By: Brian Gauthier
In Orthofix, Inc. v. Hunter,[i] the Sixth Circuit reversed the United States District Court for the Northern District of Ohio holding that a non-disclosure provision (“NDP”) for confidential information does not only cover trade secrets but also that the District Court misinterpreted Texas law when it held the “NDP” to be unenforceable for lack of geographic limitations.[ii]
Orthofix, Inc. (“Orthofix”) brought a diversity suit against a former employee, Eric Hunter (“Hunter”).[iii] Orthofix hired Hunter in 2000 to sell bone growth stimulators.[iv] Over the course of his employment, Hunter was given confidential information, colloquially referred to as Orthofix’s “playbook,” which included customer lists, wholesale price information, sales data, staff contacts, physician schedules and preferences, and physicians prescribing habits.[v] Prior to resigning from Orthofix, Hunter provided the bulk of the “playbook,” as well as other personal and professional data to his new employer, DonJoy.[vi]
Orthofix sued Hunter for: (1) misappropriation of trade secrets under §1333.61 of the Ohio Revised Code;[vii] (2) breach of contract for violating the “NDP” and non-compete provisions of Hunter’s employment contract; and (3) tortious interference with Orthofix contracts when he provided DonJoy with the Orthofix “playbook.”[viii] Hunter filed a counterclaim for unpaid commissions. Surprisingly, the district court held that Hunter did not misappropriate Orthofix’s trade secrets, nor did he breach the “NDP” because Orthofix did not protect its trade secrets with measures “that are reasonable under the circumstances” and the “NDP” in Hunter’s employment agreement prohibited Hunter from using his general skills and knowledge, thus forming an unenforceable non-compete agreement.[ix] The district court did, however, hold for Orthofix on the tortious interference claim.[x] The district court also held for Hunter on his counterclaim.[xi]
The Sixth Circuit found two related errors with the district court’s opinion. First, in ruling against Hunter on the tortious interference claim, the district court incorrectly assumed that the confidential information provision of the “NDP” was limited to trade secrets. Applying Texas law – the state in which the “NDP” was signed – the Sixth Circuit ruled that non-disclosure provisions have been found to be enforceable “regardless whether the information covered by the provisions achieves trade-secret status.”[xii] This is especially true when the information to be kept secret is explicitly agreed upon by the parties, as was the case between Orthofix and Hunter. Thus, the Sixth Circuit reversed the lower court’s ruling, finding that confidential information was much broader than the confining trade secret definition ascribed by the district court.
The Sixth Circuit also held that the “NDP” was an unenforceable non-compete clause under Texas law because it did not limit Hunter from using his general knowledge, skill, and experience with regards to time and geography.[xiii] In overturning that ruling, the Sixth Circuit found that the “NDP” need not contain geographic and durational limits to be enforceable.[xiv] Subsequently, the Sixth Circuit found that the lower court misapplied Texas law as to the definition of confidential information, highlighting that it is “generally defined by the parties, not by achieving trade-secret status, so long as it does not encompass publicly available information or an employee’s general knowledge or skills.”[xv] The Sixth Circuit found that since the “NDP” protected Orthofix’s confidential information, the provision is not an unenforceable non-compete agreement under Texas law.[xvi]
Finally, the Sixth Circuit applied these holdings to Orthofix’s claim of breach of contract. The Court held that Hunter breached his “NDP” when he provided DonJoy with confidential information, failed to return converted customer orders, and drew upon his knowledge of his former customer’s personal buying habits.[xvii]
This case has implications for federal trade secret and non-disclosure cases. By applying the Texas interpretations of confidential information to this case, companies could be disincentivized from being specific in their non-disclosure provisions. Additionally, this holding could allow companies with confidential information not rising to the level of trade secret to be afforded similar protections under federal law, thus potentially short-circuit
[i] No. 15-3216, 2015 WL 7252996 (6th Cir. Nov. 17, 2015).
[ii] Orthofix, Inc., 2015 WL 7252996 at 7.
[iii] Id. at 1.
[iv] Id. at 2.
[v] Id. at 7.
[vi] Id. at 2.
[vii] Ohio Rev. Code Ann. § 1333.61 (West).
[viii] Orthofix, Inc., 2015 WL 7252996 at 3.
[ix] Id. at 1.
[x] Id. at 3.
[xii] Id. at 4.
[xiii] Id. at 6.
[xvii] Id. at 7.