Articles

Restrictive Covenants, Trade Secrets, and Fiduciary Duty Claims: Protecting Business Interests When An Employee Leaves - Part II 

b. The following durational restrictions have been held unreasonable:

(1) perpetual (no limitation) (Reading Aviation Services, Inc. v. Bertolet, 454 Pa. 488, 311 A.2d 628 (1973));

(2) twenty years, in sale of business (modified to ten years) (Westec Security Services, Inc. v. Westinghouse Electric Corporation, 538 F. Supp. 108 (E.D. Pa. 1982));

(3) ten years, in sale of insurance agency (modified to two years) (Alexander & Alexander, Inc. v. Drayton, 378 F. Supp. 824 (E.D. Pa. 1974), aff'd, 505 F.2d 729 (3d Cir. 1974));

(4) three years without geographic limitation

(In re Monaghan, 141 B.R. 80 (Bankr. E.D. Pa. 1982));

(5) three years (modified to two years) (Kramer v. Robec, Inc., 824 F. Supp. 508 (E.D. Pa. 1992));

(6) five years (reduced to two years and limited to customers) (Hess v. Gebhard & Co., Inc., 2001 Pa. Super. 65, 2001 WL 204253 (Pa. Super.));

(7) one year, without geographic limit (Peripheral Dynamics, Inc. v. Holdsworth, 254 Pa. Super. 310, 385 A.2d 1354 (1978) (sales manager of computer design); Gagliardi Brothers, Inc. v. Caputo, 538 F. Supp. 525, 529 (E.D. Pa. 1982) (corporate controller's one-year restriction bears no relationship to the protection of employer); Earthweb, Inc. v. Schlack, 71 F. Supp.2d 299 (S.D. N.Y. 1999) (one-year restriction is too long in internet information technology business), reversed in part on other grounds, 205 F.3d 1322 (2d Cir. 2000)).

(8) any restriction period that is inordinately longer than the time during which the employee was working in the position covered by the covenant. See Olympic Paper Co. v. Dubin Paper Co., 4384 October Term 2000, PICS No. 01-0040-22-00 (C.C.P. Philadelphia Co. 2000) (reducing one-year restriction to five months where employee worked for only six months).

5. The covenant must be reasonable in geographic scope

a. General

(1) The geographic scope of the covenant must not be broader than the area that is necessary to protect the employer's business. See Admiral Services, Inc. v. Drebit, 1995 WL 134812 (E.D. Pa. 1995).

(2) Therefore, courts may limit the geographic scope of a covenant to the territory actually served by the employee. See, e.g., Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250 (1976); Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965). If an employer claims too broad a territory, the court may also refuse to enforce the covenant. This was the case in Martin Industrial Supply Corp. v. Riffert, 366 Pa. Super. 89, 530 A.2d 906 (1987) and in Peripheral Dynamics, Inc. v. Holdsworth, 254 Pa. Super. 310, 385 A.2d 1354 (1978), where the employer sought to enforce the covenant everywhere except "Tibet and the North Pole."

(3) The court may also enforce a covenant without a geographic restriction by limiting the restriction to serving customers actually served by the ex-employee (Blair Design and Construction Co., Inc. v. Kalimon, 366 Pa. Super. 194, 530 A.2d 1357 (1987)), or those customers known to the employee (Diversey Lever, Inc. v. Hammond, 1997 WL 28711 (E.D. Pa. 1997), aff'd, 116 F.3d 467 (3d Cir. 1997)), or customers who were in existence at the time of the employee's departure (see, e.g., Hess v. Gebhard & Co., Inc., 2001 Pa. Super. 65, 2001 WL 204253 (Pa. Super.)).

b. Geographic restrictions upheld as reasonable include the following:

(1) North America, for a newspaper mailroom equipment manufacturer (Graphic Management Associates, Inc. v. Hatt, 1998 WL 159035 (E.D. Pa. 1998));

(2) the United States, for an internet sales and marketing manager (National Business Services, Inc. v. Wright, 2 F. Supp.2d 701 (E.D. Pa. 1998)), and for a computer network developer (Kramer v. Robec, Inc., 824 F. Supp. 508 (E.D. Pa. 1992));

(3) Eastern and Central Pennsylvania outside the Philadelphia area, most of Maryland, and Eastern Virginia (reduced from a broader area), for a paper salesman (Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250 (1976));

(4) Pennsylvania (reduced from Pennsylvania, Delaware, and New Jersey) (Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 206 A.2d 59 (1965));

(5) Central and Western Maryland (Worldwide Auditing Services, Inc. v. Richter, 402 Pa. Super. 584, 587 A.2d 772 (1991));

(6) 75 miles, for an employment agency representative (Robert Clifton Associates, Inc. v. O'Connor, 338 Pa. Super. 246, 487 A.2d 947 (1985));

(7) a 50-mile radius from Philadelphia, for a temporary employment agency (Bettinger v. Carl Berke Association, Inc., 455 Pa. 100, 314 A.2d 296 (1974));

(8) a 50-mile radius from the office in which a salesperson was employed (reduced from a 50-mile radius around any sales office of the employer) (Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 207 A.2d 768 (1965)); and

(9) one (1) mile for a beauty salon employee (Seligman and Latz of Pittsburgh, Inc. v. Vernillo, 382 Pa. 161, 114 A.2d 672 (1955)).

c. Geographic restrictions held unreasonable include the following:

(1) worldwide, for a computer design salesman (Peripheral Dynamics, Inc. v. Holdsworth, 254 Pa. Super. 310, 385 A.2d 1354 (1978));

(2) an area bounded by Boston, Pittsburgh, and Richmond, VA, for a paper salesman (Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250 (1976));

(3) 100 miles, for a window sales representative (Thermo-Guard, Inc. v. Cochran, 408 Pa. Super. 54, 596 A.2d 188 (1991));

(4) 50 miles from any office of the employer, as opposed to 50 miles from the office in which the salesperson worked (Albee Homes, Inc. v. Caddie Homes, Inc., supra).

6. Enforcement should not follow an employee's discharge for no fault of the employee or the employee's forced retirement

a. Discharge

(1) For poor job performance - An employer who discharges an employee for failure to increase sales to the employer's requirements may not then enforce a restrictive covenant against the employee. See Insulation Corp. of America v. Brobston, 446 Pa. Super. 520, 667 A.2d 729 (1995), in which the Pennsylvania Superior Court held that the employer, having deemed the employee to be "worthless," could not restrict the ex-employee's activity; Labor Ready, Inc. v. Trojan Labor, No. 3264 December 2000 PICS No. 00-0261-22-00 (C.C.P. Philadelphia Co. 2001) ("when no trade secrets are at issue, an employer may not enforce a restrictive covenant against an employee fired for poor performance"). But see Hess v. Gebhard & Co., Inc., 2001 Pa. Super. 65, 2001 WL 202453 (Pa. Super.), in which the Superior Court enforced a restrictive covenant against an employee who lost his job after a corporate transfer but rejected the transferee corporation's offer of a different job.

(2) For economic reasons - In Insulation Corp. of America v. Brobston, supra, 667 A.2d at 735 n. 12, the Superior Court said that an employer could not enforce a restrictive covenant against an employee terminated for economic reasons.

(3) For misconduct - Courts will enforce a restrictive covenant against an employee discharged for misconduct (DeMuth v. Miller, 438 Pa. Super. 437, 652 A.2d 891 (1995), appeal denied, 542 Pa. 634, 665 A.2d 469 (1995) (employee violated employer's prohibition against "homosexuality")).

b. Forced retirement - In Miller v. McNees, Wallace and Nurick, 118 Dauphin Co. L.R. 1 (1997), the Court of Common Pleas of Dauphin County invalidated a restrictive covenant that forfeited a retiring lawyer's pension payments if the lawyer competed after mandatory retirement at the age of 70. The Court held that the forced retirement was tantamount to a termination, and relied on Insulation Corp. of America v. Brobston, supra, in refusing to uphold the covenant.

F. Restrictive Covenants in Selected Professions

1. Medicine and Dentistry

Pennsylvania courts are willing to uphold restrictive covenants in the medical profession, unless enforcement will restrict the public's access to medical professionals, since public policy favors access to doctors. In deciding whether or not to enforce a restrictive covenant, courts will consider whether the area covered by the covenant has a shortage or a surplus of doctors. See, e.g., New Castle Orthopedic Associates v. Burns, 481 Pa. 460, 392 A.2d 1383, 1387 (1978). A complicating factor is that many restrictive employment covenants in the medical profession also arise from sale of a medical practice as a business. Restrictive covenants in the sale of a business are subject to less stringent scrutiny than restrictive employment covenants. See Geisinger Clinic v. DiCuccio, 414 Pa. Super. 85, 606 A.2d 509, 518 (1992).

a. Restrictions enforced

(1) a five-year restrictive covenant, keyed to prior practice sites, against an oncologist/hematologist; employment agreement entered into as part of sale of practice (West Penn Specialty MSO, Inc. v. Nolan, 737 A.2d 295 (Pa. Super. 1999)). The Superior Court looked to the availability of medical care in the affected area, citing New Castle Orthopedic Associates v. Burns, supra, and found an adequate supply of oncologists in the relevant service area. The Court rejected the doctor's argument that the public interest encompassed a particular patient's interest in continued care with a particular physician. The Court found significant harm in the fact that 125 patients had followed the defendant to the defendant's new employer. Because patient attrition could not be measured with certainty, the Court found that the plaintiff had suffered irreparable harm. 737 A.2d at 299.

(2) a two-year, fifty-mile restrictive covenant; employment agreement entered into as part of sale of practice (Geisinger Clinic v. DiCuccio, 414 Pa. Super. 85, 606 A.2d 509 (1992)). The courts enforced a liquidated damage clause triggered by the breach of the restrictive covenant.

b. Restrictions not enforced

(1) a county-wide, two-year ban on practice by an orthopedic surgeon (New Castle Orthopedic Associates v. Burns, 481 Pa. 460, 392 A.2d 1383, (1978)). The Supreme Court noted that the plaintiff's practice had not suffered irreparable harm from the competition, because there was no showing that the defendant had stolen patients, taken patient lists, or that plaintiff had lost patients or income. 392 A.2d at 1386-87. In fact, there was a shortage of orthopedic specialists in the area. "This is quite unlike the normal commercial situation in which there are only a limited number of prospective clients and the alleged breach significantly affects the share of the former employer. Here, the potential pool of clients far exceeds the [plaintiff's] ability to serve them." New Castle Orthopedic Associates v. Burns, 392 A.2d at 1387.

(2) a three-year, fifteen-mile restriction for a radiologist (Herman v. Dixon, 393 Pa. 33, 141 A.2d 576 (1958)).

(3) a two-year, hospital-specific restrictive covenant for an ear/nose/throat specialist (Philadelphia Ear, Nose and Throat Surgical Associates, P.C. v. Roth, 44 Pa. D. & C.4^th 427 (C.C.P. Philadelphia Co. 2000)).

(4) a one-year, two-mile restrictive covenant for a pediatrician, although the Court prevented the pediatrician from soliciting (but allowed acceptance of) former patients. Einstein Community Health Associates, Inc. v. Shortridge, No. 1814 Nov. Term 2000, PICS No. 01-0183-22-00 (C.C.P. Philadelphia Co. 2001). The Court noted that the ex-employer itself had an affiliated office within the prohibited two-mile radius.

2. Law

a. Rule 5.6 prohibits post-employment restrictions on a lawyer's right to practice, except in the case of an agreement concerning benefits on the lawyer's retirement. Among the divergent decisions on Rule 5.6 in recent years are the following:

(1) Miller v. McNees, Wallace and Nurick, 118 Dauphin Co. L.R. 1 (1997), in which the Court of Common Pleas of Dauphin County invalidated a restrictive covenant which had no geographic limit, and which forfeited pension rights of lawyers who competed after forced retirement at age 70. The Court equated forced retirement to termination, and held that the covenant effectively prohibited the lawyer from practicing law and was unreasonable and against public policy, although the covenant complied with Rule 5.6.

(2) Thomas Lowry, P.C. v. Vaughan, 34 Pa. D. & C.4^th 164 (Montg. Co. 1997), rev'd w/o reported opinion, Lowry v. Vaughan, 726 A.2d 420 (Pa. Super. 1998), in which the Court of Common Pleas of Montgomery County enforced a 12-month restriction against soliciting or accepting work from specified clients against a departing lawyer. The Court of Common Pleas held that the agreement did not restrict the attorney's right to practice law, and therefore did not violate Rule 5.6. The Pennsylvania Superior Court reversed because of an arbitration/ mediation clause.

(3) New Jersey appellate courts have generally invalidated forfeiture provisions in attorney shareholder agreements, most recently in Apfel v. Budd Larner Gross Rosenbaum Greenberg & Sade, 324 N.J. Super. 133, 734 A.2d 808 (1999). The Apfel case contains a discussion of other key New Jersey appellate decisions.

b. Rule 1.9 - In The Hyman Companies, Inc. v. Brozost, 964 F. Supp. 168 (E.D. Pa. 1997), the court enjoined a lawyer from using confidential information acquired while serving a former employer, in the absence of a restrictive covenant.

3. Accounting

a. The courts upheld a two-year restriction in Worldwide Auditing Services, Inc. v. Richter, 402 Pa. Super. 584, 587 A.2d 772 (1991).

b. In a trade secret case, with no restrictive covenant, the courts refused to enjoin a former accountant for a trucking brokerage business from setting up a competitive truck brokerage business. The Superior Court said that the accountant's expertise in setting up books, compiling reports, dealing with banks, and using publicly available information, did not constitute a betrayal of confidences proscribed by the CPA Law, 63 P.S. § 9.11. Agra Enterprises, Inc. v. Brunozzi, 302 Pa. Super. 166, 448 A.2d 579 (1987).

4. Interests of clients and patients

a. Clients' or patients' interest in continuing service with a professional does not necessarily prompt courts to invalidate a restrictive covenant. Compare Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 18, 607 A.2d 142 (1992) (invalidating the restriction because of interference with the client's wishes) and Thomas Lowry, P.C. v. Vaughan, 34 Pa. D. & C.4^th 164 (Montg. Co. 1997), rev'd w/o reported opinion, 725 A.2d 460 (Pa. Super. 1998) (reaching the opposite result). In West Penn Specialty MSO, Inc. v. Nolan, 737 A.2d 295 (1999), the Court of Common Pleas enjoined the individual doctor from servicing patients who wished to treat with her, but allowed other members of her practice group to treat these patients.

b. In Frank Russell Co. v. Wellington Management Co., LLP, 154 F.3d 97 (3d Cir. 1998), the Third Circuit reversed an injunction granted to former clients of an investment management firm who wished to move their accounts to a departing investment advisor. The Court rejected claims that the enforcement of the non-compete violated the Employee Retirement Income Security Act and the Investment Advisors Act.

G. Restrictive Covenants in the New Economy

1. Duration of restrictive covenant

a. In Earthweb, Inc. v. Schlack, 71 F. Supp.2d 299 (S.D. N.Y. 1999), the United States District Court refused to enforce a one-year restrictive covenant against work for on-line reference services or on-line stores distributing third party software or products. The Court held that the employee had not violated the restrictive covenant, noting that the plaintiff and the defendant's new employer produced different products. The plaintiff provided online products and services of third parties to business professionals in the information technology industry, and the defendant's new employer published online publications containing news, product information and opinion. The Court also held that the one-year duration of the restriction was too long "given the dynamic nature of this industry, its lack of geographical borders, and the daily changes in content on the Internet." 71 F. Supp.2d 299, 312. The Second Circuit reversed the District Court's holding and remanded on only one issue - the failure to address the confidentiality clause in the employment agreement. Earthweb, Inc. v. Schlack, 205 F.3d 1322, 2000 WL 232057 (2d Cir. 2000). The District Court then found no breach of the confidentiality provisions, and the Second Circuit affirmed. Earthweb, Inc. v. Schlack, 2000 WL 1093320 (2d Cir. 2000)

b. A one-year restriction was upheld for an internet sales manager in National Business Services, Inc. v. Wright, 2 F. Supp.2d 701 (E.D. Pa. 1998).

2. Geographical restrictions - Nationwide restrictions have been upheld in Ciena Corp. v. Jarrard, 203 F.3d 312 (4^th Cir. 2000) (against a salesperson for a fiber-optic technology company) and in National Business Services, Inc. v. Wright, supra.

II. NON-CONTRACTUAL PROTECTIONS

A. Introduction

In the absence of a restrictive covenant, an at-will employee is free to leave employment at any time, and to compete with a former employer, so long as the employee does not misuse trade secrets, engage in fraud, solicit customers while still employed, or otherwise breach the duty of loyalty. The employee may even take steps to prepare to compete before leaving, e.g., by incorporating, obtaining bank financing, or signing leases. See Spring Steels, Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370 (1960). Generally, an employee may use the experience, general knowledge, memory, and skill acquired during tenure in a particular field. Mettler Toledo, Inc. v. Acker, 908 F. Supp. 240 (M.D. Pa. 1995); Diversey Lever, Inc. v. Hammond, 1997 WL 28711 (E.D. Pa. 1997), aff'd, 116 F.3d 467 (3d Cir. 1997).

B. Trade Secrets

1. Definitions

a. Pennsylvania courts have historically applied the definition of "trade secret" from Restatement of Torts, § 757, Comment b:

A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives . . . an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.

b. Recently, the Restatement of Unfair Competition, § 39, Comment d, has updated the definition of "trade secret", as follows:

A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form of embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers. (See § 42, Comment f). Although rights and trade secrets are normally asserted by businesses and other commercial enterprises, nonprofit entities such as charitable, educational, governmental, fraternal, and religious organizations can also claim trade secret protection for economically valuable information such as lists of prospective members or donors.

c. A trade secret need not be more than a slight mechanical advance over common knowledge and practice in the art. Anaconda Co. v. Metric Tool & Die Co., 485 F. Supp. 410, 422 (E.D. Pa. 1980).

d. Matters of public knowledge or general knowledge of the trade do not constitute trade secrets. See Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 86 A. 688 (1913).

e. Generally, an employee may use the experience, general knowledge, memory, and skill acquired during tenure in a particular field. Mettler Toledo, Inc. v. Acker, 908 F. Supp. 240 (M.D. Pa. 1995); Diversey Lever, Inc. v. Hammond, 1997 WL 28711 (E.D. Pa. 1997), aff'd, 116 F.3d 467 (3d Cir. 1997).

f. An employee's personal business contacts, even those made during service to an employer, do not constitute trade secrets of the employer. National Risk Management, Inc. v. Bramwell, 819 F. Supp. 417, 431 (E.D. Pa. 1993).

2. Sources of trade secret protection

a. An employee's duty not to disclose trade secrets may arise from either an express agreement, or from a confidential relationship between the employer and employee. Felmlee v. Lockett, 466 Pa. 1, 351 A.2d 273 (1976); Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957); Macbeth-Evans Glass Co. v. Schnelbach, supra.

b. An express contract, however, can provide added trade secret protection, and will also document the confidentiality of certain information. See, e.g., Bell Fuel Corp. v. Cattolico, 375 Pa. Super. 238, 544 A.2d 450 (1988), appeal denied, 520 Pa. 612, 554, A.2d 505 (1989); Merrill, Lynch, Pierce, Fenner and Smith, Inc. v. Napolitano, 85 F. Supp.2d 491, (E.D. Pa. 2000) (agreement to give trade secret status to customer information).

c. An attorney-client relationship can provide the necessary confidentiality to establish trade secret protection, even for items within the public's knowledge. The Hyman Companies, Inc. v. Brozost, 964 F. Supp. 168 (E.D. Pa. 1997).

i. In The Hyman Companies, Inc. v. Brozost, supra, the United States District Court for the Eastern District of Pennsylvania enjoined a corporation's in-house real estate lawyer from using confidential business information acquired while serving as general counsel to a former employer in the same highly competitive costume jewelry business.

ii. The lawyer was not subject to a restrictive covenant and the Court did not prohibit the lawyer from working for the new employer or using his general knowledge of the industry. 964 F. Supp. at 174.

iii. The Court held that the lawyer's activity in pursuing the same shopping center leases as the former employer violated R.P.C. 1.9(a), which provides that

"A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client...."

964 F. Supp. at 172.

iv. The District Court preliminarily enjoined the lawyer from handling any lease negotiations on which the lawyer worked for his previous employer; from handling any negotiation for any retail space that the past and present employers were competing for; and from disclosing any information regarding his former employer's retail leases. 964 F. Supp. at 175. In granting a permanent injunction, the Court expanded the relief to prohibit the lawyer from handling lease negotiations for retail space within a mall or other area where the former employer occupied space and wanted to continue occupying the space. The Hyman Companies, Inc. v. Brozost, 119 F. Supp.2d 499 (E.D. Pa. 2000).

3. Subjects of trade secret protectio

a. Customer information

(1) Confidential customer lists or information are protectible trade secrets; the employer must show that the information is not publicly available, and that the employer invested a material amount of time and money in developing the information. Courts have applied these principles to protect the following customer information:

(a) route salesman/collector's customer information, even if used by memory with new employer (Morgan's Home Equipment Corp. v. Martucci, 390 Pa. 618, 136 A.2d 838 (1957)).

(b) security alarm firm's information about customers' businesses (Robinson Electric Supervisory Co. v. Johnson, 397 Pa. 268, 154 A.2d 494 (1959)).

(c) a dental firm's patient list (In re Phoenix Dental Systems, Inc., 144 B. R. 22 (Bankr. W.D. Pa. 1992). The Court held that the patients' names were not ascertainable from an outside service; were the firm's most valuable asset; and were developed through efforts of the firm at the firm's place of business and with the firm's equipment. The Court allowed the dentist to retain personal friends and relatives as patients but prevented the dentist from access to any other patients (even those generated by his own contacts and efforts) because the patients came to the dentist as a result of the firm's facilities and services

(d) an insurance agency's information on policy renewals (Alexander & Alexander, Inc. v. Drayton, 378 F. Supp. 824 (E.D. Pa. 1974), aff'd, 505 F.2d 729 (3d Cir. 1974)).

(e) an insurance firm's customer directory including customer data, charges, and renewal dates (A. M. Skier Agency, Inc. v. Gold, 747 A.2d 936 (Pa. Super. 2000)).

(f) a law firm's client list (Law Offices of Peter G. Angelos v. Forcina, No. 17779 (Del. Ch. 2000)).

(2) Customer lists or information are not protectible trade secrets if the information is widely known or readily ascertainable from an independent source, or from the employee's own efforts. Therefore, courts have refused to protect the following customer information:

(a) route listings in the dairy business (Carl A. Colteryahn Dairy, Inc. v. Schneider Dairy, 415 Pa. 276, 203 A.2d 469 (1964)).

(b) names and styling preferences memorized by hairdresser (Renee Beauty Salons v. Blose-Venable, 438 Pa. Super. 601, 652 A.2d 1345 (1995)).

(c) a list of agricultural customers of trucking firms, widely known throughout the industry (Agra Enterprises, Inc. v. Brunozzi, 302 Pa. Super. 166, 448 A.2d 579 (1982)).

(d) list compiled on salesman's own, largely through trade journals and telephone directories (Spring Steels, Inc. v. Molloy, 400 Pa. 354, 162 A.2d 370 (1960)).

(e) a list of hiring contacts at law firms, which could be compiled simply by calling the firms. (Robert Half of PA, Inc. v. Feight, 48 Pa. D. & C.4^th 129, 155 (C.C.P. Philadelphia Co. 2000)).

(3) An employee who brings customers to a business from a firm that the employee owned may have the freedom to later leave the business with those same customers. See, e.g., Fidelity Fund, Inc. v. DiSanto, 347 Pa. Super. 112, 500 A.2d 431 (1985); but see Merrill, Lynch, Pierce, Fenner and Smith, Inc. v. Napolitano, 85 F. Supp.2d 491 (E.D. Pa. 2000) (employee may contractually "give up" customers); and A. M. Skier Agency, Inc. v. Gold, 747 A.2d 936 (Pa. Super. 2000) (employee cannot bring new customers to business if a mere employee subject to non-compete in earlier firm).

b. Financial or price information

(1) Information on a potential acquisition is protectible, particularly under the terms of a confidentiality agreement (Den-Tal-EZ, Inc. v. Siemens Capital Corp., 389 Pa. Super. 219, 566 A.2d 1214 (1989));

(2) By contrast, a publicly available price list is not protectible (Tyson Metal Products, Inc. v. McCann, 376 Pa. Super. 461, 546 A.2d 119 (1988)). Nor is price information that could be obtained readily from customers. Olympic Paper Co. v. Dubin Paper Co., No. 4354 October Term 2000, PICS No. 01-0040-22-00 (C.C.P. Philadelphia Co. 2000).

(3) A corporate counsel's information on store leases, renewals, profitability, and plans for expansion were protected in The Hyman Companies, Inc. v. Brozost, 964 F. Supp. 168 (E.D. Pa. 1997).

c. Product preparation information - Courts have protected the following items:

(1) recipes (Christopher M's Hand Poured Fudge, Inc. v. Hennon, 699 A.2d 1272 (Pa. Super. 1997); Sweetzel, Inc. v. Hawk Hill Cookies, Inc., 1995 WL 550585 (E.D. Pa. 1995));

(2) packaging methods (Uncle B's Bakery, Inc. v. O'Rourke, 920 F. Supp. 1405 (N.D. Ia. 1996));

(3) machine adjustments for producing chicken parts (West Mountain Poultry Co. v. Gress, 309 Pa. Super. 361, 365, 455 A.2d 651, 652-53 (1982)).

d. Technical information - Courts have protected the following information:

(1) product or system design (Ogontz Controls Co. v. Pirkle, 346 Pa. Super. 253, 499 A.2d 593 (1985); SI Handling Systems, Inc. v. Heisley, 753 F.2d 1244 (3d Cir. 1985), on remand, 658 F. Supp. 362 (E.D. Pa. 1986)). A design of a structure or product item that is in public view and subject to reverse engineering is not entitled to trade secret status. United Products Corp. v. Transtech Manufacturing, Inc., No. 4051 August 2000, PICS No. 00-2212-22-00, p. 25 (Philadelphia Co. 2000).

(2) computer programs (Computer Print Systems, Inc. v. Lewis, 281 Pa. Super. 240, 422 A.2d 148 (1980)).

(3) broad technical and marketing knowledge (Air Products and Chemicals, Inc. v. Johnson, 296 Pa. Super. 405, 442 A.2d 1114 (1982)).

4. Factors determining trade secret status - The factors determining trade secret status tend to interlock. The courts have recognized the five following factors:

a. the extent to which the information is known outside of the owner's business (see, e.g., cases on customer lists, Section II, B, 3, a. above).

b. the extent to which the information is known by employees and others involved in the employer's business. Secrecy need not be absolute; information may be disclosed on a need-to-know basis without losing trade secret status (Greenberg v. Croydon Plastics Co., 378 F. Supp. 806 (E. D. Pa. 1974)).

c. the extent of measures taken by the owner to guard the secrecy of the information (See Greenberg v. Croydon Plastics Co., supra).

d. the value of the information to the owner and to competitors.

e. the amount of effort or money expended by the owner in developing the information (See, e.g. Christopher M's Hand Poured Fudge, Inc. v. Hennon, 699 A.2d 1272 (Pa. Super. 1997) ($140,000 to develop the fudge recipe)).

f. the ease or difficulty with which the information could be properly acquired by others.

5. Inevitable disclosure

a. The doctrine of "inevitable disclosure" may prohibit an ex-employee from working in a broad class of duties with a new employer if the ex-employee would inevitably disclose trade secrets of the former employer.

(1) Pennsylvania has applied the doctrine of "inevitable disclosure" in Air Products and Chemicals Company, Inc. v. Johnson, 296 Pa. Super. 405, 442 A.2d 1114, (1982) to prohibit an ex-Air Products employee from using broad-based knowledge of the marketing and technical aspects of on-site delivery of industrial gases. By contrast, in Oberg Industries, Inc. v. Finney, 382 Pa. Super. 525, 555 A.2d 1324, 1326 (1989), the Pennsylvania Superior Court refused to impose the "inevitable disclosure" rule on a non-technical employee.

(2) In Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7^th Cir. 1995), the 7^th Circuit used the doctrine of inevitable disclosure to enjoin a former Pepsico executive from working on matters related to the marketing, pricing, and distribution of beverages with his new employer.

(3) Application to the internet industry - In Earthweb, Inc. v. Schlack, 71 F. Supp.2d 299 (S.D. N.Y. 1999), the United States District Court refused to apply the doctrine of inevitable disclosure to prevent an employee from new employment with an internet company.

C. Breach of Fiduciary Duty Cases

1. The law of agency - Under Pennsylvania law, employees and many independent contractors are agents of the hiring entity. An agent owes a duty of loyalty to the principal (the employer or hiring entity) to act solely for the benefit of the principal in all matters connected with the agency.

a. In furtherance of this duty, the agent must disclose all actual or potential business opportunities to the principal during the term of the agency, and may not take personal advantage of such business opportunities. See Restatement (Second), Agency § 393 et seq.; SHV Coal, Inc. v. Continental Grain Co., 376 Pa. Super. 241, 545 A.2d 917 (1988), reversed in part on other grounds, 526 Pa. 489, 587 A.2d 702 (1991).

b. After the termination of the agency, an agent has a duty to the principal not to take advantage of a still subsisting confidential relation created during the prior agency. See Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 393 A.2d 1175 (1978).

c. An agent who is employed at will does not violate a fiduciary duty by preparing to compete while still employed. United Aircraft Corporation v. Boreen, 413 F. 2d 694, 700 (3d Cir. 1969).

2. Examples of fiduciary duty violations - A violation of an agent's fiduciary duty typically occurs when an agent is leaving for a new assignment, and diverts business from the former entity's client or customer to the benefit of the new employer. Specific examples include the following:

a. Diversion of a customer contract. See SHV Coal, Inc. v. Continental Grain Co., supra.

b. Solicitation of a firm's clients. See Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 482 Pa. 416, 393 A.2d 1175 (1978).

c. Solicitation of other employees in a conspiracy to divert business. See, e.g., Frederick Chusid & Co. v. Marshall Leeman & Co., 279 F. Supp. 913 (S.D. N.Y. 1968).

d. Deliberate provision of inferior products or service while working for an employer, resulting in a weakening of the employer's competitive position. The New L&N Sales and Marketing, Inc. v. Menaged, 1998 WL 575270, *7 (E.D. Pa. 1998).

e. Diversion of principal's funds and inventory and use of principal's employees to benefit agent's own business ventures. McDermott v. Party City Corp., 11 F. Supp.2d 612 (E.D. Pa. 1998).

f. Obtaining hidden commissions on business provided to employer's competitors, rather than to employer. Katz v. Food Sciences Corp., 2000 WL 1022986 (E. D. Pa. 2000).