On October 24, Groupon filed a lawsuit against two former employees who left the company to work for Google, alleging that they took with them confidential trade secrets to use in their new positions. Michael Nolan and Brian Hanna were members of the sales team at Groupon who left to work for Google Offers in September. Google Offers has essentially the same business model as Groupon—they offer low prices for particular products, primarily in a particular geographical area, for a short period of time. Specifically, Nolan and Hanna are accused of improperly revealing customer lists and sales and marketing plans that they learned about while employed by Groupon. Groupon is seeking a court order to prevent Nolan and Hanna from providing top secret company information to Google.
Last year, Groupon rejected a $6 billion acquisition offer by Google. This summer, Groupon announced its plans for an IPO; however, due to objections by the SEC over misleading and questionable accounting practices, plans for the IPO have been delayed and modified. This lead to disappointing consequences for Groupon, as its original valuation was predicted to be between $25 and $30 billion rather than the $12.65 billion IPO valuation figure that was announced.
While it possible that Groupon is simply attempting to garner attention in preparation for its IPO by filing this suit, it is worthwhile to consider the merits of the trade secret claims against the new Google Offers employees. The legal protections afforded to holders of trade secrets are integral in allowing companies with unique products, designs, and processes to maintain a competitive edge in the open market. If Coca-Cola were to simply release its secret formula to all or even a handful of its employees, there would almost undoubtedly be some sort of leak to an outside source. This would likely prove devastating to Coke’s continued success as a company, as their flagship product sees much of its success because of its unique and top secret flavor.
"The legal protections afforded to holders of trade secrets are integral in allowing companies with unique products, designs, and processes to maintain a competitive edge in the open market."
Trade secrets are protected by state and federal statutes and refined by common law. Courts presented with trade secret cases such as this one that involve technology should carefully consider the precedents that they want to set, as these cases will likely involve quickly evolving and somewhat intangible subject matter at a time when technology can become obsolete almost as soon as it is introduced. Moreover, technology companies might be wise to develop a new strategy for binding their employees from using their knowledge of trade secrets as a bargaining tool for employment opportunities with competitors.
Of course, Groupon has yet to demonstrate that it has created a remarkable, one-of-a-kind product that can be likened to something like the Coke formula. After all, copycat ventures such as Google Offers, LivingSocial, and many others have created virtually the same product with varying degrees of success. Moreover, is seems unlikely that executives at Groupon would be eager to divulge such top secret information to low-level sales managers with very little experience (Nolan, a 2008 college graduate worked at Groupon for 16 months and Hanna, a 2008 grad worked there for only 9 months).
Regardless of the merits, this case should call attention to the larger issue of the role of trade secret protection clauses in employment contracts. The ever-increasing speed of technological development is likely to promulgate the trend of companies dealing with former employees who divulge intimate company knowledge for purposes of negotiating new employment. This combined with the fact that younger generations are far more likely to change jobs than their baby-boomer counterparts could necessitate fundamental changes in trade secret law.
Comments
Post new comment