Recently in Statutory Claims Category

January 16, 2014

Young Conaway Publishes Bloomberg BNA Series on Noncompetes

bloomberg.pngPartners Scott Holt, Barry Willoughby, and William Bowser recently co-authored Bloomberg BNA's Corporate Practice Series on Noncompetition Agreements. The publication provides an in-depth review of the use and enforcement of noncompetition agreements, including practical tips for prosecuting and defending noncompete cases.

The publication is available through the Bloomberg BNA web site

August 27, 2010

Computer Misuse Statutes Playing Bigger Role In Non-Compete and Trade Secret Cases

I n today’s technology driven workplace, departing employees often leave with more than a few notepads and office supplies. Most companies have a wealth of information available by electronic means that proves to be too tempting for some who have designs to unfairly compete connected redwith their former employer.

The latest trend among noncompete law practitioners has been the assertion of various computer theft statutes to reign in this activity. On the federal level, the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. (CFAA), is being brought with more frequency in noncompetition enforcement and trade secret cases. The statute requires a showing of intentional access to a protected computer without authorization or beyond authorization that results in damages. It also provides for attorneys’ fees if the plaintiff is successful in proving its case.

Delaware has its own version of the CFAA, yet its scope is distinctly broader. The Misuse of Computer System Information Statute, 11 Del. C. § 935 et seq., makes it a crime to knowingly access a computer system without authorization. The statute prohibits not only the unauthorized copy and disclosure of electronic data, but the knowing deletion of data from a computer system.

Section 941 of the Delaware Code also has a civil component to this law which allows an aggrieved party to bring an action in the Delaware Court of Chancery for injunctive relief, restitution, and the appointment of a receiver. The Court has authority under 11 Del. C. § 941 to award treble damages for willful and malicious conduct as well as other relief as it may deem appropriate in equity. The Court of Chancery also is required to award reasonable attorney's fees to an aggrieved person who prevails under the statute.

To fall within the jurisdiction of the Court of Chancery under this law, the misuse of computer system must have occurred in Delaware, or at the there must have been some form of unauthorized access within the State.

August 12, 2010

Blog Posts Used As Evidence in Deceptive Trade Practices Case

In a recent decision by the U.S. District Court for the District of Delaware, the Court used an innovative technique to analyze the plaintiff’s claims of deceptive trade practices. The Court looked to consumer comments in response to the defendant’s blog posts to determine whether potentially misleading posts caused consumer confusion. The Court’s decision is a reminder of the growing trend to rely on social media as evidence during litigation.

In the case of QVC, Inc. v. Your Vitamins, Inc., QVC sued a competitor based on blog posts disparaging QVC’s competing products. The parties in this case are competitors in the dietary supplement market. When QVC released two products that directly competed with Your Vitamins, Inc. (“YVI”), Andrew Lessman, YVI’s founder, took to his blog. In three different blog posts, Lessman compared his products to QVC’s products, reaching unflattering conclusions about QVC’s dietary supplements. Among Lessman’s allegations was the charge that Hyaluronic Acid (“HA”), one of the active ingredient in a QVC supplement, was linked to cancer.

In response to several of Lessman’s blogs, QVC sued alleging multiple claims, including violations of the Delaware Uniform Deceptive Trade Practices Act (“DTPA”). QVC also moved for a Temporary Restraining Order (“TRO”), requiring Lessman to remove the blog posts.

In order to succeed on a TRO, a party must demonstrate a likelihood of success on the merits of a claim, among other requirements. In order to succeed on the merits of its claims under the DTPA, QVC was required to demonstrate that Lessman disparaged the QVC’s goods by a false or misleading representation of fact, or that the defendant created a likelihood of confusion or misunderstanding.

In reviewing QVC’s motion for a TRO, the Court held that QVC failed to demonstrate likelihood of success on the merits. Specifically, the Court found that, based on consumer comments posted in response to Lessman’s blog posts, there was no consumer confusion.

Generally, a plaintiff demonstrates consumer confusion through consumer surveys or the testimony of an expert witness. However, QVC chose instead to offer consumer comments in response to Lessman’s blog post as evidence of consumer confusion. In reviewing the consumer comments, the Court found that only 3 out of 67 comments posted in response to Lessman’s blog mentioned Lessman’s cancer allegation. Of those three posts, none stated that they would not purchase QVC’s product due to the risk of cancer. Consequently, the Court found that there was no actual consumer confusion resulting from Lessman’s potentially misleading statements.

This decision illustrates yet another example of how information posted on social networking sites is increasing relied upon as evidence during litigation.  This information can be particularly valuable for companies seeking to enforce non-competition agreements, since departing employees often rely on social networking sites to publicize their new business and solicit customers.

QVC, Inc. v. Your Vitamins, Inc., No. 10-094-SLR (D. Del. July 27, 2010)

June 5, 2010

Injunction not Necessary when Damages Calculated under "Head-Start" Rule

Injunctive relief is normally awarded when the court finds there is no adequate remedy at law. In enforcement actions involving noncompetes, injunctions are usually sought since damages are often difficult, if not impossible, to caculate.

Damages for misappropriation of trade secrets, on the other hand, are often based on lost profits and in many cases can be sufficiently quantified to be awarded. A recent case illustrates that the Court of Chancery may look to novel damage theories to forego the necessity of an injunction.

Agilent Technologies brought suit against three former employees alleging the group had misappropriated its trade secrets. The parties competed in the business of producing high performance liquid chromatography columns used to separate and analyze complex mixtures of gasses, liquids and dissolved substances.

After finding the defendants had wrongfully used Agilent's trade secrets, the Court of Chancery bypassed certain requested injunctive relief and found damages were sufficient to remedy the harm. The Court calculated these damages using the "head start rule." The rule allows a monetary recovery for trade secret misappropriation for the period in which information is entitled to protection as a trade secret, plus the additional period, if any, in which a misappropriator retains an advantage over competitors because of the misappropriation.

In this case, the Court found that the defendants were given a three year head start by using Agilent's trade secrets and awarded damages for unjust enrichment. The Court did not stop there, however, awarding additional damages to cover the customers and profits that the defendants will continue to accrue for the unlawful use of Agilent's trade secrets. The total damages awarded were $ 4,530,017.75, including unjust enrichment and amounts attributable to Agilent's lost profits.

By awarding past and prospective damages, the Court found it was unnecessary to issue an injunction prohibiting defendants from marketing their products, noting that such relief would essentially drive the defendants' company out of business. In the Court's view, the monetary award, including damages for unjust enrichment under the head start rule, more than adequately compensated Agilent.

Agilent Techs. v. Kirkland, 2010 Del. Ch. LEXIS 34 (Feb. 18, 2010)