apparently did this in the hope that it would help him get a job with that vendor. (The Trade Secrets Blog has a thorough February 2010 post on this plea).
 
Other situations with vendors may present risks because of the informality that accompany those relationships, particularly in the early stages. As we all know, vendors frequently provide demonstrations highlighting the services that they provide and in many of these situations, employees arrange these meetings without appropriate safeguards, agreements or the involvement of key decision-makers. As a result, a company may find a vendor later claiming misappropriation of trade secrets and ensnared in litigation as a result. See Speed-Trac Technologies v. Estes Express Line, U.S. District Court for W.D. Carolina, Case No. 3:2008cv00101 (vendor sued prospective customer alleging customer misappropriated alleged trade secrets provided during presentation; summary judgment ultimately granted to customer).
 
A recent article by Josh Durham of Poyner Spruill in Charlotte provides some sound advice on how to manage these relationships. A prudent first step is to improve the vendor-invitation process by involving senior management, research and development departments and IT staff in the scheduling of these meetings so they can vet whether the process or technology being offered is a good fit within the organization and in the process, minimize the likelihood of problems. In addition, prior to these demonstrations, vendors may offer one-sided NDAs that are overly broad in their designation of what is confidential; again, involving key decision-makers should ensure that appropriate NDAs that are mutual and identify the appropriate parameters of confidentiality will be executed. Emphasizing that vendor relationships are also subject to company confidentiality policies and agreements. Finally, as the Goodyear and Home Depot incidents illustrate, vendor relationships should be closely monitored, especially situations involving former employees who join vendors or vendor visits that provide access to sensitive technology or permitted in restricted manufacturing areas.

A trade secrets plaintiff can now secure both a damages award for misappropriation of trade secrets and a permanent injunction to prevent further injury under Ohio’s version of the Uniform Trade Secret Act. In Litigation Management, Inc. v. Bourgeois, 2011 Ohio 2794 (June 9, 2011), the Court of Appeals for the Eighth Appellate District in Ohio (Cuyahoga County) has provided trade secret plaintiffs in Ohio with a powerful tool to protect their intellectual property. (For additional details on this case, I recommend the Trading Secrets Blog).
 
The plaintiff, LMI, provided litigation support specializing in analyzing medical records; it brought the case against several former employees who formed a competitor, Excelas. It appears that LMI discovered that its former employees had breached their non-competes and non-solicitation agreements after the expiration of those agreements (the opinion is less than clear on this point). As a result, LMI sued them and Excelas for money damages in the form of lost sales, arguing that the defendants misappropriated its pricing strategy and other trade secrets to secure those sales. At the close of evidence, the trial court found the agreements to be enforceable and enforced them in the “Greater Cleveland Metropolitan Area.” After the jury awarded damages for the lost sales in that geographic area, LMI then moved the trial court to enforce the agreements in the form of a permanent injunction. The trial court denied that request, reasoning that the plaintiff had already received an adequate remedy at law in the form of money damages and, therefore, an injunction was unnecessary.
 
The Eighth District Court of Appeals disagreed, noting that the damages award only remedied the plaintiff’s past damages, not its future damages. The Eighth District recognized that “injunctions concern the prevention of future harm, not compensation for, or punishment of, past harm” (Opinion at Para. 18). Without an injunction, the defendants would continue to have the benefit of the trade secrets post-trial and would continue to use them against the plaintiff.
 
In another noteworthy holding, the Eighth District found that the jury’s verdict created a rebuttable presumption of irreparable harm resulting from the loss of the proprietary information. As a result, it found that the defendant now bears the burden of proving that the injunction should not issue in this situation.
 
The take-away? This ruling greatly benefits a company which either discovers the misappropriation long after the misconduct has begun or could not secure an injunction at the outset of the case. Indeed, the Eighth District’s creation of a rebuttable presumption favoring a permanent injunction should provide that plaintiff with the ability to get that post-trial relief, a substantial weapon against the defendant found to have misappropriated trade secrets.

Two recent decisions in the news highlight the risks that may accompany hiring an employee subject to a potentially enforceable non-competition or non-solicitation agreement. 
 
The most recent decision involves an injunction enforcing the non-compete of a recently-hired employee even though the new employer, Avaya, took, in the district court’s own words,”scrupulous steps” to protect the former employer’s trade secrets after the hire. (Many thanks to the Massachusetts Non-Compete Blog for its fine post on this decision). On June 2, 2011, in Aspect Software, Inc. v. Barnett, Civil Action O. 11-10754-DJC, the United States District Court Court for the District of Massachusetts detailed the efforts of Avaya and the former employee, Gary Barnett, took to protect the plaintiff Aspect Software’s trade secrets before Barnett started his new job:
 
Barnett turned off his Aspect-issued Blackberry immediately after tendering his resignation, left his laptop computer in his office, and boxed all Aspect property in his home and made arrangements for a representative from Aspect to retrieve the boxes. Avaya included language in its employment offer to Barnett that specifically forbade him from using any Aspect trade secrets in the course of his employment with Avaya and, separately, incorporated by reference Barnett’s Agreement with Aspect. Avaya and Barnett subsequently entered into an “Employee Agreement Regarding Intellectual Property” that included similar protections.
 
In addition, Avaya’s Senior VP and President of Global Communication Solutions sent Barnett a detailed e-mail that provided the following ground rules:
  1. Do not retain any documents or information relating to Aspect’s business, in any form, that you obtained in your role as an Aspect employee.
  2. Do not disclose any document or information relating to Aspect’s business to anyone at Avaya and do not use such documents or information in your employment with Avaya.
  3. If Aspect comes up in any discussion or meeting that you are attending in your role as an Avaya employee, you should not provide any input.
  4. If, in the course of your employment with Avaya, you are asked for information relating to Aspect’s business, you must refrain from providing the information.
  5. Until April 19, 2012, do not have any communications with any Aspect employee about leaving his or her employment with Aspect.
  6. Until April 19, 2012, do not play any role in hiring anyone who was employed with Aspect in the 180 days prior to your involvement in the hiring process.
  7. Until April 19, 2012, do not have any communications with any Aspect customer, supplier, licensee, licensor or business relation about doing business with Aspect or Avaya.
  8. Until April 19, 2012, do not make any negative statements about Aspect to any Aspect customer, supplier, licensee, licensor or business relation.
Despite these steps and despite the court’s expression of appreciation for the efforts to “protect the integrity of Aspect’s trade secrets,” the district court nevertheless concluded that even if “wholly successful,” these steps would only reduce the harm flowing from the breach of the agreement and not the breach itself. In addition, the district court noted that these steps lacked the force of law and were merely contractual and voluntary in nature (which begs the question of whether an agreed order was ever addressed). Applying the inevitable disclosure doctrine, the district court concluded that an employee, no matter how conscientious, might ultimately use the forbidden information and as a result, the court enforced the non-compete. However, it is worth noting that the court required Aspect to post a $500,000 bond, a substantial condition for a case involving only one employee.
 
The other case involves a $7.86 million jury verdict against Houston’s University General Hospital and its affiliated companies Ascension Physician Solutions and Luxxus Health Systems for intentionally interfering with the contracts of a competitor, Prexus Health. University General Hospital had hired several senior executives who were subject to non-compete and confidentiality agreements with Prexus Health. The Harris County, Texas jury found that University General Hospital’s leadership wrongfully terminated a series of contractual agreements with Prexus, agreements which covered management and administrative services at University General’s 72-bed specialized hospital. The jury also found that Luxxus interfered with confidentiality and non-compete agreements by hiring the former Prexus executives and employees to perform the same services through companies controlled by University General executives.
 
How does a company avoid these potential issues? First, by debriefing any prospective employee about the existence of a non-compete, non-solicitation or non-disclosure agreement, an employer can avoid hiring a prospective employee altogether if it foresees a potential issue. The problem, however, with this approach is that in many industries that might substantially reduce, if not eliminate, the talent pool available to that employer. Second, in the event that a company has concerns about the scope, duration or enforceability of a former employee’s agreement (for example, few, if any, courts would enforce a worldwide non-compete), it should take steps similar to what Avaya did, as detailed above, to minimize any improper disclosures or contacts. Although the district court granted an injunction in that case, the district court’s language commending Avaya and Barnett suggests that it was conflicted about issuing the injunction but felt duty-bound to do so. The order directing a substantial bond ($500,000), however, speaks volumes about what the court thought was appropriate and suggests that the court used its discretion to shape a resolution or result more in line with the perceived equities of that case. Third, by taking the steps that Avaya did, a party should be able to avoid the situation that befell University General Hospital; if the new employee (and by extension, the new employer) is not using a former employer’s trade secrets or contacting former customers, the risk of a multi-million dollar verdict should be eliminated.