Earlier this month a federal district court judge entered a temporary restraining order (TRO) against a former Panera executive and his new employer, Papa Johns. The TRO arose out of a lawsuit to enforce the former Panera executive’s non-compete agreement. That agreement restricted him from competing against Panera for one year after his employment ended. The Order is available here, Panera v Nettles.
In sum, the TRO prohibits Panera’s former executive, Michael Nettles, and Papa John’s from working with each other, either directly or indirectly in any capacity. Papa Johns is also restricted from employing Nettles until further order of the Court.
While this sort of non-compete lawsuit is relatively common, there are a number of points that business owners should consider when it comes to their company’s competitive advantages.
Trade secrets and competitive advantages – every business has them.
First, in talking about this case with some non-attorney friends and family (yes, I am THE life of a party), the discussion went along the line of, “Trade secrets and non-compete restrictions. But it’s just soup, sandwiches, and pizza (and not very good pizza at that).” This sentiment is also common among business owners concerning their companies; They often overlook or fail to realize the competitive advantages inherent in their own business.
Going back to the Panera lawsuit, yes Panera’s business is about soups, sandwiches, etc. But Nettles worked in a high-level executive position within Panera’s Information Technology department. In that role, Panera granted Nettles access to its highly sensitive confidential and proprietary information and trade secrets used across the business. Panera further described in its Complaint the competitive advantages it sought to protect as follows:
… Panera unveiled its vision for “Panera 2.0,” which consists of enhanced to-go and eat-in options enabled by a series of integrated technologies. “Panera 2.0” is an integrated, comprehensive, end-to-end solution that aims to reduce wait times, improve order accuracy, and minimize or eliminate crowding; and create a more personalized experience.
Ok, so it isn’t quite as exciting as Colonel Sanders’ 11 secret herbs and spices or the famed Coca-Cola trade secret formula, but it is information that provides value to Panera.
Protecting business assets – you have to know what you have.
Second and building on the preceding point, businesses should make it a priority to conduct an assessment of its intellectual property (IP) and what provides a competitive advantage to the company. I often recommend owners think about what information they would take if they had to do their job for a competitor. This question focuses attention on what a company should be protecting to maintain its competitive advantage.
Protection starts with a non-compete agreement.
Third, once your business has identified its competitive advantages and valuable IP, the next step is to implement policies and agreements to protect this information. Non-compete restrictions, confidentiality provisions, and non-solicitation prohibitions will often be a cornerstone of your company’s IP protection plan. For this reason, it is important to have your employment agreements and post-employment restrictions tailored to your business by an experienced employment attorney.
Going back to the Panera lawsuit, would Panera’s information be valuable to a pizza chain (the status quo at Papa Johns certainly hasn’t worked beyond producing something approximating an edible food product)? Maybe, maybe not and this will likely be a question addressed in the litigation.
But by having Nettles sign a non-compete agreement, Panera reinforces its belief that the information is valuable and it took some effort to protect the value of that information. This fact alone is often not enough to win or lose a TRO hearing; We have successfully obtained TROs where there was no non-compete restriction. And we have successfully defended against TROs where there was a signed non-compete restriction. But even so, a signed non-compete agreement is always a compelling exhibit for any judge in considering whether a TRO should be issued.
For more information about drafting and enforcing non-compete agreements, as well as protecting trade secrets, contact attorney Jason Shinn. Mr. Shinn has focused on these legal issues since 2001 on behalf of companies and individuals.