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In this bloomberg article, 5 ex-employees of a hedge fund were sued by their ex-employer for starting a trading outfit.

https://www.bloomberg.com/news/features/2018-11-19/the-triple-jeopardy-of-ke-xu-a-chinese-hedge-fund-quant

At around that time, de Putron got involved in another legal dispute that foreshadowed his companies’ campaign against Xu. The year before, a group of five programmers and managers had left G-Research, then known as GR Software & Research Ltd., to start their own trading outfit. The company responded by first threatening a lawsuit, then, in 2011, by filing one. None of the filings suggested anything had been stolen, but G-Research argued that the five had developed their quant-trading skills at the company, and so any new platform would have to be similar and an infringement of its intellectual property.

As a layman, I find it extremely unreasonable. Which ex-employee will not use his past knowledge and experience gained from working for a past employer in his future endeavours? Is using knowledge gained from working for an ex-employer for future profit considered stealing from the ex-employer ??!!!

Is this reasonable legal argument from an ex-employer? There was no stealing of physical property or technological design documents.

Any lawyers here can enlighten me? This is a risk that all employees should be aware in case they encounter an employer as depicted in the Bloomberg article.

  • Everyone can sue anyone for anything i.e. file a lawsuit. The question is whether they win. Unless the plaintiff in your example had any success in suing, what's the point in regarding their arguments? – Greendrake Nov 20 '18 at 4:52
  • It sounds like it's not so much work experience as trade secrets. If former employees of Coca Cola started a soft drink company, for example, they would likely face a similar action. You don't have to steal a document to steal trade secrets if you have them in your memory. – phoog Nov 20 '18 at 5:10
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    The way the article is worded, their actual argument is that infringement occurred (e.g. creating a derivative of their copyrighted code from memory would be an infringement). They are trying to say that the fact that five of them started a new company, with a similar platform, and developed their skills at their previous company is evidence of infringement, according to the logic ("where there's smoke, there's fire"). Using your skills or gaining experience is definitely not infringement. – Brandin Nov 20 '18 at 6:00
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I'm not familiar with the case you're citing, but it sounds like this may be an application of the doctrine of "inevitable disclosure" or "inevitable use."

A classic case would go something like this.

WonderWidgets has discovered that by treating its widget molds with a teaspoon of ground cinnamon, it can create a superpowerful widget that is impervious to normal wear and tear, and will last forever, with very little additional expense. To protect its competitive advantage, WonderWidget takes all sorts of measures to ensure that AAA Widgets never learns about the benefits of the cinnamon additive.

WonderWidgets hires Jane, an engineer with a PhD in cinnamonology to make improvements to the additive. She signs a confidentiality agreement promising to protet the company's trade secrets. After a year with WonderWidgets, Jane is recruited by AAA Widgets. WonderWidgets sues them both to prevent them from consummating an employment relationship.

Assuming that the information Jane acquired from WonderWidgets is a protected trade secret, the idea here is that everyone knows exactly why AAA is hiring Jane, and that it would basically be impossible for Jane to work for them without applying the knowledge she acquired from WonderWidgets, i.e., there her employment would lead to an inevitable disclosure of WonderWidgets' trade secrets.

I think most people would agree that there's at least a reasonable argument to be made in favor of WonderWidgets, there are also efforts to apply this doctrine in much shakier circumstances. For instance, WonderWidgets might try to prevent its janitor from going to work for AAA because it taught him how to mop floors, and it has cleaner floors than AAA, and therefore its cleaning techniques must be superior, and therefore those techniques must be protected.

There are some states in which WonderWidgets would win the cinnamon case, and some where Jane would win, because the state doesn't recognize inevitable-disclosure at all. I don't know of any states where WonderWidgets would win the janitor case.

Of course, most cases are not as clean-cut as either of these hypotheticals, but I'd say the one you're asking about is closer to the second one than the first.

  • In this case, it is very obvious that Jane can work at Wonderwidgets without disclosing what she knows by just keeping her mouth shut. The only time I have seen this applied was for a guy whose job at A it was to gather (legally) information about A's competition, and working for a competitor doing the exact same job would make disclosure inevitable. – gnasher729 May 5 at 12:58
  • As a general rule, legal analyses that start with "it is very obvious" are going to be inaccurate. In this case, for instance, Jane's might end up disclosing trade secrets not only by orally communicating them, but by bringing records with her, or most obviously, by applying her knowledge in her new employer's factory. – bdb484 May 5 at 20:20

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