Monday, September 22, 2008

Non-Competes and Rocket Packs

In Powerhouse Productions, Inc. v. Scott, the Dallas Court of Appeals affirmed a take-nothing judgment entered in favor of Defendant Eric Scott. Powerhouse builds rocket packs. (A rocket pack was piloted by 007 in Thunderball.) Scott began piloting the packs in the early 1990s, making over 400 flights throughout the world. Powerhouse charged clients between $15,000 to $25,000 per flight.

On February 4, 2004, Scott entered into a confidentiality and non-compete agreement with Powerhouse. The non-compete forbid Scott from competing with Powerhouse for a period of five years after the end of his employment. Scott and Powerhouse ended their relationship in November 2004.

In 2005 Scott went to work for Jet P.I., another rocket pack builder. After learning that Scott was making flights for Jet P.I., Powerhouse filed suit seeking to enjoin Scott from violating the non-compete agreement.

Section 15.50 of the Texas Business and Commerce Code provides: "a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or business interests of the promisee." As stated most recently by the Texas Supreme Court in Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006), the non-compete cannot be a stand-alone promise from the employee lacking any new consideration for the employer.” Id. Consideration from the employer “must give rise to the employer’s interest in restraining the employee from competing.” Id. at 648-49.

The Dallas Court of Appeals rejected Powerhouse's argument that providing Scott with confidential information and training pre-2004 could serve as consideration for the 2004 non-compete. Further, letting Johnson fly the pack, the Court reasoned, did not give rise to the Powerhouse's interest in restraining Scott from competing. The Court ruled that as there was no consideration to support the covenant not to compete, it was unenforceable.

Lessons to be learned from this opinion are: (1) an employer must provide something new to the employee to support a non-compete, past training or previous disclosure of trade secrets doesn't suffice; and (2) there must be a nexus between the consideration provided and the non-compete. Here the court ruled that flying the rocket pack did not give rise to a non-compete. Typically, a non-compete is designed to protect trade-secrets disclosed to the employee during the course of employment.