Reference no: EM133450991

Case Study: An agent's fiduciary duty of loyalty to her principal ends the day the agency relationship ends, and thus the former agent may begin to compete with the former principal. Employers will often protect themselves from competition with their former employees by requiring their employees to sign agreements not to compete with the company after the employment relationship ends. Such agreements will be enforced in most states so long as they are "reasonable," which means so long as they are limited in time (three years or less, typically), and so long as there are sensible geographic boundaries to the noncompetition agreement.

Paul Rockham worked in marketing for Cloudberry for five years and ultimately became responsible for marketing of Cloudberry's franchises. As part of marketing, Cloudberry obtained raw market research data and used it to develop models of consumers' preferences to determine the product areas that were most successful in different geographic areas. Rockham's particular expertise was international marketing-that is, determining which products to sell in which foreign countries, based upon marketing strategies and advertising claims. As a member of worldwide, multifunctional teams at Cloudberry, just prior to leaving the company Rockham developed a confidential ten-year global marketing plan for Cloudberry's franchises.

When Rockham was hired by Cloudberry, he was offered stock options, as were all of the company's top management employees. As a condition for getting the options, Rockham was required to sign an agreement not to compete with Cloudberry for three years after leaving the company.

Rockham was offered the job of president of Red Mango, Inc., another frozen yogurt franchisor that competed directly with Cloudberry. Soon after Rockham joined Red Mango, Cloudberry brought an injunctive action against Rockham to enforce the covenant not to compete, claiming that Rockham's knowledge of how Cloudberry cross-indexed its market research (in order to be able to determine which products were most successful among which consumers in which countries) and how Cloudberry organized its area developers was confidential information and constituted a trade secret.

While the court hearing Cloudberry's case found that Rockham's agreement to the covenant not to compete was "entirely voluntary," the court also found that failing to agree would have required Rockham to give up the stock options. Rockham was also required to sign a confidentiality agreement when he was hired, as were all other Cloudberry employees, in which he agreed not to disclose any of Cloudberry's trade secrets or confidential information, particularly how it cross-indexed its market research. The trial court ruled in Rockham's favor, finding this was not confidential information and refusing to enforce the covenant not to compete.

Questions Presented:

(1) How should the court of appeals rule on Cloudberry's appeal?

(2) How would you advise someone like Rockham (in advance), who is being asked to sign a broad confidentiality agreement and covenant not to compete?

(3) How does a professional pivot or change their career in such a way to honor their covenant not to compete, but still move forward with their career goals.

(4) What ethical restraints should we have when drafting these documents? What limits have the courts placed on these agreements? (Do some case law research)