Protecting Business Information Against Misappropriation by Departed Employees, 0113 SCBJ, SC Lawyer, January 2014, #3

Author:Phillip Kilgore, John Glancy and Jeff Dunlaevy

Protecting Business Information Against Misappropriation by Departed Employees

Vol. 24 Issue 4 Pg. 32

South Carolina BAR Journal

January, 2013

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0 Phillip Kilgore, John Glancy and Jeff Dunlaevy

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Confidentiality and Inventions Assignment Clauses Emerge as Viable Options

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0A fact of life in the modern workplace: talented employees sometimes leave, taking their skills and talents elsewhere. In many cases, they also leave with the knowledge of other things of great value to the company—customer information and relationships, intelligence on prospects, business strategies, internal processes and other information they never would have acquired but for their former employment. This knowledge, imparted to the former employee at company expense, becomes a problem if the former employee uses the unique and proprietary information to the competitive disadvantage of the former employer.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Many companies have tried to address this problem by using noncompete agreements to block key employees from becoming competitors for a limited period in a limited geographic area. These businesses believe such restrictions prevent former employees from taking unfair advantage of company information, developed at great effort and with substantial resources. The purpose of these restrictions is to give a former employer a reasonable opportunity to stabilize customer relationships and goodwill in the restricted territory during the restricted period.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Some companies have learned the hard way, however, that South Carolina courts disfavor non-compete agreements and go to great lengths to deny enforcement. Relying on South Carolina courts to uphold a non-compete agreement is not unlike the carnival game of Ring Toss, where the ring could end up anywhere, regardless of how careful the throw. Likewise, legal action to enforce a non-compete, regardless how well drafted, may end up with any number of results, but successful enforcement is not at all certain.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Employers received good news with the recent S.C. Supreme Court decision in Milliken & Co. v. Morin.1 Morin appears to open the door to stronger protections against the loss of sensitive business information in connection with the departure of employees. The Morin case illustrates that restrictive covenants fall into two categories: (1) non-compete agreements that limit the former employee's practice of his chosen trade or business and (2) provisions that do not directly restrain such employment. The latter category is now subject to a more employer-friendly review standard.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The Morin case: vindicating a multiple front strategy

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Brian Morin worked as a research physicist for Milliken & Company. He signed an employment agreement that included several covenants: non-compete restrictions on post-Milliken employment, an "Inventions" clause and a "Confidential Information" clause, among other items. [ii]The latter two provisions restricted Morin's use of company information except for the benefit of Milliken. Nevertheless, while still in Milliken's employ, Morin began to lay the groundwork to start a competing venture, based in part on ideas he developed through his work at Milliken.[iii]Morin eventually left Milliken to launch a competing business. His former colleagues noticed that the business plan Morin had developed for his new venture looked similar to projects being conducted at Milliken in which he was involved. Morin sought patent protection for newly-developed fiber products shortly after leaving Milliken which appeared to have been derived from materials under development by Morin's team at Milliken.[iv]

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Milliken sued Morin and his new business, claiming that Morin violated the terms of his employment agreement, including the inventions assignment and the confidentiality clauses. Morin responded by challenging both clauses as unenforceable restraints of trade. The litigation thus put the enforceability of those clauses squarely at issue.

\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Milliken's inventions assignment clause contained a number of limitations. The policy applied only to inventions that were directly related to Milliken's business, resulting from the employee's work at Milliken, developed using Milliken equipment, supplies, facilities or proprietary information, or were developed in...

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