Drug Company Sues Scientist for Violating Non-Disclosure Contract

In 2001, Travis Mickle joined Lotus Biochemical as a senior research scientist. He signed an employment contract that contained a non-disclosure provision, which stated:

All Discoveries are the exclusive property of the Company, and Employee will promptly and fully disclose them to the Company. As used herein, the term “Discoveries” means all discoveries, inventions, improvements, processes, ideas and names in any form, whether or not patentable or copyrightable . . . as well as all Intellectual Property (as defined herein), which relate to or are useful to the Company’s business which Employee alone or with others may invent, discover, make or conceive whether the Company’s facilities are used or not . . . . “Intellectual Property” means all current and future worldwide patents and other patent rights, inventions, copyrights, trade secrets, trademarks, know-how, utility models and other intangible proprietary rights, including, without limitation, all applications and registrations with respect thereto. At any time, at the Company’s request and expense, Employee will, without further compensation (i) promptly record such Discoveries; (ii) execute any assignments and other documents that the Company deems desirable to protect its rights in the discoveries; and (iii) assist the Company in enforcing its rights with respect to these Discoveries. These obligations will survive termination of employment.

During Mickle’s employment, Lotus was acquired by New River Pharmaceuticals. Mickle continued to work as a scientist. He developed several patents in connection with his employment, and each time, he assigned his work to New River Pharmaceuticals.

Here is where it gets complicated. After Mickle resigned, New River Pharmaceuticals was acquired by Shire, LLC. Mickle subsequently sought to develop new intellectual property based on the NRP patents for a new company, KemPharm.

Shire brought a lawsuit arguing that (a) it had acquired NRP’s interest in the patents that Mickle had assigned during his employment, and (b) Mickle breached his contract when he sought to develop new patents based on the work he had assigned to his former employer.

Essentially, Shire argued any of Mickle’s inventions, patents, or other discoveries made during his employment were now its intellectual property.

The case was filed in federal court in Roanoke, Virginia. Mickle and his new company, KenPharm, filed a motion to dismiss pursuant to Rule 12(c) of the federal rules, arguing that the employment contract was an unreasonable restriction on trade.

The court held that it was too early in the case to dismiss the lawsuit because more facts needed to be developed during the course of discovery before the validity of the employment contract could be adjudicated.

Under Virginia law, “[a] non-competition agreement between an employer and an employee will be enforced if the contract is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.” Omniplex World Servs. Corp. v. U.S. Investigations Servs., Inc., 270 Va. 246, 249 (2005).

However, whether a court will enforce or invalidate a “restrictive covenant” in equity is often a fact-laden inquiry. Foti v. Cook, 220 Va. 800, 805 (1980) (noting that “whether restrictive covenants in an employment contract will be enforced in equity depends upon the facts in the particular case”); see also Decision Insights, Inc. v. Sentia Grp., Inc., 311 Fed. App’x 586, 598 (4th Cir. 2009) (reversing the trial court’s determination that a non-compete provision was unenforceable and instructing the trial court to weigh the “competing interests of the employer and the employee”).

Mickle argued that the non-compete was per se unenforceable because it lacked a geographic or temporal limitation. Some Virginia have held such non-compete contracts to be per se invalid on their face. See, e.g. Cantol, Inc. v. McDaniel, 2006 WL 1213992, at *6 (E.D. Va. Apr. 28, 2006). The Virginia Supreme Court has never extended the same rationale to non-disclosure provisions, and the Court would not dismiss the lawsuit without more discovery into the merits of the dispute.

Bottom Line: Under Virginia law, a non-compete contract may be per se invalid and unenforceable on its face if it lacks a geographic or temporal limitation. Assignment of invention clauses, conditionality agreements, and other non-disclosure provisions may be enforceable, however, even without a limitation on their geographic scope or duration. Every case is fact driven. Scientists, software developers, and other researchers should consider speaking with an attorney who handles non-compete matters for specific advice.

Download: Shire, LLC, v. Travis Mickle, et al., Case No. 7:10-cv-00434 (W.D.Va. 2011)