Non-Competition Agreement and Trade Secrets

From yesterday's Indianapolis Business Journal:

Marion Superior Court Judge Thomas J. Carroll yesterday issued a preliminary injunction ordering an Indianapolis company controlled by high-profile businessman Alan G. Symons to return computer files and other information allegedly taken from a Fishers competitor. The competitor, Product Action International LLC, claimed in a lawsuit filed in May that Symons' company--Fast Tek Group LLC--used Product Action's business blueprint to build a similar company. Both firms sort defects out of parts lots for manufacturers.

Symons filed an appeal shortly after Carroll issued the injunction. "This is two competitors beating each other up," he said, denying wrongdoing.

This story bears some resemblance to other similar cases that I have posted about here and here and here and here.

Carroll's injunction said the former employees, Anthony Roark and Chan Chanthaphone, admitted taking the information, then took the 5th Amendment protection against self-incrimination and refused to testify.

Roark allegedly transferred operating methods, process flow charts, a quality manual and other trade secrets from Product Action computers to a zip drive, and then gave the information to other Fast Tek workers and used the information in Fast Tek operations.

Roark, who started working at a Fast Tek office in Saginaw, Mich., in 2004, climbed to vice president a year later. He resigned in December 2006.

I hate basing anything on a newspaper report and so this may just be two competitors fighting things out in out. However, the bit about the two taking the 5th does make me skeptical about any pleas of innocence.

What I find truly astounding in this story is the aplomb with which the new company took in these former employees of a competitor. These problems ought to have been sorted out before hiring these persons. Instead of resorting to counsel before the manure hit the fan, the attorneys did what they could fix the results of that manure hitting the fan. I have little sympathy for business owners who are in this position - particularly one who sounds as sophisticated as this fellow. If I do accomplish nothing else with this blog, I hope it is instilling this idea in my readers: consult an attorney before doing anything that could sink your business.

Based on the facts from the IBJ, I would have counseled not to hire these people. If hiring, then restrict their activities either in regards to a non-competition agreement (a point on that below) or a strict review of any information that they brought with them or offer for use. Finally, document everything about them and the information they possess and my client uses and how the client used their information.

I speak a little harshly about the company hiring these people but the former employer missed a few points. First, the former employer does not seem to have had non-competition and/or non-disclosure agreements. In the long run, these missing documents did not matter in this case as the former employees' conduct seems to been outrageous. A closer case and the results would differ. Second, the former employer would have avoided financial and business costs with a better method of securing their trade secrets.

4/18/08 update: Trade Secrets: Indiana Court of Appeals Issues Opinion Involving Fast Tek.