The Sixth Circuit recently held that an employer’s “playbook” was protected from disclosure and use, even if the business information was not a “trade secret.” (Orthofix, Inc. v. Hunter, No. 15-3216 (Nov. 17, 2015)) Fortunately for Orthofix, its employment agreements included non-disclosure provisions. The Sixth Circuit found that those provisions protected more than just “trade secrets” and that the former employee breached his contractual obligations by disclosing Orthofix’s confidential business information to a competitor.
Background. Orthofix sells medical devices and hired Eric Hunter as a salesman for its bone growth simulators. Hunter signed an employment agreement that included non-compete and non-disclosure provisions. Orthofix assigned Hunter to a specific territory, where he developed customers and acquired detailed information about doctors’ schedules, idiosyncrasies, and medical device preferences. After nearly 12 years of employment, Hunter and another Orthofix employee (Bob Lemanski) began to negotiate employment with an Orthofix competitor. A plan was developed for Hunter and Lemanski to work for the competitor while avoiding non-competed issues: Hunter would stop selling devices to customers he previously serviced after introducing them to Lemanski, and Lemanski would do the same with his customers. Hunter also disclosed Orthofix’s “playbook” to the competitor — including Orthofix’s customer lists, wholesale price information, sales data, staff contacts, physician schedules and preferences, and physicians’ prescribing habits. Hunter also drew on his “knowledge” about customers’ prescribing habits, schedules, and contact information when introducing the competitors’ representatives to these customers.
District Court Decision. Orthofix sued Hunter for misappropriating trade secrets and breaching his employment agreement’s non-disclosure provisions. The suit was pending in the U.S. District Court for the Northern District of Ohio, where a bench trial was eventually held. The district court dismissed the claims, finding that Hunter was not liable because Orthofix did not protect its trade secrets with reasonable measures and because the non-disclosure provision was an unenforceable non-compete agreement that prohibited Hunter from using general skills and knowledge.
Sixth Circuit Decision. The Sixth Circuit overturned the district court’s decision. Its opinion began with a discussion about the “three separate categories of business information” — trade secrets; contractually protected information; and general skills and knowledge. The Sixth Circuit ultimately held that the district court erred by confusing “Orthofix’s contract claim against Hunter for disclosure of ‘confidential information’ with a claim for misappropriation of trade secrets.” The Sixth Circuit held that Orthofix’s non-disclosure provision protected information that may not qualify as a trade secret and that went beyond Hunter’s “general skills and knowledge.” In holding that Hunter breached his employment agreement, the Sixth Circuit also held that the non-disclosure provision’s scope did not transform it into an unenforceable non-compete agreement, as Hunter did not rely on his “general skills and knowledge” when using and disclosing Orthofix’s “playbook.” The Sixth Circuit remanded the case for the district court to calculate damages, which Orthofix’s expert valued at $1,623,877 in lost profits.
Take-Away. This decision should prompt all employers to confirm that they have non-disclosure agreements in place. If drafted properly, these agreements can provide substantial protection, even if the business information does not technically qualify as a trade secret.