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Microstrategy v. Business Objects

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Citation Edit

Microstrategy, Inc. v. Business Objects S.A., 233 F.Supp.2d 789 (W.D. Va. 2002) (full-text).

Factual Background Edit

This case is primarily a patent infringement action. But this opinion also considers the non-competition agreements that plaintiff’s employees had signed.

At the heart of the complaint, the plaintiff alleges that “defendants recruited employees of the plaintiff . . . in order for the defendants to gain access to plaintiff’s confidential information, including products and technical advantages, marketing and sales processes, pricing strategies and overall business plans, marketing plans for specific customers and potential customers, and products that had not been released to the public.”

This very broad allegation is unusual in any battle between companies in the same or similar businesses. Even more unusual is Clause 4.b. This remarkable clause reads, in part, that an ex-employee may use skills he or she developed at Microstrategy, provided that:

I do not directly or indirectly provide services or products competing with those provided by MicroStrategy to any former, present, or prospective clients for a period of twelve (12) months following termination of my employment. A prospective client means any business which, at any time during the period of my employment or twelve (12) months following the termination of my employment, enters into negotiations with MicroStrategy, which might lead to the provision of services or products by MicroStrategy to such business. (emphasis added)

Trial Court Proceedings Edit

However, in this opinion Judge Friedman did not pass on the validity of 4.b., finding that plaintiff had not alleged that defendants violated this provision. The court, however, did rule on Clause 5 of the non-competition agreements:

I agree that, for the period of one (1) year after termination of my employment with MicroStrategy for any reason, I will not, directly or indirectly, seek to influence any employees, agents, contractors or customers of MicroStrategy to terminate or modify their relationship with MicroStrategy.

Judge Friedman, applying Virginia law, ruled that restrictive covenants are enforceable, if reasonable. Such a clause must pass three tests:

  • From the employer's viewpoint, is the restraint no greater than needed to protect the employer's business interest?
  • From the employee's viewpoint, does the restraint unreasonably restrict the individual's legitimate efforts to earn a livelihood?
  • Is the restraint reasonable "from the standpoint of sound public policy"?

After finding that the one year duration was reasonable, the Court considered the effect of how Clause 5's use of indefinite words such as "indirectly", "influence", "modify", and "relationship". Here, the Court ruled that the former employee "has no real yardstick to measure what actions would influence a customer to modify its relationship with MicroStrategy and cause him or her to be in violation of the clause . . . this phrase could prohibit a former employee from developing a new method of performing the same services offered by MicroStrategy, which would cause customers to leave MicroStrategy in search of innovative services."

The court concluded its examination of this clause by ruling "[b]ecause the clause must be strictly construed against the employer, the court finds that it is greater than necessary to protect plaintiff's legitimate business interests."

The court did sustain the "savings clause," which permits an invalid part of the contract to be severed without canceling the remaining provisions of the contract, including other restrictive covenants in employment contracts, specifically the time limit quoted above.

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