Employee Mobility

Intro to IP – Prof Merges

4.9.09

Agenda

• Defining trade secrets in the employment context (Wexler v Greenberg)

• Employee invention ownership

• Noncompetition agreements

• “Inevitable disclosure” doctrine

• Distinguishing “general skills and knowledge” from protectable trade secrets

Defining Trade Secrets in the Employment Context

Wexler v. Greenberg

• Departing employee case

– Also, a special type of “squeezout”: squeezing out the former supplier: “customer” becomes competitor

• Special twist: no “disclosure” to ex-employee; ex-employee developed TS info himself

http://www.buckingham-co.com/index.php

Greenberg

• Note that Greenberg was employed to “reverse engineer”

• No evidence of disclosure to Greenberg; only development by Greenberg

Crucial facts

• No employment K

• Formulas not patentable

• No proof of Buckingham resources used to develop formulas (is this plausible? Failure of proof by plaintiff/appellee Buckingham)?

Opposing cases

• Winston Research: implied obligation

• Healthcare Associates (PA): use of corporate assets and disclosures to develop trade secret information

• Wexler is surely an outlier; shows importance of evidentiary issues in TS law

“The employer . . . Has the burden of showing two things: (1) a legally protectable trade secret; and (2) a legal basis [duty], either a covenant or a confidential relationship, upon which to predicate relief . . . .” – p. 84

“Since it is impossible to elicit an implied pledge of secrecy [here] . . ., the appellees must show a different manner in which the circumstances support [existence of TS].” Id.

Two objections

• TS in fact contributed by employer

• General skills vs. specific formulae

Common Law Obligation: 3 categories of employee

• “Employed to invent”

• “Inventions made with employer resources”

• “Independent invention”

Employment Contracts: IP Assignment Clause

• Typically broad and sweeping (why not?)

• Some states regulate the effect of broad clauses

– “Right to invent” states

• Merges, The Law and Economics of Employee Inventions, 13 Harv. J L. & Tech 1 (1999)

• “Pro-employer” rules, balanced by practical issue:

• Difficult under patent law to prevent employees from leaving with “about to be conceived” inventions

Trailer Clauses

• General Signal: the value of waiting . . .

Comprehensive Technologies, Inc.

Noncompetition Agreements

• “It will often be difficult to prove” misappropriation of specific TS info

• P. 90

• BUT: they must be “reasonable” in scope

• Cal Bus & Prof Code 16600 – p. 92

Inevitable Disclosure

• PepsiCo v. Redmond

• What is the IS info?

• Proof of misappropriation?

Confidentiality agreement

• Scope

• Proof of breach?

Teradyne and Pepsico

• What is the difference

• Specificity of info presented?

• Importance of position involved?

• Raging debate! – p. 97

California developments

• Bus & Prof Code 16600

• Rejection of “inevitable duisclosure” theory

Defining Trade Secrets in the Employment Context

A party seeking to protect trade secrets must “describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.” -- Diodes, Inc. v. Franzen (1968) 260 Cal.App.2d 244, 253, 67 Cal.Rptr. 19.

Inevitable disclosure rejected

•Whyte v. Schlage Lock Company, 101 Cal. App. 4th 1443, 1463 (Cal. Ct. App. 2002)

Our survey confirms the majority of jurisdictions addressing the issue have adopted some form of the inevitable disclosure doctrine. . . . A smaller but growing band of cases rejects the inevitable disclosure doctrine. -- 101 Cal.App.4th 1443, 1460

Business and Professions Code section 16600 generally prohibits covenants not to compete, and California public policy strongly favors employee mobility. … Business and Professions Code section 16600 protects a person's right to “follow any of the common occupations of life” . . . and to pursue the “ ‘business or profession he may choose’ ” . . . We agree the doctrine of inevitable disclosure “creates a de facto covenant not to compete” and “runs[s] counter to the strong public policy in California favoring employee mobility.” -- 101 Cal.App.4th 1443, 1462

Remedies

• “Head start” injunction – SI Sys. V. Heisley, p. 81

• Gear injunction to length of time that was “saved” due to misappropriation