Texas Non-Compete Agreements Lawyer & Attorney : K&L Gates : Trade Secret Litigation : Serving Austin, Dallas, San Antonio

A recent opinion issued by the federal Southern District of Texas sheds a little light on the question of how definite a promise to provide confidential information must be for a noncompete agreement to be enforceable. In Teel v. Hospital Partners of America Inc., No. H-06-3991, 2008 WL 346377 (S.D. Tex. Feb. 6, 2008), the court, quoting the Light case, noted that an "employer's promise to provide an employee with confidential or proprietary information and an employee's reciprocal promise not to disclose such confidential information `would meet the requirement that the covenant be designed to enforce the employee's consideration provided in the agreement.'"

The agreement in Teel stated that the employee's employment "will involve access to and work with" confidential information. The court, without discussion of whether this language was a sufficiently definite promise to provide confidential information, simply confirmed that the employee did in fact receive confidential information and that the restrictions imposed upon the employee were reasonable. 

As noted elsewhere on this blog, several Texas cases discuss how definite the employer's promise to provide confidential information must be for the employee's non-compete promises to be enforceable. Although the Texas Supreme Court in Sheshunoff rejected appellate decisions requiring that confidential information be transferred simultaneously with the signing of a non-compete agreement, it did not explicitly do away with the requirement that the employer actually promise to give the information to the employee.

The question in some cases becomes, "What counts as a promise?" Put another way, "How definite must the promise to provide confidential information be?" In some cases, the employee’s “acknowledgment” that he will receive confidential information gets characterized as an "implied" promise by the employer to convey the information. In the Teel case, the statement that the employee's work "will involve access to and work with" confidential information was evidently deemed to be a promise--either explicit or implied--that the employer would provide such information to the employee.

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In several states, an employer may--via a non-compete agreement--prevent a departing employee from taking advantage of the relationships the employee developed with the former employer's customers.  This is true whether or not the identities of the former employer's customers are "confidential."

In those states, therefore, the former employer can successfully contend, "We introduced you to our customers and you've developed good relationships with them, but you can't compete with us by taking advantage of those relationships."

There are actually a couple of Texas Supreme Court cases that stand for the proposition that protecting customer relationships is an interest sufficient to justify a non-compete agreement.  However, those cases have been largely ignored in recent years.

In Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 387 (Tex. 1991), the court noted:

The fundamental legitimate business interest that may be protected by such covenants is in preventing employees or departing partners from using the business contacts and rapport established during the relationship of representing the accounting firm to take the firm's customers with him.

In an earlier case, Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex. 1983), the court had stated:

Henshaw had a right to protect himself from the possibility that Kroenecke would establish a rapport with the clients of the business and upon termination take a segment of that clientele with him.

Today, whenever an employee leaves and begins "stealing" his former employer's customers, courts focus on whether the identities of those customers are "confidential."  Usually, they are not.

To determine whether customer identities are confidential, courts ask questions such as, "Can the information be easily located (e.g., in telephone books or trade journals)?, and "Did the employer take reasonable steps to keep the information confidential?"  These standards are difficult to meet.

But in several other states, the employer need not prove that the information is confidential.  Rather, protection of the employer's relationship with its customer--whether or not the customer's identity is secret--is sufficient to support a non-compete agreement.  A few Texas cases used to speak in those terms as well.

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Very often, a departing employee won't take customer lists or other confidential documents with him, but a lot of the information he has memorized will be considered by his former employer to be confidential.  Customer names and contact information, for example, are routinely memorized by sales representatives.  Nevertheless, the sales representative's employer typically contends that such information is confidential.

Some states have adopted the so-called "memory rule," according to which the departing employee may use anything that's in his head to memory.  Thus, as long as the employee didn't take the customer list with him, he may use the information from that list that he has committed to memory.

In Texas, though, authority exists for the proposition that whether the information is contained on a document the employee has taken or in the employee's head, trade secret protection may attach to the information.  The key inquiries are:  (a) whether the information is really secret (e.g., whether it is widely known in the industry); and (b) what steps did the employer take to keep the information secret?

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As all users of YouTube know, you can find there excerpts from movies, TV shows, musical performances, and just about anything else you could possibly want to see.  Users are free to post videos to the site, and, unless the content is objectionable (or unless the owner of a copyright objects), the videos will remain there.

Viacom recently filed suit against Google (from which, obviously, one can find YouTube) and YouTube for copyright infringement.  Viacom contends that these sites should  be enjoined from showing Viacom's copyrighted materials.  Viacom also seeks substantial damages.

As the attached article indicates, Google is evidently in the process of installing a filter to prevent copyrighted works from appearing on YouTube.  Also discussed is whether YouTube qualifies for safe harbor protection as a "service provider."

http://www.mediaweek.com/mw/current/article_display.jsp?vnu_content_id=1003577917

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