Duke Radiologist Files Class Action Suit Alleging Duke University Health System Conspiracy with UNC Health System Not to Poach Each Other’s Medical Faculty

bird-IIIThis blog is about more than just employee departures that involve allegations of trade secret theft – it is also about litigation involving employee departures and related issues.  On June 9th, the well-respected national law firm Lieff Cabraser filed a complaint in the United States District Court for the Middle District of North Carolina on behalf of a Duke Health System radiologist alleging that Duke University Health System’s “senior administrators and deans entered into express agreements to eliminate or reduce competition among them for skilled medical labor.”  The complaint further alleges that Duke conspired with other hospital systems, including the UNC Health Care System, to enter into the agreement that the parties to the agreement would not hire or attempt to hire certain medical facility faculty and staff employed at the other and vice-versa.

Some readers of this blog wouldn’t know that Duke and UNC are less than 20 miles apart from each other, which would presumably amplify the effects of such an agreement.  The complaint alleges, of course, that the effect of such an agreement is to suppress employee compensation and mobility.  The complaint alleges violations of the federal Sherman Act and also North Carolina state law prohibiting the illegal restraint of trade.

Calling the express agreement the “no-hire agreement” the complaint alleges that the only exception to the “no-hire agreement” made (allegedly) between the Dean of the Duke School of Medicine and Dean of the UNC School of Medicine would be “for faculty who are granted a promotion simultaneous to their hiring.”  In other words, the complaint suggests that if one or the other medical faculties were to grant the candidate a promotion from, say, “Assistant Professor” to “Associate Professor” then the agreement would not apply.  But the complaint went on to say, since there is no higher title than “Professor” that the agreement would not permit Duke to hire UNC’s full professors and vice-versa.

The complaint indicates that Dr. Danielle Seaman, the radiologist and lead plaintiff of the proposed class, learned of the agreement when seeking employment with UNC while actively employed at Duke.  Dr. Seaman specifically alleges that in February of 2015, after a few years of back and forth regarding openings on UNC’s cardiothoracic imaging faculty, she was told in an e-mail from UNC’s Chief of Cardiothoracic Imaging that “I just received confirmation today from the Dean’s office that lateral moves of faculty between Duke and UNC are not permitted.  There is reasoning for this “guideline” which was agreed upon between the deans of UNC and Duke a few years back.  I hope you understand.”  Frustrated, Dr. Seaman allegedly responded that UNC was one of two major hospital systems in the service area and she was already working at Duke and the UNC Chief of Cardiothoracic Imaging allegedly responded “the “guideline” was generated in response to an attempted recruitment by Duke a couple of years ago of the entire UNC bone marrow transplant team; UNC had to generate a large retention package to keep the team intact.”

This is certainly going to be a litigation to watch.  Stay tuned . . .

Former Goldman Sachs Programmer, and Alleged High-Frequency Code Thief, Sergey Aleynikov Convicted in New York State Court

The legal travails of code programmer Sergey Aleynikov are like none this student of trade secret litigation has ever seen.  This long, strange trip on Mr. Aleynikov’s existentialist legal nightmare began with his arrest at the Newark airport.  He was on his way to Chicago as part of the pre-hire process at Teza Technologies, a high-frequency trading firm.  It is undisputed that he had in his possession some of the computer source code for the high-frequency trading platform at Goldman Sachs.  He helped design the Goldman Sachs platform and his intended role at Teza was going to include building them a high-frequency platform.  He was making about $400,000 at Goldman Sachs; he was going to be making about $1.2 million at Teza Technologies.

After getting arrested in the Newark airport, he obviously lost the job with Teza.  Then he was prosecuted in federal court in Manhattan, charged with criminal violations of the federal Economic Espionage Act and the National Stolen Property Act.  He was convicted in December of 2010 of those two crimes and received an eight year prison sentence.  He spent over a year in federal prison while appealing the convictions and, on appeal, the federal appellate court in New York reversed his convictions.  He was set free, with the appellate court holding that his conduct didn’t violate the two federal statutes because the computer code he took wasn’t a tangible good that he could take “physical control over” and also because the code wasn’t intended to enter interstate commerce.  This was February of 2012.

BUT then the Manhattan District Attorney’s office got involved.  Using the exact same set of facts, they state charged Mr. Aleynikov with “making a tangible reproduction” of scientific material and duplication of computer data owned by Goldman Sachs.  Such acts are allegedly crimes in New York – but query whether “source code” satisfies the definition of “scientific material”?  Regardless, the state prosecutor pushed on.  Then, Mr. Aleynikov filed civil suits against Goldman Sachs regarding his right to an officer’s legal fee indemnity for millions of dollars in fees incurred.  Was Mr. Aleynikov an officer of Goldman Sachs?  That issue is apparently being litigated still.

The trial of Mr. Aleynikov on these state charges was a virtual gong-show, as well.  Apparently one of the twelve jurors accused another of the twelve jurors of attempting to poison her jury food and was significantly distraught that some avocado slices were missing from her jury-room sandwich.  Buh-bye to both of you (after determining the allegation was specious) says the trial judge.  But now Mr. Aleynikov has a decision to make – seek a mistrial because there are only 10 jurors left?  He decided to relent and agree to move forward with 10 jurors.  On Friday, May 1st, 10 person jury voted to convict Mr. Aleynikov on the count of “stealing scientific material” and they failed to reach a verdict on a virtually identical charge regarding code that Mr. Aleynikov copied on a different day.  Inconsistent?  Sounds that way.  We imagine that Judge Daniel Conviser of State Supreme Court in Manhattan will have a bunch of post-trial motions seeking a different judgment from him notwithstanding the verdict.

Oh – I forgot to mention another part of this crazy story.   Remember that the whole thing started with Mr. Aleynikov getting stopped at the Newark airport on his way to Chicago?  A state court judge granted a motion to exclude most of the evidence acquired from Mr. Aleynikov in that airport arrest.  The judge ruled that Mr. Aleynikov’s arrest and subsequent search of his home were “presumptively unreasonable” and the product of a “mistake of law” by the federal authorities.  But that same judge denied Mr. Aleynikov’s motion to have the state charges thrown out on “double jeopardy” grounds.

This is clearly not the last we’ve heard from Sergey Aleynikov.  His lawsuits against Goldman Sachs and the FBI agents continue.  We’ll report back once we know something more.

Federal Judge Lucy Koh Reportedly Near Approving $415 Million Settlement of Tech Worker Antitrust Suit Against Huge Tech Companies

CashThis case has always been a bit shocking and weird – California-based tech employees sued big tech companies such as Apple, Google, Adobe, Intel and others and accused them in a class-action lawsuit of arranging an “interconnected web” of agreements between 2005 and 2009 not to hire each other’s workers with the illegal but secret plan having the effect of squelching any possibility of a destructive bidding war for talent amongst these employers.

You’ll recall that the plaintiffs were able to obtain in discovery troubling e-mails between Apple’s Steve Jobs and Google’s Eric Schmidt in which the latter apologized to the former for breaking the deal.  There were also reportedly nasty e-mail patent litigation threats made by Mr. Jobs against Palm if Palm did not join the pact.

Intuit and Pixar and Lucasfilm settled early – but Apple, Google, Adobe and Intel failed to settle the civil case and an initial proposed settlement of $325 million for the approximately 60,000 or more covered employees in the class was rejected by Federal District Court Judge Koh in San Francisco.  Judge Koh’s reported reasoning?  Not enough money for the employees.  The defendants then appealed Judge Koh’s rejection of the settlement to the federal Court of Appeals for the Ninth Circuit, arguing that the trial court’s rejection of the settlement on grounds that it was “not within the range of reasonableness” was a reversible legal error.  Judge Koh apparently did the math and learned that the plaintiffs would receive approximately $4000 per worker – and that just didn’t work for her.  She mandated that the case be prepared for trial in April of 2015.  This was, by all accounts, an explicit and implicit judicial slap at the plaintiffs’ attorneys – essentially a message that the judge thought they were giving up too cheaply in a case where they had the defendants on their proverbial knees.

The new number that apparently works for Judge Koh?  $415 million.  But doesn’t this just give each plaintiff approximately another $1500 each?  Yes, seems so.  But reports are also indicating that the plaintiffs’ attorneys themselves are throwing an additional $24 million into the settlement pot (essentially giving up some of their 25% contingency) in order to generate the buy-in being reported from Judge Koh.  There’s an upcoming hearing date for the acceptance of this new figure and arrangements and we’ll report back on that.

Jimmy John’s Employees Required to Sign Noncompete – A Legal Absurdity

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When professional colleagues first sent me links to reports that Jimmy John’s requires new employees to sign two-year noncompete agreements, I thought “The Onion is somehow behind this.”  But, according to nationwide reports, this is not a joke.

According to numerous reports, this is the how the covenant reads: “Employee covenants and agrees that, during his or her employment with the Employer and for a period of two (2) years after … he or she will not have any direct or indirect interest in or perform services for … any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located with three (3) miles of either [the Jimmy John’s location in question] or any such other Jimmy John’s Sandwich Shop.”

In most states noncompete agreements are disfavored and only permitted inasmuch as they are drafted to reasonably protect a legitimate interest of the employer.  Those legitimate interests are usually identified as either: (a) the protection of existing customer relationships; or (b) the protection of competitively-sensitive information or trade secrets.

My law firm orders sandwiches from Jimmy John’s on occasion.  Their #9 submarine is pretty good.  But, and this is rarity for yours truly, I will not be spending any money at Jimmy John’s until I hear a good explanation from the company why they felt the need to require sandwich makers and delivery people to sign a noncompete agreement.  I’ll spend my money at Which Which? instead.

In all the reports that I’ve read about this story, which apparently arose because of a class-action lawsuit challenging the manner in which Jimmy John’s treats its workers, I’ve not seen or read any mention of a rather nefarious influence that noncompetes have with employees.  That influence is what we might call the in terrorem effect or the apprehension of possible danger in the event that the covenant is breached.  Not only are employees who signed such covenants fearful of litigation that could be brought against them but new potential employers routinely shut down conversations with candidates who have previously signed noncompetes because the possibility for litigation, even bogus litigation, is too costly to bear.

Another not-routinely-identified impact that noncompetes have is that they impair an employee’s ability to bargain for better wages and benefits.  Management feels emboldened by responding to a wage increase request and sometimes responds: “But where are you going to go?  You signed an agreement with us that locks you down in this market – you’ve literally promised not to work in the marketplace.”

There is a proper role for noncompete covenants in our ever-evolving economy in which customer relationships are increasingly fleeting and sensitive information is often key to future business success.  However, when your customers are able to choose from a panoply of options  for a virtually commoditized sandwich and there’s no real secret how to put the meat on the bread and then add the mayonnaise or follow directions on a GPS to drop the sandwich off, a noncompete covenant is neither needed nor legally defensible.

 

$135 Million Settlement Payment from Eaton to Triumph in Now Legendary Mississippi (and ultimately North Carolina) Trade Secrets Row

Eaton Probably Wishes It Could Go Back in Time . . . .
Eaton Probably Wishes It Could Go Back in Time . . . .

You knew this day would come – you just didn’t know what the contents of the day would unveil.  Eaton Corp. has reportedly agreed to settle for $148 million ($135 million to Triumph Group and $13 million to the former Eaton engineers) what might ultimately prove to be the most screwed-up trade secrets misappropriation case in American jurisprudence.

Eaton originally sued some of its former engineers and their new employer (then called Frisby but now called Triumph after the North Carolina company was acquired by the Triumph Group from Philadelphia) in 2004 in Mississippi state court.  Eaton claimed Frisby hired six Eaton engineers who stole trade secrets used to make aircraft hydraulic pumps and motors and were using them to assist Frisby in competition.  Eaton claimed at one time that the value of the trade secrets approached $1 billion.  Frisby and six former employees aggressively denied the allegations and counter-sued Eaton. Continue reading “$135 Million Settlement Payment from Eaton to Triumph in Now Legendary Mississippi (and ultimately North Carolina) Trade Secrets Row”

DuPont’s $920 Million Trade Secret Jury Verdict Vacated by Fourth Circuit and Remanded With Instruction to Try The Case Again Before a New Judge

class1In an unpublished opinion only 17 pages long, the United States Court of Appeals for the Fourth Circuit has vacated DuPont’s $920 million verdict against South Korea’s Kolon Industries.  You’ll recall that DuPont convinced the jury that Kolon had misappropriated at least 42 trade secrets of DuPont’s Kevlar technology.

The appellate opinion noted that it was reversible error for Senior District Court Judge Robert E. Payne to exclude evidence Kolon wanted to introduce that DuPont had previously disclosed in litigation with DuPont’s former chief competitor – a company called AkzoNobel.  Essentially Kolon wanted to show the evidence to the jury in order to convince the jury that some of the information DuPont was claiming as a trade secret was NOT a trade secret because they had made the information public in the previous litigation.  But Judge Payne did not allow any of that evidence to come in, concluding it would confuse the jury and was of little value to the proceedings.  This was, according to the Fourth Circuit, abuse of discretion that required a reversal of the trial verdict: “With reluctance, we hold that the district court abused its discretion and acted arbitrarily in excluding, on the wholesale basis that it did, as irrelevant or insufficiently probative, evidence derived from the Akzo litigation.”  In other words, the “blanket exclusion” of Kolon’s evidence in its entirety doomed the trial and verdict.

In the same unpublished opinion, the Fourth Circuit directed on remand to the United States District Court for the Eastern District of Virginia that Judge Payne be replaced by another federal judge from that district.  Ironically it did so after holding that Kolon’s motion to disqualify Judge Payne was untimely.  Kolon’s disqualification motion was premised on the fact that Judge Payne was formerly a partner in the firm that has traditionally represented DuPont in these types of matters – the firm now known as McGuire Woods.  Despite the fact that the Court concluded the disqualification motion was untimely, the Court still directed a reassignment for a new trial between DuPont and Kolon.  Other than saying “we think it prudent” the Fourth Circuit did not explain its reassignment order.