Cisco's General Counsel, Mark Chandler, has taken the unconventional step of writing a blog post criticizing Hewlett-Packard for repeatedly suing former employees who have joined Cisco over the past two years. This post follows, and apparently details, the recent lawsuit filed by HP filed against its former Chief Technologist, Paul Perez, who joined Cisco on November 14 (for more on the litigation, see my recent post). HP had sought to enforce a non-compete in Texas after Perez had filed an action in California challenging the enforceability of that same non-compete.
According to Chandler's post, Perez has prevailed -- emphatically -- in the two lawsuits thus far. Chandler reports that Perez's Texas attorney was able to derail an effort at an ex parte temporary restraining order that was hurriedly scheduled in advance of a pending hearing in the California action on the very same issue. Cisco's legal department had reached out to HP to resolve the dispute before the California hearing, advising HP's legal staff that Cisco had put safeguards in place to protect HP's trade secrets (as HP had done earlier this year to insulate itself in a dispute with IBM, about which I also recently posted).
Instead of responding to that olive branch, HP apparently sought an "emergency" TRO conference without notice to Perez or Cisco even though the California hearing was scheduled to begin in two hours. When Perez's Texas attorney saw HP's filing online, he appeared before the Texas court unexpectedly to report that "the matter was already in front of a California court, with HP fully represented." Chandler noted that "the judge in Texas was not impressed by HP’s effort to get her to act without a hearing," that "she refused to proceed" on HP's TRO request, and later that day "the California judge issued an order allowing [Perez] to begin his new career at Cisco."
This resounding win and resulting post are both getting a fair amount of coverage. The Wall Street Journal's Law Blog, the San Francisco Chronicle, the San Jose Business Journal, and technology blogs like All Things Digital have all reported on Chandler's post. I have not been able to access either court's ruling but, given the attention this case is receiving, I will do a post later once I have the opportunity to review them.
The lesson here is ex parte requests are rarely granted and even more rarely appreciated by courts. This is especially true when the court learns that the other side has counsel and has expressed an interest in trying to work things out. In these high profile disputes, this aggressive approach can backfire and result in not only a legal but public relations coup for the other side.
Tags: Cisco, Mark Chandler, General Counsel, HP, Hewlett Packard, trade secrets, non-compete, ex parte, Texas, California, IBM, Visentin, TRO, temporary restraining order, blog post, safeguards, emergency
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants
Law360 is reporting that the Hewlett-Packard Company (HP) sued its former Chief Technologist for its StorageWorks unit, Paul Perez, in Houston, Texas on Wednesday, November 16, 2011, to enforce a non-compete and non-disclosure agreement. Perez resigned to join Cisco Systems on Monday, November 14, 2011, and according to HP, he has filed a preemptive lawsuit in California asking for a ruling that he is free to work for Cisco. According to the complaint filed in Hewlett-Packard Company v. Paul Perez, Harris County, Texas (Dist. Court No. 201169187), Perez was responsible for leading the HP StorageWork unit's technology strategy and exploration processes, keeping a census of its IP portfolio, and leading the unit's patent review process. After working for HP for more than 25 years, Perez executed a one-year non-compete in 2010. HP contends that Cisco is a direct competitor and that by serving as Chief Technology Officer with Cisco’s Server Access Virtualization Technology Group, Perez is violating his non-compete. Like some other high profile disputes involving senior executives, there is a looming battle over which law and forum should govern. According to HP, Perez agreed that he would not pursue any legal action to set aside or avoid his non-compete. However, on the day that he resigned (November 14, 2011), Perez filed a complaint against HP in California challenging the enforceability of his non-compete (Perez v. Hewett-Packard Company, Cause No. 111-CV-213052, Superior Court of California, County of Santa Clara). HP argues that the court should disregard Perez's claims of California residency because he still owns a home in Texas and never advised HP of any move to California.
As I have written before, the first court to hear the injunction generally decides the outcome of the case. Most if not all of these cases involve efforts by the former employee to invoke California law, which we all know forbids non-competes except under the most limited circumstances. However, California courts have not been terribly receptive to eleventh-hour claims of residency and have been willing to defer to the court in the state in which the employee previously resided. For example, in a high profile non-compete case in 2009, David Donatelli, the chief of EMC's storage division, moved from Massachusetts to California to join (ironically) HP and tried the same approach; that strategy fizzled when the Massachusetts court enforced the non-compete in substantial part and the California court then demurred on grounds of comity. (Full disclosure: I have represented EMC in the past).
I will keep an eye on this one and provide an update if there is a decision.
Tags: non-compete, California, Texas, Cisco, Hewlett Packard, HP, Perez, Chief Technologist, EMC, Donatelli
For those of you who were able to join the recent PLI presentation on "Trade Secret Theft: Effective Tools for High Stake Disputes," I hope you enjoyed it as much as Victoria Cundiff and I did. For those that were not, here are some of the highlights: Hiring Employees with Non-Competes: This remains a real source of concern for employers who do not want to get ensnared in litigation over a hire. Victoria discussed the recent holding in IBM v. Visentin, 2011 WL 672025 (S.D.N.Y. 2011), where the Southern District of New York modified a non-compete to permit a former IBM employee to work for Hewlett-Packard because of steps the employee and Hewlett-Packard took to protect IBM's proprietary interests. Visentin is similar factually to the recent Aspect Software case about which I wrote last month. In Aspect Software, the District Court of Massachusetts arrived at a different result despite similar efforts by the former employee and Avaya. Although the holding in Aspect Software may be the exception, it reinforces the importance of selecting the right forum. "Procedural" Safeguards: One question highlighted concern about the effectiveness of written agreements and other safeguards that are, at the end of the day, dependent upon the good faith of the employee or business partner receiving the confidential information. Although there are measures to protect trade secrets that minimize or counteract this human element (encryption, monitoring data usage and access, etc.), those safeguards cannot completely eliminate the human component.
I had the privilege of speaking on a panel in May with Malcolm Harkins, Intel's Chief Information Security Officer, on the challenges of protecting sensitive data in the age of WikiLeaks. While Malcolm addressed a number of procedures and techniques available to an employer, I was struck by how much he stressed the creation of a vigilant and proactive culture to protect that data. At the end of the day, that culture, along with the reinforcment and training necessary for instilling that culture, remains the best defense.
This dovetails into another issue that arose as a result of a question, the importance of annual training and certifications/acknowledgements for the protection of confidential information. As Victoria noted, it's a good idea to have execution of the certifications coincide with other annual events, such as open enrollment for health insurance and annual reviews. Challenges for Multi-Jurisdictional Clients: "One-state-fits-all" agreements may be difficult to enforce because of the differences in non-compete and trade secret law from state to state. A forum selection clause may not solve that problem, as out-of-state courts may disregard the forum selection clause under choice of law principles and apply their own law if they see fit. Victoria noted that when selecting choice of law for an agreement, it may be worthwhile to factor in where your competitors are located (for example, California) in anticipation that any dispute with a former employee make take place there. WikiLeaks, the Internet and Trade Secrets: Not surprisingly, this remains an issue of real concern, particularly the question of whether a trade secret claim is lost once the trade secret makes its way to the Internet. As some may recall, I addressed this issue in a post in May; there is some authority allowing for a claim for a trade secret that has made its way to the Internet, provided one can demonstrate, among other things, that steps were taken to remove it from the Internet, that it was posted only briefly, etc. I am going to dig deeper to see what other courts have said and put together a future post on this topic.
Tags: PLI, Trade Secrets, Non-Competes, Victoria Cundiff, safeguards, confidentiality, WikiLeaks, Internet, Intel, IBM, HP, Aspect Software, Avaya
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
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