Long recognized as the nation’s leading business court, the Delaware Court of Chancery continues to be a top forum for litigating complex disputes over technology such as trade secret misappropriation or enforcement of noncompete or licensing agreements. Despite the Court of Chancery’s location in the second smallest state, its jurisdiction reaches businesses and individuals from around the globe, and even more so since the Delaware legislature opened the court’s doors to a broad array of “technology disputes” in 2003. Delaware courts possess personal jurisdiction over not only the corporations, LLCs, and partnerships formed under Delaware law (which includes the vast majority of public companies), but also their current and former directors, officers, and managers, who are deemed by statute to have consented to jurisdiction in the Delaware courts for actions related to their positions. Litigants prize the Chancery Court’s expedited handling of complex technical disputes, its stellar judges, its ability as a court of equity to mete out fair and creative forms of relief (as well as traditional damage awards), and the fact that cases are decided by a judge not a jury—leading to more consistent and reasoned decisions.
The Court of Chancery is also able to decide matters quickly and confidentially—key attributes for deciding matters involving confidential technologies. The court’s confidential mediation and new 90-day arbitration options permit parties to resolve their disputes off the public radar before a sophisticated Chancery judge. The court’s key 2010 decisions exhibit why parties feel confident in bringing to this court various technology-based disputes. Here, we summarize our selection of the top five most influential technology decisions of 2010.
Opinion Date – 1/29/10
- Trade secrets misappropriation
- Tortious interference with contract
- Delaware Uniform Trade Secrets Act (“DUTSA”)
Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, C.A. No. 3718- VCP, 2010 WL 338219 (Del. Ch. Jan. 29, 2010) (Parsons, V.C.)
In Great American, the court found that the plaintiff had proven at trial that the defendants (former employees of the plaintiff ) had willfully and maliciously misappropriated the plaintiff ’s trade secret information, which included its customer contact and purchasing information, sales volume information and rankings for its sales representatives, and compilations of information regarding its customers and sales representatives. To determine whether the information was a trade secret, the court focused largely on whether the claimed trade secret “derived independent economic value by virtue of its secrecy.” In examining the willfulness aspect of the claim, the court found that the defendants had the requisite intent to cause injury to the plaintiff. Consequently, the court awarded compensatory damages to Great American, awarded exemplary damages equal to the compensatory damages award, and also awarded Great American half of its attorneys’ fees arising from the plaintiff ’s pursuit of its trade secret claim.
Opinion Date – 2/18/10
- Trade secrets misappropriation
- Breach of contract
- Delaware Uniform Trade Secrets Act
Agilent Technologies, Inc. v. Kirkland, C.A. No. 3512-VCS, 2010 WL 610725 (Del. Ch. Feb. 18, 2010) (Strine, V.C.)
In Agilent, the court found at trial that former employees breached their employment contracts with Agilent, willfully and maliciously misappropriated Agilent’s trade secrets, and used them to create competing products at Advanced Materials Technology, a company defendants created to compete with Agilent. Consequently, Vice Chancellor Strine awarded compensatory damages and damages for unjust enrichment and also awarded attorneys’ fees for the willful and malicious misappropriation. In reaching its conclusion, the court outlined the process for proving a trade secret claim under DUTSA, noting that it requires that trade secrecy be proven by showing that the trade secrets have “independent economic value, with the potential to give [the party alleging trade secret misappropriation] some advantage from not being generally known or readily ascertainable, and are subject to reasonable efforts to maintain secrecy.” The court found that the plaintiff had taken reasonable efforts to protect its trade secrets and that the defendants acquired the confidential information knowing that it was the plaintiff ’s and that they were under a contractual obligation not to use that information beyond their work for the plaintiff. After finding that each of the plaintiff ’s claimed secrets was a trade secret under the DUTSA, the court outlined its reasoning for finding misappropriation by the defendants. Notably, even though the defendants had developed a new product, the court observed that misappropriation could still occur where “a trade secret acts as a starting point for improvements, or a guide by which pitfalls may be avoided.”
Opinion Date – 4/23/10
- Trade secrets misappropriation
- Breach of fiduciary duty
- Tortious interference with contractual relations
- Tortious interference with prospective business relations
Beard Research, Inc. v. Kates, C.A. No. 1316- VCP, 2010 WL 1644177 (Del. Ch. Apr. 23, 2010), aff ’d sub nom., ASDI, Inc. v. Beard Research, Inc., – A.2d –, 2010 WL 4751770 (Del. 2010) (Parsons, V.C.)
In this case, plaintiffs (Beard Research and Charles Beard Research and Development (“CB”)) were in the business of developing and selling certain chemical compounds. Defendants were business competitors and former employees. Plaintiffs had hired defendant Kates to be second in command in both the plaintiff companies. Five years later, Kates began talking with another employer (defendant ASG, a division of defendant ASDI) to form a company that would compete with plaintiffs. Kates, together with three other CB employees, joined ASG. Within a few months of Kates’ departure, plaintiffs’ biggest customer (Pfizer) terminated a $22 million contract with plaintiffs and signed a contract with ASG. ASG also began marketing several of plaintiffs’ products. Plaintiffs sued defendants and the case proceeded through trial.
The court found that the information at issue was trade secrets under DUTSA, in part because it derived independent economic value from not being known or readily ascertainable and CB had taken reasonable efforts to maintain its secrecy. In turn, the court found defendants liable for misappropriation. The Court of Chancery dismissed the claim that defendants were liable for tortious interference with contractual relations for the loss of the Pfizer contract. The Delaware Supreme Court upheld the decision of the Court of Chancery, although it upheld the dismissal of the tortious interference with contract claim on different grounds, explaining that the focus of the claim must be on the defendant’s wrongful conduct that induces the termination of the contract, irrespective of whether the termination is lawful.
Opinion Date – 12/1/10
- Forum selection clauses
- Forum non conveniens
Ingres Corp. v. CA, Inc., 8 A.3d 1143 (Del. 2010)
This case illustrates the importance of having forum selection clauses in governing contracts to secure jurisdiction in the Delaware courts. Here, two software companies brought competing actions related to the same breach of contract dispute in two separate forums, California and Delaware. The contracts at issue contained forum selection clauses specifying either Delaware or New York as the chosen forum. The Court of Chancery denied the motion to stay the Delaware action in favor of the California action, reasoning that deference to the California action was not required given the forum selection clauses. On appeal, the Court of Chancery decision was affirmed, and the Delaware Supreme Court also clarified the application of the McWane doctrine where Delaware was identified as the chosen forum in a legally enforceable forum selection clause. The Delaware Supreme Court held that “where contracting parties have expressly agreed upon a legally enforceable forum selection clause, a court should honor the parties’ contract and enforce the clause, even if, absent any forum selection clause, the McWane principle might otherwise require a different result.” For parties negotiating provisions in a contract, licensing, or settlement agreement, a forum selection clause alone can secure jurisdiction in the courts of Delaware for disputes arising under those agreements.
Ruling Date – 12/15/10
- Non-compete agreement
- Preliminary injunction
Wal-Mart Stores, Inc. v. Mullany, C.A. No. 6040-VCL (Del. Ch. Dec. 15, 2010) (Transcript) (Laster, V.C.)
In this oral ruling, the Court of Chancery preliminarily enjoined Wal-Mart’s former Executive Vice President from taking a position as President of CVS Pharmacy. In so ruling, the court emphasized the fact that Delaware enforces reasonable non-compete agreements, and Wal-Mart had met its burden for a preliminary injunction to issue. The court noted that there was no legitimate challenge to the validity of the non-compete and CVS qualified as a competitor under the agreement. As far as the non-compete itself, the court found important that Wal-Mart’s former EVP agreed and represented that the restrictions in the agreement were “a reasonable attempt by Wal-Mart to protect its rights and to safeguard its confidential information” and that he had consulted with a lawyer when entering into it. The restrictions in the non-compete were also found to be reasonable in scope given Wal-Mart’s operations. Vice Chancellor Laster also found that the interests Wal-Mart sought to protect with its non-compete were legitimate and that for purposes of a preliminary injunction, Wal-Mart had bargained for the very protection they were now seeking. The court therefore converted the TRO into a preliminary injunction, which it ruled would stay in effect until after a trial, scheduled for March 2011. Notably, this case emphasizes the swiftness with which the court is willing to move when there are imminent and irreparable threats of harm to a party with respect to a non-compete agreement or threat of misuse of trade secrets. Here, the complaint and application for a TRO were filed on the evening of December 2, 2010, the TRO was granted on the afternoon of December 3, discovery proceeded, and the hearing and ruling on the preliminary injunction took place less than two weeks later on December 15.