Intellectual property lawsuits are on the rise, and Bass Pro Shops’ subsidiary Cabela’s Inc. is involved in two suits regarding trade secrets against former employees who have started their own similar companies.
In today’s connected world, the ability to share, capture and use information has never been easier.
The most recent data from U.S. District Courts show an 18.6 percent increase to 10,631 copyright, patent and trademark cases, which encompasses trade secrets, from 8,966 between 2000 and 2017. Such cases peaked in 2015 at 13,751.
“It is growing just because of technology,” Missouri State University prelaw adviser Kevin Pybas said. “A lot of these issues deal with online matters.”
The pair of lawsuits by Cabela’s Inc. against NexGen Outfitters LLC and Highby Outdoors LLC allege a violation of the Nebraska Trade Secrets Act by the former employees’ companies in Sidney, Nebraska, as well as a breach of contract. Cabela’s operated its headquarters out of Sidney until Bass Pro acquired its outdoor retailer competitor in 2017 for $5.5 billion. Both suits were filed in Delaware, where Cabela’s is organized, but Nebraska law applies in both cases, as Cabela’s maintains an office at its former headquarters.
Highby Outdoors suit
In its misappropriation of trade secrets and breach of contract suit against Highby Outdoors, Cabela’s is seeking reimbursement from a proprietary matters agreement signed by Matthew and Molly Highby for stock while employed, totaling nearly $2 million, and $200,000 in severance payments from the Highbys, according to court documents. The couple filed a certificate of organization with the Nebraska secretary of state’s office in March 2018 for Highby Outdoors, and its website went live Feb. 4.
The couple left Cabela’s shortly after its merger with Bass Pro Shops, according to court documents.
“The Highbys are in violation of their contractual obligations to Cabela’s and have otherwise improperly used Cabela’s confidential information to develop their competing business,” Bass Pro spokesman Jack Wlezien said in an emailed statement.
In the fillings of the suit, Matthew Highby said Cabela’s officials were aware he was planning to open a competing business. Testimony from those officials contradicts Highby’s statements, according to court documents.
On Jan. 24, Judge Richard Andrews denied Cabela’s preliminary injunction against Highby Outdoors.
“While Cabela’s is correct that Nebraska law recognizes the protection of confidential information as a legitimate business interest, I think the proprietary matters agreement noncompetition restrictions go beyond what is reasonably necessary to protect that interest,” Andrews wrote in his Jan. 24 memorandum order.
Matthew Highby said it’s been business as usual during the suit.
“We’re just moving on and doing business as is and happy the judge denied their injunction,” he said.
Neale and Newman LLP partner Richard Schnake, who practices in trademark and copyright law, said Cabela’s made a broad general assessment regarding its trade secrets.
“That’s way too broad, even under Missouri law,” he said.
Schnake gave examples of the Coca-Cola Co. formula and the Kentucky Fried Chicken Corp. recipe as trade secrets, since if they were to be patented it would do harm to those companies. Andrews said in his memorandum Cabela’s did not identify any specific trade secrets used by the Highbys.
Cabela’s would need to show the existence of a trade secret or secret manufacturing process, and its value, use and communication of the secret to the employee for a successful misappropriation of trade secrets claim, according to Andrews’ memorandum.
Wlezien said Cabela’s isn’t done and intends to appeal that portion of the decision.
“The court correctly recognized that the Highbys had improperly used Cabela’s confidential information to develop their competing business,” he said via email. “We respectfully disagree with the part of the court’s preliminary decision regarding the enforceability of the Highbys’ various noncompetition obligations to Cabela’s.”
The tortious interference and breach of contract suit against NexGen Outfitters – which plans to open a brick-and-mortar location Feb. 21 – names the company and its four owners, Ryan Wellman, Trent Santero, Mike Riddle and Jeremy Nesbitt, as defendants. All four were previous Cabela’s employees in management positions before leaving the company in early 2018. Cabela’s also alleges a violation of the Nebraska Trade Secrets Act.
“That’s pretty common in the business world when you have someone buying someone else out,” Pybas said of breach of contract suits.
The NexGen lawsuit alleges the defendants began making preparations for their new business before leaving Cabela’s and used a Cabela’s-issued computer to install the new business setup tool “Business-in-a-Box”. Other allegations state the defendants met with vendors at a Las Vegas trade show, designed a logo that included Cabela’s colors and developed a vision for the new business which included providing products and services to Cabela’s customers, according to court documents.
NexGen owners could not be reached by press time.
“The closest thing I saw for intellectual property was the NexGen people went out and created a logo,” Schnake said after reviewing the case. “That itself doesn’t make for trademark infringement.”
The suit also alleges that Santero downloaded Cabela’s information regarding national brands and projections, and shared the information with the other defendants.
In their signed agreements, the individuals agreed to 18 months of nonsolicitation to Cabela’s vendors, customers and employees, if they left the company, along with a noncompete provision.
“The defendants likely breached that provision because they sent facts and figures to themselves,” Schnake said.
The suit was filed in August 2018 after Cabela’s sent a cease-and-desist order in June.
Delaware Vice Chancellor Tamika Montgomery-Reeves upheld Cabela’s preliminary injunction on Oct. 26, 2018.
She found in favor of Cabela’s on the breach of the nonsolicitation and confidentiality provisions of the proprietary matters agreement, citing an email to a vendor, emails about Cabela’s documents and two individuals who left Cabela’s for NexGen.
NexGen is required to pay the bond amount in excess of $1.85 million, or the gross profits from part of 2018 and all of 2019 estimated by Montgomery-Reeves.
She found the noncompetition and nonsolicitation provisions of the proprietary matters agreement invalid and unenforceable under Nebraska law but granted, in part, Cabela’s motion for a preliminary injunction, according to court documents.
“Because the individual defendants may not work for ‘any other multistate, multiprovince, and/or multichannel retailer engaged in the sale of products and/or services associated with hunting, fishing or camping’ the PMAs’ noncompetition provision is a prohibition of ordinary competition and is unreasonable under Nebraska law,” Montgomery-Reeves said in her memorandum.
Under Nebraska law, an employer cannot prevent a former employee from using any general knowledge, skill or facility acquired on the job as an edge for ordinary competition, unless the employer is protecting itself from a former employee’s improper or unfair competition.
Bass Pro’s subsidiary Cabela’s isn’t the only national company in a suit involving intellectual property law.
Lyft Inc. and Uber Technologies Inc. each had a lawsuit filed against them on Feb. 7 by Dr. Lakshmi Arunachalam, claiming her April 2011 patent for a network transaction portal is infringed upon.
In a separate patent infringement case, Sprint Spectrum LLP, Sprintcom Inc. and Sprint/United Management Co. filed suit on Feb. 7 against AT&T Inc. under the Lanham Act, which covers trademark registration, for deceptive practices about its wireless 5G network.
The Uber and Lyft suits have not had a filing since Feb. 7. AT&T has until March 4 to respond to Sprint’s complaint.
In the Cabela’s cases, the memorandums were the last filings in both suits.
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