Early this month, eight employees of the advertising giant Leo Burnett Company simultaneously left the company in the midst of work on a critical project for a major client. Ostensibly, the Leo Burnett Eight have their eyes set on taking that client and making it big on their own. Leo Burnett is one of the country’s biggest, most well-regarded advertising agencies. And the client at the center of this dispute is Kellogg, a company that spends in excess of $700 million a year on marketing and advertising. Kellogg is one of Leo Burnett’s most valuable clients.
At the center of the dispute is a CRM or client relationship management database that Leo Burnett was developing exclusively for Kellogg. A CRM can be used to manage a litany of business processes including communications, sales, customer service, technical support and more. This particular CRM was apparently top-of-the-line. According to the complaint, the Kellogg CRM provided for “consolidation and integration of existing client databases; the ongoing collection and analysis of customer data, including analysis of data from customer loyalty program participation, statistical modeling, the development of marketing campaign strategies, the development of customized email and other communications to customers, and analyzing the effectiveness of marketing campaigns.”
The principal architect of the Kellogg CRM project was Leo Burnett Senior Vice President Kristy Gibbs, who is a coder and (apparently) a particularly talented one. Even Leo Burnett admits as much, indicating that Gibbs possesses talents that are unique within the industry. Leo Burnett goes even further, basically admitting that two or three of the departed employees have either specific skills or specific knowledge of the industry that is unmatched by its remaining employees. Not surprisingly, Leo Burnett sued seeking an injunction and stating claims for breach of non-compete agreements, tortious interference and violations of the Illinois Trade Secrets Act, among other causes of action. News about the case has been slow to trickle out, partially because the case was filed in Illinois state court. I have posted the complaint below.
The case raises a number of interesting considerations. Let’s take trade secrets first.
Burnett is in a tough spot. Burnett was developing a CRM for Kellogg. Where is the trade secret? The general concept of a CRM, even one with certain bells and whistles, is not a trade secret. As I discuss below, Burnett perhaps can make a showing that the general CRM project concept constitutes confidential information (for non-compete purposes). But that does not make it a trade secret. Rather, the specific formula or code for such a CRM could be a trade secret. But there is no allegation that the Eight stole the actual code for the CRM. To be clear, the complaint does not allege that the Eight have absconded with laptops, flash drives, files, databases.
Rather, the complaint simply alleges that the Eight knew about the CRM. In my view, these facts do not support a claim for misappropriation of a trade secret. Further, it appears that the Kellogg CRM was nowhere near completion. Gibbs was still building it when she left Burnett. This makes a claim for misappropriation of trade secrets even tougher. It is unclear what parts of the nascent Kellogg CRM have been left behind, and in what format. For example, it is unclear whether there is enough actual material there – in terms of code, technical plans, etc. – that Burnett can point to as the actual trade secret. And, going forward, Gibbs could alter the code or build in different elements— in short, transform the code to such an extent that it could not be painted as a rip-off of the Kellogg CRM code.
There is no trade secret here. Nothing has been misappropriated. Rather, Burnett is upset because a very talented coder (Gibbs) who knows how to build valuable things (the Kellogg CRM tool) has left the company, possibly scuttled a huge deal, and may become their competitor. Gibbs has not stolen trade secrets. She just possesses a unique talent. That said, the non-compete case presents a closer call.
The Breach of Contract / Non-Compete Case
The Eight had agreements containing various non-solicitation and confidentiality provisions. Although the complaint does not make reference to non-compete agreements by that name, this is still a non-compete case. The various contractual provisions at issue (1) prevent the Eight from soliciting current Leo Burnett clients or employees (2) prevent the Eight from “render[ing] any services of the type rendered by Leo Burnett [to] any Leo Burnett Client” and (3) Prevent the Eight from using any of Leo Burnett’s confidential information. This is, of course, textbook non-compete language. In its complaint, Burnett alleges that the Eight have breached each of the three provisions outlined above.
Burnett claims that certain of the Eight had confidential information that they could use in their new venture. The complaint alleges that Gibbs has confidential information about the Kelllogg CRM project and about CRM pitches that were made to other companies. Burnett also argues that another defendant, David Rasho, has “inside information” about the needs and preferences of certain high-level players at Kellogg. The allegations regarding Rasho are basically nonsense. Kellogg’s preferences are certainly not confidential information that belongs to Leo Burnett. Instead, the crux of the confidential information argument is the CRM project. Does the project itself – at a conceptual level – constitute confidential information?
This is a close call. It is possible that Burnett developed the Kellogg CRM concept on its own, that the concept contains such unique elements as to render it valuable and confidential, and that this valuable information belongs solely to Burnett. But that is a best case scenario for the Plaintiff. It is equally possible that the Kellogg CRM was been developed with extensive input from Kellogg, in which case the concept does not belong solely to Burnett— Indeed, as the complaint suggests, part of Burnett’s argument is that certain of the Eight know all about Kellogg’s preferences and needs. Kellogg’s preferences do not equate to confidential information that belongs to Burnett. Kellogg is free to shop around. Kellogg could go to a competitor – say a new company started by the Eight – and say, “We want a CRM tool that does A, B, and C. Can you build it?” So the issue of confidential information will be a centerpiece of the dispute.
Leo Burnett faces an uphill battle in arguing that the Eight have breached their non-solicitation agreements.
First, Plaintiff claims that the Eight breached the employee non-solicitation clause by soliciting each other to resign en masse. But the plain language of the non-solicitation provision suggests otherwise. The non-solicitation agreement is only operative “for one year following” the employee’s termination. A current (rather than former) Leo Burnett employee is not governed by that clause. As such, the Eight – during their last days at Leo Burnett – were free to solicit others to join their mass resignation. To be clear, if the Eight really had breached the employee solicitation clause – if they were aggressively trying to pick-off more Leo Burnett employees after they had left the company – such allegations would feature prominently in the complaint. But the complaint does not contain such compelling allegations because that simply never happened.
Second, turning to the client solicitation provisions, Burnett is – again – in a tough position. The crux of Burnett’s complaint is not that the Eight will affirmatively solicit Kellogg, rather, that Kellogg will be forced to hire the Eight. The complaint makes this clear. Burnett is scrambling. They cannot complete the Kellogg CRM right now. They do not know how. That knowledge left with the Eight. It will take them months to replace that talent. Meanwhile, certain of the Eight know exactly what Kellogg wants and they know how to build it. The Eight do not have to go after Kellogg. Kellogg will go running to them. That is Burnett’s main concern. The complaint bears this out. Burnett is not just seeking an injunction to prevent solicitation— they are seeking an injunction to prevent the Eight from doing any work for Kellogg or other current clients. Burnett is not worried about solicitation. It is worried about competition, period. The interesting question here: What does Kellogg do? Does Kellogg stay with Leo Burnett? Or do they hire the Eight because they want their CRM project finished ASAP? This goes directly to the issue of captive clients. Leo Burnett is effectively arguing that Kellogg be barred from hiring the Eight.
The remaining contractual provision at issue is – ironically enough – one that prevents former Leo Burnett employees from serving any of the company’s clients. In other words, a non-compete clause. As we all know, the validity of that agreement not to compete will hinge on all of the things discussed above: trade secrets, confidential information, customer relationships and the like.
The case is Arc Worldwide and Leo Burnett v. Amanda Ashley, et. al., 2012 CH 40478 (Cicruit Court of Cook County, IL, Nov. 6, 2012). The complaint is available below.
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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