Reforming the law of proprietary information

Duke Law Journal

Volumn 56, Issue 4, 2007, Pages 1159-1200

  Montville, Chris ^a  

^a NONE

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EID: 34547652540     PISSN: 00127086     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (157)

1. In contrast, patent law, the other major statutory protection for valuable information, requires firms to publicly disclose knowledge as one of its prerequisites for obtaining legal protection.
2. See Katherine V.W. Stone, Knowledge at Work: Disputes over the Ownership of Human Capital in the Changing Workplace, 34 CONN. L. REV. 721, 739 (2002) (tracking the continuing increase in both trade secret litigation as well as enforcement of noncompetes).
3. See Catherine L. Fisk, Knowledge Work: New Metaphors for the New Economy, 80 CHI.-KENT. L. REV. 839, 855 (2005) (observing that the scope of proprietary information is "seldom defined").
4. These trade secrets are creatures of statute, and protected by the states in a relatively uniform and stringent manner. See infra Part I.A.
5. Michael P. Simpson, Note, Future of Innovation, Trade Secrets, Property Rights, and Protectionism - An Age-Old Tale, 70 BROOK. L. REV. 1121, 1123 n.8 (2005).
6. For a history of trade secret protection in the United States, see Robert G. Bone, A New Look at Trade Secret Law: A Doctrine in Search of Justification, 86 CAL. L. REV. 241, 251-60 (1998).
7. UNIF. TRADE SECRETS ACT § 1(4) (amended 1985), 14 U.L.A. 538 (2005).
8. Id. § 1(4)(i), 14 U.L.A. 538.
9. Id. § 1(4)(ii), 14 U.L.A. 538.
10. See MILGRIM ON TRADE SECRETS § 1.01[3] (1999) ("[B]y and large, decisions under the various UTSAs will be determined by state courts in accordance with their interpretation of the form of the UTSA adopted by that particular state . . . .").
11. See id. § 1.03 ("Indispensable to an effective allegation of a trade secret is proof that the matter is, more or less, secret.").
12. See JAMES POOLEY, TRADE SECRETS § 1.01 (2006) ("Outside the fuzzy line delineating protectable trade secrets are . . . categories of unprotectable information [including] . . . that which constitutes an individual's personal or professional skills.").
13. See STEPHAN D. SHANE & WILLIAM J. ROSENTHAL, EMPLOYMENT LAW DESKBOOK § 15.03[8] (2005) (noting that courts commonly apply these factors both under the common law and in UTSA jurisdictions). These factors derive from the Restatement of Torts and include the following: 1. The extent to which the information is known outside the claimant's business 2. The extent to which it is known by employees and others involved in the business 3. The extent of measures taken by the claimant to guard the secrecy of the information 4. The value of the information to the business and its competitors 5. The amount of effort or money expended by the business in developing the information 6. The ease or difficulty with which the information could be properly acquired or duplicated by others RESTATEMENT OF TORTS §757 cmt. b (1939).
14. UNIF. TRADE SECRETS ACT § 1(1)-(2), 14 U.L.A. 537.
15. Id. § 3(a), 14 U.L.A. 633-34.
16. Id. § 2(a), 14 U.L.A. 619.
17. For example, trade secrets (and proprietary information) have been the interest underlying the enforcement of restrictive covenants in several high-profile cases in the technology industry. See, e.g., Tricia Duryee, T-Mobile ex-COO Barred from Job, SEATTLE TIMES, NOV. 5, 2005, at El (preliminary injunction issued against a former executive who had "been exposed to . . . sensitive, proprietary, confidential and trade secret information" and took employment in the same industry but another state);
18. Verne Kopytoff, Google Settles Hiring Suit; Ex-Microsoft Exec to Work in China, S.F. CHRON., Dec. 23, 2005, at C1 (describing the settlement of a suit against a former Microsoft executive who took a position at Google in China after the trial court issued a preliminary injunction).
19. Although the Eighth Circuit's decision in Pepsi Co. v. Redmond, 54 F.3d 1262 (7th Cir. 1995), may be the most prominent instance of a court adopting this doctrine, a number of states follow it to some degree. See Eleanor R. Godfrey, Inevitable Disclosure of Trade Secrets: Employee Mobility v. Employer's Rights, 3 J. HIGH TECH. L. 161, 167 (2004) ("Some states clearly subscribe to the doctrine, others apply a restricted version of the doctrine, and others reject the doctrine entirely.").
20. The interaction between employment contracts and trade secrets is somewhat circular. Whereas the existence of a trade secret may support the enforceability of a noncompete, the creation of a nondisclosure agreement (often coupled with a noncompete) is among the efforts to maintain secrecy that courts consider when deciding if information rises to the level of a trade secret in the first place. See EMPLOYMENT LAW YEARBOOK § 18:2.1[B][1] (Timothy J. Long ed., 2005) ("One step that employers should take to protect the trade secret status of their confidential information is to require that employees and third parties who are given access to the information sign confidentiality agreements.").
21. RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 6.01 (Preliminary Draft No. 3, 2005) (on file with the Duke Law Journal).
22. UNIF. TRADE SECRETS ACT § 1(4)(i), 14 U.L.A. 538.
23. RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 6.01.
24. UNIF. TRADE SECRETS ACT § 1(4), 14 U.L.A. 538.
25. RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 6.01.
26. See, e.g., Richards Mfg. Co. v. Thomas & Betts Corp., Civ. No. 01-4677, 2005 U.S. Dist. LEXIS 22479, at *15 (D.N.J. Sept. 27, 2005) (adopting the view that New Jersey recognizes three categories of valuable information); Shapiro v. Regent Printing Co., 549 N.E.2d 793, 796 (Ill. App. Ct. 1989) (disagreeing with the defendant's suggestion "that only trade secrets-as distinct from confidential information - are entitled to legal protection"); Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 765 & n.2 (Iowa 1999) (holding that a plaintiff need not prove that confidential information rises to the level of a trade secret to gain protection).
27. In Florida, "[v]aluable confidential business or professional information that otherwise does not qualify as trade secrets" is explicitly protectable. FLA. STAT. ANN. § 542.335(1)(b)2 (West 2002).
28. RESTATEMENT (THIRD) OF EMPLOYMENT LAW § 6.01 cmt. b.
29. See Robert Unikel, Bridging the Trade Secret Gap: Protecting "Confidential Information" Not Rising to the Level of Trade Secrets, 29 LOY. U. CHI. L.J. 841, 855-67 (1998) ("Express contracts, whether in the form of covenants not to compete or non-disclosure/ confidentiality agreements, are perhaps the most frequently employed devices for the protection of proprietary information." (footnotes omitted)).
30. M. Scott McDonald, Compete Contracts: Understanding the Cost of Unpredictability, 10 TEX. WESLEYAN L. REV. 137, 149 (2003).
31. T. Leigh Anenson, The Role of Equity in Employment Noncompetition Cases, 42 AM. BUS. L.J. 1, 3 n.11 (2005) ("These types of covenants have traditionally been regarded by the common law as 'restraints of trade.'").
32. Alice J. Baker, Legislative Prohibitions on the Enforcement of Post-Employment Covenants Not to Compete in the Broadcasting Industry, 23 HASTINGS COMM. & ENT. L.J. 647, 651 (2001) (noting that most states adhere to the limits on noncompetion agreements set forth in the Restatement (Second) of Contracts).
33. RESTATEMENT (SECOND) OF CONTRACTS § 188 cmt. a (1981).
34. Id. § 188(1)(a) (emphasis added).
35. Id. § 188 cmt. b.
36. Id. § 188(1)(b).
37. Id. § 188 cmt. d.
38. Comment g suggests that courts engage in a complex, case-by-case evaluation of whether the public interest is served by the restriction: Whether the risk that the employee may do injury to the employer is sufficient to justify a promise to refrain from competition after the termination of the employment will depend on the facts of the particular case. . . . A line must be drawn between the general skills and knowledge of the trade and information that is peculiar to the employer's business. If the employer seeks to justify the restraint on the ground of the employee's knowledge of a process or method, the confidentiality of that process or method and its technological life may be critical. The public interest in workable employer-employee relationships with an efficient use of employees must be balanced against the interest in individual economic freedom. The court will take account of any diminution in competition likely to result from slowing down the dissemination of ideas and of any impairment of the function of the market in shifting manpower to areas of greatest productivity. Id. § 188 cmt. g.
39. See, e.g., Lamorte Burns & Co. v. Walters, 770 A.2d 1158, 1161-62 (N.J. 2000) (analyzing an employment agreement involving a nondisclosure agreement as the justification for a twelve-month restrictive covenant).
40. Unikel, supra note 28, at 855-57. For a comprehensive summary of the legal theories used to protect "confidential information," see id. at 854-67.
41. Id. at 859-62.
42. Id. at 862-65.
43. To further complicate matters, even in individual decisions courts often fail to identify precisely what subject matter falls under "proprietary information." In one egregious (but not atypical) example, a court covered everything from "knowledge" and "materials" to "know-how," "marketing," and "business plans" all within a single injunction. Speech Works Int'l, Inc. v. Cote, No. 02-4411, 2002 Mass. Super. LEXIS 390, at *14-15 (Mass. Super. Ct. Oct. 11, 2002);
44. see also QSP, Inc. v. Hair, 566 S.E.2d 851, 854 (N.C. Ct. App. 2002) (protecting "accounts, business practices, and know-how");
45. Totten v. Employee Benefits Mgmt., Inc., 61 Va. Cir. 77, 78 (Cir. Ct. 2003) (protecting "customer lists, rate structures, manuals, reports, proprietary programs and charges for services").
46. See Stone, supra note 2, at 748 ("[C]ustomer information is the most commonly litigated trade secret issue."). Some courts explicitly identify customer or client information as a legitimate business interest to be protected by restrictive covenants. See, e.g., Unger v. FFW Corp., 771 N.E.2d 1240, 1244 (Ind. Ct. App. 2002) (protecting customer lists because the bank demonstrated a legitimate protectable interest in business goodwill and "the confidentiality of client lists are part of that [goodwill]"). Other states adopt the view that restrictions on such information are generally restraints of trade and against public policy. See, e.g., Unisource Worldwide, Inc. v. Carrara, 244 F. Supp. 2d 977, 986 (CD. Ill. 2003) ("Illinois case law provides that a distributor has no proprietary interest in information belonging to the customer. . . ."); Citadel Broad. Co. v. Gratz, 52 Pa. D. & C.4th 534, 551 (Ct. Com. Pl. 2001) ("The names of . . . customers . . . are likewise not considered confidential or proprietary information under Pennsylvania law.").
47. See, e.g., Owens v. Penn Mut. Life Ins. Co., 851 F.2d 1053, 1055 (8th Cir. 1988) (protecting "confidential business information, including customer lists" of insurance policy holders); Del. Express Shuttle, Inc. v. Older, C.A. No. 19596, 2002 Del. Ch. LEXIS 124, at *76 (Del. Ch. Oct. 23, 2002) (protecting "customer list or related information"); Modis, Inc. v. Revolution Group, Ltd., No. 99-1104, 1999 Mass. Super. LEXIS 542, at *21 (Mass. Super. Ct. Dec. 29, 1999) (protecting a technology staffing firm's confidential knowledge of "which employers needed technical support help"). But see Clarion Assoes., Inc. v. D.J. Colby Co., No. 1998-23085, 1999 N.Y. Misc. LEXIS 274, at *15-16 (N.Y. Sup. Ct. Mar. 26, 1999) (concluding that "the defendant should not be enjoined from direct solicitation of individual potential customers if the names of such individuals are obtained from sources wholly independent of [his former employer's] book of business or expirations"), appeal dismissed, 714 N.Y.S.2d 99 (App. Div. 2000).
48. Perhaps for similar reasons, some courts sidestep the entire problem of publicly-ascertainable "proprietary information" by identifying the business goodwill associated with ongoing customer relationships or even the relationships themselves rather than the confidentiality of the information as the basis for upholding restrictive covenants. See, e.g., Millard Maint. Serv. Co. v. Bernero, 566 N.E.2d 379, 386 (Ill. App. Ct. 1990) ("In Illinois, an employer has a protectable interest in its customers . . . where, by the nature of the business, [the] employer has a near-permanent relationship with its customers . . . ." (internal citations omitted)); Unger, 771 N.E.2d at 1244 (maintaining the confidentiality of customer lists bolstered bank's goodwill by establishing its reputation for trustworthiness).
49. Stratco Wireless, LLC v. Sw. Bell Wireless, LLC, 95 S.W.3d 13, 17 (Ark. Ct. App. 2003).
50. See, e.g., Donald McElroy, Inc. v. Delaney, 389 N.E.2d 1300, 1306 (Ill. App. Ct. 1979) (stating that employers may protect themselves against disadvantageous use of information acquired through "representative contact").
51. See Shapiro v. Regent Printing Co., 549 N.E.2d 793, 796 (Ill. App. Ct. 1989) ("[A]n employer's interest in his customers is adequate for enforcing a covenant not to compete . . . where, by the nature of the business, plaintiff has a near-permanent relationship with its customers and but for his or her employment, defendant would not have had contact with them . . . .").
52. See, e.g., Millard, 566 N.E.2d at 385 (rejecting the notion that a "pricing formula must be a trade secret in order to merit legal protection"); Donald McElroy, Inc., 389 N.E.2d at 1304-05, 1306 (stating that "[an] employer has the right to protect himself from the disadvantageous use" of a pricing formula, which testimony indicated was based on "well known principles").
53. See Citadel Broad. Co. v. Gratz, 52 Pa. D. & C.4th 543, 551 (Ct. Com. Pl. 2001) (declining to enjoin the solicitation of a former employer's customers when the employer "has not established that [employee] is utilizing any such data in attempting to attract advertising accounts").
54. See Unisource Worldwide, Inc. v. Valenti, 196 F. Supp. 2d 269, 279 (S.D.N.Y. 2002) ("While the precise way in which Matrix obtained the information remains murky, it is clear to the court that every customer serviced by Matrix is a former customer of Unisource and that all of Matrix's pricing is the same as or better than Unisource's.").
55. See Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So. 2d 415, 419 (Fla. Dist. Ct. App. 2002) (finding that a database of area physicians comprised a protectable business interest as a "strategic marketing plan"); Platinum Mgmt., Inc. v. Dahms, 666 A.2d 1028, 1038, 1041 (N.J. Super. Ct. Law Div. 1995) (enforcing a covenant intended, in part, to protect "customers' buying habits, PMI's [price] mark-up structure, merchandising plans, sales projections and product strategies").
56. Cf. United Rug Auctioneers, Inc. v. Arsalen, No. CA03-0347, 2003 Mass. Super. LEXIS 189, at *15-16 (Mass. Super. Ct. Apr. 8, 2003) (finding that a competing rug distributor engaged in tortious interference and misappropriation of confidential information for hiring the competitor's departing employees and selling the same variety of rugs in the same areas).
57. See Bone, supra note 6, at 248 ("While most cases involve technological subject matter . . . almost anything can qualify as a trade secret . . . .").
58. See, e.g., Boulanger v. Dunkin' Donuts, Inc., No. 02-1169, 2003 Mass. Super. LEXIS 248, at *6 (Mass. Super. Ct. June 9, 2003) (protecting, inter alia, recipes for coffee and baked goods), aff'd, 815 N.E.2d 572 (Mass. 2004); Simplified TeleSys, Inc. v. Live Oak Telecom, L.L.C., 68 S.W.3d 688, 693 (Tex. App. 2000) (finding that computer software development techniques were protectable by confidentiality agreement despite the fact that "the technical details of that 'method' are not found in the record save in the broadest or most general terms").
59. For example, in Markovits v. Venture Info Capital, Inc., 129 F. Supp. 2d 647 (S.D.N.Y. 2001), a district court applying New York law enjoined a departed employee of a patent consulting company from creating a competing firm because he signed a nondisclosure agreement, despite a lack of evidence that the employee actually incorporated any of Markovits' proprietary methodologies - "combining] works from the public domain" - into his new business, id. at 655-56. The court instead focused extensively on the similarity between the two companies' business models and the fact that they were direct competitors. Id. at 656. As in so many proprietary information cases, the knowledge itself played a secondary role as legal justification for the enforcement of a restrictive covenant; the court assumed that because the employee built on his experience by entering the same market as his former employer, he had necessarily stolen proprietary information. Id.
60. See EMPLOYMENT LAW YEARBOOK, supra note 19, § 18.3.2[A] ("As a threshold matter, courts require an employer to have a 'legitimate interest' before they will enforce a covenant not to compete.").
61. See, e.g., Boch Toyota, Inc. v. Klimoski, No. 04-966, 2004 Mass. Super. LEXIS 258, at *9-11 (Mass. Super. Ct. June 24, 2004) (protecting "confidential or proprietary business information" without specifying exactly what that information might be); EMC Corp. v. Allen, No. 97-5972-B, 1997 Mass. Super. LEXIS 102, at *3-9 (Mass. Super. Ct. Dec. 15, 1997) (enjoining a former EMC officer from working at Sun Microsystems because of his exposure to "confidential and proprietary" information such as product development strategies and marketing plans, apparently without requiring EMC to demonstrate any efforts to keep this information secret). This is not to suggest that all Massachusetts cases are so vague. See Boulanger, 2003 Mass. Super LEXIS 248, at *7 (stating that "so long as the restrictions do not surpass the bounds of reasonableness, there is no reason to take a narrow view of what is confidential," but noting that the former employer had identified specific items of proprietary information and had taken steps to keep them confidential).
62. See Boch, 2004 Mass. Super. LEXIS 258, at *9 ("Whether an employee actually takes any customer or supplier lists with him is not dispositive . . . .").
63. See supra Part II.A.
64. Modis, Inc. v. Revolution Group, Ltd., No. 99-1104, 1999 Mass. Super. LEXIS 542, at *21 (Mass. Super. Ct. Dec. 29, 1999).
65. See, e.g., Cohoon v. Fin. Plans & Strategies, Inc., 760 N.E.2d 190, 195 (Ind. Ct. App. 2001) (stating that "an employer is entitled to contract to protect the good will of the business," but stating that "secret or confidential information" is an element of this goodwill). For an example of how this confusion leads to inconsistent legal rules, see infra note 99 and accompanying text.
66. Sys. & Software, Inc. v. Barnes, 886 A.2d 762, 765 (Vt. 2005).
67. See, e.g., Owens v. Penn Life Mut. Ins. Co., 851 F.2d 1053, 1055 (8th Cir. 1988) (enforcing a noncompete agreement under Arkansas law because the employer lost sixty accounts to its former employee, but only generally stating, without support, that the defendant was given "special training" and "was privy to confidential business information"); Unisource Worldwide, Inc. v. Valenti, 196 F. Supp. 2d 269, 279 (E.D.N.Y. 2002) (applying New York law to enforce a covenant to prevent the release of confidential information based on broadly-defined categories of information and because "it is clear to the court that every customer serviced by the [defendant's new employer] is a former customer of [the plaintiff] and that all of [the defendant's employer's] pricing is the same as or better than [the plaintiff's]"); QSP, Inc. v. Hair, 566 S.E.2d 851, 853-854 (N.C Ct. App. 2002) (enjoining a chocolate salesperson from competing based on evidence that he had solicited the plaintiff's clients, rather than on evidence that the proprietary "information concerning . . . accounts, business practices, and know-how" was either actually confidential, or actually used by the defendant).
68. See, e.g., Boch Toyota, Inc. v. Klimoski, No. 04-966, 2004 Mass. Super. LEXIS 258, *10-12 (Mass. Super. Ct. June 24, 2004) (protecting employer information without any reference to a prior safeguarding of its confidentiality); Boulanger v. Dunkin' Donuts, Inc., No. 02-1169, 2003 Mass. Super. LEXIS 248, at *7 (Mass. Super. Ct. June 9, 2003) ("[T]he fact that a company has not done all that it possibly could have done to guard the secrecy of the information is not necessarily fatal to its defense of the restrictive clauses."), aff'd, 815 N.E.2d 572 (Mass. 2004).
69. See, e.g., Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So. 2d 415, 419 (Fla. Dist. Ct. App. 2002) (holding that a marketing database supported a noncompete agreement, but not citing to any evidence that the database was confidential); Lamorte Burns & Co. v. Walters, 770 A.2d 1158, 1160-61 (N.J. 2001) (rejecting a trial court's conclusion that the determination of whether information was confidential or proprietary required a factual inquiry, and instead granting summary judgment). Although many states approach proprietary information in inconsistent ways, New Jersey may be among the worst offenders. See infra note 75 and accompanying text (discussing a New Jersey federal court's conclusion that New Jersey law requires a searching four-factor inquiry into the proprietary information of employer information).
70. McGlothen v. Heritage Envtl. Servs., L.L.C, 705 N.E.2d 1069, 1072 (Ind. Ct. App. 1999).
71. See, e.g., Unisource Worldwide, 196 F. Supp. 2d at 277-78 (rejecting defendant's contention that information "readily ascertainable outside the employer's business" cannot be protected by a restricted covenant).
72. See Del. Express Shuttle, Inc. v. Older, CA. No. 19596, 2002 Del. Ch. LEXIS 124, at *73, *76-78 (Del. Ch. Oct. 23, 2002) (finding publicly ascertainable customers lists are not a trade secret, but nonetheless enforcing a noncompete agreement based on the proprietary nature of those same customer lists).
73. See, e.g., Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) ("[T]he harm to [the employer] cannot be avoided simply by the former employee's intention not to disclose information . . . . [H]e does not go with a tabula rasa with respect to [the former employer's proprietary information] . . . ."); Statco Wireless, LLC v. Sw. Bell Wireless, LLC, 95 S.W.3d 13, 19 (Ark. Ct. App. 2003) ("[T]he fact that [it would be possible for an agent to sell for a competitor without disclosing confidential information] does not necessarily prevent enforcement of the covenant. The question is whether [the defendant] would be able to use the information obtained to gain an unfair competitive advantage."); Neff Motivation, Inc. v. Largrou, 2002-Ohio-2788U, at ¶ 66 (Ct. App. June 7, 2002) (enforcing noncompete because defendant salesperson's "knowledge and experience" with customers "would give him a distinct advantage over [plaintiff's] replacement salesman, one that otherwise cannot be avoided").
74. McGlothen, 705 N.E.2d at 1074.
75. See WebMD Health Corp. v. Martin, No. 601654-06, 2006 N.Y. Misc. LEXIS, at 24-30 (N.Y. Sup. Ct. July 11, 2006) (applying Delaware law to reject the plaintiffs' contention that "Delaware law requires them only to demonstrate the 'nature' of the confidential information, and not to 'actually share the secret information'" with the court, and consequently refusing to issue a preliminary injunction enforcing a noncompete agreement).
76. See, e.g., Serv. Ctrs. of Chi., Inc. v. Minogue, 535 N.E.2d 1132, 1137 (Ill. App. Ct. 1989) (finding a confidentiality agreement "defining confidential information as essentially all the information provided by [the plaintiff] to [the defendant] 'concerning or in any way relating' to the services offered by [the defendant]" to be unreasonably broad); TGR Enters., Inc. v. Kozhev, 167 Ohio App. 3d 29, 2006-Ohio-2915, 853 N.E.2d 739, at ¶ 31 ("The fact that the covenants . . . were written so broadly does not establish that [the defendants] were necessarily using or revealing . . . protected information. However, the breadth of the covenants does call into question whether the covenants are reasonable and enforceable . . . ."); see also Richards Mfg. Co. v. Thomas & Betts Corp., Civ. No. 01-4677, 2005 U.S. Dist. LEXIS 22479, at *19 (D.N.J. Sept. 27, 2005) (describing New Jersey's four-factor test for proprietary information, including whether the information is "specific and 'highly specialized'" (quoting Ingersoll-Rand v. Ciavatta, 110 N.J. 609, 638 (1988))).
77. See Citadel Broad. Co. v. Gratz, 52 Pa. D. & C.4th 534, 551 (Ct. Com. Pl. 2001) ("The names of . . . customers which [the defendant] has retained via her memory are likewise not considered confidential or proprietary information under Pennsylvania law.").
78. Richards Mfg., 2005 U.S. Dist. LEXIS 22479, at *19; see Shapiro v. Regent Printing Co., 549 N.E.2d 793, 796 (Ill. App. Ct. 1989) (finding "it difficult to ascertain from the record what, exactly was confidential about [the former employer's] pricing formula" and concluding that the information thus "falls short of being a protectable business interest entitled to injunctive relief"); DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 684 (Tex. 1990) ("[W]hile confidential information may be protected by an agreement not to compete, Wackenhut has failed to show that it needed such protection . . . . Wackenhut failed to show that its customers could not readily be identified by someone outside its employ . . . or that its customers' needs could not be ascertained simply by inquiry addressed to those customers themselves."). Of course this more-exacting confidentiality analysis may still lead to enforcement of a noncompete agreement when the plaintiff-employer meets the criteria. See, e.g., Statco Wireless, 95 S.W.3d at 19 (enforcing a noncompete agreement when the former employer "was very careful about who it provided customer lists to; and it had a policy to retrieve confidential information from terminated agents").
79. Richards Mfg., 2005 U.S. Dist. LEXIS 22479, at *18. New Jersey courts also consider whether the information is "current." Id. at *21; see also A Place for Mom, Inc. v. Leonhardt, No. C06-457P, 2006 U.S. Dist. LEXIS 58990, at *8 (W.D. Wash. Aug. 4, 2006) (holding a noncompete agreement enforceable "only insofar as [the employer] can prove that [its former employee] has unfairly availed himself of information that is uniquely proprietary and available only to . . . employees" (emphasis added)); Citadel Broad. Co., 52 Pa. D & C.4th at 551 (denying a preliminary injunction to enforce a noncompete agreement because the supposed proprietary information was "generally known or available throughout the radio broadcasting business"); DeSantis, 793 S.W.2d at 684 ("Also, Wackenhut failed to show that its pricing policies and bidding strategies were uniquely developed, or that information about its prices and bids could not, again, be obtained from the customers themselves.").
80. See A Place for Mom, 2006 U.S. Dist. LEXIS 58990, at *9 (granting only a limited injunction because "[p]laintiff has yet to produce any evidence that [defendant is using information which is only available through their proprietary database to compete with them").
81. This is because, in Texas, at-will employment is not sufficient consideration to bind a noncompete agreement; rather, there must be a contemporaneous exchange of confidential or proprietary information to support the agreement, or a promise to provide such information. Morse Wholesale Paper Co. v. Talley, No. 14-05-01180-CV, 2006 Tex. App. LEXIS 7196, at *6-7 (Tex. App. Apr. 18, 2006); see also Trilogy Software, Inc. v. Callidus Software, Inc., 143 S.W.3d 452, 460-61 (Tex. App. 2004) (finding a noncompete agreement unilateral and unenforceable because the plaintiff "could have avoided its 'promise' . . . to provide information and training to [the employee] by terminating [the employee's] at-will employment relationship"); Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 297 (Tex. App. 2004) (upholding a noncompete when a noncompete agreement "obligated [the employer] to provide confidential information and training and the record establishes it did so").
82. Totten v. Employee Benefits Mgmt., Inc., 61 Va. Cir. 77, 78 (Cir. Ct. 2003) (finding that these supposed areas of concern include "customer lists, rate structures, manuals, reports, proprietary programs, and charges for services").
83. See supra note 32 and accompanying text.
84. See Pregler v. C&Z, Inc., 575 S.E.2d 915, 917 (Ga. Ct. App. 2003).
85. See Phoenix Renovation Corp. v. Rodriguez, 439 F. Supp. 2d 510, 521-22 (E.D. Va. 2006) (referring to nondisclosure agreements generally as "post-employment restraint[s]," and refusing to enforce such an agreement that was unreasonable).
86. See generally supra Part II.B.
87. See Schwan's Consumer Brands N. Am., Inc. v. Home Run Inn, Inc., Civil No. 05-2763, 2005 U.S. Dist LEXIS 32879, at *16-17 (D. Minn. Dec. 9, 2005) (refusing to enforce a vague nondisclosure agreement that would leave the court to speculate about the confidential or proprietary nature of the allegedly proprietary documents); Pregler, 575 S.E.2d at 917 (refusing to enforce a nondisclosure by injunction because "[it] lacks sufficient detail to fully apprise [the defendant] of which materials may not be used or disclosed" (quoting Sanford v. RDA Consultants, Inc., 535 S.E.2d 321, 325 (Ga. Ct. App. 2000))); Serv. Ctrs. of Chi., Inc. v. Minogue, 535 N.E.2d 1132, 1137 (Ill. App. Ct. 1989) ("By defining confidential information as essentially all of the information . . . 'concerning or in any way relating' to the services offered by [the defendant], the confidentiality agreement amounts in effect to a post-employment covenant not to compete which is completely unrestricted in duration or geographical scope.").
88. See Propath Servs. v. Ameripath, Inc., Civil Action No. 3:04-CV-1912-P, 2004 U.S. Dist. LEXIS 27846, at *13-20 (N.D. Tex. Oct. 21, 2004) (fashioning a narrow injunction regarding only material that the departing doctor had produced during his tenure with the employer, despite concluding the information had not received confidential protection).
89. See, e.g., Joseph Chris Pers. Servs., Inc. v. Rossi, Civil Action H-03-2341, 2005 U.S. Dist. LEXIS 29760, at *9-10 (S.D. Tex. Nov. 15, 2005) (applying Wisconsin law to a provision baring employees from disclosing former employer's current or potential clients "serve[d] only as a threat to paralyze [the plaintiff's] workers"); Passalacqua v. Naviant, Inc., 844 So. 2d 792, 796 (Fla. Dist. Ct. App. 2003) (refusing to enforce a nondisclosure agreement when the employer "did not articulate how any activity, method or technique . . . was unique or proprietary in any way").
90. See, e.g., Phoenix Renovation Corp., 439 F. Supp. 2d at 521-22 (finding a nondisclosure agreement without a geographic limit unenforceable); Sunstates Refrigerated Servs., Inc. v. Griffin, 449 S.E.2d 858, 860 (Ga. Ct. App. 1994) (enforcing a nondisclosure agreement on business knowledge because it had a two-year duration).
91. See Revere Transducers, Inc. v. Deere & Co., 595 N.W.2d 751, 761 (Iowa 1999) (holding that "[n]ondisclsoure-confidentiality agreements enjoy more favorable treatment in the law than do noncompete agreements" yet applying the noncompete test to a nondisclosure agreement); see also Lamorte Burns v. Walters, 770 A.2d 1158, 1161-68 (N.J. 2001) (engaging in a factual evaluation of a nondisclosure agreement's propriety, but concluding that the employer had taken sufficient steps to maintain confidentiality and enforcing the agreement despite some evidence to the contrary).
92. See Pregler, 575 S.E.2d at 917 (noting that a time limitation is required for a nondisclosure agreement to be reasonable unless the information is a trade secret).
93. Totten v. Employee Benefits Mgmt., 60 Va. Cir. 342, 344 (Cir. Ct. 2002).
94. Totten v. Employee Benefits Mgmt., 61 Va. Cir. 77, 78 (Cir. Ct. 2003).
95. Revere Transducers, 595 N.W.2d at 762; see also Bernier v. Merrill Air Eng'rs, 2001 ME 17, ¶ 18, 770 A.2d 97, 103-04 (engaging in a reasonableness analysis of a nondisclosure agreement but concluding it did not create an undue hardship because the former employee was not prevented from "using the general skill and knowledge he [had] acquired during his employment"). For a defense of the broad freedom to contract for trade secrets as adopted in Bernier, see C. Rachal Pugh, Case Note, Bernier v. Merrill Air Engineers, 17 BERKELEY TECH. L.J. 231 (2002).
96. Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1134 (10th Cir. 2002) (quoting Mai Basic Four, Inc. v. Basis, Inc., 880 F.2d 286, 288 (10th Cir. 1989)) (applying Colorado law).
97. See id. (reversing a district court's conclusion that a nondisclosure was unenforceable because it was vague and overly broad).
98. CAL. BUS. & PROF. CODE § 16600 (West 1997).
99. Arrowhead Fin. Group v. Welty, No. E032190, 2002 Cal. App. Unpub. LEXIS 11100, at *16-17 (Cal. Ct. App. Nov. 26, 2002); see also Metro Traffic Control, Inc. v. Shadow Traffic Network, 27 Cal. Rptr. 2d 573, 577-78 (Ct. App. 1994) ("Business and Professions Code section 16600 prohibits the enforcement of Metro's noncompete clause except as is necessary to protect trade secrets."); Esquire Deposition Servs. v. Manus, No. B175370, 2004 Cal. App. Unpub. LEXIS 10548, at *15-16 (Cal. Ct. App. Nov. 18, 2004).
100. Arrowhead Fin. Group, 2002 Cal. App. Unpub. LEXIS 11100, at *17 (quoting Kolani v. Gluska, 75 Cal. Rptr. 2d 257, 260 (Ct. App. 1998)).
101. Reed, Roberts Assoes., Inc. v. Strauman, 353 N.E.2d 590, 594 (N.Y. 1976).
102. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1224-25 (N.Y. 1999).
103. Kanan, Corbin, Schupak & Aronow, Inc. v. FD Int'l, Ltd., 797 N.Y.S.2d 883, 889-90 (Sup. Ct. 2005).
104. Id. at 890 (distinguishing the case presented from Johnson Controls, Inc. v. APT Critical Systems, 323 F. Supp. 2d 525 (S.D.N.Y. 2004), in which the indeterminate duration of an injury was central to finding irreparability of the harm).
105. See, e.g., Great Lakes Carbon Corp. v. Koch Indus., 497 F. Supp. 462, 471 (S.D.N.Y. 1980) (noting that covenants not to compete must be reasonable "both in scope and duration").
106. See Legal Sea Foods, Inc. v. Calise, No. 03 Civ. 4958 (DLC), 2003 U.S. Dist. LEXIS 14527, at *19 (S.D.N.Y. Aug. 19, 2003) (holding a noncompete unenforceable under New York law because plaintiff restaurant's recipes and food safety plans were not trade secrets), vacated on joint motion by the parties, 2005 U.S. Dist. LEXIS 23674 (S.D.N.Y. 2005); Zemco Mfg., Inc. v. Navistar Int'l Transp. Corp., 759 N.E.2d 239, 251 (Ind. Ct. App. 2001) ("Because we have held herein that Zemco had no protectable trade secrets, we also hold that there was no damage to Zemco from the transfer [of information protected by a non-disclosure agreement]."); Marietta Corp. v. Fairhurst, 754 N.Y.S.2d 62, 66 (App. Div. 2003) (refusing to grant injunctive relief for the breach of a confidentiality agreement when the former employer could not demonstrate an explicit breach of the agreement and the information was not a trade secret), modified, Marietta Corp. v. Pac. Direct, Inc., 781 N.Y.S.2d 387 (App. Div. 2004); Hair Say, Ltd. v. Salon Opus, Inc., No. 5106-01, 2005 N.Y. Misc. LEXIS 543, at *6 (N.Y. Sup. Ct. Mar. 17, 2005) ("Hairsay has failed to establish that the customer list is a trade secret leaving Defendants, its former employees, free to compete.").
107. See, e.g., Foster-Miller, Inc. v. Babcock & Wilcox Can., 210 F.3d 1, 8 (1st Cir. 2000) (reviewing Massachusetts decisions and expressing "some doubt about whether and how the Massachusetts courts differentiate among confidential information, proprietary information, and trade secrets," but declining to reach the question); Unisource Worldwide, Inc. v. Carrara, 244 F. Supp. 2d 977, 989-90 (CD. 111. 2003) ("The parties concede that under Illinois law, there is no apparent functional difference between 'confidential information' and 'trade secrets.'"); United Rug Auctioneers, Inc. v. Arsalen, No. CA03-0347, 2003 Mass. Super. LEXIS 189, at *14 (Mass. Super. Ct. Apr. 8, 2003) ("Trade secrets and confidential information are essentially identical concepts."). The Massachusetts cases are especially surprising, given that state's extremely generous definition of proprietary information under noncompete agreements. See supra note 58 and accompanying text.
108. See ALAN HYDE, WORKING IN SILICON VALLEY: ECONOMIC AND LEGAL ANALYSIS OF A HIGH-VELOCITY LABOR MARKET 38 (2003) ("Many firms . . . choose not to sue departing employees; firms that do sue departing employees are criticized in the industry and have trouble recruiting; and firms that sue departing employees . . . rarely accomplish anything by doing so.").
109. UNIF. TRADE SECRETS ACT § 7 (amended 1985), 14 U.L.A. 651 (2005).
110. TENN. CODE ANN. § 47-25-1708(a) (2001).
111. Hauck Mfg. Co. v. Astee Indus., Inc., 375 F. Supp. 2d 649, 654-57 (E.D. Tenn. 2004).
112. Id. at 657.
113. See, e.g., Compuware Corp. v. IBM, No. 02-CV-70906, 2003 U.S. Dist. LEXIS 24894, at *23 (E.D. Mich. Dec. 19, 2003) (finding a tortious interference claim preempted by Michigan's adoption of the UTSA); Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 132 F. Supp. 2d 643, 648-49 (N.D. Ill. 2001) (holding that the Illinois Trade Secret Act preempts plaintiff's tortious interference claim because the research and development-related "confidential information" in contention fell within the scope of the subject matter covered by the Act), rev'd on other grounds, 285 F.3d 1353 (Fed. Cir. 2002).
114. See, e.g., Stone Castle Fin., Inc. v. Friedman, Billings, Ramsey & Co., 191 F. Supp. 2d 652, 659 (E.D. Va. 2002) ("[U]nless it can be clearly discerned that the information in question constitutes a trade secret, the Court cannot dismiss alternative theories of relief as preempted by the [Virginia codification of the] UTSA."); Smithfield Ham & Prods. Co. v. Portion Pac, Inc., 905 F. Supp. 346, 350 (E.D. Va. 1995) ("[Claims for trade secret misappropriation and tortious interference] may be wholly independent, indeed in this case they are.").
115. See Stone, supra note 2, at 739-40 ("When an employment relationship includes a covenant not to compete or not to disclose specific information, it is reasonable to assume that the employee has consented to restrictions on his or her post-employment activities. Accordingly, there is a strong argument for courts to enforce the covenant . . . .").
116. 2 MARK A. ROTHSTEIN ET AL., EMPLOYMENT LAW 197 (2d ed. 1999) ("[T]he cases invoke public policy to alter pure contract doctrine. . . . [Nonetheless, contract issues underlie all questions of interpreting restrictive covenants.").
117. See id. at 195 (noting that "[t]he typical inequality of the parties in bargaining power is one important distinction" between restrictive covenants involving employees and those used in the sale of a business).
118. In fact, employment agreements signed after the commencement of at-will employment are sometimes held unenforceable for lack of consideration. See supra note 78 and accompanying text.
119. See Stewart E. Sterk, Restraints on Alienation of Human Capital, 79 VA. L. REV. 383, 393-94 (1993) (recognizing information asymmetry in employee-employer negotiations).
120. See Jay L. Koh, From Hoops to Hard Drives: An Accession Law Approach to the Inevitable Misappropriation of Trade Secrets, 48 AM. U. L. REV. 271, 313 (1998) (discussing how an employees' skills can add to their value on the labor market beyond the value of the trade secrets they possess).
121. Id.
122. See George G. Triantis, The Efficiency of Vague Contract Terms: A Response to the Schwartz-Scott Theory of U.C.C. Article 2, 62 LA. L. REV. 1065, 1071 (2002) ("[Some] explanations [of contracting parties leaving verifiable factors unexploited] suggest that, when information is asymmetric between the parties, the better-informed party may refrain from proposing a more complete contract because, in doing so, she may communicate private information to the other party and thereby compromise her share of the contracting surplus.").
123. See Nathan Newman, Trade Secrets and Collective Bargaining: A Solution to Resolving Tensions in the Economics of Innovation, 6 EMP. RTS. & EMP. POL'Y J. 1, 3-4 (2002) (characterizing trade secret law as a set of default rules alternative to covenants not to compete).
124. See supra notes 14-16 and accompanying text.
125. See supra note 58 and accompanying text.
126. Some courts hold that firms have a property right in trade secrets. Most prominently, in Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984), the Supreme Court addressed this issue in a takings claim by a pesticide manufacturer. The manufacturer claimed that the disclosure of secret health, safety, and environmental data to the Environmental Protection Agency constituted a taking. Id. at 998-99. The Court held that because state trade secret law had created a protectable property interest in the data, it qualified as property for the purposes of the Fifth Amendment. Id. at 1012. The Court emphasized that "the extent of the property right . . . is defined by the extent to which the owner of the secret protects his interest from disclosure to others." Id. at 1001. When applied to proprietary information, this reasoning holds little sway, however. In Monsanto, the court held that a property right existed because of expectations that were created by state law. In proprietary information cases, meanwhile, it is the employer defining the scope of the property right, purely through contract and only against a single employee. To say that state enforcement of the employment contract creates a property right would begin a circular and conceptually unlimited definition of protectable knowledge as property, especially when most employment agreements are so vague that anything can be protected.
127. See Stone, supra note 2, at 731 ("The academic literature about the new psychological contract tries to characterize the new set of expectations that managers impart to their employees . . . .").
128. Id. at 727-28.
129. Id. at 735-36.
130. Id. at 763.
131. The public goods problem arises from two unique aspects of information: it is nonrivalrous (an unlimited number of firms can utilize the information simultaneously) and nonexcludable (it is difficult to prevent others from using the information in the absence of legal or physical protections). See HYDE, supra note 105, at 46 (explaining the public goods problem); Bone, supra note 6, at 262-63 (same).
132. Unikel, supra note 28, at 846-47; see also Edmund W. Kitch, The Law and Economics of Rights in Valuable Information, 9 J. LEGAL STUD. 683, 708-09 (1980) (sketching out the conventional welfare analysis applied to contractual protections of valuable information).
133. See Bone, supra note 6, at 262 ("The incentive-based argument is one of the most frequently invoked in the trade secret literature today.").
134. Kitch, supra note 130, at 711-12.
135. Id. at 713.
136. See id. at 716-20 (detailing the principle of information communication through the price mechanism).
137. See Jack E. Karns & Roger P. McIntyre, Are Intellectual Property Rights Protected in Employment Contract Covenants Not to Compete Given the Rapid Rate of New Product Development?, 26 OKLA. CITY U. L. REV. 631, 644-46 (2001) (discussing the Second Circuit's skepticism that a one-year noncompete agreement protecting proprietary information was necessary in the Internet information technology industry, and advising technology firms to make sparing use of narrowly drafted employment agreements).
138. See supra note 49 and accompanying text.
139. See ALAN GILPIN, DICTIONARY OF ECONOMIC TERMS 166 (3d ed. 1973) (identifying "[c]omplete knowledge, [that is,] each buyer knowing what price is being asked for a particular commodity in every part of the market," as a key demand-side factor required for markets approaching perfect competition (emphasis omitted)).
140. HYDE, supra note 105, at 55-60.
141. ANNALEE SAXENIAN, REGIONAL ADVANTAGE: CULTURE AND COMPETITION IN SILICON VALLEY AND ROUTE 128, at 1-4 (1994).
142. HYDE, supra note 105, at 50-51.
143. See supra Part II.A.
144. See generally Don Wiesner & Anita Cava, Stealing Trade Secrets Ethically, 47 MD. L. REV. 1076 (1988) (discussing corporate ethics in the context of trade secret theft).
145. HYDE, supra note 105, at 68.
146. See David D. Friedman et al., Some Economics of Trade Secret Law, 5 J. ECON. PERSP. 61, 67-69 (1991) (arguing that trade secret law reduces transaction costs).
147. Id.
148. See Bone, supra note 6, at 279 ("[T]rade secret law is replete with open-ended standards and vague balancing criteria . . . .").
149. Yuval Feldman, Experimental Approach to the Study of Normative Failures: Divulging of Trade Secrets by Silicon Valley Employees, 2003 U. ILL. J.L. TECH. & POL'Y 105, 140 (empirically observing that the ambiguity in the legal definition of trade secrets reduces the likelihood of formal enforcement).
150. Bone, supra note 6, at 279.
151. See supra Part II.D.1.
152. See supra note 67.
153. See supra notes 124-27 and accompanying text.
154. See supra Part III.B.
155. Some states have already done this with regard to customer lists. See supra note 44 and accompanying text.
156. See supra notes 138-43 and accompanying text.
157. See Feldman, supra note 147 (demonstrating that employee compliance corresponds to perceptions of enforceability).