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Non-Compete Agreements, Securities Fraud

Who Owns Your Linkedin Account: You or Your Boss?

Not a non-compete case– but it rhymes.   The case is Eagle v. Morgan, et al., No. 11-4303 (E.D.Pa. December 22, 2011).   The plaintiff, Linda Eagle, co-founded a company called Edcomm, which provides banking and financial training services.  Eagle had been with Edcomm since the late 1980’s.  In 2008, Eagle created a LinkedIn account.  As expected, she did what most people do with a LinkedIn account: add connections.  Some of these connections were personal friends; family members; old classmates.  Others were business contacts.  Fast forward to October, 2010: Eagle and the owners of Edcomm sell all of their interests in the company to another company called Siscom.  Eagle is kept on for several months as an executive, then is terminated in June 2011.

Following her termination, Edcomm’s new owners accessed Eagle’s LinkedIn account, changed her password (to prevent Eagle from having access) and then made several curious changes to the account:  Eagle’s LinkedIn page now showed a picture of the interim CEO and contained her name, but also contained all of Eagle’s honors, awards, recommendations and connections.  Fascinating!

Two lawsuits followed.  The first shot came from SISCOM/Edcomm.  The two companies filed a lawsuit against Eagle and the other former owners of Edcomm in the Southern District of New York on June 17, 2011.  The claims:  securities fraud, fraudulent inducement and breach of contract among others.  Needless to say, there is much more at issue here than a dispute over who owns a LinkedIn account.  And indeed there is.  Plaintiffs in the SDNY case allege that Eagle and the other former owners of Edcomm defrauded them in connection with the sale of their interest in the company by failing to identify certain corporate liabilities.  One of the defendants in the SDNY case – Brody – is the former CEO of Edcomm.  As it turns out, there were two agreements between Edcomm and Brody that made the deal largely worthless:  (1) A 1995 deal entitling Brody to significant severance pay (i.e. millions) in the event of his termination by Edcomm and (2) a 2008 agreement transferring ownership of most of Edcomm’s intellectual property to Brody.  None of these details were disclosed to the SISCOM buyers.  The case is being heard by Judge Scheindlin, one of the best jurists in the business.  In December 2011, the court issued an order on Defendants’ motion to dismiss sustaining virtually all of the claims.

Knowing that she (and her buddies) were basically toast in the New York lawsuit, Eagle fired off a lawsuit against SISCOM/Edcomm only two weeks after the New York lawsuit was filed.  In her case, Eagle alleges violations of the Computer Fraud and Abuse Act, the Lanham Act and  a variety of common law claims (all predicated on Edcomm’s use / misappropriation of her LinkedIn account).

In a recent decision, the court in the Pennsylvania case dismissed Eagle’s CFAA and Lanham Act claims, but let stand her state law claims (misappropriation, tortious interference and the like).  The ownership of the LinkedIn account remains in dispute.

So who should own the LinkedIn account?  What makes sense here?  Again, we are not dealing with a clear cut case of ownership.  If the LinkedIn account specifically was set up to be an Edcomm account, then Edcomm obviously would own it.  Many companies have corporate social media accounts.  Ownership in those instances is clear.  And this is not such an instance.  Rather, Eagle had a LinkedIn account which she used to gather a variety of connections.  She made some of these connections in her personal life.  She made some of these connections while acting in her capacity as an Edcomm co-owner.  But at the end of the day, she is the one who was connected to these people.

Some commentators have suggested that this is just the modern day equivalent of a customer list, and is therefore clearly protected under non-compete statutes.  Not so.  It strains credulity to suggest that all or even most of Eagle’s (or anyone’s) LinkedIn connections are customers or specific prospective customers.  Many are probably personal acquaintances, family members and friends.  And although some are business contacts, those are certainly not all (or even mostly) customers.  Non-compete statutes may protect customer relationships (and therefore customer lists), but many other types of relationships simply cannot be protected.  There is a commonly held misconception: that “customer” in non-compete statutes really means something else— that customer is shorthand for valuable relationships of any sort (suppliers, distributors, etc.).  In Florida, at least, the courts have repeatedly concluded that customers means customers.  For instance, under Florida law, relationships with suppliers are not protected.  The point is that many connections on a given LinkedIn account are not customers.  They are not even prospective customers (in any reasonable sense).  They are something else.  And they are therefore not protected.

I’ll take it even further.  Customer relationships.  Having a LinkedIn connection with someone who works for a particular company does not mean that I have a customer relationship with that company.  I have numerous professional contacts on LinkedIn.  These are links between me and my friends, acquaintances, fellow professionals— not their respective companies.  Say I have a friend that works for General Electric.  My relationship is with that individual, not necessarily with General Electric.  Let’s say he is in the same situation outlined above.  He leaves GE.  Can GE really claim – with a straight face – that his LinkedIn account is now their property, that his connections are now theirs, and that a non-compete agreement justifies this in order to protect their (nonexistent) customer relationship with me?  No.  That is just nonsense.

So, Eagle and co. may be guilty of securities fraud (and it certainly looks that way).  But that’s a separate issue.  Edcomm should have left the LinkedIn account alone.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He focuses his practice on cases involving employment disputes, antitrust and business torts.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

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