Georgia Business and Technology Litigation Blog

IS THE INTERNET MAKING IT HARD TO KEEP A (TRADE) SECRET?

A recent New York case suggests that trade secrets may be harder to keep these days because competitive information that used to be proprietary is now easily found on the internet through business sites, such as LinkedIn and Bloomberg.  This case also demonstrates the importance of proper business planning to protect valuable, confidential information so that it doesn’t run off with your employees when they leave.

The case is Sasqua Group, Inc. v. Courtney (see link to order provided below), pending in a federal district court in New York.  It involves a business dispute between two individuals who ran Sasqua Group, an executive search firm that specializes in the financial services industry.  Christopher Tors, President of Sasqua Group, hired Lori Courtney in 2000.  Courtney apparently performed well, and by 2009 was equally sharing Sasqua Group’s profits and losses with Tors.  At Sasqua Group, Courtney, Tors, and other employees utilized an electronic database that contains client information, including contact information, hiring preferences, resumes and histories of prior business dealings.

In early 2010, Courtney informed Tors that she was leaving Sasqua Group to start her own competing executive search firm.  Although Tors and Courtney negotiated an exit plan for Courtney, Tors was surprised to learn that Courtney had apparently begun contacting Sasqua Group clients within a week after her resignation.  Tors then sued Courtney and asked the Court for an injunction preventing her from (1) using or disclosing any of Sasqua Group’s confidential information (i.e., its client database), and (2) contacting Sasqua Group’s clients.

How LinkedIn and Other Business Sites Can Make It Harder to Keep a Trade Secret

Because Courtney was not bound by a non-solicitation or confidentiality agreement with Sasqua Group, Tors had to seek protection of Sasqua Group’s client database as a trade secret (which is a protective status conferred by law even without a confidentiality agreement).  A client or customer list can qualify as a trade secret if a business has expended a substantial effort to develop the list and has taken steps to guard the secrecy of the list, and if the list contains information that is not otherwise readily available to the public.

At a court hearing, Courtney was able to show that Sasqua Group’s client database was not a trade secret because the client information was readily available on the internet.  Courtney did this by walking the judge through a hypothetical research assignment using a computer, where she identified a prospective financial services client and then found the proper decision-maker and his contact and other information. She accessed services including LinkedIn and Bloomberg.  Based in part on her demonstration, the court denied Tors’ request for an injunction because the client database did not qualify as a protected trade secret.

The Sasqua Group case does not mean that the increasing availability of business information on the internet has made it impossible for client lists to be protected as trade secrets.   Instead, it has limited application to other situations, for several reasons.  First, the financial services industry is somewhat unique with regard to the amount of industry information that is readily available on the internet.   While other professions, such as lawyers, doctors, and accountants may also have a large amount of information available on the internet, this is not the case for many businesses and industries, such as exterminators or cleaning services whose customer lists often have significant value for that reason.

Second, the court’s opinion shows that the judge was less than impressed with Sasqua Group’s handling of its client database as a supposed trade secret.   Among other things, the court found that:  (1) Tors may have simply taken the database from his prior employer, rather than creating it at Sasqua Group; (2) the database included outdated information that was more than 10 years old; and (3) Sasqua Group had failed to guard the secrecy of the database by granting access to non-employees of Sasqua Group and even to Courtney after she had announced her resignation.  Had Sasqua Group done a better job of compiling and guarding its database, the court might have reached a different decision.

Learning from Sasqua Group: Take Basic Steps to Protect Your Confidential Information

It didn’t have to be so hard.   A relatively small up-front investment by Sasqua Group in proper legal planning could have avoided the legal fees and headaches that surely came with its lawsuit against Courtney.   If Sasqua Group had required its employees to sign confidentiality agreements that protected its client database, it could have prohibited Courtney and others from copying or using the database after leaving Sasqua Group.  Throw in a non-solicitation agreement and Sasqua Group also could have limited Courtney’s ability to solicit and call on its customers for several years (at least under Georgia law).

(Access the Court's decision: Download Order )

CAN A BLOG POST CRITICIZING A FORMER EMPLOYER REALLY VIOLATE A NON-SOLICITATION AGREEMENT? MAYBE.

Last week, it was LinkedIn.  This week it’s blogs.

As businesspeople increasingly use these and other forms of “social media” to communicate, courts are having to decide exactly what types of electronic communication can violate non-solicitation agreements.

Email has been an easy call and has not required courts to struggle as they apply decades of dusty jurisprudence to this modern form of electronic communication. Whether it’s snail mail that shows up in a mailbox or email that appears on a monitor, a former employee’s targeted communications seeking business from a former customer will clearly violate a non-solicitation agreement that prohibits contact with that customer.

But what about more general, less-targeted communications such as public postings on Facebook and the like? In my last post, I described a recent case in which a court suggested that subtle contacts made via LinkedIn may be sufficient to violate a non-solicitation agreement.  This week, I discovered another recent case where a court noted that a blog post could also constitute prohibited solicitation.  (A link to the lengthy opinion is below.)   In Amway Global v. Woodward, a federal district court in Michigan presided over a dispute involving Amway’s attempt to enforce a non-solicitation agreement against its former distributor, Woodward, who had left Amway for the apparently greener pastures of MonaVie.  (The agreement prohibited Woodward from soliciting other Amway distributors.)

Amway based its claim in part on a blog post by Woodward that “announced his decision to join MonaVie and gave his reasons for doing so,” including the statement, “If you knew what I knew, you would do what I do.”  Even though Woodward made the statement generally on a blog rather than to anyone in particular, the court saw the blog post as evidence that could “readily be characterized as solicitations” that violated his non-solicitation agreement with Amway because the blog post could prompt Amway distributors to leave and follow Woodward to MonaVie.

So, as with my prior LinkedIn post, the moral of the story continues to be that employees should be wary of all electronic communications with former customers and coworkers who might be covered by a non-solicitation agreement, and employers concerned about possible violations of a non-solicitation agreement should search social media for potentially helpful evidence.

Special thanks to Chicago lawyer Evan Brown whose own blog post brought this case to my attention and which contains a thorough and detailed review of the case.

(Court's lengthy decision:  Download Amway Case)

“LinkedIn CASE” COMES TO AN END WITH NO DEFINITIVE RULING ON WHETHER USE OF LinkedIn TO CONTACT FORMER CO-WORKERS VIOLATES NON-COMPETITION, NON-SOLICITATION, AND NON-DISCLOSURE AGREEMENTS

Earlier this year, a Minnesota federal district court case received national attention because it involved what is believed to be the first claim that former employees’ use of LinkedIn to contact (and arguably solicit) their former coworkers violated non-competition, non-solicitation, and non-disclosure agreements.  The case is TEKsystems, Inc. v. Hammernick, et al.  (A copy of the Complaint is linked below.)  It presents the novel issue of whether communications through LinkedIn are sufficient contact to violate restrictive covenants in employment agreements.

In this case, TEKsystems sued Hammernick and two other former employees of TEKsystems (the “defendants”) for violating non-competition, non-solicitation, and non-disclosure agreements contained in the defendants’ employment contracts with TEKsystems.  Specifically, TEKsystems claimed that defendants’ violations included using LinkedIn to connect with employees of TEKsystems.  These communications allegedly involved the defendants adding TEKsystems’ employees as “contacts” in LinkedIn, and seeking to communicate with some TEKsystems employees by sending messages through LinkedIn.

Because the TEKsystems case just ended on October 1 pursuant to a confidential settlement, the court did not reach a decision on whether the plaintiff’s claims about LinkedIn had merit.  Although the settlement terms are confidential, the defendants were clearly concerned about their exposure in the case because the docket shows that they have agreed to a stipulation (see link below) that precludes them from contacting their former co-workers and customers for an entire year, as well as requiring a forensic computer specialist to check the defendants’ computers to ensure that they have deleted all documents that they took with them when they left their employment for TEKsystems—clearly not a “win” for the defendants.

Although the court did not provide any guidance about TEKsystems’ novel LinkedIn claims, this case demonstrates that such claims are real enough to stick and to cause a settlement favorable to the suing former employer.  Consequently, employers and other businesses should consider the use of LinkedIn, Facebook, and other social media to communicate with employees and customers, when drafting employment agreements, employee handbooks, and buy/sell agreements.   Given the potential harm that can come from improper social media interaction, employers and businesses should state expressly in these documents that prohibited communications include contacts through social media sites.  That way, in the event of a problem, there will be no doubt in court that even connections via social media sites constitute prohibited communication according to an agreement or policy.

( Download Complaint )     ( Download Stipulation )