An Epic Heist: Nike Trade Secrets and Breach of Non-Compete

Nike has sued three former employees who left to work for Adidas. The company is suing for breach of contract, theft of trade secrets, fraud, conspiracy and more. In the Complaint, Nike details fairly shocking allegations against the defendants who launched a plot to leave the Company, steal numerous Nike plans and products and then parlay that into lucrative new careers at Adidas.

The three employees all have a relatively long tenure at Nike. Two of the defendants have worked at Nike for 9 years. The remaining defendant has worked there for 6. Their collective experience covers soccer, football, basketball, cross-training, women’s apparel, running. All three of them climbed the corporate ladder. It is unsurprising that the defendants signed agreements that contained non-compete and non-disclosure provisions. Those provisions themselves were quite reasonable: a one-year non-compete, a one-year non-solicitation and a two-year non-disclosure.

During their years at Nike, all three of these individuals exemplified a great deal of talent and intellect—which explains them reaching such high-level positions within such a major corporation. But greed and arrogance can quickly cancel out other positive qualities like talent and intellect. In April 2014, the defendants began executing the plan for their departure from Nike.

Noteworthy is the fact that defendants launched this plan while still working for Nike. In May 2014, after one of the defendants had a visa issue, Nike paid more than $50,000 to relocate him and his family to Italy, on the understanding that one of the defendants would remain employed with the Company long-term. Upon securing Nike’s commitment to fund his relocation to Italy, the defendants allegedly discussed how the move to Italy would serve their scheme well because Italy was one of those “countries where [Nike’s] non-compete is difficult to enforce.”

While still at Nike, the defendants signed lucrative deals with Adidas. Shortly after resigning from Nike, the defendants began a sloppy attempt to steal as much Nike information as possible and then destroy any evidence.  One defendant copied all of his laptop’s contents onto an external hard drive, then damaged the laptop to a point he thought would render it inoperable and shipped it back to Nike. The defendant sent an email to his personal email address containing a zip file with design drawings for an unreleased shoe tied to a prominent, Nike-sponsored athlete. Unlike in most such instances, where the plaintiff offers vague assertions about confidential information and trade secrets, the materials at issue in this case are certainly confidential and  trade secrets. Between their collective efforts, the Defendants walked away from Nike with a treasure trove of information, including:

  • High-level strategic development plans for the next 3 to 4 years. These plans included proposed and prospective product offerings and the timing of releases.
  • Unreleased product design materials for the next 2 to 3 years. This included models, sketches and designs for soccer footwear and other soccer related products (e.g. team uniforms). These design plans included very detailed information on fabrics, cuts, colors, manufacturing and more.
  • Financial data including both a historical breakdown of all Nike footwear sales by product for the past year and a forward looking projection of growth my product for the next twelve to eighteen months.
  • Documents regarding Nike’s product marketing strategies including documents on product promotions, in-store presentations, pr campaigns, product launches, plans for specific sponsored athletes and plans for specific Nike-sponsored sports teams.

Nike is suing the defendants for every claim imaginable, and rightfully so. Turns out, Nike was, rather obviously, able to retain enough electronically stored data to present a very compelling Complaint. In many cases, especially many non-compete and trade secret cases, there is another side to the story. In many cases, the Complaint talks vaguely about wrongful conduct, confidential information and trade secrets, but never really gives specifics. Here, Nike’s complaint is filled with specific, credible and highly damaging allegations. There is unlikely to be anything the Defendants can say that would mitigate their liabilities.

Non-Compete Agreements and Preparing to Compete

Have you ever left a job because you were offered a better position or compensation by a competitor within the same industry? Many people are required to sign an agreement restricting their ability to work in competition to their current employer. These non-compete agreements, when presented at time of hire, during employment, or upon termination, resignation, or layoff, are based on the possibility that an employee might gain a competitive advantage by using knowledge of their former employer’s operations.

As a result, when an individual has decided to leave his or her current employment and transition to a position working for a company which directly competes with his or her current employer, there are contractual issues which must be considered.

During the term of a post-employment non-competition covenant, what are considered to be lawful acts in preparing to transition to working for a competitor and what is unlawful? Where does one draw the line separating lawful non-competitive preparatory planning to compete and prohibited direct competition? There is no definitive answer. Recent New York State case law has shed some light on the issue, however.

“Although an employee may, of course, make preparations to compete with his employer while still working for the employer, he or she may not do so at the employer’s expense, and may not use the employer’s resources, time, facilities, or confidential information.” Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F.Supp.2d 489 (S.D.N.Y. 2011).

Some examples of unlawful competitive actions include when an employee copies his employer’s business records for his own use; charges expenses to his employer that were incurred while acting in furtherance of his own self-interest; actively diverts his employer’s business for his own personal benefits or the benefit of others; or conspires to bring about the mass resignation of his employer’s key employees.

Although case law varies to some extent, it is clear that the language of the restrictive covenant (the non-compete) will dictate in determining what activities are considered impermissible competition.

Therefore, employers who desire to prevent departing employees from gaining a competitive advantage while still employed as well as employees who wish to learn what acts they are permitted to do in preparing to transition to a job with a competitor would greatly benefit from seeking counsel with the experience and knowledge to properly advise them of their rights.