EarthWeb, Inc. v. Schlack
1999 WL 980165, 71 F. Supp. 2d 299, 1999 U.S. Dist. LEXIS 16700 (1999)
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Rule of Law:
In a rapidly evolving industry like the internet, a one-year non-compete agreement may be considered unreasonably long, and the inevitable disclosure doctrine will not be used to expand a narrowly written non-compete clause absent evidence of actual trade secret misappropriation.
Facts:
- Mark Schlack began his employment with EarthWeb, Inc., an online IT services company, as Vice President of Worldwide Content on October 19, 1998.
- Schlack signed an employment agreement containing a one-year non-compete clause that narrowly prohibited him from working for an entity whose 'primary business' was providing specific online services like a 'directory of third party technology' or an 'online reference library'.
- In his role, Schlack was responsible for the content on EarthWeb's websites, which were primarily based on licensing agreements with third parties.
- Schlack was privy to EarthWeb's strategic content planning, potential acquisitions, and licensing terms, but he had no access to source code or company-wide financial data.
- On September 22, 1999, Schlack resigned from EarthWeb.
- Schlack accepted a position with ITworld.com, a subsidiary of International Data Group, Inc. (IDG), which planned to launch a new website for IT professionals.
- ITworld.com's business model was different from EarthWeb's, focusing on generating over 70% of its content with its own in-house staff of journalists, rather than licensing third-party content.
Procedural Posture:
- EarthWeb, Inc. filed a diversity action against its former employee, Mark Schlack, in the U.S. District Court for the Southern District of New York.
- EarthWeb moved for a temporary restraining order (TRO) and a preliminary injunction to prevent Schlack from starting his new job with International Data Group, Inc. (IDG).
- The District Court entered a TRO, conditioned on EarthWeb continuing to pay Schlack's salary and benefits.
- The parties engaged in expedited discovery, including depositions, over the next nine days.
- The District Court then held oral argument on EarthWeb's motion for a preliminary injunction.
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Issue:
Is an employer entitled to a preliminary injunction to enforce a one-year non-compete agreement against a former high-level employee when the new employer does not fall within the narrow definition of a competitor in the agreement, and the only asserted harm is the inevitable disclosure of trade secrets?
Opinions:
Majority - Pauley, District Judge
No, the employer is not entitled to a preliminary injunction. The court refused to apply the inevitable disclosure doctrine to effectively rewrite and broaden the parties' narrowly defined non-compete agreement, particularly given the strong public policy in New York favoring employee mobility. The court first found that the non-compete provision, by its specific terms, did not apply to Schlack's prospective employment because ITworld.com's 'primary business' was not providing the services enumerated in the restrictive covenant. Even if it did apply, the court found the one-year duration to be unreasonable and unenforceable in the fast-paced internet industry, where knowledge quickly becomes obsolete. Furthermore, the court held that EarthWeb failed to demonstrate irreparable harm because it did not prove that Schlack possessed actual trade secrets or that his new position was so identical to his old one that disclosure of any confidential information would be inevitable.
Analysis:
This case is significant for its skeptical treatment of the inevitable disclosure doctrine as a standalone basis for injunctive relief, especially when an express, but narrow, non-compete agreement exists. The decision reinforces New York's strong public policy against overly broad restrictive covenants and underscores the importance of employee mobility. It serves as a caution to employers in dynamic, technology-driven fields that courts will not readily expand negotiated non-compete terms and that the duration of such covenants must be tailored to the rapid pace of industry change. Future cases involving non-competes in the tech sector will likely look to this decision for its emphasis on precise contract language and its reluctance to prevent employment based on speculative harm.
