Covenants Not to Compete and Related Contracts Defining Private Property Interests

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Covenants Not to Compete and Related Contracts
Defining Private Property Interests
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Covenants Not to Compete

• Contracts prohibiting competition by an
  individual
• Judicially suspect blue pencil rule
• Three tests of viability
• Time (limited to 2-5 years, or time to re-invent
  expertise)
• Subject matter (limited to prior work)
• Geography (limited to relevant market)

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Trade Secrets Compared

• Covenants not to compete can exist even though no
  trade secret exists
• But often the two are intertwined
• Duration Permanent (TS) v. limited (CNTC)
• BOP High (TS) v. low (CNTC)
• Relief Extends to new employer (TS) v. limited
  to old employee (CNTC) absent a claim for
  interference with contractual relations

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Timing and Enforcement of the CNTC and TS

• Either at commencement of employment
• Or at termination
• Post-employment enforcement of TS uncommon unless
  poaching is occurring
• Post-employment enforcement of CNTC uncommon
  unless competitive risk is substantial

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The Case of the Customer List

• Difficult to protect as TS
• May be covered by CNTC
• Absent CNTC, look to agency law and the breach of
  an agents fiduciary duty to her principal

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Two Cases, Different Results

• Pepsi v. Redmond former employee enjoined
• Reed, Roberts v. Strauman former employee
  allowed to work

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Tabor v. Hoffman

• Publishing of final product not protectible as a
  trade secret
• Access to and subsequent use of undisclosed
  manufacturing process held protectible as trade
  secret
• Preventive-maintenance alternative
  confidentiality agreement

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Kewanee Oil v. Bicron

• Does the failure to pursue a possible patent on
  crystal growth process and subsequent commercial
  use for more than a year (so nixing an a possible
  patent) preempt the possibility of protecting the
  process as a TS?
• Held no purposes of both to aid inventor
  incentives, even if avenues are different

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Comparisons

• Does Kewanee undermine Sears and Compco?
• What is relationship to Aronson?
• Note patent can be pursued initially without
  immediate disclosure, thereby protecting the
  possibility of trade secret if the patent
  application fails

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