As an attorney who defends employees in non-compete cases, I am generally critical of how such agreements are used. For one thing, it seems that everybody has a non-compete agreement these days (maids, bartenders, news anchors), even when the facts suggest that such an agreement is unenforceable. And every plaintiff in every non-compete case runs into court screaming about confidential information and trade secrets– even when that is clearly not the case.
But occasionally, I come across a case where confidential information and trade secrets might actually be at issue. Here you go: Amazon.com has sued a former vice president, Daniel Powers, for breaching his non-compete agreement. Powers was VP of global sales for Amazon Web Services through June of 2012. Upon leaving the company, he signed a severance agreement reaffirming the terms of his non-compete and, in exchange, received a payment of $325,000. Less than four months later, he went to work for Google as the Director of Cloud Platform Sales. Amazon sued him. The case is proceeding in King County Superior Court (Seattle, Washington).
According to the complaint, Powers learned everything about the cloud computing business while at Amazon and now has the benefit of Amazon’s “cumulative knowledge and experience” in that arena. He also had access to Amazon’s confidential information and trade secrets.
Some parts of Amazon’s complaint are a bit ridiculous. For instance, at one point in the complaint, Amazon bluntly expresses its concern that Powers knows “which customers have expressed dissatisfaction Amazon’s cloud products”, knows the problems those customers have had with Amazon’s products and services, and will – essentially – try to poach those customers from Amazon by offering better products and services. At first blush, that does not seem right. Google is a powerhouse with a brilliant team and vast resources. As a competitor in the cloud computing marketspace, it stands to reason that Google obviously would make a concerted effort to deliver better products and services than Amazon. That is simply the nature of competition. In short, this was a poor argument for Amazon to make. Sure, Amazon can talk about Powers trying to steal their customers. But arguing that they aren’t very good in some areas, that customers are dissatisfied and that those customers might follow Powers to Google— It does nothing to help Amazon’s cause and just makes them look like they’re afraid of competition on the merits.
Some other weaknesses: Amazon repeatedly raises the issue of customer relationships. However, nothing in the complaint suggests that Powers has been soliciting Amazon’s client. Amazon raises the spectre of Powers interfering with such relationships, but there is no evidence that this has actually taken place. Further, if Amazon and Google are competing for the same customers, and many of those customers are major players that are fairly well known, it will be difficult for Amazon to tie any customer movement directly to Powers. For all we know, Google is always making a play for Amazon’s cloud computing customers and vice versa.
Still, Amazon has the upper hand because of confidential information. The complaint lays out a laundry list of purported trade secrets and confidential information that Powers had access to during his tenure at Amazon. This includes information about Amazon’s overall business strategy, business partnerships, future products, pricing and market strategies, financial information, and new technologies (among others).
We can stop there. In an industry like cloud computing, it is likely that there really would be at least some type of confidential information at issue. I say this because I have been involved in a number of non-compete cases where claims of confidential information rang hollow simply given the nature of the industry (i.e. wine and spirits; restaurants; advertising). But here, Amazon probably does have some confidential information related to its cloud computing ventures. And Powers – as a relatively high ranking employee in a leadership position – probably had access to such information. This sounds like a case of inevitable disclosure.
It seems like Powers’ only hope is to argue that all of the allegedly confidential information is somehow not confidential— it’s publicly available, it’s not valuable, has formerly been distributed to third parties who have no obligations to keep it confidential, etc.
Apparently, Powers is going to argue that he will not use any of this information at Google, and that his position at Google will be limited to ensure that he does not use or disclose any such information. Some people suggest that such a defense has been successful in recent cases. I disagree. Take, for instance, the case of IBM v. Visentin, 2011 WL 672025 (S.D.N.Y. Feb. 16, 2011). The IBM case has been billed by some as a victory over the inevitable disclosure doctrine. Not so. In reality, IBM came down to the merits of the claims re confidential information. The court put it bluntly:
“IBM has not demonstrated that it seeks to protect trade secrets or confidential information from misappropriation by Mr. Visentin. As noted above, IBM has not presented evidence sufficient to convince this Court that Mr. Visentin possesses much in the way of trade secrets or confidential information in the first place.” – Int’l Bus. Machines Corp. v. Visentin, 2011 WL 672025 at *22
As an attorney who defends non-compete cases, I love the IBM case. I love the court’s reasoning. But the IBM case is about much more than inevitable disclosure and ways around it. Instead, it is about confidential information. It is basic. It is boring. And it is certainly not clever. But at the end of the day, one of the best ways to beat a non-compete case is to prove that there never was any confidential information in the first place. And that is exactly what Powers will have to do here.
The case is Amazon.com Inc. v. Daniel A. Powers, Case 12-2-34992-4 SEA, Kings County Superior Court, October 26, 2012.
Postscript: (I daresay Powers has less favorable facts than Visentin. There, the defendant announced his intentions to leave IBM and offered to stay on for a while to wrap things up. IBM insisted on him leaving immediately, immediately seized his corporate laptop and immediately filed a lawsuit against him. Right off the bat, this goes to equity and the court’s interest in fairness. IBM came out of the gate hard and acted like bully. That makes a difference. Sticking with equities, there is also the issue of Powers accepting a $325,000 severance package. Another difference: In the IBM case, Visentin made a strong showing that his new position with HP was significantly different from his old job at IBM. Here, it appears (at least from initial impressions) that Powers has moved into a role at Google that is very similar to his old position at Amazon. In the end, it is a balancing test, and all of these factors are in the mix.)
Interesting case. Every company today seems to require new employees to sign very general non-competes which, as you say, are not enforceable in most cases. While it seems silly to have very junior employees sign these, there will always be that rare case where that junior employee may rise to a level where they will be privy to key strategic confidential information that may have impact their former company. This may be especially true in start ups where roles are somewhat more fluid. I wonder if you come across cases where company’s, rather than have everyone sign a confidentiality agreement upon hire, have their employee’s sign agreements only when promoted into positions where they have access to strategic information. Just curious.