New Hampshire Courts will narrowly construe employment agreement terms that restrict workers from competing with their former employers and modify them when necessary so as to only protect the legitimate business interests of the former employer but will generally have little patience for a worker who plans to use confidential information of his former employer to compete in his new venture.
In the case of Vention Medical Advanced Components, Inc., d/b/a Advanced Polymers v. Nikolas D. Pappas and Ascend Medical, Inc. before the New Hampshire business court Advanced Polymers sued its former employee Pappas and his company Ascend seeking, in part, a preliminary order prohibiting them engaging in the design, manufacture, production and/or sale of ultra-thin walled heat shrink tubing pending the final resolution of the case. The business court judge granted that preliminary request, conditioned on Advanced Polymers putting up a $350,000 bond, so that after a full evidential hearing at trial if the judge determines that the preliminary order was not proper, Pappas and Ascend would have an easier way to collect its damages as a result of the preliminary order from Advanced Polymers.
Advanced Polymers is a medical components manufacturer in the medical device industry that makes three niche products: highly specialized medical balloons, specialized medical tubing, and polyethylene (“PET”) and non-PET heat shrink tubing. Pappas began working for Advanced Polymers in 2004 as a plastics engineer and signed an employment agreement that, in part, prohibited him from using proprietary information, and prohibited him from competing with the company for a period of 5 years after he left the company. During his employment Pappas had access to Advance Polymers entire balloon and heat shrinking tubing technology. Pappas left the company in December 2013 and formed Ascend in January 2014. Advanced Polymers was a sole producer of certain medical tubing products and Ascend began producing tubing products that are virtually identical in size and have the same properties as Advanced Polymer’s products. The judge, on a preliminary basis, found that based upon both testimony of witnesses and arguments by both side’s attorneys, that Pappas was using proprietary information of Advanced Polymers in creating his new product that competes with Advanced Polymers’ product.
The judge noted that the non-competition provision agreement itself was unenforceable as written, finding that a non-competition employment agreement under New Hampshire law that prohibits competing with the former employer for new customers is overbroad. Also a 5 year time period for the restriction was too long. Therefore on a preliminary basis the judge restricted the non-compete to previous customers of Advanced Polymers of medical balloon or heat shrink tubing products that were customers while Pappas was employed at Advanced Polymers. However, as the judge noted, while there is a strong public policy against restricting a person’s ability to obtain employment so that employment non-competes may be modified to only protect the legitimate business interests of the former employer, there is no such public policy which protects theft of intellectual property from a former employer. In this case Pappas argued that the technology used was all in the public domain through numerous expired patents. However as the judge noted, even the recipe for chocolate chip cookies can be a trade secret where the exact formula of combining the various ingredients is not disclosed. The judge found that while general principles regarding the application of heat below the crystalline melting point of substances may be public domain technologies, the fact remains that the unique products developed by Advanced Polymers is not duplicated or replicated by anyone but Pappas and his company. Therefore the judge found the Advanced Polymers had secrets to protect, and made an order to protect those secrets thereby apparently closing down Pappas’ new business, at least until a trial can occur months from now. Even if there was not an agreement prohibiting the use of confidential and proprietary information by Pappas, as the judge pointed out in his order, New Hampshire follows the Uniform Trade Secret Act, which is a statute that prohibits the misappropriation and use of confidential and proprietary information of another, irrespective of whether an agreement was signed.
Pappas said that he invested $250,000 into his startup company, noting that both he and his family had invested money to start Ascend. However, now he is faced with not operating Ascend while the case is litigated and quite possibly having a final ruling that is consistent with this preliminary injunction ruling that prohibits him from designing, manufacturing, producing or selling any ultra-thin walled heat shrinking tubing and soliciting or contacting any customers of Advanced Polymers which were its customers during Pappas’ employment with respect to the sale of any medical balloon product or heat shrink tubing product.
An individual who is thinking about leaving her employer to open up her own business in the same industry would be best served by speaking with an attorney who deals with employment and trade secret matters to minimize the likelihood of having claims made by her former employers that she either is violating an agreement she signed, violating her obligations under the Uniform Trade Secret Act, or both.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].