BLOGS: Womble Non-Compete and Restrictive Covenants Blog

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Wednesday, September 24, 2008, 9:31 PM

Motorola Sues Four Former Employees in Massive Alleged Trade Secret Theft With Chinese Connections

By Todd
Motorola Inc. named four former software engineers employed at its Libertyville and Schaumburg offices in a lawsuit filed Tuesday alleging the theft of $600 million in trade secrets with plans to take them to China, officials said.

Hanjuan Jin, 37, of Schaumburg was indicted by a federal grand jury in April on three counts of theft of trade secrets and is facing charges of computer fraud and abuse, misappropriation of trade secrets and breach of fiduciary duty in the lawsuit.

Federal authorities said U.S. customs agents seized sensitive proprietary information from Jin as she attempted to board a flight to China on Feb. 28, 2007, at O'Hare International Airport. That included more than 1,000 documents, both electronic and paper, belonging to Motorola.

Authorities said they also found $30,000 in her luggage.

The release of the classified engineering information on three computer networking products would have cost Motorola $600 million over the next three years, officials said.

Three other former Motorola employees were named in the lawsuit - Xiaohua Wu, of 21878 North Tall Hills Drive, Kildeer; Xuefeng Bai of 2444 Palazzo Court, Buffalo Grove; and Xiaohong Sheng of 875 Westmoreland Drive, Apt. 7, Vernon Hills - were accused of computer fraud and abuse, misappropriation of trade secrets and breach of fiduciary duty in the lawsuit. Bai and Sheng worked at Motorola's Libertyville office; Wu and Jin worked at the Schaumburg office.
Shaowei Pan of Kildeer, chief technology officer of Motorola competitor Lemko Corp., 1700 E. Golf Road, Schaumburg, and spouse of Wu, is accused of computer fraud and abuse and misappropriation of trade secrets in the lawsuit.

Wednesday, September 17, 2008, 1:10 PM

New York Judge Finds Nixon Peabody's Actions in Soliciting Taylor Wessing Attorneys A-OK

By Todd
Here's a story our readers from private industry are going to find interesting - law firms disputing the validity of a nonsolicitation agreement they agreed to.

U.K.-Germany based Taylor Wessing filed suit against Nixon Peabody, accusing the Rochester, NY based law firm of colluding with the former managing partner of Taylor's Paris office to "raid" its partner ranks after merger talks between the two firms fell through.

The complaint contended that Nixon's alleged attempts to poach 12 of Taylor's 15 nonequity French partners violated a July 2007 agreement in which the two firms promised not to recruit from each other for two years if merger talks collapsed.

Justice Kenneth Fisher ruled in favour of Nixon Peabody on all claims, affirming that the US firm had acted appropriately in its recruiting discussions and questioning the legal validity of the nonsolicitation agreement between the parties.

A Nixon Peabody spokesperson said today’s decision had, “settled all claims” with TWF.

However Taylor Wessing UK managing partner Michael Frawley said that he was surprised by the judge's findings and is in the process of reviewing the judgment for possible appeal.

He said: "This case demonstrates that these non-solicitation clauses, which are common in commercial agreements in the UK and most of Europe, are void as a matter of public policy in NY. What is disappointing is that Nixon Peabody agreed to this restriction, only for them to assert subsequently that the restriction was always unenforceable."

Thursday, September 11, 2008, 9:41 AM

Computer Forensics Playing Bigger Role in Noncompete and Employee Defection Litigation

By Todd
The Philadelphia Business Journal has just published a great piece on the impact that computer forensics is playing in employee defection and noncompete cases. We thought you'd like to read it:

Cozen O’Connor attorney David Walton recently won a $7 million award for a client based on evidence that wasn’t there.

In hiring certain employees, Walton’s client had put in place a noncompete clause. The new hires promised not to compete directly, or for that matter unfairly, should they depart the company.

The employees in this case broke the deal, squirreling away confidential data on their computers before leaving. Walton hired experts to pick apart hard drives, where they found big blank spots — places where vital company information had first been hidden and later wiped away.

It’s called computer forensics and it’s the next big thing in noncompete clauses. Employers who ask new workers to sign noncompete documents now can dig deep into e-mail and other records to discover whether trade secrets have been swiped on the way out the door.

“I have seen an explosion in the availability of forensic experts, especially people who are retired from the federal government, the FBI, Secret Service and so on,” said Walton, a member in Cozen’s labor and employment practice in West Conshohocken.

At Littler Mendelson in Philadelphia, noncompete law expert Marguerite Walsh said she has seen at least 10 cases in which forensics played a major role in resolving noncompete disputes.

“We had a situation with a client in the insurance industry, where one of its key salespeople had left and gone to a competitor,” she said. “Once we got into not just the number of files but what the files stored, it was clear he had been transferring all the sales contacts, all the sales records that he could use at his new company.”

Forensics are without doubt the big news in noncompete clauses after the fact. They offer a way to enforce a claim that a former worker has walked off with client names and other significant sales data.

For many employers, though, the noncompete is more likely to come up at the time of hiring.

Their objective in bringing on board a new employee will be to write a noncompete that sticks, especially after repeated court challenges around the nation calling into question the enforceability of these documents.

Noncompetes are enforceable. As a matter of hiring practice, though, recent trends suggest they must be crafted with care.

Foremost is the trend toward judicial discretion, a nice way of saying that nothing is set in stone here.

“The law is so fuzzy and nebulous that judges will basically rule out of a sense of fairness,” said attorney Michael Wietrzychowski, vice chair of the labor and employment practice at Schnader Harrison Segal & Lewis’ offices in Cherry Hill and Philadelphia. “Courts want to see something that is fair to the departing employee so they can continue to put food on the table, and fair to the employer so they can protect their interests.”

In practice this means that noncompete clauses are getting narrower and more specific, or at least the good ones are. At the time of hiring, employers are (or should be) taking a hard look at what exactly they are trying to protect, and then drawing up agreements that specify just that narrow area.

Take for instance geography. Is it “fair” to prohibit an employee from working for a competitor anywhere in the nation, if your business is purely regional?

Is it “fair” to tie an employee’s hands when it comes to data anyone else can access? “You can’t call everything in the workplace ‘confidential,’” Walton said. “If you call everything confidential, and then you put a list of customers on your Web site, then nothing is really confidential.”

Courts want limits that show a genuine business interest on the part of the employer, an interest that goes beyond merely keeping this employee out of the game, should the two part ways.

“You have to be reasonable. You can’t make an employee sign a noncompete just to quell competition. You have to have a legitimate business interest,” Walton said. “That means either the protection of customer good will — ‘I don’t want you to take my customer relationships to the competition’ — or the protection of confidential information.

“Unreasonable on the other hand would be something that is too long: A noncompete that runs for two years, when you only really need the protection for six months.”

For the human resources professional making the actual hiring offer, “you need to talk to your business people about why they want this” before drafting the noncompete, said Christopher Stief, a regional managing partner at Fisher & Phillips in Radnor.

“Ask them to identify the specific harms, as specifically as they can, that a person in this position could do if he or she leaves. That is your starting point and then you work backwards to say, ‘What is the least restrictive clause we can identify to restrict that possible harm?’”

When it comes to fairness, the courts also had been looking favorably on deals that are tangibly equitable: That is to say, noncompetes in which the employee is directly compensated for his or her end of the bargain.

“It’s not only the stick but also the carrot, the concept of golden handcuffs,” said employment attorney Jonathan Wetchler at Wolf Block in Philadelphia. “I might say to you: ‘I am giving you stock options and the options will vest over five years, if and only if you remain employed with me, or, the options will vest if and only if you don’t compete with me if you leave.’”

Courts have a certain respect for such quid pro quo.

The ultimate golden handcuff is known as garden leave. Long practiced in Europe, this type of noncompete contract has begun to appear sporadically in the United States. Typically it refers to a high-up worker being paid to sit at home, not working, for the duration of the noncompete period.

Many employers balk. Six months’ pay for doing nothing? But consider the alternative. Just the first 30 days of a noncompete legal dispute will typically run $20,000 to $60,000 in legal fees.
Finally, there is the perspective of the new employer, who will have a whole other set of hiring headaches to think about when bringing on board a worker saddled with a noncompete.

“Companies that hire employees from a competitor take a significant risk when they turn a blind eye,” Walsh said. New hires must be told up front that their misappropriated data will not be welcome, that their undue competition with any former employer is out of bounds. Otherwise the new firm could find itself on the receiving end of litigation.

“The minute confidential information that doesn’t belong to your company hits your system, you have a risk,” Walsh said.

Thursday, September 4, 2008, 10:58 AM

Tom Sawyer to Moderate Association of Corporate Counsel Employee Defection Webinar

Tom Sawyer, Labor & Employment Practice Group Leader in Womble Carlyle's Northern Virginia office will serve as Moderator of the Association of Corporate Counsel webinar: "Employee Defection and the Multi-Jurisdictional Employer: Practical Advice on Enforcing Noncompetes and Other Restrictive Covenants".

The webcast will be presented September 24 by the ACC's New to In-house Committee. Panelists include: Michelle L. Adams, Senior Employment Counsel, Accredited Home Lenders, Inc.; Dennis Stryker, General Counsel, Rick Engineering Company and Carol Rick Gibbons, Associate General Counsel, Employment, Capital One Financial Corporation.

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