Trade Secrets: More Papermaster, IBM and Apple News

I find this case is staying interesting. For example, as MacWorld reports in IBM posts $3 million bond in Papermaster lawsuit the case has some points that apply generally.

The $3 million bond was put in place to pay Papermaster should the court decide IBM’s case is without merit and the injunction against Papermaster shouldn’t have been granted. Final damages will be decided by the court, but they won’t exceed the bond amount.

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He also said that when he accepted the job at Apple, he signed an Intellectual Property Agreement in which he agreed not to disclose or bring onto Apple property any “confidential, or proprietary, or secret information” of IBM.

I have seen a few cases fail at this stage because of the lack of a bond. Indiana Trial Rule 65 deal with injunctions and says this about a bond:

(C) Security. No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained. No such security shall be required of a governmental organization, but such governmental organization shall be responsible for costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained. The provisions of Rule 65.1 apply to a surety upon a bond or undertaking under this rule.

I would not file a motion for a preliminary injunction without first securing the bond for the injunction. Of course, IBM need not have too much trouble affording the security for a bond.

Meanwhile, Mr. Papermaster reacts to the lawsuit with his own counterclaim. A very good move in my opinion as tactics regardless of its merits (not having read the Complaint or Counterclaim, I am not willing to not put in a qualifier here). Again from MacWorld:

Papermaster countersues IBM in effort to join Apple

In an effort to sever ties with his former employer, Mark Papermaster has countersued IBM, claiming among other things that Apple and IBM are not significant competitors.

Papermaster contends that IBM’s noncompetition agreement precludes him from working for any Business Enterprise or any major competitor of IBM. The lawsuit argues that since IBM business enterprise services and Apple’s business is the design, manufacturing and marketing of consumer electronic products, the two are not major competitors.

Providing further evidence of the noncompetitive nature of the companies,

Papermaster further explains that at IBM he was the vice president of Blade Development, while in his role at Apple he would be in charge of product development for the iPod and the iPhone.

The countersuit asserts the noncompetitive agreement “is unreasonably broad in that it purports to impose an unreasonably lengthy time limitation.

In the world of technology, any trade secrets that Mr. Papermaster
possesses would lose their value prior to the expiration of a year.”

Papermaster says the noncompetitive agreement is flawed in another way. The agreement says that it is “governed by, and construed in accordance with, the laws of the State of New York,” but he worked in Texas and

Apple is in California. Both of those states hold such noncompetition agreements are unenforceable.

This demonstrates a fairly common strategy for employees being subjected to a non-compete agreement. A point to employers who hire from their competitors, budgeting legal fees for defending and counterclaiming a lawsuit from the former employer is a good idea.

Here Is One Employment Case I Would Like to Know More About

Court rules in favour of UBS in UK wealth case

The High Court judge has this morning ruled that UBS should be entitled to a springboard injunction on the grounds that Vestra deliberately solicited clients and staff away from UBS, and that senior ex-UBS staff breached their duty of fidelity.

A springboard injunction is a ruling against former employees suspected of trying to get an unfair start when launching a new business. As part of the injunctive relief, the defendant is no longer allowed to take on UBS clients or staff until the trial, which begins on October 2.

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The judge added it was "inherently unlikely that nearly the whole department would leave UBS en masse without extensive discussions between staff beforehand." He believed instead that departments within UBS were "seething" with plots and plans for many months. These were "obvious breaches of the loyalty and fidelity" owed to UBS.

From the description here and in The London Times, I do question the grounds for the suit. I know the grounds I would use in Indiana - breach of a non-competition agreement and/or trade secrets. Neither of those bases get mentioned by the press. Using a preliminary injunction applies just as much here as there. (For more on trade secrets, non-competition agreements or injunctions, just click on the links below for those subjects0.

Suing Bloggers - Sort of a Follow up to "Employees and the Internet"

Along the lines of my post Employees and the Internet and extending it a bit further is Enjoining Damaging Web Posts by Former Employees Comes at a Steep Price from Workplace Privacy Counsel:

Employers should view the Bank’s experience as a cautionary tale. What started as a quick agreement and apparent resolution literally, as the saying goes, ended up on the front page of the New York Times. The case also shows how quickly journalists will publicize a story that can be portrayed as “an attack on the First Amendment.” Sometimes filing suit is not the best way for an employer to protect its interest.

Somewhat similar but for now not directly involving employees is the case noted in Jet Maker Subpoenas Blog Critics:

In the latest case of corporation-versus-blog, the manufacturer of a line of "affordable" jets is seeking to uncover the identity of persons who posted critical comments on an aviation industry blog. Eclipse Aviation has served a subpoena on Google Inc. seeking to out the identities of more than two dozen people who have posted anonymous comments to the blog Eclipse Aviation Critic NG, which is hosted on Google's Blogger service.

For employers who may not be aware of these suits, pay attention for this may become common than any of us would like.

Notice, Preliminary Injunctions, Employment Contracts, and The Indiana Court of Appeals

Ordinarily, preliminary injunctions come before trial on the substantial issues of the case. Not in Roberts v. Community Hospitals of Indiana, Inc. (PDF format).

If the court consolidates the preliminary injunction with trial, there has to be proper notice given to all the parties. Notice gives the parties time to properly prepare for the hearing. The Indiana Court of Appeals held that there was not enough notice given in this case and sent it back to the trial court.

The case gives us an insight in the preliminary injunction process. I find the case worth reading for that reason alone.

If you are looking for Indiana counsel for business litigation, please remember that I am taking on cases at this time.

New from Indiana Court of Appeals: Damages for a Wrongful Discharge

Last week the Indiana Court of Appeals published its opinion in Debbie Pflederer v. Kesslerwood Lake Association, Inc. (Pdf format) about damages for a wrongful injunction.

In National Sanitary Supply Co. v. Wright, we explained that Trial Rule 65(C)

is an exception to the American Rule, recognized in Indiana, which generally makes parties responsible for their own attorney fees. The reason for the exception is that preliminary injunctions do not require a full hearing on the facts of a case and, thus, there is a likelihood that an injunction may be wrongfully issued. The security contemplated by T.R. 65(C) is intended to protect and compensate a defendant for any damages incurred as a result of a wrongfully issued preliminary injunction.

644 N.E.2d 903, 905 (Ind. Ct. App. 1994) (citations omitted), trans. denied (1995). We went on to hold that

the test for determining if a preliminary injunction was wrongfully issued is not whether the injunction was ultimately dissolved but rather whether injunctive relief was warranted under the facts of the case. A defendant’s entitlement to attorney fees and costs under T.R. 65(C) arises when he proves that it has been finally or ultimately determined that injunctive relief was not warranted on the merits.

Id. at 906 (footnote omitted).

It is undisputed that the preliminary injunction in favor of KLA was wrongfully issued. Given that KLA appealed the trial court’s dissolution of the preliminary injunction and denial of its request for a permanent injunction, the wrongfulness of the injunction was not “finally or ultimately determined” until October 3, 2006.....

Reversed for a new hearing on damages for the wrongful injunction.

Four Steps to An Injunction

The trial court issued a preliminary injunction in the Symons case for misappropriating trade secrets. Here are the four standards for issuing a preliminary injunction:

1) Whether or not the party seeking the injunction has an adequate remedy at law;

2) Whether granting the injunction would disserve the public interest;

3) Whether the party has established a reasonable likelihood of success at trial; and,

4) Whether the injury to the party seeking the injunction outweighs the harm to the party who would be enjoined.

Indiana State Bd. of Public Welfare v. Tioga Pines Living Center, Inc. (1994) Ind.App., 637 N.E.2d 1306, 1311