Unfair Competition, Trade Secrets and Non-Competition Agreements

Barry Waters of our firm prosecuted the successful trial and appeal in Elm City Cheese Co. v. Federico, 251 Conn. 59 (1999), which has become the leading case on theft of business methods in Connecticut. Other recent successes in Connecticut include:

• 3M v. Francavilla, 191 F. Supp. 2d 270 (D. Conn. 2002)
• United Rentals, Inc. v. Pruett, 296 F. Supp. 2d 220 (D. Conn. 2003)
• Grady Face First, Inc. v. Escavich, 321 F. Supp. 2d 420 (D. Conn. 2004)
• Risdon-AMS (USA), Inc. v. Levine, 2004 Conn. Super. LEXIS 580 (2004)
• Pop Radio, LP v. News America Marketing In-Store, Inc., X08CV054002814, 49 Conn. Supp. 566, 898 A.2d 863, 2005 Conn. Super. LEXIS 2982 (Sept. 15, 2005).

In late 2011, we obtained a preliminary injunction in Massachusetts against a key technical employee who had left our client, Wall Street Systems, which sells sophisticated financial software products for the control and management of corporate treasury operations around the world, to go to work for one of its chief competitors. The case involved interesting legal and strategic issues of choice of law, forum and venue. Our in-house client contact is in Dublin, Ireland, the US headquarters is in New York, the employee worked in the Boston office, and the company’s international headquarters is in London. After obtaining the preliminary injunction, in 2012, we successfully negotiated a permanent injunction against competition of the former employee who left the competitor’s employment. Although not quantified, the potential damages could have totaled hundreds of millions of dollars.

• Wall Street Systems (AMERICAS), Inc. v. Person, No. 2011-NOCV-01666 (Mass. Sup. Ct. Nov. 10, 2011) 

We also actively litigate non-compete and trade secret cases in Massachusetts and elsewhere in New England. In one dispute that crossed state lines, we obtained multiple injunctions and a favorable resolution for our client:

• AFC Cable Systems, Inc. v. Papitto, C.A. No. PC-04-5488 (Sup. Court, Providence, RI, 2004)
• AFC Cable Systems, Inc. v. Olivier & Sons, Inc., No. BRCV2004-01255 (Superior Court, Taunton, MA, 2004)
• Recently, within a week of being retained, we successfully opposed the issuance of a preliminary injunction against an out-of-state client:
• "Former Employer" v. "Former Employee," MICV2006-00412 (Superior Court, Cambridge, MA, 2006)

Non-competition agreements are by far one of the most powerful tools a business has available to it to protect its competitive advantage. Courts frequently enforce, at least in part, agreements seeking to protect against the loss of employers' proprietary information, customer goodwill and employees. For example, Connecticut courts, which are particularly pro-enforcement, recently have held:

• A noncompete agreement was enforceable to prevent the employee, an engineer, from "engag[ing] in any business engaged in" by the employer (a provider of "highly specialized engineering maintenance services") within 150 miles of the employer's principal place of business, for a period of one year after the termination of employment. Maint. Techs. Int'l, LLC v. Vega, No. CV054005177S, 2006 Conn. Super. LEXIS 136, at **1-2, 13 (Jan. 12, 2006).
• Provisions in an employment agreement were enforceable to prevent the employee, who worked for an insurance agency, from soliciting the employer's other employees and from "using, disclosing, misusing or further converting" any of the employer's "confidential, proprietary or trade secret information . . . ." The court's decision does not specify any time or distance limitation on these restrictions. TD Banknorth Ins. Agency, Inc. v. Kirsche, No. CV054017927, 2005 Conn. Super. LEXIS 3392, at **2-3, 8 (Dec. 7, 2005).
• A noncompete agreement was enforceable to prevent the employee, a real estate salesperson, from working for any competitor of the employer (a realty company) within a 15 mile radius of the employer's office, for a period of one year after the date of the court's order. Access Am., LLC d/b/a Century 21 Access Am. v. Mazzotta, No. CV054003389, 2005 Conn. Super. LEXIS 2597, at **1, 13 (Sept. 14, 2005).
• In Futures Healthcore, LLC v. Messenger, No. CV030825197S, 2005 Conn. Super. LEXIS 808, at **6-8, 10-11 (Mar. 23, 2005), the court enforced an agreement to prevent one company from hiring another company's employee. In the agreement, the defendant agreed that it would not "employ, retain, or in any way contract with" any employee of the plaintiff, without the plaintiff's consent, for a period of one year after the employee left the plaintiff's employ. The agreement provided for liquidated damages in an amount equal to one year's salary of the employee.

In an environment in which businesses of most types are using such agreements with many types of employees (manicurists to sellers and developers of sophisticated medical products to accountants), and courts are enforcing these agreements, the business that chooses not to use this tool is disadvantaged from the start.

Even more devastating to a business is when it finds itself on the other side of litigation involving an agreement to which its prized new employee is a party. This is a hard way to learn that non-competition agreements can and will be enforced. Nevertheless, there may be solid business reasons why an employer chooses to hire an employee who is a party to such an agreement – but it should do so with its eyes wide open.

The good news is that there frequently are defenses to full enforcement of a non-competition agreement (lack of consideration and overbreadth, to name just two). We routinely and with great success defend against overbroad or otherwise unenforceable non-competition and non-solicitation agreements.

Armed with this wealth of litigation experience, our Group drafts non-competition and related agreements and advises clients how to optimize the value of these agreements to an organization. Well-versed in the complexities of choice of law, forum selection, jurisdiction, and venue issues, we also advise clients with Connecticut and other New England connections on how to optimize the value of local law in this area through their agreements and litigation strategy.

This same knowledge and experience allows us effectively to counsel clients about the issues to consider when contemplating hiring an employee who is party to a non-competition agreement with a former employer. In addition, we quickly acquire a demonstrable understanding of a client's business and then use this knowledge to counsel the client about taking the practical steps necessary to guard their trade secrets and confidential business information and the critical and immediate steps that an employer must take when it reasonably fears that these secrets and information are in jeopardy.