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Constant vigilance needed to avoid/stop unfair competition

An Ohio jury recently awarded a company, Innovative Technologies Corp. (ITC), nearly 23 million in damages against a group of three former employees. Amazingly, a competing company had colluded with the former employees to misappropriate ITC’s trade secrets, even after the employees had been enjoined from competing with ITC under noncompete agreements they had signed. Innovative Techs. Corp. v. Kenton Trace Techs., verdict entered 1/4/08.

Nearly 14 months before voluntarily leaving their jobs with ITC, three employees secretly formed their own company, Kenton Trace Technologies, for the purpose of competing with ITC. By virtue of their employment, the employees had access to confidential information, including customer and supplier lists, bidding strategies, technical data and pricing structures. ITC had taken action to protect its proprietary information by requiring its employees to execute noncompete agreements. In addition, as demonstrated below, ITC protected its confidential information by remaining vigilant to find and stop those who may be willing to ignore the agreements.

Shortly after the employees had quit, ITC discovered the employees’ competitive actions. ITC filed a lawsuit to enforce the noncompete agreements executed by the employees and to recover damages for the employees’ violations of Ohio’s trade secrets law. The noncompete agreements were enforced by the court, and an injunction was entered against the employees barring them from further competition. This should have ended the matter, and ITC could have relaxed. Fortunately, it did not.

After being enjoined, the former employees conspired with an ITC competitor, Advanced Management Technology Inc. (AMTI), to obtain a major service contract from Wright- Patterson Air Force Base. Notably, this was a contract that ITC had held for several years and accounted for nearly one-third of ITC’s revenues.

ITC sued both the former employees and AMTI and, following a trial, obtained significant damages from a jury. First, the Ohio court found that the former employees were “faithless servants,” which allowed ITC to recover nearly $300,000 it had paid in compensation during their employment with ITC. The jury also found that AMTI’s collusion with the employees rendered it liable for tortious interference with business relationships, conspiracy, and theft of trade secrets. Following the jury verdict, the court ordered AMTI to pay ITC nearly $6 million in compensatory damages and $17 million in punitive damages.

This case serves as a cautionary tale for employers to ensure that new hires do not breach noncompete agreements with their prior employers. It also demonstrates that vigilance in protecting an employer’s trade secrets, even after obtaining an injunction, is worth the benefit it provides against unscrupulous companies and unethical individuals.

  • Partner

    Phil is a partner and former co-chair of the Labor and Employment Department. He represents employers in defending against employment-related claims in both federal and state courts. He represents clients involving covenants not ...



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