In the non-compete and trade secret enforcement arena, some issues repeatedly emerge: can a company prevent an executive or sales employee from working for a competitor when the employee possesses certain “confidential” information? Will the court enforce the concept that it is inevitable that the employee will disclose such information to the new employer under an inevitable disclosure theory? How related do the former and current positions need to be before a court will adopt a non-compete? And how do courts view “clawback” provisions that allow companies to cancel stock or bonus payments in the event that an employee breaches a non-compete agreement. All of these are important issues and were addressed in a recent dispute between International Business Machines Corporation (“IBM”) and Hewlett-Packard Company (“HP”) concerning an executive.
The Honorable Loretta Preska of the Southern District of New York recently addressed these and other issues when she denied IBM’s attempt to restrain one of its former executives, Giovanni Visentin, from working for HP for a period of twelve months. Judge Preska ruled that IBM had not shown sufficient evidence that Mr. Visentin’s new job makes it inevitable that he will disclose any protectible IBM trade secrets.
Mr. Visentin was employed by IBM for 26 years prior to his January 19, 2011 resignation, during which time he had risen the ranks to become General Manager of IBM’s Integrated Technology Services (“ITS”) group, which provides clients with IT infrastructures and cloud computing services. Upon assuming the General Manager position, Mr. Visentin executed a series of noncompetition agreements with IBM, specifically agreeing not to associate with any competitor for a period of twelve months following the termination of his employment.
On January 18, 2011, HP made Mr. Visentin an offer to serve as its Senior Vice President, General Manager, Americas, for its HP Enterprise Services group, which oversees three business segments, one of which provides clients with similar IT infrastructures and cloud computing services. Mr. Visentin accepted HP’s offer within an hour’s time and gave notice to IBM later the same day, at which point IBM escorted him out, repossessed a laptop computer from his home, and the next day filed a complaint seeking a preliminary injunction to prevent his employment with HP.
In seeking a preliminary injunction, IBM alleged that Mr. Visentin had acquired numerous trade secrets, including: (1) strategic initiatives in cloud computing; (2) acquisition plans; (3) pricing strategies; (4) operational finances and the identity of troubled accounts; (5) competitive strategies with HP; and (6) client “pipeline” information, including new client targets. In its 62-page order, the Court addressed each of IBM’s trade secrets and found that Mr. Visentin only had generalized information and that, except for client “pipeline” information, IBM had failed to provide any specific example of how Mr. Visentin’s generalized knowledge could be used at HP to IBM’s detriment. Mr. Visentin was not among the top cloud computing personnel at IBM and he was unable to describe at the preliminary injunction hearing the architecture or design of IBM’s cloud infrastructure. Further, the Court found that much of his generalized knowledge was already known in the marketplace. For instance, Mr. Visentin’s generalized knowledge of pricing strategies was not found to be a trade secret, as it was driven by other more dominant players in the cloud computing market.
The Court also ruled that IBM had provided no evidence that Mr. Visentin’s new role at HP inevitably would require the disclosure of IBM’s trade secrets. Importantly, the Court found that HP’s agreement provided a safeguard against the disclosure of potentially sensitive information by agreeing to limit the scope of his new position for the first twelve months covered by the non-compete. The Court also found that Mr. Visentin’s new position was not nearly identical to his IBM post, but rather was significantly larger in scope, both substantively and geographically, and only shared a “slight overlap” with his prior position. In sum, the Court found no evidence that any specific IBM knowledge that Mr. Visentin possessed, such as client “pipeline” information, would have to be disclosed to carry out his role at HP.
The Court’s ruling turned on its finding of no irreparable harm because there was no evidence that Mr. Visentin’s new job would inevitably disclose IBM’s trade secrets. However, the Court criticized IBM’s noncompetition agreement in a few respects: finding it overbroad because it prohibited Mr. Visentin from working for a competitor for twelve months even in an area in which IBM does not participate and has no legitimate interest to protect; objecting to a “clawback” provision, which allowed IBM to cancel certain equity benefits upon breach, as being punitive; and viewing the non-compete as a retention device “designed to keep the leadership talent of IBM from leaving.”
The case, International Business Machines Corp. v. Visentin, No. 11-cv-00399 (S.D.N.Y.), remains pending, and IBM has publicly stated that it disagrees with the ruling and is considering its next steps.
Significantly, when considering litigation, clients and practitioners should consider the scope of non-compete agreements, analyze whether employees have specialized, as opposed to general company information, evaluate whether the new position is directly related to the former position or involves a substantial overlap of duties, and pay close attention to the scope of a restrictive covenant.