Reference no: EM131281584

Eugene McCarthy left his position as director of sales for Nike's Brand Jordan division in June 2003 to become vice president of U.S. footwear sales and merchandising at Reebok, one of Nike's competitors. Nike sought a preliminary injunction to prevent McCarthy from working for Reebok for a year, invoking a non-compete agreement McCarthy had signed in 1997 when Nike had promoted him to his earlier position as a regional footwear sales manager.

The agreement stated in pertinent part: During EMPLOYEE'S employment by NIKE ... and for one (1) year thereafter, (the "Restriction Period"), EMPLOYEE will not directly or indirectly ... be employed by, consult for, or be connected in any manner with, any business engaged anywhere in the world in the athletic footwear, athletic apparel or sports equipment and accessories business, or any other business which directly competes with NIKE or any of its subsidiaries or affiliated corporations. The U.S. District Court granted Nike's motion for a preliminary injunction, and McCarthy appealed.] FISHER, C. J... Protectible Interest Even if the covenant not to compete is not void ... it is a contract in restraint of trade that must meet three requirements under Oregon common law to be enforceable:

(1) it must be partial or restricted in its operation in respect either to time or place;

(2) it must be on some good consideration; and

(3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public. Eldridge v. Johnston, 245 P.2d 239, 250 (Or. 1952). To satisfy the reasonableness requirement, the employer must show as a predicate "that [it] has a ‘legitimate interest' entitled to protection." North Pac. Lumber Co. v. Moore, 551 P.2d 431, 434 (Or. 1976). McCarthy argues that Nike has failed to show such a legitimate interest in this case.* ... Nike has shown that McCarthy acquired information pertaining especially to Nike's business during the course of his employment with Nike.

As Brand Jordan's director of sales, McCarthy obtained knowledge of Nike's product launch dates, product allocation strategies, new product development, product orders six months in advance and strategic sales plans up to three years in the future. This information was not general knowledge in the industry. For instance, McCarthy was privy to information about launch dates-the date Nike plans to introduce a product in the marketplace-for Brand Jordan shoes up through the spring of 2004. According to the undisputed testimony of one of Nike's executives, if a company knew its competitor's launch dates, it could time the launch dates of its own products to disrupt the sales of its competitor....

An employee's knowledge of confidential information is sufficient to justify enforcement of the noncompete if there is a "substantial risk" that the employee will be able to divert all or part of the employer's business given his knowledge. See Volt Servs. Group v. Adecco Employment Servs., Inc., 35 P.3d 329, 334 (Or. Ct. App. 2001)....

Given the nature of the confidential information that McCarthy acquired at Nike and his new position with Reebok, there is a substantial risk that Reebok would be able to divert a significant part of Nike's business given McCarthy's knowledge. McCarthy had the highest access to confidential information concerning Nike's product allocation, product development and sales strategies. As vice president of U.S. footwear sales and merchandising for Reebok, McCarthy would be responsible for developing strategic sales plans, providing overall direction for product allocation and shaping product lines, including how products are priced.

Thus, McCarthy could help choose product allocation, sales and pricing strategies for Reebok that could divert a substantial part of Nike's footwear sales to Reebok based on his knowledge of information confidential to Nike without explicitly disclosing this information to any of Reebok's employees. Accordingly, the potential use of confidential information by McCarthy in his new position with Reebok is sufficient to justify enforcing the noncompete agreement. We conclude that Nike has demonstrated a likelihood of success as to the enforceability of its noncompete agreement with McCarthy.... [Affirmed.]

Case Questions
1. Review the wording of the noncompete agreement as to duration and territory. Is it unreasonably restrictive on McCarthy?

2. Was the restraint reasonably necessary to protect Nike's business.