Georgia Business and Technology Litigation Blog

NO CAUSE OF ACTION FOR "INEVITABLE DISCLOSURE" IN GEORGIA

The “inevitable disclosure” doctrine allows a trade secret owner to protect its trade secrets when a former employee has confidential knowledge in her head that she will inevitably disclose if she goes to work for a competitor.  Employers typically resort to “inevitable disclosure” arguments when they cannot prove that a former employee has actually used, or is about to use, protected trade secrets, and there is no restrictive covenant agreement (such as a non-solicitation or non-competition agreement) in place to prevent the likely disclosure to a competitor.  For example, “inevitable disclosure” can help where a former employee has returned or destroyed all confidential data and papers in her possession but still may know enough in her head to use protected information for the benefit of a competitor.

As noted by the Supreme Court of Georgia, the doctrine effectively allows an employer to create or extend a noncompetition agreement:

The inevitable disclosure doctrine provides that a plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.  The doctrine enables a trade secret owner to prevent a former employee from working for a competitor by demonstrating the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer's trade secrets.  The doctrine may impose a noncompete covenant where one does not exist or, as in this case, extend a covenant not to compete beyond the time negotiated by the parties.

Holton v. Physician Oncology Services, Case No. S13A0012 (decided May 6, 2013) (See link to court's opinion, here.)

Although courts in some jurisdictions outside of Georgia recognize legal claims based upon the “inevitable disclosure” doctrine, the issue has remained unclear in Georgia.  Not anymore.  In the  Holton case, quoted above, the Supreme Court of Georgia held that parties canNOT use the “inevitable disclosure” doctrine as a basis to state a claim for trade secret misappropriation.

Therefore, employers and others looking to protect proprietary information under Georgia law should do so by carefully drafting confidentiality and non-competition agreements.  Recent, pro-employer amendments to Georgia’s restrictive covenants law are helpful in this regard because they allow employers to more aggressively draft restrictive covenants that prohibit competition, because employers can be now confident that a court will modify, rather than invalidate, any terms of a restrictive covenant that are found to go too far in restricting a former employee’s ability to compete.

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 )

CATCH YOU ON THE FLIPSIDE–BUYER BEWARE IN THE LAND OF HOME-RESALE FEES

Homebuyers and realtors are calling on federal and state governments to prohibit a growing practice among developers known alternatively as "resale fees," "reconveyance fees," and "capital recovery fees." Although 11 states have now outlawed these fees, Georgia is not among them.

Call these fees what you want, but they all work the same way: The developer gets to collect a percentage of the sales price (typically 1%) from the seller, each time the house is sold over the next 99 years. If a buyer sells the house next year for $250,000, he owes the developer $2,500 at the time of the sale. If the next buyer sells a decade later for $325,000, then she owes the developer $3,250 when she sells. And so on, for 99 years.

Understandably, many home buyers and realtors see this as an attempt to take equity from their homes. Developers, on the other hand, describe these fees as way to defer home-purchase costs at a time when credit is tight.

Regardless, the crucial point is that homebuyers make sure to require disclosures about any resale fees associated with a house. Because these fees are often buried in documents known as "CCR's" (covenants, conditions, and restrictions) that are typically not signed at closing, many homeowners unknowingly agree to these fees and then learn about them later, once it's too late. (See an example:  Download 20100912fees.) As with so many other things in the law, be sure that you know what you’re getting into so that you can negotiate with any resale fees in mind.