Thursday, June 28, 2007, 6/28/2007 04:44:00 PM

Lexis/Nexis Noncompete Battle Involves Allegations of Theft of Trade Secrets

By Todd
Law.com is reporting that the LexisNexis Risk and Information Analytics Group claims in a federal lawsuit that a former senior sales and marketing executive breached his noncompete agreement by taking a job as president and chief executive for a competitor.

The Boca Raton, Fla.-based data company is seeking permanent injunctive relief and punitive damages in U.S. District Court for the Southern District of Florida in West Palm Beach against former vice president of sales Paul Colangelo. The suit claims the violation of Colangelo's confidentiality and noncompete agreement is causing harm to LexisNexis, including loss of profits and client relationships and diminution of its competitive position.

LexisNexis Risk and Information Analytics Group provides intelligence information about individuals and businesses as part of Miamisburg, Ohio-based LexisNexis division, a research arm of Reed Elsevier.

Colangelo worked for LexisNexis for more than six years where he had access to business strategies, customer contacts, confidential information and trade secrets, according to the suit filed June 6.

LexisNexis said it conducted a forensics examination of Colangelo's work computer and found he had burned hundreds of files containing confidential information to a CD before he announced his resignation and attached an external hard drive to his work computer before he left his job.

Last month, Colangelo left LexisNexis to work at LocatePLUS Holdings Corp., a competing Beverly, Mass.-based provider of online investigative products to law enforcement and businesses. LocatePLUS is not a defendant.

The suit claims LexisNexis only heard about Colangelo's new job when it read Securities and Exchange Commission filings by LocatePLUS touting his knowledge about the industry through his prior employment with LexisNexis.

Litigation based on noncompete cases has grown, as companies move to take aggressive steps to protect trade secrets and other confidential information. Employers have grown bolder about requiring high-level employees to sign such agreements as more courts uphold them, said labor and employment attorney Suzanne Bogdan of Fisher & Phillips in Fort Lauderdale, Fla., who is not involved in the LexisNexis case.

A growing number of employers are turning to computer data mining technology to determine if confidential information has been taken by former employees, said labor and employment attorney Robert Turk, a shareholder at Stearns Weaver Miller Weissler Alhadeff & Sitterson in Miami. He is not involved in the case.

"It used to be that someone would walk out the door with a briefcase of papers," Turk said. "Now, with computer disks and sticks and iPods that you can download things to, if an employer has a question [about their confidential documents] it is appropriate to look at the electronic activities going on."

Other plaintiffs in the case include LexisNexis parent company Reed Elsevier, a publicly traded company that reported more than $10.5 billion in revenue in 2006, and Boca Raton, Fla.-based affiliate Seisint.

Scott S. Cairns, a partner at McGuireWoods in Jacksonville, Fla., who is representing LexisNexis, declined to comment. Colangelo did not return a call for comment by deadline.

Representatives of LexisNexis Risk, including president and chief executive James Peck, could not be reached for comment.

LexisNexis Risk and Information Analytics Group Inc. serves the risk information industry, comprised of government agencies, law enforcement, financial service firms, and human resources. The company, according to the suit, uncovers fraudulent transactions, prevents identity theft, tracks down terrorists and helps find missing children. It also offers screening services,such as criminal background checks, to governmental organizations.

Colangelo began working for LexisNexis in 2000. During his tenure, Colangelo served as federal marketing manager, director of business development and senior director of market planning. His most recent position was vice president of sales for the group, where he was in charge of product development and led the sales effort focusing on federal, state and local government agencies.

The suit alleges that during Colangelo's time at LexisNexis, he became an expert in serving the security and information needs of law enforcement, government agencies and businesses that arose after Sept. 11, 2001.

In August 2000, before Colangelo began working for LexisNexis, he signed a noncompete agreement. This agreement said, "During and after my employment with LexisNexis … I will hold in strict confidence all LexisNexis confidential information and I will not use, either directly or indirectly, LexisNexis confidential information for any purpose."

The agreement also stated that -- for the year following his employment with LexisNexis -- Colangelo will not "own, manage, operate, join, control or participate in the ownership, management, operation or control of … [any enterprise] which competes with LexisNexis' business as conducted during the period of my employment." That applied to a zone of a 100-mile radius around each of the counties or parishes where customer accounts are located or where LexisNexis has offices or customers.

Yet, Colangelo obtained a job with LocatePLUS, a publicly traded company and a direct competitor of LexisNexis. Colangelo’s last day of work was May 23. On May 29, a LocatePLUS filing with the Securities and Exchange Commission announced that he was appointed president and CEO.

The suit alleges that he "intentionally and wrongfully disclosed the confidential information and trade secrets" of LexisNexis as "an incentive" to LocatePLUS to employ him as its president, chief executive and board member.

In addition, the suit claims that not only did he not tell LexisNexis about his new employer but he also promised LocatePLUS that he would seek an exemption to the noncompete agreement. He never obtained that exemption, the suit said.

According to the suit, the LocatePLUS SEC filings stated that Colangelo brought in $56 million per year in revenue while at LexisNexis.

LEXIS WANTS INFORMATION RETURNED

LexisNexis alleges breach of contract and violation of Florida's trade secrets act. The company is also attempting to permanently enjoin Colangelo from serving as a member of the board of LocatePLUS and disclosing trade secrets to that company. In addition, it's seeking punitive damages.

A week and a half after filing the complaint, LexisNexis asked Southern District of Florida Judge Donald M. Middlebrooks to enter a temporary restraining order or a preliminary injunction preventing Colangelo from continuing to work for LocatePLUS or disclosing any trade secrets.
The June 15 request contends that Colangelo, who lives in Virginia, already took valuable LexisNexis information. It claims that there is "imminent irreparable harm to [LexisNexis] due to disclosure to a competitor of its trade secrets by its former executive and the loss of goodwill caused by Colangelo's breach" of the noncompete agreement.

The motion alleged that Colangelo also assisted LocatePLUS in its effort to obtain financing while he was still working for LexisNexis.

The company is asking Middlebrooks to issue an injunction that requires Colangelo to return to LexisNexis all copies of confidential and proprietary information that he wrote, copied, printed or downloaded onto disks or recreated after he left.

Since filing the suit, LexisNexis moved to take expedited discovery for all documents and property that Colangelo possesses that refer to the company, its employees, customers and trade secrets.

Middlebrooks granted that motion, ordering that plaintiffs may take the defendant's deposition 10 days after he receives service of the complaint and other motions. Cairns said discovery has started.

LexisNexis' ability to prevent Colangelo from working at his new company depends on how valid the noncompete agreement is in terms of geographic and time restrictions, Turk said. Barring someone for more than two years is seen as unreasonable.

The suit argues that, because the noncompete agreement calls for it, the case should be decided under Ohio state law.

Florida law used to be more pro-employer and it was easier to enjoin an employee from working with a competitor, Turk said. A 1996 statute spells out for judges when a noncompete agreement has unreasonable clauses.

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