Executives (and One Law Firm) Allegedly Behaving Badly

A number of cases involving former executives have received national attention recently and serve as a good reminder that trade-secret, non-solicitation, and non-competition controversies can arise at the highest level of a company. Another recent case also serves as a reminder that trade-secret claims should be filed only when there is a good-faith basis to do so. Consider the following:

  • In In re: High-Tech Employee Antitrust Litigation, a California federal judge refused to dismiss a class-action lawsuit alleging that Steve Jobs orchestrated a number of agreements between Apple, Pixar, Google, Intel, Adobe Systems, Intuit Inc., and Lucasfilm not to compete for engineering talent in violation of federal and state antitrust laws. Each of the six bilateral agreements under review were identical in nature, lending credence to the allegation that they were “negotiated, reached and policed at the highest levels of the defendant companies.”
  • AIG filed a complaint last week in California state court alleging that the former CEO of its International Lease Finance Corp. subsidiary stole trade secrets and recruited other executives to do the same when he left to start his own company after he was unable to buy the subsidiary.
  • Similarly, Manpower Inc. filed a complaint in California federal court last week alleging that two of its former executives who left to form a competitor stole trade secrets and took employees with them in violation of those employees’ non-compete agreements.
  • In a bit of a twist on the typical trade-secret case, the law firm Latham & Watkins was sued by two former employees of Latham’s client, FLIR Systems, for maliciously suing them for trade-secret misappropriation on behalf of FLIR when the employees left FLIR to start their own business. The employees allege that there was no good-faith basis to bring the original lawsuit (which they eventually won) and that the lawsuit cost their new company important business with Raytheon. The employees also filed a malicious prosecution action against FLIR.

The first three cases simply highlight how important it is for a company to act appropriately to protect its trade secrets from potential competitors who may even be at the highest levels of the company. The last case references an issue that Massachusetts case law and the Uniform Trade Secrets Act (UTSA), which has been proposed for adoption in Massachusetts, address: trade-secret claims that are brought by plaintiffs in bad faith. One Massachusetts judge characterized a claim where the plaintiff “filed suit when it sensed the possibility of a trade secret theft without having reasonably investigated whether what it sensed indeed constituted the theft of a trade secret” as a “sound shot” that was like “the dangerous practice of an inexperienced hunter to fire his shotgun immediately in the direction of any sound that appears to have been made by a live animal.” Brooks Automation, Inc. v. Blueshift Technologies, Inc., 20 Mass. L. Rptr. 541 (Mass. Super. 2006). The danger of a “sound shot” in the woods is that someone could be injured, and likewise “[t]he danger of a ‘sound shot’ in the filing of a lawsuit against a prospective competitor is that the competitor may also die a corporate death through bankruptcy or suffer serious financial injury, especially if it is attempting to procure new customers or interest venture capitalists who are wary of becoming embroiled in litigation.” In Brooks, the court awarded treble damages to the defendant on its counterclaim under Massachusetts General Laws chapter 93A partially to punish the plaintiff, and similarly the UTSA authorizes an award of attorney’s fees to a party defending against a trade-secret lawsuit brought in bad faith. Employers should pause and think about the Brooks case and the UTSA before filing any trade-secret lawsuit.

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