Opinion ID: 787342
Heading Depth: 2
Heading Rank: 2

Heading: Protectible interest

Text: 31 Even if the covenant not to compete is not void under section 653.295, it is a contract in restraint of trade that must meet three requirements under Oregon common law to be enforceable: 32 (1) it must be partial or restricted in its operation in respect either to time or place; (2) it must be on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public. 33 Eldridge v. Johnston, 195 Or. 379, 245 P.2d 239, 250 (1952). To satisfy the reasonableness requirement, the employer must show as a predicate that [it] has a `legitimate interest' entitled to protection. North Pac. Lumber Co. v. Moore, 275 Or. 359, 551 P.2d 431, 434 (1976). McCarthy argues that Nike has failed to show such a legitimate interest in this case. 8 34 McCarthy's general skills in sales and product development as well as industry knowledge that he acquired while working for Nike is not a protectible interest of Nike's that would justify enforcement of a noncompete agreement. It has been uniformly held that general knowledge, skill, or facility acquired through training or experience while working for an employer appertain exclusively to the employee. The fact that they were acquired or developed during the employment does not, by itself, give the employer a sufficient interest to support a restraining covenant, even though the on-the-job training has been extensive and costly. Rem Metals Corp. v. Logan, 278 Or. 715, 565 P.2d 1080, 1083 (1977) (concluding that employer had failed to show that employee's training and experience acquired through his employment as a welder of titanium castings was a protectible interest that would justify enforcement of a noncompete agreement) (quoting Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L.Rev. 625, 652 (1960)). 35 Nonetheless, an employer has a protectible interest in information pertaining especially to the employer's business. Id.; see Cascade Exch., Inc. v. Reed, 278 Or. 749, 565 P.2d 1095, 1096 (1977) (enforcing a noncompete agreement when the employees' work necessarily involved access to plaintiff's customer lists, as well as some other specialized information relating to customers, and employees ... had frequent and close contacts with plaintiff's customers on a personal basis) (internal quotation marks omitted); North Pac. Lumber, 551 P.2d at 434-35 (upholding a noncompete agreement where the employee had accumulated information about the type of lumber which filled the special needs of the various buyers); Kelite Prods. v. Brandt, 206 Or. 636, 294 P.2d 320, 322, 329 (1956) (affirming lower court's injunction restraining employees from soliciting or selling to customers of the former employer when the employees had access to customer lists that showed the dates of purchases made by such customers ... and the types of products purchased). 36 Nike has shown that McCarthy acquired information pertaining especially to Nike's business during the course of his employment with Nike. As Brand Jordan's director of sales, McCarthy obtained knowledge of Nike's product launch dates, product allocation strategies, new product development, product orders six months in advance and strategic sales plans up to three years in the future. This information was not general knowledge in the industry. For instance, McCarthy was privy to information about launch dates — the date Nike plans to introduce a product in the marketplace — for Brand Jordan shoes up through the spring of 2004. According to the undisputed testimony of one of Nike's executives, if a company knew its competitor's launch dates, it could time the launch dates of its own products to disrupt the sales of its competitor. 37 Nevertheless, McCarthy argues that acquisition of confidential information alone is insufficient to justify enforcement of a noncompete agreement. He contends that Nike must show actual use or potential disclosure of confidential information before a noncompete agreement can be enforced. He attempts to distinguish Cascade Exchange, North Pacific Lumber and Kelite as cases in which the employees actually used the confidential information, for example, to solicit the former employer's customers on behalf of the new employer. See Cascade, 565 P.2d at 1097; North Pac. Lumber, 551 P.2d at 434; Kelite, 294 P.2d at 322-23. These cases do not suggest that actual use is required for a noncompete clause to be enforceable, however. For example, in North Pacific Lumber, the court stated: 38 It is clear that if the nature of the employment is such as will bring the employee [i]n personal contact with the patrons or customers of the employer, or enable him to acquire valuable information as to the nature and character of the business and [t]he names and requirements of the patrons or customers, enabling him ... to take advantage of such knowledge of [o]r acquaintance with the patrons or customers of his former employer, and thereby gain an unfair advantage, equity will interfere in behalf of the employer and restrain the breach of a negative covenant not to engage in such competing business.... 39 551 P.2d at 434 (quoting Kelite, 294 P.2d at 329) (emphasis added). Thus, the court recognized that an employee's mere ability to take advantage of the employer's confidential information and thereby gain an unfair advantage may be sufficient for equity to restrain the employee from engaging in a competing business. See id.; see also Farmers Ins. Exch. v. Fraley, 80 Or.App. 117, 720 P.2d 770, 771 (1986) (concluding that plaintiffs had a protectible interest where the employees had access to confidential information which could be used to plaintiffs' detriment) (emphasis added). 40 An employee's knowledge of confidential information is sufficient to justify enforcement of the noncompete if there is a substantial risk that the employee will be able to divert all or part of the employer's business given his knowledge. See Volt Servs. Group v. Adecco Employment Servs., Inc., 178 Or.App. 121, 35 P.3d 329, 334 (2001) (stating that customer contacts can create a protectible interest when the nature of the contact is such that there is a substantial risk that the employee may be able to divert all or part of the customer's business). Given the nature of the confidential information that McCarthy acquired at Nike and his new position with Reebok, there is a substantial risk that Reebok would be able to divert a significant part of Nike's business given McCarthy's knowledge. McCarthy had the highest access to confidential information concerning Nike's product allocation, product development and sales strategies. As vice president of U.S. footwear sales and merchandising for Reebok, McCarthy would be responsible for developing strategic sales plans, providing overall direction for product allocation and shaping product lines, including how products are priced. Thus, McCarthy could help choose product allocation, sales and pricing strategies for Reebok that could divert a substantial part of Nike's footwear sales to Reebok based on his knowledge of information confidential to Nike without explicitly disclosing this information to any of Reebok's employees. Accordingly, the potential use of confidential information by McCarthy in his new position with Reebok is sufficient to justify enforcing the noncompete agreement. We conclude that Nike has demonstrated a likelihood of success as to the enforceability of its noncompete agreement with McCarthy.