Back in July 2011, we wrote in our Noncompete News blog about the challenges posed for in-house attorneys who are tasked with drafting and enforcing restrictive covenants when a company does business in many different states throughout the country.  See Non-Competes in a Multi-State Environment.  In recent years, however, we are hearing from more and more companies facing an analogous challenge that is even more daunting:  managing non-compete and trade secret issues on a multi-national basis.  This isn’t just a problem for Fortune 500 companies.  A recent study by Deloitte Consulting found that 52% of U.S.-based middle market companies surveyed derive some of their revenues from abroad and that 48% already have employees outside the U.S.  Looking into the future, Deloitte’s survey also found that within three years  65% of middle market companies anticipate they will be operating abroad; 10% expect overseas revenues to outstrip domestic revenues within three years; and nearly 30% report they will have at least a quarter of their employees based abroad.  See Deloitte’s Mid-Market Perspectives:  2011 Report on America’s Economic Engine.  More and more middle market companies are grappling with the need to manage a global workforce, and those that aren’t grappling with it yet likely will need to do so in the near future.   

As a result, we thought it might interest our readers to offer a series of blog posts on the emerging challenge of managing non-compete and trade secrets issues when operating in a multi-national environment.  In general, managing these issues on a multi-national basis requires the same skills and discipline that allow a company to effectively create and implement a program of protecting competitive assets domestically.  Key first steps in drafting any restrictive covenants include:

With this information in hand, a basic template agreement can be created.  This template functions as a “default setting” of what the company ideally would like to have in place.  The next step is to catalogue the countries in which the company has employees whose functions place them in one of the categories against which the company would like protection.  Once that list is in place, the process of determining what protections are possible in the various locations can commence.  In-house attorneys undertaking this process will find that many of the legal structures internationally are not all that different from what we already manage every day in the 50+ jurisdictions within the United States.  Just as there are dramatic differences betweenCalifornia, Delaware and Louisiana, so too are there important differences in the restrictive covenant laws in India, Mexico and China.  

With this in mind, we offer our series of blog posts offering a primer for in-house counsel on the non-compete and trade secrets law in key nations around the world in which U.S. companies increasingly find themselves (or expect to soon find themselves) employing people and facing the attendant risks of employee departures.

Tune in soon.  We’ll start first with Mexico. . . .

Christopher P. Stief is the chair of Fisher & Phillips' Employee Defection & Trade Secrets Practice Group.  To receive notice of future blog posts either follow Christopher P. Stief on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

A recent decision from the Court of Appeals of New South Wales, Australia, illustrates the potential value of using a series of independent but “cascading” covenants to create options for enforceability of restrictive clauses depending on what a reviewing court may find to be reasonable.  In Hanna v. OAMPS Insurance Brokers Ltd., NSWCA 267 (Oct. 19, 2010), the Court of Appeals upheld a trial judge’s decision enforcing a 12-month restriction prohibiting a former insurance brokerage executive from soliciting or dealing with clients anywhere in Australia with whom he had contact during the final two years of his employment.  Notably, the covenant said that he could not “during the Restraint Period” and “within the Restraint Area” directly or indirectly “canvass, solicit or deal with” the described clients, with the following definitions:

"2.  Restraint Period means, from the date of termination of your employment:   

(a) 15 months;
(b) 13 months;
(c) 12 months.

Restraint Area means:

(a) Australia;
(b) The State or Territory in which you are employed at the date of termination of your employment;
(c) The metropolitan area of the capital city in which you are employed at the date of termination of your employment."

The contract also specified that “each restraint contained in this Deed (resulting from any combination of the wording in clauses 1 and 2 constitutes a separate and independent provision, severable from the other restraints.”

The defense argued that the covenant left the employee unable to determine where and for how long he was entitled to compete.  The court rejected this argument, relying largely on the language specifying that the covenants were independent, and noting that a series of “repetitive and overlapping restraints of ever widening reach and subject matter” were a reasonable commercial response to the perils of the common law “blue pencil” rule.  The court accepted the legitimacy of the employer trying to obtain for itself “some post-contractual restraint … within the temporal and geographic ranges identified.” 

The lesson for companies with employees in New South Wales and those other British and American common law jurisdictions that continue to use a traditional “blue pencil” approach to the enforcement (or non-enforcement) of assertedly overbroad covenants?  Consider whether a cascading set of interlocking but severable covenants might provide an avenue to obtain some level of post-employment protection when a contract is challenged by a former employee.

A copy of the court's opinion is available in pdf format below.

Christopher P. Stief is the Chair of the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either by Mr. Stief or other members of the Practice Group, you may subscribe to this blog's RSS feed or follow Mr. Stief on Twitter at @CStiefLaborLaw.  As always, please feel free to share your thoughts or pose your questions in the comment field below.

Hanna v. OAMPS Insurance Brokers.pdf (1.42 mb)

Multi-national corporations operating in the United States often question whether their trade secrets will receive adequate protection in foreign markets.  With this concern in mind, multi-national companies commonly prefer to litigate in U.S. courts where legitimate trade secret rights are consistently respected.  When parties and witnesses are located abroad, keeping litigation in U.S. courts, however, presents certain challenges. Smart litigation decisions can make the difference.  A recent case, MicroAire Surgical Instruments, LLC v. Arthrex, Inc., illustrates this point.

In MicroAire, the defendant, Arthrex, Inc., sought to convince the U.S. District Court for the Westrn District of Virginia to transfer MicroAire’s trade secret claims to German courts arguing they would offer a more convenient forum for the lawsuit.  The court denied Arthrex’s motion, however, because MicorAire made smart litigation decisions that provide guidance to multi-national companies on how to keep lawsuits in American courts.  The lesson learned in this case is that multi-national and other companies must carefully strategize where they bring a lawsuit, and against whom they bring it, if they want the case to remain in the court of their choice. 

Background of Case 

MicroAire and Arthrex are both medical device manufacturers based in the United States with global market presence.  MicroAire is a Delaware limited liability company with its principal place of business in Charlottesville, Virginia.  Arthrex is a Delaware corporation with its principal place of business in Florida, and with subsidiaries worldwide, including in Germany.

The dispute arose at a medical conference when a MicroAire representative met Thomas Aust, a former MicroAire employee who had:  1) been assigned in Germany prior to separating from MicroAire in 2008; 2) entered into an agreement restricting his use of proprietary MicroAire information following his separation of employment; and, 3) been a party to a Settlement Order ending a lawsuit he had brought against MicroAire in Germany stipulating he would not become employed with a competitor through the end of July 2008.   At the San Francisco conference, Mr. Aust permitted a MicroAire engineer to inspect a medical device being marketed by Arthrex which was similar to device on which MicroAire had a patent.  As a result of this inspection, in November 2009, MicroAire brought suit in the Virginia federal district court alleging Arthrex had infringed MicroAire’s patent.  In addition to its federal patent claim, MicroAire raised several Virginia state-law claims: tortious interference with contract; misappropriation of trade secrets; and business conspiracy.

Court Opinion

In March 2010, Arthrex filed a Motion to Dismiss the state claims on the grounds of forums non conveniens, stating that these claims belonged in a court in Germany, and not Virginia.  On July 13, 2010, the Court filed an Order and Memorandum denying Arthrex’s Motion.  While the Court agreed with Arthrex that the German courts would provide an available and adequate forum for the adjudication of the state claims, it decided in MicroAire’s favor to keep these claims in the Virginia federal court for a number of reasons, including:  1) great deference must be afforded to MicroAire’s choice of bringing the lawsuit in its home forum; 2) the dispute was between only one plaintiff, a citizen of Delaware and Virginia, and only one defendant, a citizen of Delaware and Florida; 3) MicroAire’s state claims concerned the same instruments, facts, and circumstances as those in the patent infringement claim; 4) MicroAire’s suit was against neither Arthrex’s German subsidiary nor Mr. Aust, who lived and worked in Germany; 5) the persons responsible for, and the documents and evidence relating to, Arthrex’s device were located in the United States.; 6) there was no evidence that possible witnesses would testify only due to a compulsory process; 7) three of the potential seven witnesses resided in the United States; 8) the alleged misappropriation could have taken place in the United States; 9) the dispute was between MicroAire, a company with its principal place of business in Charlottesville, Virginia, and Arthrex, a company that regularly conducted and solicited business, and derived substantial revenues, in the Western District of Virginia; and, 10) the close, if not identical subject matter and relevance of the state claims to federal patent claims.

Lessons for Multi-National Companies 

Trade secret misappropriation actions are usually prepared in an expeditious manner due to the time sensitivity and business urgency of these matters.  It is common practice for all business entities to be sued, as well as all individuals alleged to have had personal involvement with the alleged misappropriation.  However, multi-national companies and their attorneys need to step back and strategize before they bring such a lawsuit to examine any possible negative repercussions resulting from the country or location the suit is brought, as well as the individuals they include as named defendants.  MicroAire’s decision not to sue Arthex’s German subsidiary, or Mr. Aust, who lived and worked in Germany, and instead to sue only the U. S. entity was instrumental in the Court finding in MicroAire’s favor.  This case is in keeping with established law that U. S. courts, when faced with a forum non conveniens Motion to Dismiss, will provide great deference to the forum chosen by the plaintiff, especially in circumstances where both parties have a principal place of business in the United States, and where the facts involved in the dispute occurred as well in the United States.  The Court’s Opinion is available in pdf format at the bottom of this post.

Celia M. Joseph spent more than 25 years as lead in-house employment counsel at multi-national chemical manufacturer Rohm &Haas.  At Fisher & Phillips, Celia continues to assist multi-national corporations in all aspects of employment and human resources law and compliance for their installations around the world.  She has especially deep experience managing employment law issues in Europe, Asia and South America.  If you have any comments or questions concerning this post, please feel free to post them in the comment section below.

MicroAire Court Memorandum.PDF (102.57 kb)