Winter is around the corner. On the calendar, however, it’s not yet here. Surely Mother Nature is aware of this. Still, an ice storm currently engulfs large swaths of our nation and is leaving many of us without power or heat. If your new business was recently served with a lawsuit seeking an injunction against it to stop allegedly unlawful competition, then you can probably relate to those in the grips of the current storm.
The situation: A successful closely held corporation sues a new competitor in its industry. The complaint alleges that the new competitor hired a former employee with knowledge that the former employee and former employer had executed a non-competition agreement. The complaint against the new competitor seeks an injunction. If you’re familiar with this column, then you know that this scenario is rather commonplace. Sometimes, however, the former employer/plaintiff can seek relief that a court deems unreasonable. One such instance occurs with internet-based companies, or even with internet-reliant companies.
Here’s an example: You own a company that sells goods over the internet. You discover that your former employee is working for a new competitor seemingly in violation of his non-competition agreement. Although there is no evidence that your business is damaged or will suffer damages as a result of the new competitor’s entry into the marketplace, your lawsuit seeks to enjoin the former employee from working for the competitor. Your lawsuit also includes a claim against the new competitor for tortuous interference with your contract with the former employee. So far, this legal action presents relatively straightforward issues. Then you decide to make matters more complicated.
We often see former employers attempt to overreach when seeking damages. You might, for instance, sue for alleged violation of trade secrets (claiming that the employee gave protected information to the new competitor). Or you might sue for unfair and deceptive trade practices. While this aggressive approach could potentially force the new competitor to agree to willingly close its business, it’s more likely than not that you’ve created a situation in which litigation (and associated litigation costs) could escalate. Particularly with internet-based businesses, the capability to drive business to a particular website is seldom a secret. While there are certainly professionals who claim that they can use unique search engine optimization (SEO) techniques to increase your exposure, many businesses discover that they can directly pay the search engines themselves to increase their traffic. And that information is essentially available through the search engines for companies willing to pay for it.
As a result, your new competitor may actually get significant traffic to its website without ever attempting to steal your “trade secrets” in its efforts to do so. Even if challenged, a “trade secret” that is dependent on information a search engine would otherwise make publicly available is difficult to uphold in court. To some ˗ if your company is more financially capable of bearing the financial costs and personnel strain of the litigation storm ˗ this fight might seem worthwhile. Consider, on the other hand, the possibility that if you lose in your efforts to prove unfair and deceptive trade practices you may actually have to pay prevailing party attorney’s fees and costs to the new competitor. Why? Because “deceptive and unfair trade practice” statutes usually contain clauses that allow courts to award prevailing party attorney’s fees and costs. In other words, if the new competitor can hold on long enough to defeat your claim for deceptive and unfair trade practices, your company could end up paying your competitor’s legal bill (even if the court finds grounds to enter the injunction you sought).
Does that scenario denude or devalue your carefully drafted non-competition agreement? No, it does not. What the above scenario is intended to provide is a cautionary warning that when dealing with a pest, sometimes a fly swatter gives you a better result than a grenade. Many times your well-pled motion for injunctive relief will achieve your business goals without having to prove the elements of the additional allegations. Less cost to you, same effect on your newly-enjoined former-competitor.
Navigating the many laws and difficult language in the area of non-competition agreements can perplex even the most sophisticated business professionals. This is the point in the blog when you are urged to seek refuge from this complexity with an attorney experienced in these issues and capable of both advising and litigating, if necessary.
If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.