Orthofix, Inc. v. Eric Hunter
630 F. App'x 566 (2015)
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Rule of Law:
A non-disclosure agreement protecting "confidential information" can be enforced under Texas law, even if the information does not qualify as a trade secret, provided it does not encompass publicly available information or merely an employee's general skills and knowledge.
Facts:
- Orthofix, Inc. (Orthofix) hired Eric W. Hunter in 2000 as a medical device salesman, with no prior experience in the field, to sell bone growth stimulators.
- Upon hiring, Orthofix and Hunter entered into an employment agreement containing both non-compete and non-disclosure provisions, with Hunter consulting an attorney and underlining "confidential information" before signing.
- Over 12 years, Hunter developed customers and acquired detailed information about physicians' practices, including schedules, prescribing habits, and preferred brands, which Orthofix referred to as its "playbook."
- In July 2012, Hunter began negotiations to join DonJoy Orthopedics (DonJoy), a competitor, and disclosed to DonJoy much of the information he had acquired at Orthofix, including his employment agreement, W-2, sales reports, and account breakdowns.
- Hunter resigned from Orthofix without notice just after midnight on November 13, 2012, to prevent Orthofix from sending in a new sales representative before he could contact his former customers for DonJoy.
- Upon resigning, Hunter retained Orthofix's "confidential information" on his personal laptop and in his memory, which included customer lists, price information, sales data, staff contacts, physician schedules and preferences, and prescribing habits.
- Hunter subsequently used and disclosed Orthofix's confidential information as a DonJoy employee by introducing other DonJoy representatives to his former Orthofix customers and providing information on their buying and use habits.
Procedural Posture:
- Orthofix, Inc. filed a diversity suit against Eric W. Hunter in the United States District Court for the Northern District of Ohio, alleging misappropriation of trade secrets under the Ohio Uniform Trade Secrets Act, breach of contract for violating non-disclosure and non-compete provisions, and tortious interference with sales contracts.
- Hunter filed a counterclaim for disputed unpaid commissions.
- The parties jointly moved to reform the non-compete provision, which the district court granted, effectively dismissing the non-compete claim.
- Following a bench trial, the district court found in favor of Hunter on Orthofix's claims of trade-secret misappropriation and breach of the non-disclosure provision.
- The district court found in favor of Orthofix on its tortious interference claim, awarding $62,039 in damages.
- The district court found in favor of Hunter on his counterclaim, awarding $8,710 for unpaid commissions.
- Orthofix, Inc. appealed the district court's judgment to the United States Court of Appeals for the Sixth Circuit, with Orthofix, Inc. as the appellant and Eric W. Hunter as the appellee.
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Issue:
Does a former employee breach a non-disclosure provision under Texas law by using and disclosing "confidential information" that does not meet the legal definition of a trade secret but also does not constitute general skills and knowledge, even if the provision lacks time and geographic limitations?
Opinions:
Majority - Merritt, Circuit Judge
Yes, Eric Hunter breached his employment agreement with Orthofix, Inc. by using and disclosing "confidential information" that, while not necessarily qualifying as trade secrets, did not constitute his general skills or knowledge, and the non-disclosure provision was enforceable despite lacking explicit time or geographic limits. The court found that the district court erred by conflating Orthofix’s contract claim for disclosure of "confidential information" with a claim for misappropriation of trade secrets under the Ohio Uniform Trade Secrets Act. Texas law, which governed the non-disclosure provision, allows for enforcement of such provisions even if the information covered does not achieve trade-secret status, as long as it isn't publicly available or an employee's general skills. The court cited Texas precedent (e.g., Corp. Relocation, Inc. v. Martin, Trilogy Software, Inc. v. Callidus Software, Inc.) and the Restatement (Third) of Unfair Competition to support that non-disclosure agreements can "clarify and extend" an employer's rights beyond trade secret protection. Hunter's employment agreement explicitly defined "confidential information" to include customer lists, business practices, sales methods, and business strategies, and Hunter himself underlined this term and consulted an attorney. The district court had found that the information Hunter disclosed was "valuable, not readily available, and acquired at great expense and effort." Second, the court determined that the non-disclosure provision was not an unenforceable non-compete agreement under Texas law. Non-disclosure covenants are "more readily enforced" than non-competition covenants because they do not restrain trade by preventing an employee from using general experience. Unlike non-compete agreements, non-disclosure provisions do not require geographic and durational limits under Texas law (citing Marsh USA Inc. v. Cook and Zep Mfg. Co. v. Harthcock). The court clarified that a non-disclosure agreement becomes a non-compete if it prevents the use of general knowledge, skill, and experience, but here, the "confidential information" protected was not Hunter's general knowledge but specific, valuable, and hard-to-acquire information about Orthofix's business. Hunter's actions—disclosing sales breakdowns, failing to return customer orders, and using memorized customer habits to introduce competitors—constituted a breach of this valid agreement.
Analysis:
This case significantly clarifies the distinction between trade secrets, contractually protected confidential information, and general employee skills. It emphasizes that employers can protect valuable business information through well-drafted non-disclosure agreements, even if that information doesn't meet the strict criteria for trade secret protection, particularly when such agreements are governed by Texas law. The ruling also reinforces that non-disclosure provisions are viewed differently from non-compete clauses and do not require the same temporal and geographic limitations, as long as they do not infringe on an employee's general professional capabilities. This provides greater certainty for businesses seeking to protect proprietary data without unduly restricting employee mobility.
