IP Law Daily Preliminary injunction granted in part against former employee based on inevitable disclosure doctrine
Tuesday, June 5, 2018

Preliminary injunction granted in part against former employee based on inevitable disclosure doctrine

By Joseph Arshawsky, J.D.

Wheelchair and mobility company Invacare Corporation ("Invacare") was granted in part its request for a preliminary injunction against a former employee, and his new employer, Ki Mobility ("Ki"), according to a federal court in Cleveland. The court relied on the inevitable disclosure doctrine to supply the irreparable harm element, after finding likelihood of success on Invacare’s breach of contract claim (Invacare Corp. v. Nordquist, June 1, 2018, Gwin, J.).

Invacare and Ki both design, produce, and sell a wide variety of specialty wheelchairs and assistive seating devices. Both companies have the same three major customers–NuMotion, the Veterans Affairs Hospitals, and National Seating & Mobility (NSM). Those three customers form the clear majority of the market. On March 1, 2004, the employee and Invacare entered into a non-disclosure, non-competition, non-recruitment, and non-interference with customer relationships agreement. That agreement forbids the employee from disclosing any of Invacare’s confidential information. More important for this case, the agreement also prohibits the employee from working, consulting, or assisting any Invacare competitors for two years after his Invacare employment. Additionally, that agreement forbids the employee from "contact[ing] or do[ing] business with any customer or supplier of [Invacare] with respect to any" product that might compete with Invacare’s for the same two-year period. In September 2017, the employee quit Invacare and went to work for Ki, precipitating this lawsuit. Pending is Invacare’s motion for a preliminary injunction against its former employee and Ki requiring them to comply with the two-year non-competition agreement that the former employee signed during his Invacare employment. The court granted the motion in part, denied it in part, issuing an injunction that was narrower than requested.

Likelihood of success on the merits. Of Invacare’s claims for breach of contract, misappropriation of trade secrets, and tortious interference with contract, Invacare premised its preliminary injunction motion and evidence primarily on its breach of contract claim. The court found that Invacare’s likelihood of success on the breach of contract claim supports injunctive relief. Essentially, this agreement stops the former employee from working in the United States seating and mobility industry in any capacity for two years after his Invacare employment ends. Further, the agreement prohibits him from any "contact" with Invacare’s customers for two years. "Some of that contract’s restrictive covenants, however, do not appear reasonable. But the evidence shows that less burdensome restrictive covenants should be enforced." While some of the agreement’s terms are valid, others are overly broad. Therefore, the court enforced some, but not all, of the restrictive covenants.

The court examined the facts and circumstances of this case and found that the former employee "was intimately involved in the development, pricing, sale, and marketing of a subset of Invacare’s product lines." He also participated in weekly and monthly meetings where others discussed Invacare’s confidential plans, cost structures, and rollout schedules for future products. He also helped to develop and implement part of Invacare’s three-year product plan, which will be in place until 2020. The court found that the contract’s two-year time and national geographic limitations were reasonable. "Therefore, the Court finds that Invacare is likely to succeed in proving that a Court-fashioned restrictive covenant is necessary to the extent that it prevents [the former employee] from utilizing the confidential information he learned from his Invacare employment and prevents him from leveraging his Invacare customer relationships."

Irreparable harm. Even though Invacare provided no evidence that it lost any business or customer goodwill as a result of the former employee’s Ki employment, Invacare argued that it will suffer irreparable harm because of the inevitable disclosure doctrine, and the court agreed. The inevitable disclosure doctrine holds that a threat of irreparable harm "can be shown by facts establishing that an employee with detailed and comprehensive knowledge of an employer’s trade secrets and confidential information has begun employment with a competitor of the former employer in a position that is substantially similar to the position held during the former employment." The court was not impressed by the employee’s argument that his Ki regional sales manager position was not substantially similar to his role as an Invacare director of product management. Although these roles’ day-to-day activities may differ, all the information that the former employee gained in Invacare product management would be useful to him in selling Ki products. "This is so for two reasons. First, the products Nordquist sells at Ki Mobility directly compete with Invacare products that he developed. Second, Nordquist has the opportunity to interact with and sell to the same customers in both positions. Therefore, Nordquist’s Invacare and Ki Mobility roles appear substantially similar, and so the inevitable disclosure doctrine likely applies. The inevitable disclosure doctrine therefore establishes a threat of irreparable harm."

Neither factor of substantial harm to others or the public interest tilted the scales in favor of either party. Based on the likelihood of success and irreparable harm, the court issued an injunction.

Injunction. Ki could continue to employ Invacare’s former employee; however, he cannot work in product development for 18 months from the date of the order; no contact with customers for 12 months; no attendance at trade shows for 12 months; and the former employee was prohibited from disclosing confidential information pursuant to the contract.

This case is No. 1:18-cv-00062-JG.

Attorneys: David A. Posner (Baker & Hostetler LLP) for Invacare Corp. Jared B. Briant (Faegre Baker Daniels LLP) for Michael Nordquist.

Companies: Invacare Corp.

MainStory: TopStory TradeSecrets OhioNews

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