Bob Bach View Biography

It is not uncommon for companies to acquire research by hiring employees who work for a competitor. For that reason, many companies use non-competition agreements to try and hang onto both the employees and the technology the company has invested in.

In April 2000, a company named NuSpeed made a public declaration that it was developing a device to transmit data using an internet system called the small computer systems interface. NuSpeed's goal was to be the first company to bring such a product to market. After this announcement, NuSpeed was purchased by Cisco Systems for the price of $450,000,000.

Despite that investment, Cisco never made a profit on NuSpeed. As of January 2003, Cisco had lost $50,000,000 on the technology it purchased from NuSpeed.

Part of the expense of developing this new technology was hiring more than twenty of its new employees from a computer company named Storage Technology Corporation. As a result, Storage Technology sued Cisco. The lawsuit alleged that Cisco had interfered with Storage Technology's contractual relations by hiring away employees with whom Storage Technology had employment contracts, inducing breaches of those contracts, converting confidential information, encouraging breach of fiduciary duties by former Storage Technology employees and misappropriation of trade secrets. The lawsuit alleged damages of $450,000,000.

Despite the number of claims and amount of alleged damages, the Federal District Court for the District of Minnesota granted summary judgment for Cisco. With regard to the claim for tortious interference with contract, the court held that the only amount that Storage Technology could have recovered under Minnesota law was for breach of the underlying employment contracts. Since Storage Technology made no effort to prove the value of the individual employment contracts that were allegedly breached, the District Court held that the $450,000,000 figure for alleged damage had no relation to the damages suffered by Storage Technology and that claim failed for lack of proof.

The court then held that the same problem existed with Storage Technology's claim for tortious interference with its contracts. In addition, the court held that the conversion claim failed because the only property involved was trade secrets, which are not covered by the tort of conversion under Minnesota law. Finally, the court held that the alleged breach of fiduciary duty by one of the former employees also failed for lack of proof of damages.

With regard to the claim for “corporate raiding,” (the “systematic and massive program of hiring another company's employees”), the court held that Minnesota law does not recognize a cause of action for corporate raiding. The court said that Minnesota law disfavors any cause of action that would inhibit an employee's ability to change jobs. As a result, the court held that corporate raiding would be a new tort under Minnesota law. The court refused to find a new tort and dismissed the case on summary judgment.

This case was appealed to the Eighth Circuit Court of Appeals. The Eighth Circuit also threw out the case. The Eighth Circuit held that the elements of tortious interference with contract under Minnesota law are the following:

1. The existence of a contract
2. The tortfeasor's knowledge of the contract
3. The tortfeasor's intentional causation of a breach of the contract
4. A lack of justification of the tortfeasor's actions
5. Damages resulting from breach

Since Cisco lost money on what it supposedly stole, the court held that Storage Technology did not prove injury.

The plaintiff never broke down the alleged $450,000,000 in damages and how Cisco would have proceeded without the employees it hired from Storage Technology to the satisfaction of the court. The court held that the plaintiff did not establish whether any of the value of the acquired company was due to the presence of employees who had come from Storage Tech or the knowledge that they brought with them. The Eighth Circuit said that the District Court properly dismissed this case because there was no proof that any damage was caused. As a result, the court held that Storage Technology's failure to produce evidence substantiating any amount of damages is fatal to its claim for tortious interference with contractual relations as well as its other claims.

While Storage Tech did not provide sufficient evidence to support its claim that Cisco stole its business by hiring away its employees, one of the keys to this decision was that Cisco's business did not show any profit even after it allegedly raided Storage Technology. If you add in the costs of defending the lawsuit, nobody made money off a business plan was that based on bringing new technology to the market after grabbing employees from a company which was involved in developing it.

If you have any questions, contact Bob Bach of our Minneapolis office.

Founded in Saint Paul in 1943, Felhaber, Larson, Fenlon and Vogt, P.A. has offices in Minneapolis and Saint Paul. With over 55 attorneys, the firm serves clients in the areas of corporate and commercial law, employee benefits, employment law, estate planning, health care, intellectual property, labor law representing management, litigation, real estate, transportation law, and workers' compensation.