One size does not fit all: protecting trade secrets when drafting employment agreements

Intellectual Property and Technology News

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When companies form legal strategies to protect their IP assets and trade secrets, employment agreements are an essential part of the overall structure. Today’s work force is increasingly specialized, and companies extend across jurisdictions with different laws. In this competitive, potentially litigious environment, companies should consider customizing employment agreements for each position, and in some cases, for each individual employee, especially those in executive and leadership roles.

Mattel v. MGA

The high-profile case Mattel, Inc. v. MGA Entertainment, Inc. underscores the need for customization. Toy designer Carter Bryant signed an employment agreement with Mattel, agreeing to communicate and assign all “inventions,” which was defined as all “discoveries, improvements, processes, developments, designs, know-how, data computer programs, and formulae.”1 Interestingly, artistic and copyrightable works were not included, although Bryant was hired to create such works for Mattel.

Bryant left Mattel in October 2000, but began showing drawings for a potential line of dolls, the Bratz, to competitors in August 2000. Shortly thereafter, MGA hired Bryant and began selling Bratz. Mattel sued MGA, alleging ownership of the drawings and doll designs for the Bratz line by virtue of Bryant’s employment agreement.2 The district court found the agreement was sufficient to transfer Bryant’s interest in the Bratz line to Mattel.3 On appeal, the Ninth Circuit vacated the award and remanded the case for a new trial, consistent with instructions that the term “inventions” did not appear to cover copyrightable works, such as the drawings and dolls.4 After almost ten years of litigation, on remand the district court found that the employment agreement did not transfer the Bratz line to Mattel, and MGA became the victor.

Bimbo Bakeries v. Botticella

Bimbo Bakeries v. Botticella illustrates how an employment agreement customized to an employee’s duties can save a company from having its highly confidential and proprietary information land in the hands of a competitor. As Bimbo Bakeries’ vice president of operations, Chris Botticella had acquired “a broad range of confidential information about Bimbo,” including the secret process for creating Thomas’ English Muffins.5

In autumn 2009, Botticella accepted an offer from Hostess to become a vice president, but he remained at Bimbo until January 2010. During that period, he continued accessing Bimbo’s confidential and proprietary information. When Bimbo learned of the Hostess offer, it moved for a preliminary injunction to enjoin Botticella from joining Hostess and from divulging any confidential or proprietary information. In support of its case, Bimbo offered Botticella’s agreement, which stated he would not disclose Bimbo’s confidential or proprietary information, and upon ceasing employment he would return every document he had received from Bimbo.6 In large part because of the comprehensive employment agreement, the district court granted the injunction against him, and it was upheld by the Third Circuit.7

Strategies for drafting agreements

Matters covered by an employment agreement are of the highest importance. The Bryant agreement appears to have been directed toward engineers and scientists, rather than creative personnel, whereas the Botticella agreement was specifically tailored to his position as an executive with access to high-level trade secrets. Because Bimbo customized Botticella’s employment agreement to his particular position, it was easier to prevent his move to a competitor and any potential disclosure of trade secrets.

In short, customization of an employment agreement to match an employee’s responsibilities and access to proprietary information can be the difference between an immediate injunction and lengthy, fruitless litigation.

Governing law is an essential component of any employment agreement. Currently, 19 states have enacted statutes governing covenants not to compete, often integral to employment agreements. Most states enforce such agreements under common law. Pennsylvania, for example, follows the inevitable disclosure doctrine (addressed in Bimbo Bakeries), essentially providing that a former employee can be enjoined from taking a position with a competing company if disclosure of the former company’s trade secrets will be inevitable in the new position. California, in contrast, continues to reject the inevitable disclosure doctrine and requires a showing of actual or threatened misappropriation or breach of contract. If a company resides in several jurisdictions, it should consider choice of law provisions in its employment agreements.

When drafting employment agreements, customization is the key to greater predictability. Take into account the type of work the employee is hired to perform, the information the employee may access and the IP the employee may generate. It is also important to examine jurisdictional considerations, such as the state where the company resides, the state where the employee resides and the state where the work will primarily be performed. In balance, customization can provide more certainty, and, should a dispute arise, it can have a significant impact on the outcome.

For more information about customizing employment agreements, please contact Darius C. Gambino. 

 


1     Mattel, Inc. v. MGA Entm’t, Inc., No. CV 04-9049 (Bryant v. Mattel), slip op. at 5 (C.D. Cal. Dec. 27, 2010).

2     Mattel, Inc. v. MGA Entm’t, Inc., 616 F.3d 904, 907 (9th Cir. 2010).

3     Id. at 908.

4     Id. at 917.

5     Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 105 (3d Cir. 2010).

6     Id.

7     Id. at 119.