Source: https://www.classactiondefenseblog.com/california_law_on_the_validity/
Timestamp: 2019-04-22 14:10:45+00:00

Document:
As businesses increasingly seek to hire the key employees of their competitors, the differences in state laws concerning non-compete agreements and protection of trade secrets has become more important. In California, the general rule is that non-compete agreements are unenforceable. That statement, however, is an oversimplification. In fact, non-compete agreements are enforceable in California under the right circumstances.
Metro Traffic, 22 Cal.App.4th at 861 (citation omitted, italics added).
Metro Traffic did not enforce the non-compete agreement because it was not designed to protect trade secrets or other confidential or proprietary information. Rather, Metro Traffic involved the efforts of a traffic reporting service to enjoin its reporters from working for a competitor. The Court rejected the noncompete agreement because the “trade secret” consisted of nothing more than “the personal qualities of the announcers, not the information related to them.” Metro Traffic, 22 Cal.App.4th at 862. Indeed, the Court characterized Metro’s description of its trade secrets as “nothing more than a ‘job classification’ for radio traffic announcers.” Id. at 862-63.
In holding that an employee cannot be fired for refusing to execute a particular noncompete agreement, another court recently acknowledged, “it is true that a covenant not to compete will not be viewed as a violation of section 16600 if it is ‘necessary to protect the employer’s trade secrets’ (Muggill v. Reuben H. Donnelley Corp., supra, 62 Cal.2d at p. 242 . . .), and . . . it is true that employers have the right to protect proprietary and property rights which are subject to protection under the law of unfair competition (Metro Traffic Control, Inc. v. Shadow Traffic Network, supra, 22 Cal.App.4th at p. 861 . . .),” D’Sa v. Playhut, Inc., 85 Cal.App.4th 927, 935 (2001) (italics added).
A few generalizations, however, can be stated. . . . Enforceability appears to rest on a notion, often unarticulated, of preventing “unfair” competition.
[¶] . . . [¶] In brief at common law a restraint against competition was valid to the extent it reasonably provided for the protection of a valid interest of the covenantee. [Citations.] . . .
Monogram Indus., Inc. v. Sar Indus., Inc., 64 Cal.App.3d 692, 697-98 (1976) (italics added).
ReadyLink Healthcare v. Cotton, 126 Cal.App.4th 1006, 1017 (2005) (italics added).
ReadyLink has excellent language in it for the employer seeking to enforce a non-compete agreement. For that example, the opinion holds that, “The court may also enjoin the use or disclosure of trade secrets under the unfair competition provisions, particularly Business and Professions Code section 17203, which provides for injunctive relief against ‘[a]ny person who engages, has engaged, or proposes to engage in unfair competition. . . .’” Id., at 1018 (footnote omitted).
. . . In John F. Matull & Associates, Inc. v. Cloutier (1987) 194 Cal.App.3d 1049, 240 Cal.Rptr. 211, the court upheld a covenant not to compete for five years after the defendant, who had been an employee and officer of the plaintiff firm, left the firm. The court concluded the covenant did not violate Business and Professions Code section 16600 to the extent it sought to prevent use of the firm’s confidential information to compete and solicit the firm’s labor-relations clients. Business and Professions Code section 16600 prohibits contracts restraining employees from engaging in a lawful profession. Misappropriation of trade secret information constitutes an exception to section 16600.
Regardless of the legality of ReadyLink’s noncompetition and nondisclosure agreements Cotton signed while working at ReadyLink, there is sufficient evidence supporting the trial court’s finding that ReadyLink was likely to prevail on its misappropriation of trade secrets claims and thus injunctive relief was appropriate.
ReadyLink, at 1021-22 (italics added).
John F. Matull & Assoc., Inc. v. Cloutier, 194 Cal.App.3d 1049, 1054-55 (1987) (italics added).
Here, the evidence established that Courtesy’s customer list and related information was the product of a substantial amount of time, expense and effort on the part of Courtesy. Moreover, the nature and character of the subject customer information, i.e., billing rates, key contacts, specialized requirements and markup rates, is sophisticated information and irrefutably of commercial value and not readily ascertainable to other competitors. Thus, Courtesy’s customer list and related proprietary information satisfy the first prong of the definition of “trade secret” under section 3426.1.
California recognizes, then, that trade secrets can relate to “marketing and sales” just as easily as they can relate to “manufacture and production.” See e.g., Sentex Systems, Inc. v. Hartford Acc. & Indem. Co., 93 F.3d 578, 580 (9th Cir. 1996).
Taken back to its roots, the Sentex case an insurance coverage dispute between an insurer and insured arose out of an action by an employer (ESSI) against a former employee for violating a non-compete agreement by joining a competitor (Sentex) and “using confidential information and trade secrets to promote and advertise Sentex’s products to ESSI’s customers.” Sentex Systems, Inc. v. Hartford Acc. & Indem. Co., 882 F.Supp. 930 (C.D. Cal. 1995), aff’d, 93 F.3d 578 (9th Cir. 1996), disagreed with by Simply Fresh Fruit, Inc. v. Continental Ins. Co., 84 F.3d 1105 (9th Cir. 1996), opn. amended and superseded by 94 F.3d 1219. Specifically, ESSI alleged that its former employee, and Sentex through the former employee, “misappropriated ESSI’s ‘trade secrets and other confidential information’ including ‘customer lists, methods of bidding jobs, methods and procedures for billing, marketing techniques, and other inside and confidential information’” and that he “used ESSI’s trade secrets to promote and advertise Sentex’s products and to solicit business from ESSI’s customers.” 882 F.Supp. at 935. Sentex ultimately paid ESSI to settle the lawsuit, and Sentex then pursued an action against its insurer.
Many of the documents produced to plaintiffs contain sensitive information regarding Adobe’s business and marketing strategy which, if made public, will educate Adobe’s competitors as to how Adobe conducts its business and what its future plans are. Many of these documents are forward-looking and therefore remain sensitive even though they were created one or two years ago.
Information about the Application Products Division would educate competitors regarding Adobe’s marketing success or the lack.
OEM (Original Equipment Manufacturers) Revenues would adversely impact Adobe’s negotiating leverage in areas of royalty rates, product development and strategic alliances.
Adobe, at 162 (italics added). Information about a company’s customers, and the customers’ “strategic relationship” with the company, also warrants protection. See id., at 163.
An employer also may be confronted with a situation in which the employee may have started “working” for a competitor before formally leaving the company. The law in this regard is clear: “While California law does permit an employee to seek other employment and even to make some ‘preparations to compete’ before resigning [citation], California law does not authorize an employee to transfer his loyalty to a competitor. During the term of employment, an employer is entitled to its employees’ ‘undivided loyalty.’ [Citation.]” Fowler v. Varian Associates, Inc., 196 Cal.App.3d 34, 41 (1988).
In addition to the “implied conditions of loyalty to an employer which the law imposes on an employee,” Dana Perfumes, Inc. v. Mullica, 268 F.2d 936, 937 (9th Cir. 1959), Batra owed heightened duties to Estée Lauder.
A director, officer, or employee who, by reason of his relationship to his corporation, acquires trade secrets of his employer during his employment, cannot thereafter use nor disclose to another his employer’s secret to the detriment of his employer.
An employer must keep in mind that regardless of the apparent strengths or weaknesses of a particular case, “The law is well settled that the decision to grant a preliminary injunction rests in the sound discretion of the trial court.” ReadyLink, 126 Cal.App.4th at 1016 (citations and internal quotations omitted).
 “ESSI’s complaint against Sentex alleged that Sentex had obtained from Colombo ‘knowledge, information and trade secrets, including customer lists, methods of bidding jobs, methods and procedures for billing, marketing techniques, and other inside and confidential information….’ In subsequent depositions, ESSI’s president testified that the company was contending there had been a misappropriation of trade secrets for use in Sentex’s sales materials. Although ESSI’s president disclaimed having seen its trade secrets in Sentex’s written sales materials, he testified that the information was used to market Sentex products in other ways. In this day and age, advertising cannot be limited to written sales materials, and the concept of marketing includes a wide variety of direct and indirect advertising strategies. It is significant that ESSI’s claims for misappropriation of trade secrets relate to marketing and sales and not to secrets relating to the manufacture and production of security systems.” Sentex, 93 F.3d at 580 (italics added) (citation omitted).

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