Several months ago, I tried a trade-secrets case in front of a jury and obtained a liability verdict in my client’s favor. This week, the case settled in advance of Monday’s scheduled damages trial. (Thus explaining the shortage of posts lately; I’ve been preparing for trial.) Now that it has settled, I’m going to write a series of posts about this case, since it illustrates how companies can better protect their proprietary information and the consequences of failing to do so.
My client provides services to hotels and is the largest company in its industry within its geographic market. After its sales director quit, my client found out that for at least the prior two years, he had been secretly setting up a competing company. Shortly thereafter, the sales director’s new company took my client’s largest and most important client. Since then, his company has become our largest competitor.
While we had a compelling story, we also had some problems. In particular, the sales director was not subject to a noncompete agreement. And we had limited direct evidence that his company was using my client’s proprietary information. But there was plenty of circumstantial evidence.
We sued for violations of Florida’s Trade Secrets Act, tortious interference with business relationships, and violations of the Florida Deceptive and Unfair Trade Practices Act. From the outset, we knew we would have difficulty proving misappropriation of trade secrets, though we certainly had a good-faith basis for bringing that claim. Since there was no noncompete and we had limited hard evidence, we were hesitant to seek a temporary injunction. Instead, we proceeded with discovery. Because civil cases in Florida state court proceed slowly, it took four years between complaint and verdict.
At trial, the court directed a verdict against my client on the Trade Secrets Act claim, but allowed the tortious interference and deceptive-and-unfair-trade-practices claim to go to the jury. They took less than an hour to enter their verdict in our favor.
Had my client simply required its key employees to sign noncompete agreements, this case would have ended much earlier. We would have immediately moved for, and likely won, injunctive relief. In fact, with a noncompete, I believe the defendant never would have tried to open a competing company (he was being paid handsomely by my client). Instead, my client lost significant business, and had to suffer through and pay for years of litigation. While the ultimate result was very favorable for them, no company wants to endure this type of process.
So the critical lesson from this case, as has been repeated often in these pages, is that companies need to have their key employees sign restrictive covenants, including noncompte and nonsolicitation agreements.
In future posts, I’ll discuss some unique aspects of this case, including how we used a consumer-protection statute to get around the lack of a noncompete, and why we were unable to prove our misappropriation claim. I’ll also talk about how we were able to use a bifurcated liability and damages trial to our advantage.
It’s hard to believe that there are companies out there that do not have non-compete agreements with their key employees, isn’t it? Just a small paragraph or two, even not the most expertly-written one, often times will make a former employee think twice about starting a competing business or poaching a client.
I have found younger and entrepreneurial owners of companies reluctant to ask their employees to sign protective covenants. They seem to “feel” that there is something unfair about restricting another person’s ability to work. I use a couple of simple analogies that almost always work. I ask if they think it unfair to put a burglar alarm in their house to prevent thieves from steeling the fruits of their labors. If the client has other investors I ask if they had invested in a company would they expect the managers to take steps to protect that investment. Light bulbs usually go off at that point.
I’m surprised that the remaining, not trade secret claims weren’t preempted under the UTSA. If the unfair or tortious conduct at issue was the supposed misappropriation of trade secrets, then I’d expect those claims to be dismissed as preempted. What other tortious/unfair conduct was at issue?
Opposing counsel never argued UTSA preemption. But had he done so, I believe the motion would have been denied, at least as to the deceptive and unfair trade practices claims. As I will be explaining in a future post, the unfair-trade-practices claims are not based directly on misappropriation. Tortious interference would have been a closer call, but I think there is also enough independent conduct underlying that claim to get past the preemption argument.
I guess you had conduct that went beyond the alleged misappropriation of trade secrets. But if that is the only unfair conduct at issue, then in my view, the unfair practices claim should be preempted.