Stryking Noncompete Preliminary Injunction
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The US Court of Appeals for the Sixth Circuit upheld a district court's grant of a preliminary injunction restricting a former employee from working for conflicting organizations or communicating with a competitor's counsel. Stryker Emp. Co., LLC v. Abbas, Case No. 22-1563 (6th Cir. Feb. 16, 2023) (Clay, Bush, JJ.; Sutton, C.J.) The Court found that the preliminary injunction was an appropriate measure to protect the plaintiff's confidential information that was consistent with the employee's noncompete agreement.
Stryker develops and manufactures spinal implants and related medical products. From 2013 through mid-2022, Stryker employed Abbas in various roles relating to finance and sales. As part of his job duties, Abbas led sales and finance projects, assisted with Stryker's litigation efforts, and cultivated relationships with customers, distributors and sales representatives. These responsibilities required Abbas to have access to Stryker's confidential information and trade secrets.
In April 2022, Abbas entered into a confidentiality, noncompetition and nonsolicitation agreement with Stryker. This agreement prohibited Abbas from disclosing Stryker's confidential information without its consent and barred Abbas from working for "any Conflicting Organization" in which Abbas could use Stryker's confidential information to boost the marketability of a "Conflicting Product or Service." The noncompete provision was time limited to one year following Abbas's departure from Stryker.
In summer 2021, a competing spinal implant manufacturer, Alphatec, began recruiting Abbas for a finance position. After determining that the finance position was too similar to Abbas's previous work at Stryker, Alphatec created a new "sales role" that was allegedly "crafted to protect Stryker's confidential information." Abbas resigned from Stryker in May 2022 to take the newly created role.
Shortly after Abbas resigned, Stryker sued for breach of contract, misappropriation of trade secrets and violation of the Michigan Uniform Trade Secrets Act. Stryker also requested a no-notice temporary restraining order (TRO) and preliminary and permanent injunctions. The district court granted Stryker's motion for preliminary injunction prohibiting Abbas from the following:
- Working in any capacity for Alphatec or any "Conflicting Organization"
- Having any ex parte communications with Alphatec's counsel or otherwise disclosing information concerning Stryker's litigation strategies.
Abbas appealed, arguing that the noncompetition portion of the preliminary injunction amounted to an industry-wide ban and that the communication portion impermissibly disqualified counsel.
The Noncompetition Provision
The Sixth Circuit first noted that federal law, rather than state law, defines a court's power to issue a noncompetition restriction in a preliminary injunction. Under federal law, courts have discretion to craft preliminary injunctions based on the equities of a case and can even "proscribe activities that, standing alone, would have been unassailable." Applying this standard, the Sixth Circuit reasoned that the preliminary injunction was not overly broad but instead preserved the status quo. First, the district court found that Abbas often worked beyond the scope of his position. Second, the district court agreed to entertain a motion to vacate the injunction if Alphatec created a new position for Abbas that Stryker found acceptable. Third, the injunction merely sought to enforce the noncompetition agreement, which precluded Abbas from working for a competitor if the work was likely to result in the use of Stryker's confidential information, or if the role would overlap with his previous job responsibilities. Because the injunction was consistent with the agreement and the district court was agreeable to modifying the order, the Sixth Circuit found no abuse of discretion.
The Communication Provision
The Sixth Circuit similarly concluded that the district court had not abused its discretion in prohibiting Abbas from communicating with Alphatec's counsel. Stryker was involved in three other cases against Alphatec concerning former Stryker employees, and the district court found that Abbas "was privy to confidential information that if disclosed to Alphatec or Alphatec's counsel, would detrimentally affect Stryker" in its other actions. The Court thus concluded that the communication prohibition was an appropriate measure to protect Stryker's confidential information.
The Preliminary Injunction Factors
While Abbas did not directly address the four factors governing preliminary injunctive relief in his appeal, the Sixth Circuit did so, briefly noting the following:
- Stryker was likely to prevail on its breach of contract claim because of the scope of Abbas's job duties and his access to confidential information.
- Stryker faced a threat of irreparable injury in the form of lost goodwill and competitive losses.
- The equities favored Stryker, as Stryker was simply asking for its contract to be enforced.
- The public interest lies in enforcing written contracts.
Practice Note: In January 2023, the Federal Trade Commission proposed a ban on noncompete clauses, which it views as unfairly inhibiting employees' ability to seek new employment opportunities. Stryker underscores the power of noncompetition agreements coupled with injunctive relief to prevent the misuse of confidential information before irreparable harm has been done. If the proposed ban is enacted, employers will only be able to seek redress for harm after the fact through trade secret litigation.
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