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Zillow Trade Secret Theft Case Highlights The Need for Strong Noncompete Agreements With Key Executives
on April 13, 2016 by James T. Hunt, Jr. posted in Business Litigation
on April 13, 2016 by James T. Hunt, Jr.
The recent case unfolding in public and generating significant negative publicity involves a bitter dispute between online real estate titans Zillow and Realtor.com. It also highlights the lengths to which former employees will go to cover their tracks after taking trade secrets from a previous employer to compete at a new company. The case likewise serves as a stark reminder that businesses must have strong noncompete agreements and non-solicitation agreements with key personnel in order to avoid the loss of confidential information to a competitor.
You may recall that in 2014, a top level Realtor.com executive, Errol Samuelson (Reatlor.com is owned by Move.com) quit and joined competitor Zillow, bringing along with him other high level executives, including Curtis Beardsley. Apparently neither executive had signed a noncompete or non-solicitation agreement. Move.com quickly sued in order to stop the executives from working for Zillow and misappropriating any trade secrets obtained while working for Move.com.
Discovery in the case now confirms the lengths to which the former executives allegedly planned their exit to join a competitor, planned to take sensitive information to the competitor, and then destroyed evidence to cover their tracks. Move.com alleges that months before he departed the company, Beardsley drafted a plan to undermine his own employer’s business plans once he subsequently made the move to Zillow. The plan was titled “How Z might challenge M.” In addition, the executives used “burner” phones – more commonly used by drug dealers to evade wiretaps -- for calls between Zillow and the two executives leaving so as to avoid detection. And in the latest, more lascivious twist, one executive was caught destroying data on his home and work computers – but claimed he was not hiding evidence of stealing trade secrets, but rather simply hiding his secret porn habit. Whether that odd excuse holds water is up to a Washington State judge to decide.
The Zillow case is a harsh reminder that employers and businesses need to audit their high level employees to make sure that strong noncompetes and non-solicitation provisions exist in their employment agreements. A properly drafted noncompete will forbid an exiting employee from competing with the former employer for a set period of time within a particular geographic region, and prevent the employee from taking trade secrets and confidential, proprietary information. While the scope of a noncompete might always be challenged in court, and may not always hold up, it at least provides the business with significant leverage, especially vis-à-vis the competitor company to which the employee defected. A carefully crafted non-solicitation clause prohibits an exiting employee from raiding the ranks of the former employer and “stealing” additional employees to join the competitor company. In the Zillow case, apparently the employees had neither agreement, and multiple employees left Move.com to join Zillow.
So what, after all, is at stake? Try $2 Billion dollars. With a capital “B.” That is the amount of damages Move.com is seeking from Zillow. And that ain’t chump change.
Read more about the case here:
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