Protecting Your Company When a Top Executive Leaves to Join a Competitor

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What do you do when a key member of your team goes to work for a rival firm? Or, perhaps worse, how do you react when you receive a competitor’s demand that your latest hire, a new sales manager, stop working for you?

John Conkle recently participated in a discussion of experienced practitioners which looked at these and related topics at the 2014 American Bar Association (ABA) Section of Litigation, Corporate Counsel Committee’s Continuing Legal Education Seminar held in Rancho Mirage, California. The topic of the presentation was what actions inside and outside counsel need to take when a top executive of the company leaves to joins a competitor, when the company’s reputation, confidential information, and business could all be at risk. The panel addressed practical and legal strategies to help navigate the pitfalls presented by this high-stakes dilemma.

Protecting Your Company - ABA 2014

John was joined on the panel by the Hon. Gail Andler, Judge of the Orange County California Superior Court; Elizabeth K. Deardorff, Associate General Counsel of Hewlett-Packard Company; and Steven A. Weiss, of Schopf & Weiss LLP, a Chicago litigation boutique firm. More than 300 attorneys from law firms and law departments throughout the United States and from several foreign countries attended this year’s seminar.

Written materials distributed at the seminar included an article written by John and Bill Garcia, Director of Legal Project Management at Thompson Hine LLP:    First Response to Surprise Departure of Top Executive to Marketplace Rival.  The article outlines first response actions to be taken by counsel in response to an executive’s departure. Bill Garcia had been scheduled to moderate the panel, which he helped conceive and orchestrate, but he was unfortunately snowed in and unable to leave Washington, D.C.

Losing a key executive to a competitor can be a serious and sensitive matter. CK&E is well versed in the options available to a company whose top executive leaves. CK&E has also represented the interests of the company acquiring the executive and employs various strategies and defenses to help resolve disputes over such hirings. CK&E lawyers have represented both sides of these issues, from recruitment of an entire sales team to competition by a former owner of an acquired business or product line.  CK&E’s vast experience in the area of employment law, non-competition and protection of trade secrets allows the firm to efficiently assist in-house counsel to reach a desired objective with a minimum of business disruption.

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Turning an Agreement for Use of Public Information into a Trade Secret Misappropriation Case

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A recent New Jersey case is an example of how claims of misappropriation of trade secrets can arise in unexpected ways, and of the importance of the terms used in agreements for use of information.  The case shows that trade secret misappropriation can occur even when the information is “public” and the recipient was authorized to have the information.

In Events Media Network, Inc. v. The Weather Channel, Events Media had collected and compiled information about public events into a database.  Events Media then licensed the compilation to The Weather Channel to list events on The Weather Channel’s website.  Events Media claimed that The Weather Channel used the database for purposes other than listing events on its website.  Events Media sued The Weather Channel, but not just for a breach of the licensing agreement – Events Media also sued for trade secret misappropriation.

Although trade secrets are generally thought of as valuable information that no one else knows (of course, that is why it is secret), compilations of information that is available to the public, such as the Events Media database, can receive trade secret protection.

Events Media serves as a demonstration of how important the license agreement terms can be to whether a misappropriation of trade secrets claim can be pursued.  In finding that the Events Media database could be a protectable trade secret, the New Jersey court relied in part on the licensing agreement itself.  The court concluded that Events Media’s database was valuable – why else would The Weather Channel agree to pay for it?  The court also found the compilation was “secret,” because it was provided under a license agreement that affirmed its confidentiality and limited its use and disclosure, and because the data compilation was not known to others even though individual items of data were public.

Events Media further shows that trade secret misappropriation can occur even where a party has rightfully acquired the information under an agreement.  All that is required is unauthorized “use or disclosure” of the secret information, which can be shown by demonstrating that the use or disclosure was not permitted under the terms of a limited licensing agreement.

Finally, the case demonstrates that trade secrets need not be revealed to a third person in order to have misappropriation.  Trade secrets cases frequently involve a person who has impermissibly disclosed trade secrets to another, such as an employee who takes trade secrets from a former employer to a new employer.  But Events Media claimed only that The Weather Channel misappropriated trade secrets just by using the information for purposes not authorized by its licensing agreement.

In short, the ability to assert trade secret misappropriation can be based in large part on the terms of agreement between the parties.  As this case demonstrates, trade secrets laws protect a broad array of information, from customer lists to product formulas, and misappropriation can occur in circumstances that few would imagine.  CK&E’s lawyers have decades of experience in drafting agreements to protect and use trade secrets, as well as litigating trade secrets cases for both plaintiffs and defendants.  We always stand ready to provide clients with forward-thinking legal representation on these matters.

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