Comprehensive Techs. Int'l, Inc. v. Software Artisans, Inc. - 3 F.3d 730 (4th Cir. 1993)

Rule:

Virginia has established a three-part test for assessing the reasonableness of restrictive employment covenants. Under the test, the court must ask the following questions: (1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?; (2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?; and (3) Is the restraint reasonable from the standpoint of a sound public policy? If a covenant not to compete meets each of these standards of reasonableness, it must be enforced.

Facts:

Defendant employees worked for plaintiff Comprehensive Technologies International, Inc. and had signed a confidentiality agreement. Defendant engineer, Dean Hawkes, signed a covenant not to compete. Defendant employees and defendant engineer formed defendant corporation that marketed a computer program similar to plaintiff's. Plaintiff sued for copyright infringement, trade secret misappropriation, breach of confidentiality, and breach of contract. The district court found for defendants. Plaintiff appealed, arguing that the district court err in finding that defendants did not misappropriate its trade secrets. Plaintiff also argued that the district court erred in its conclusion that defendant engineer’s covenant not to compete was unreasonable, and therefore, unenforceable.

Issue:

1. Under the circumstances, could the defendants be held liable for copyright infringement and trade secret misappropriation?
2. Was the defendant engineer’s covenant not to compete enforceable?

Answer:

1) No. 2) Yes.

Conclusion:

The Court upheld the judgment as to copyright infringement and trade secret misappropriation because plaintiff failed to provide proof that there were similarities between the two products and that its software constituted a trade secret. Anent the second issue, the Court held that defendant engineer's covenant not to compete should have been enforced. Defendant engineer had access to plaintiff's confidential information and the covenant allowed defendant engineer to produce software so long as it was different from plaintiff's. Therefore, the Court affirmed in part, reversed in part, and remanded.