Although most non-compete and trade secret disputes arise from the employer-employee relationship, these issues can arise in any number of contexts. One situation is in business-to-business negotiations. OnBrand Media v. Codex Consulting, Inc., a November 19, 2009 decision from the Georgia Court of Appeals, involves a dispute between entities involved in joint venture negotiations relating to developing and marketing of a software program.
OnBrand Media, Inc., (“OnBrand”) and Lisa Jones developed and produced a multimedia e-mail software program called EyeMail. OnBrand and Jones began negotiations with Open Systems, Inc. (“OSI”) to form a joint venture relationship for the development of a software program that they would market to Aflac Insurance. OSI provides technology services and software development to various companies, including Aflac, with which it had already entered into an agreement to provide certain programming services. Jones introduced EyeMail to OSI in 2005, describing it as a marketing tool for sending out email messages with embedded audio, video, animated graphics, and flash applications.
In 2005 and 2006, OnBrand, Jones, and OSI discussed forming a joint venture to pursue the EyeMail project with Aflac. During the negotiations, OSI realized that the EyeMail program would require a separate portal, so it approached Codex Consulting, Inc. Codex agreed to develop the portal in exchange for a share of the ultimate EyeMail subscription revenues. Before Jones and OnBrand would agree to disclose technical details regarding EyeMail, they insisted that Codex and OSI sign non-disclosure agreements (“NDAs”) with OnBrand. Codex and OSI did so in October 2006.
After reviewing the EyeMail code, Codex and OSI decided that the program was not a feasible product to sell to Aflac and went about developing their own program called “RightMail.” Although OSI and Codex continued negotiations with OnBrand, hoping that it could assist in selling the RightMail program to Aflac, the negotiations ultimately ended after OnBrand and Jones threatened legal action when OSI and Codex refused to call the program Eyemail. OnBrand and Jones filed suit against OSI and Codex in June 2007, alleging claims for breach of contractual duty of good faith and fair dealing, misappropriation of trade secrets, deceptive trade practices, fraud and deceit, tortious interference with a business opportunity, intentional infliction of emotional distress, violation of the Georgia Uniform Deceptive Trade Practice Act ("UDTPA"), and breach of confidentiality. OSI and Codex filed a motion for summary judgment, which the trial court granted.
The court of appeals upheld the trial court’s grant of summary judgment to OSI and Codex. The court spent some effort deciding the right level of scrutiny for a business-to-business agreement covering information shared in negotiations before deciding to apply the same intermediate level of scrutiny ordinarily applied to professional partnership agreements. The court did not explain why applying intermediate scrutiny (as opposed to the heightened scrutiny standard applicable to employment and franchise agreements or the relaxed scrutiny applicable to sale of business agreements) mattered. In fact, the NDAs were likely unenforceable under any standard of review because, as the court found, the non-compete provisions in the NDAs lacked temporal or geographic limitations, which are necessary for all agreements, not just those subject to the intermediate level of scrutiny. The time spent discussing the applicable scrutiny also is a bit puzzling given that the court did not explain how the three levels of scrutiny would differ.
The court then addressed the non-disclosure requirements of the NDAs. The court affirmed the trial court’s finding that OnBrand and Jones did not produce any evidence that OSI and Codex used or disclosed confidential information. (It is unclear as to whether the Court also found that the non-disclosure provisions were unenforceable. Georgia requires non-disclosure provisions to include time limitations, so it is likely that OnBrand and Jones would have lost even if they had shown that OSI and Codex had used or disclosed confidential information.) Furthermore, the court of appeals found that OnBrand and Jones’s action for breach of the duty of good faith and fair dealing was contingent on its contractual claims, so the infirmities of the latter doomed the former.
The court then moved on to OnBrand and Jones’s trade secret claim. It found that the claim failed as a matter of law because OnBrand and Jones voluntarily disclosed their trade secrets to OSI and Codex. Thus, there was no misappropriation because OSI and Codex did not use improper means to acquire the program.
The court also affirmed dismissal of the remaining claims, holding
(1) that OnBrand and Jones’s claim for fraud failed because they presented no evidence that OSI and Codex had false intentions when they entered into the NDA;
(2) that OnBrand and Jones’s claim for tortious interference with business relations failed as to Aflac because OSI and Codex were not strangers to the relationship;
(3) that OnBrand and Jones’s claims as to three additional customers failed because OnBrand and Jones never showed that they were likely to form relationships with those entities;
(4) that OnBrand and Jones’s deceptive trade practices claims failed because the evidence reflected that customers understood that OSI was not trying to sell them EyeMail; and
(5) that OnBrand and Jones did not demonstrate that OSI and Codex engaged in “extreme and outrageous conduct” to support a claim for intentional infliction of emotional distress.
Although each of these holdings may provide instruction for future claimants, OnBrand Media is most remarkable for the court’s first impression decision that business-to-business agreements in the joint venture context covering information shared in negotiations are subject to intermediate scrutiny. Of course, in the end, that decision did not affect the result here, but it may affect the outcome of future cases.