by Lee Gesmer | Mar 12, 2008 | Noncompete Agreements
In contast to the Suffolk Business Litigation noncompete cases discussed below, in National Engineering v. Grogan Massachusetts Superior Court Judge Maureen B. Hogan, sitting in Middlesex County, enforced a six month noncompete provision between a recruiting and staffing firm, and its former employee, Travis Grogan.
The heart of Judge Hogan’s decision is as follows:
Other than his employment at NESC, had no experience in the staffing industry. All of his knowledge of the business was gained through training provided by NESC and by working at NESC. His relationships with the customers and accounts of NESC were all developed and maintained while he was employed at NESC, through use of the resources and confidential information of NESC. The success of NESC’s business is grounded upon relationships and good will with its corporate customers and Managed Service Providers, developed through its sales executives, such as Grogan. NESC is entitled to protect its good will and relationships with its customers and accounts through the non-compete covenants to which agreed. These covenants restrict from engaging in competition with NESC and from soliciting and/or servicing its clients and accounts for a reasonable period of time-one year. The general non-competition covenant which restricts from working for a competitor within 50 miles of the office or area in which he worked while at NESC is also reasonable in scope. These covenants do not restrict from using his own skills, knowledge or talent, but rather prevent him from trading on the good will of NESC by restricting him from using the relationships he developed with NESC’s customers, clients and accounts and the confidential information of NESC, including knowledge of these customers and their needs.
Would this case have been decided differently in the Suffolk BLS? One wonders ….
A link to the full case is here.
by Lee Gesmer | Mar 11, 2008 | Noncompete Agreements
Albert Einstein once said that “the definition of insanity is doing the same thing over and over again and expecting different results.”
By this measure, Smith Barney has a problem.
In a recent case decided by Judge Gants in the Suffolk Business Litigation Session, Smith Barney sought a preliminary injunction against Michelle Griffin, who had held several positions with Smith Barney, culminating in “financial advisor.” When Ms. Griffin began at Smith Barney (then Shearson Lehman) in 1994, she had signed an agreement in which she promised not to solicit Smith Barney clients for six months after leaving. In fact, just before and after resigning to join N.Y. Life, she solicited many of her clients, attracting Smith Barney’s ire.
However, Judge Gants teed up the the case with the following comments:
This Court has heard many of these kinds of cases. The pattern is similar in all cases. A stock broker, or person seeking to become a stock broker, joins a brokerage house, signs a non-solicitation agreement and also agrees to keep certain information confidential. After a period of time, the broker, often solicited by a competing brokerage, decides to leave his employing-brokerage for the competition down the street. Without prior warning, the broker resigns at the end of the day on Friday and is up and running at his new employer by Monday morning. These brokers move around with astounding frequency, and the whole industry knows it….What follows is a race to the Court by the jilted brokerage seeking injunctive relief, all in anticipation of industry-mandated arbitration before the NASD.
After this wind-up, you don’t need a weatherman to know which way the wind is blowing. Judge Gants denied the motion on a variety of grounds:
First, the agreements unfairly punish the clients of the departing advisor/broker.
Second, hypocrisy was a factor. While the financial firms suing employees claim to be “shocked, shocked” (quoting Police Captain Louis Renault in the movie, Casablanca) that another financial service company would show so little respect for the sanctity of their contract with a former employee, they are themselves enaged in precisely the same “shocking” conduct:
As this Court observed in its July 12, 2004, order, since the establishment on October 2, 2000, of the Business Litigation Session of the Superior Court, previously to this case, this Court had addressed 29 cases by brokerage firms against individual brokers leaving, abruptly, to join another brokerage firm. In each instance the plaintiff firm sought injunctive relief. In those 29 cases, 21 have been brought by three major brokerage firms: Morgan Stanley DW, Inc., the plaintiff here; UBS PaineWebber , UBS, and Salomon Smith Barney (“SSB”). These three major brokerage firms have been the plaintiffs in seven cases each. In that same aggregation of 29 cases, MSDW and UBS have been the brokerage firm to which the defendant broker has defected in six cases each, and SSB has been that firm in five cases. Whatever happened to the “maxim of equity with the dignity of antiquity … that one who seeks equity must do equity?
Third, the non-solicitation agreements that the financial firms seek to enforce were presented to their new employees at the time of hire, without separate consideration:
the non-solicitation agreements enforced in most of these financial services preliminary injunctions were presented, as here, to the financial advisor when she first commenced employment with the company, without separate consideration beyond continued employment (or perhaps training), and without any choice apart from termination. Consequently, they are routinely signed without significant thought, in large part because the employee has no meaningful alternative. Since all (or virtually all) financial services companies require similar agreements, a refusal to sign such an agreement would effectively bar the employee from employment in the financial services industry. As such, these agreements stand in sharp contrast to comparable agreements involving the sale of a business, where the seller is receiving significant additional consideration for the agreement not to compete or to solicit, and has a meaningful alternative of rejecting such a restrictive covenant (albeit in return for a lower sales price).
This comment by Judge Gants is significant, since it has long been “black-letter” law in Massachusetts that separate consideration (apart from the initial hire or even continued employement, where the employer asks the employee to sign the agreement after employment has commenced) is not necessary for enforcement of a non-solicitation or noncompete agreement.
Fourth, the “goodwill” in these cases (goodwill being the legal term for “the relationship with the customer) is intertwined; it may belong to the employee, to the employer, or to both. If the goodwill belongs to the employee (who did the sales work to develop the customers), the employee should not be prevented from taking those relationships to her new job.
Fifth, although the confidential nature of the customer identities may be an alternative ground for enforcing a nonsolicitation or noncompete agreement, it is questionable whether the identities of the customers in this context can truly be considered confidential.
Motion for preliminary injunction denied. Perhaps after this decision Morgan Stanley, Salamon Smith Barney and UBS Paine Webber will reflect on Einstein’s comment quoted above, and the “Massachusetts broker noncompete wars” will finally come to an end.
A link to the full case is here.
by Lee Gesmer | Mar 5, 2008 | Copyright
Many lawyers in Massachusetts would agree that Massachusetts Federal District Court Judge William Young is one of the most erudite judges in the district. Yet, he has written relatively few copyright law decisions in his 23 years on the federal bench. A Westlaw search shows that he has authored fewer than ten substantive copyright decisions.
In a decision issued on February 28th in the case Situation Management Systems v. ASP Consulting Group, Judge Young undertook the question that has caused many lawyers to call copyright law one of the most metaphysical of practice areas: how to draw the line between expression that is protected by the law, and that which is not. In this decision, Judge Young concluded that Situation Management System’s (“SMS”) workshop training materials, aimed at improving business and personal productivity, did not make the grade.
Judge Young found that the challenged texts, created by two former employees of SMS who had formed a competing business, had been created very quickly, indicating that the former employees had not started from scratch, but had likely used the SMS materials as a starting point. After explaining the famiar (to copyright afficionados) concepts of “idea v. express,”, scenes a faire and the fact that copyright law does not protect a “process,” Judge Young applied these docrines to the case at hand. He found that SMS’s materials were “aggresively vapid . . . hundreds of pages filled with generalizations, platitudes and observations of the obvious.” Comparing this work with some examples of great literature (The Odyssey by Homer, Cold Mountain by Charles Frazier and, of course, a sonnet by The Bard) he found that the SMS material was largely uncopyrightable. While the structure of the SMS texts were entitled to some limited protection, that protection inhered near the literal text level, which the defendant ASP did not copy.
Most importantly, in my view, Judge Young emphasized two points: first, the motivation of the copier is irrlevant. Here, the allegation that the former employees (now with the defendant) started their business to steal SMS’s materials and ruin their business, was irrelevant under copyright law if, as Judge Young concluded, they did not copy protected expression. This conclusion is not a surprise, but it’s nice to have it reinforced every once in a while by a respected federal judge.
Second, the fact that the defendants may have used SMS’s materials as their starting point was irrelevant, so long as the work the defendants created was not “substantially similar” under copyright law, which it was not. Again, not “new law,” but the first time it has been expressed by a court in the First Circuit.
The case is on the Pacer website, here.
by Lee Gesmer | Feb 26, 2008 | Patents
The Patent Statute states: The court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285.
While finding no “willfulness” in the underlying infringment, Judge Harrington has imposed attorney’s fees of $10 million based on Medtronic’s trial conduct in the long-running Medtronic/Depuy Spine patent infringement litigation. Specifically, Judge Harrington concluded that Medtronic’s lawyers attempted to “mislead and confuse the jury in a manner inconsistent with the patent claim construction required by a decision of the Court of Appeals for the Federal Circuit (linked to above).
Judge Harrington imposed this sanction under the patent statute and the court’s inherent power.
However, context is everything. Believe it or not, this amount represents only 15% of plainitiff’s attorney’s fees during one phase the case (do the math – (15%x = $10 million)). And, the liability judgement against Medtronics was $226 million.
But, still, $10 million isn’t chump change, even to Medtronics. Can you spell a-p-p-e-a-l? In fact, the whole kit and caboodle (judgment, attorney’s fees, and more), has been appealed.
Click here to read Judge Harrington’s decision.
by Lee Gesmer | Feb 20, 2008 | Patents
When you can prove that you likely are the victim of copyright or trademark infringement, or trade secret misappropriation, you have a good shot at getting a preliminary injunction (if you can afford the bond). That’s because there is a legal “presumption” of irreparable harm associated with these types of IP claims. Prove likelihood of success and you are well on your way to the promised land of “irreparable harm.”
But, this is not true in patent cases. It’s quite difficult to get a preliminary injunction in a patent infringement case. Its always been hard, and its getting harder. After all, in 2006 the Supreme Court issued a ruling the result of which is that injunctions are far from a sure thing, even if you win a patent infringement case on the full merits (for example, after trial). eBay v. MercExchange [link].
Many courts (although not the Federal Circuit Court of Appeals, which holds almost all of the big mojo when it comes to patent matters, trumpted only by SCOTUS), has not explicitly held that MercExchange applies to preliminary injunctions, but it would be illogical to conclude the holding in that case does not apply in the context of preliminary injunctions, and a number of district courts have so held.
Printguard, Inc. recently discovered how hard it is to get a preliminary injunction in a patent infringement case in a case it brought against Anti-Marketing Systems, Inc. in the District of Massachusetts. Our District’s newest addition to the federal bench, Judge F. Dennis Saylor, IV, rejected the motion on the ground that the defendant had raised a “substantial question” as to the validity of the patent – in this case due to obviousness. In a crisply written and thorough opinion Judge Saylor didn’t even reach the thorny question of irreparable harm, which might have provided an alternative basis altogether for denying the motion.
Of course, the case goes on, and Printguard has appealed Judge Saylor’s decision, so stay tuned.
