Press Release
Federal District Court: Company Did Not Waive Right to Compel Arbitration in IP Case Even Though Litigation Was Initiated
New York, October 1, 2008 -- A federal district court in Pennsylvania has ruled in favor of Kenyon & Kenyon client CooperNeff Advisors, Inc., affirming that the company had not waived its right to compel arbitration of a former employee’s federal court claims -- even though the company initiated litigation and sought injunctive relief against the employee in state court.
The victory at the U.S. District Court for the Eastern District of Pennsylvania late last week followed an April 2008 favorable ruling for CooperNeff at the Third Circuit Court of Appeals. In that case, the Third Circuit held the arbitration clause to be enforceable and reversed and vacated the U.S. District Court's denial of arbitration, remanding for consideration as to whether the right to arbitration had been waived.
The case involved a software program to trade securities that was being developed while StevenA.Zimmerwas employed at CooperNeff, which Zimmer intended to take to a competitor and use there. To stop that misappropriation, CooperNeff Advisors obtained a temporary restraining order against disclosure of the program to the competitor.
“This case is important since it for the first time clearly delineates between seeking preliminary injunctive relief and general litigation on the merits of a claim subject to arbitration. It confirms an employer's right to seek preliminary injunctive relief to protect key intellectual property rights while maintaining the ability to arbitrate employment claims,” said Kenyon & Kenyon partner EdwardT.Colbert, who represented CooperNeff.
"Most companies that develop their own technology have employment contracts that state what the employee creates on the job belongs to the company," Colbertadded, "but what happens if the employee threatens a breach of that obligation? While a company may prefer to arbitrate, that does not adequately protect trade secrets. Once that information is out, like a genie it cannot be put back in the bottle. You need the right to go to court to be sure that any ultimate decision is not meaningless."
Judge Robert F. Kelly of the U.S. District Court for the Eastern District of Pennsylvania wrote: “While Zimmer was likely inconvenienced by litigating the initial aspects of this case in court before being forced into arbitration, the facts and circumstances of this case do not meet the standards for prejudice set forth by the Third Circuit."
Kenyon & Kenyon partners Edward T. Colbert and Brian S. Mudge, and counsel Susan A. Smith represented CooperNeff.
About Kenyon& KenyonLLP
Kenyon & Kenyon is consistently ranked by peers and in-house counsel as one of the top firms for intellectual property law. Since its founding in 1879, the firm provides its worldwide clients with litigation, prosecution, licensing and counseling services. Large and small enterprises and individuals choose Kenyonto design and implement intellectual property strategies when it matters most. The firm has offices in New York, Washington, DC and the Silicon Valley.