Protection of a business’s trade secrets may prove more difficult with the rise of social media and the recent debates surrounding the use of non-compete agreements. Social media, while a great tool for expanding networks, carries certain risks for businesses, such as ownership of social media accounts (including any “followers” on that site) and potential inadvertent disclosure of trade secrets.
There has been discussion in the Minnesota legislature recently about the continued viability of non-compete agreements. In February 2013, a Minnesota House of Representatives member introduced a bill that would void most non-compete agreements. To date, there has not been further action taken on this bill. Nevertheless, it has prompted debate about the continued use of non-competes by businesses. While they are considered partial restraints of trade, non-compete agreements can be an integral part of a business’s ability to protect confidential information and trade secrets. Non-compete agreements are generally upheld in Minnesota, so long as the restrictions are reasonable and the agreements were executed in exchange for adequate consideration.
The issues surrounding protection of trade secrets were recently brought to light by a case involving two major competitors, Seagate Technology LLC and Western Digital Corporation. Seagate Tech., LLC v. W. Digital Corp., A12-1944 (Minn. Ct. App. July 22, 2013). Seagate, a hard-drive manufacturer, employed Sining Mao until October 2006, when Mao left to accept employment with Seagate’s competitor, Western Digital. Mao had an employment agreement that contained an arbitration clause. After Mao joined Western Digital, Seagate commenced suit in district court seeking to prevent Mao from disclosing Seagate’s trade secrets. Because of the arbitration clause in Mao’s employment agreement, Western Digital moved to compel arbitration and the motion was granted by the district court.
The prehearing preparation spanned four years and included discovery amassing 14,000 pages of documents. The arbitration hearing was held over the course of 34 days. At issue were claims against Mao and Western Digital for misappropriation of trade secrets, claims against Mao for breach of contract and breach of fiduciary duty, and a claim against Western Digital for tortious interference with a contract.
The arbitrator found that Mao had fabricated documents intended to prove that certain trade secrets were publicly disclosed before he left Seagate. The arbitrator concluded that”[t]he fabrications were obvious” and that there “is no question that Western Digital had to know of the fabrications.” The arbitrator imposed sanctions on Western Digital and found in favor of Seagate on the trade secret claims, awarding Seagate damages of around $630 million. Seagate moved to confirm the arbitration award in district court, while Western Digital attempted to have it vacated. The court affirmed the award in part and vacated it in part, finding that the arbitrator lacked the authority to impose sanctions for the fabrication of evidence.
On July 22, 2013, the Minnesota Court of Appeals reversed the partial vacation and ordered that on remand, the $630 million award be reinstated.