Compete With Caution Against Past Employer - NY Times Article

Today's New York Times has a good article on the perils of competing with past employers, particularly for highly placed managers. Compete With Caution Against Past Employer. The article discusses unfair competition and trade secret litigation that Pitney Bowes brought against former managers:

Small as the company was, however, its efforts did not go unnoticed by Pitney Bowes .... In April 2003, it filed a lawsuit in King County Superior Court in Seattle against the two partners and the six employees they had hired away, contending that they had engaged in transgressions ranging from misappropriation of trade secrets to violating confidentiality agreements.

"They came out with guns blazing," Mr. Gray said. "We spent $150,000 defending ourselves and everyone in the office as part of the suit. Most of us didn't even do depositions. They were just dragging it out, causing us pain."

Pitney Bowes declined to discuss the suit, but a spokeswoman, Marianne Fulgenzi, said that as a general practice the company "invests a great deal of time and money in areas of developing our intellectual property, in marketing and training our sales force."

"We must protect our investment, which also includes our customer lists, information about consumer preferences, as well as pricing."

All that, she added, "has a significant competitive value."

The problems discussed in the article are familiar to trade secret and unfair competition litigators. Even though California has a pro-competition policy prohibiting contractual restraints on competition by former employees (Business and Professions Code § 16600), there are many opportunities for bitter litigation upon an employee's departure. The types of claims asserted by a former employer may include trade secret misappropriation, breach of loyalty, breach of fiduciary duty, common law and statutory unfair competition (Business and Professions Code § 17200), breach of confidentiality contracts, and breach of non-solicitation contracts.

Departing employee litigation is often expensive, scorched-earth litigation between parties who feel betrayed by their opponents (making settlement difficult). Summary judgment is elusive because the questions are fact-intensive and without clear rules. The California Supreme Court's discussion in Bancroft-Whitney v. Glen, 64 Cal. 2d 327 (1967), illustrates the difficulty in drawing lines:

"The mere fact that the officer makes preparations to compete before he resigns his office is not sufficient to constitute a breach of duty. It is the nature of his preparations which is significant. No ironclad rules as to the type of conduct which is permissible can be stated, since the spectrum of activities in this regard is as broad as the ingenuity of man itself. . . . The significant inquiry in each situation is whether the officer's acts or omissions constitute a breach under the general principles applicable to the performance of his trust."

In Bancroft-Whitney, the California Supreme Court found that the defendants had unfairly competed as a matter of law by assisting in employee raids on their former employer, including disclosing salary information to assist the raids.

One thing is clear in this area of law: Employees who plan to compete with a former employer should tread carefully, and seek legal advice as to what is allowed.

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Common Sense Prevails Over Theoretical Patent Claim Construction

A recent Federal Circuit patent decision illustrates the rule that common sense will trump a good theoretical argument, and that litigators must always test their arguments against common sense. In particular, the court held that one of ordinary skill in the art would reject defendant's proposed claim construction because it would not provide the tight fit for orthopedic implants described as necessary to the invention. Howmedica Osteonics Corp. v. Tranquil Prospects, No. 04-1302, (3/28/05).

In Howmedica Osteonics Corp. v. Tranquil Prospects, No. 04-1302, (3/28/05), the Federal Circuit reversed the district court's holding that a patent was invalid under U. S. C. § 112, paragraph 2 because the term "transverse sectional dimensions" was indefinite. Under section 112, paragraph 2, patent claims must “particularly point[] out and distinctly claim[] the subject matter which the applicant regards as his invention.” 35 U.S.C. § 112, para. 2 (1982). Defendants had argued that the term was ambiguous because the term could refer to one-dimensional rather than two-dimensional dimensions.


The court noted that definiteness is a question of law, and it is determined at the time of filing in light of the understanding of one of ordinary skill in the art. The court held that the term could be understood by one of ordinary skill in the art because of extensive references in the specification to the need for a tight fit. Defendant's claimed alternate construction resulted in a loose fit, meaning that it was not a reasonable understanding of the term. The court stated: "These extensive references clarify that the invention requires a very tight fit for the prosthesis. Given the choice between a construction of transverse sectional dimensions that would require a relatively loose fit and a construction that would require a much tighter fit, the record shows that one of skill in the art would readily understand and adopt the latter."

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