Agreements May Not Always Protect Against Post-Employment Competition

By Koga Moffor and Michael Warner July 20, 2021
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Signing Official Document

A former employee's patent applications containing methods and trade secrets obtained during his employment may breach confidentiality obligations in an agreement with his former employer. But they did not violate a provision in the agreement that required him to disclose inventions created during or immediately following employment with that employer, the 1st U.S. Circuit Court of Appeals ruled.

In December 2009, the defendant began working for Covidien, a global health care company that had acquired his former employer. Once Covidien hired the defendant, he signed an employment agreement that provided, among other things, that he would not disclose Covidien's confidential information, would disclose to Covidien all inventions that he created during his employment and within a year after leaving Covidien, and that such inventions would be the exclusive property of Covidien.

Covidien terminated the defendant's employment in 2013, and he signed a separation agreement that also incorporated the provisions from the employment agreement regarding trade secrets and inventions. The defendant founded his own medical devices company in 2014 and filed patents which Covidien believed breached the employment and separation agreements previously signed by the defendant. Covidien sued the defendant, seeking declaratory judgment and injunction requiring the defendant to assign his rights, title and interest in the patent applications to Covidien.

At trial, the jury found the defendant breached his duty of confidentiality but had not breached his duty to disclose any inventions under his agreements with Covidien. The jury awarded Covidien damages of $794,892 for the breach of confidentiality. In response to this jury verdict, Covidien asked the court to order the defendant to assign to Covidien any inventions described in his patent applications. The district court declined to do so, and Covidien appealed.

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In its review of the district court verdict, the court of appeals considered whether the verdict form and jury instructions amounted to reversible error, and whether the verdict declaring that the defendant did not fail to disclose any inventions was inconsistent with the jury's finding that he had breached confidentiality.

On both considerations, the appeals court affirmed the decision of the district court, holding that the jury instructions and verdict form were clear. The jury's determination that there was no breach of the duty to disclose inventions unequivocally meant that the jury found there were no inventions as contemplated under the employment agreement the defendant signed with Covidien.

Covidien v. Esch, 1st Cir., No. 20-1515 (April 8, 2021).

Professional Pointer: This decision emphasizes the importance of having thorough and comprehensive intellectual property and confidentiality protections in employment and separation agreements. "Inventions," "trade secrets" and "confidential information" often overlap, but as the jury recognized these terms are not identical, so employers should ensure that agreements are carefully drafted to maximize protection of all types of employer intellectual property.

Koga Moffor and Michael Warner are attorneys with Franczek PC, the Worklaw® Network member firm in Chicago. 

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