Fair Game: Picking Low-Hanging Fruit to Get an Unfair Leg Up on the Competition May Leave Business Owners With a Mouth Full of Worms.
Danielle M. Kruer
In tough economic times, competition can be fierce. Be advised, however, that tactics your business uses to gain an advantage over a competitor may result in huge legal bills and damages claims if the competitor fights back in court, accusing you or your employees of competing unfairly.
A recent example of this is a case pending in The United States District Court for the Western District of Virginia. That court has recently refused to dismiss a lawsuit between competing businesses in the case of AWP, Inc. v. Commonwealth Excavating, Inc. et al., (Jul. 24, 2013). The court decided that plaintiff AWP has sufficiently stated claims for civil conspiracy, statutory business conspiracy, misappropriation of trade secrets, and tortious interference with contract. I write about this case not because it is a particularly novel or noteworthy opinion, but to the contrary, because it exemplifies the typical facts (with some interesting twists), in the type of business litigation that is becoming all too common in today’s economy.
Shawn Watkins was at one time employed as a regional manager by AWP. Using the experience and knowledge he gained there, Watkins left his job to pursue the American dream and set up his own business, doing the same work as AWP and competing for AWP’s customers. AWP threatened to sue Watkins, but a settlement was reached between them that required Watkins to shut down his new venture and to never again compete with AWP.
Not content with dodging a bullet and avoiding being sued by AWP (at least for the moment), Watkins allegedly approached another of AWP’s direct competitors, defendant Commonwealth Excavating, Inc., and agreed essentially to sell everything he knew about AWP to Commonwealth Excavating for the princely sum of $45,000. AWP, learning about this new relationship, filed suit against Commonwealth Excavating, Inc. and its president, Ira Biggs.
AWP has claimed there were meetings between Watkins and Commonwealth Excavating where Watkins agreed to disclose AWP’s confidential information and trade secrets to help Commonwealth Excavating underbid AWP and secure business from AWP’s former and current customers. This, AWP claims, is a business conspiracy in part because Commonwealth Excavating knew that Watkins had misappropriated the information from AWP. The court has agreed that the facts as alleged support such claims. The court also concluded the conspiracy claim, along with a separate claim for tortious interference with business relations, was supported by allegations that Watkins and Commonwealth Excavating had approached at least four of AWP’s former customers, and that AWP suffered loss of business and profits as well damage to its reputation and goodwill.
Further, the court applied the definitions of “trade secret” and “misappropriation” found in the Virginia Uniform Trade Secrets Act. It determined that AWP had sufficiently pled that the “identities of its customers, particular needs and issues of its customers, and protocols and methodologies” were trade secrets where AWP had taken “reasonable” steps to maintain their secrecy. “Misappropriation” was alleged to the effect that Commonwealth Excavating knowingly acquired the trade secrets from Watkins who was under an agreement not to compete with AWP, and also because he acquired this information while still employed by AWP.
Whether starting a new business, leaving to work for a new employer in your field, or looking to attract new customers to an existing business, this case demonstrates that there are limits to what is fair game. If the facts asserted in the lawsuit are proved to be true, then Mr. Watkins tried to use the knowledge he gained in his employment with AWP to start his own competing business, but found himself quickly threatened with litigation. In violation of an ancient legal doctrine, Watkins and Commonwealth Excavating are now accused of being “too cute by half,” as Watkins attempted to avoid his contractual obligations to AWP and profit accordingly. Commonwealth Excavating is facing potentially significant legal bills because it could not resist the opportunity to get a leg up on its competition. Our experience lately is that these claims are becoming more common. The business that gains an unfair advantage by hiring a competitor’s former employee, directly or otherwise, however, is more likely than ever before to find itself defending an expensive lawsuit as other businesses find themselves in a daily struggle to survive.