High-Tech Hard Feelings : Newport Man Fights Charge He Stole Ex-Employer’s Trade Secrets
As a salesman for Egghead Software, Dan Bader kept track of his regular customers using a method befitting his high-tech industry--storing their names and phone and fax numbers on his notebook computer.
Now that information, and Bader’s right to use it, is at the center of a lawsuit in which Egghead accuses Bader of stealing trade secrets when he quit to join a rival firm in December, 1993.
Four other salespeople who left the company about the same time recently settled with Egghead on the same charge. Their agreements allow them to contact old clients again.
But Bader continues to fight, arguing that the relationships he formed with clients while at Egghead are hardly trade secrets. Lawyers expect a trial date will be set soon.
“I don’t see where they have the right to tell me who I can and can’t talk to,” said Bader, a Newport Beach resident who now sells for the Huntington Beach office of Software House International, a privately held software and hardware reseller based in Somerset, N.J.
Bader’s tenacity--or his obsessive pursuit of the case, in Egghead’s view--may be the only thing that sets the dispute apart from thousands of others taken to court each year by California businesses anxious to restrict use of information gathered by current and former employees.
But in its details, the case also reflects the practical difficulties that are emerging as more commercial information is stored electronically, making it easier to copy and sort. Although much of this client information is hardly considered proprietary, such as the names of company purchasing managers, disputes about trade secrets often center on how that information is organized.
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Computer database programs allow users to turn long lists of customer account information into sales leads quickly, in effect pooling the Rolodexes of an entire sales staff.
“Just having a name and a phone number is one thing, but if you have records--what people bought before, what they want--there’s a lot more you can do with that,” said Matt Sargent, an industry analyst at Computer Intelligence Infocorp, a La Jolla market research company.
“If you have a record of what Bob bought last year, what kind of mainframe he has, whether or not Bob can make purchasing decisions, then you can find your way through a lot more even if you’re coming in cold,” Sargent said.
That, Egghead charged, is exactly the advantage that Bader and the other employees unfairly gained.
Egghead, based in Issaquah, Wash., had sales of $778.3 million last fiscal year. In addition to its network of 171 retail stores, including nearly 30 stores in Southern California, Eggheadmaintains a sales force to sell software directly to companies.
Bader and the other former salespeople worked at an Egghead office in Orange that was closed in June, 1993. They were subsequently either allowed to work from their homes or transferred to a company office in Culver City. Each took a job with Software House International between November, 1993, and January, 1994.
In legal documents, Egghead accused the five of various acts of piracy at the times they left, including the copying of computer files onto floppy disks or printing them out on paper.
“Rather than compete legitimately, Software House--a newcomer to Southern California--has tried to deliver a knockout punch by luring away . . . Egghead’s very top sales employees and sending them forth to solicit key Egghead contacts using Egghead trade secrets,” the lawsuit states.
The charge is baseless, said Michael Goumas, who is among the four salespeople who have settled. “It’s very easy to get these contacts; you just call a company,” he said.
An aggressive defense by the attorneys for Bader and for Software House became something of a thorn in Egghead’s side, however--requiring testimony from high-placed company officials, including board member Paul Allen, a co-founder of Microsoft.
A settlement was reached in the case last month, but it did not include Bader, who was defending himself separately from the others.
Elmer Baldwin, an Egghead vice president for corporate sales, said his company pursued the case against the former salespeople because it was rare that a competitor would hire away the sales staff for an entire region, as did Software House.
“We believe it was a grave violation of the law. It was also one where they were uniquely aggressive,” Baldwin said of Software House.
Lawyers who specialize in intellectual property disputes say Bader’s case illustrates a common tension between employee and company interests.
“You’ve got to balance the employees’ freedom to make a living and the employers’ rights to protect their commercial information,” said Jeffrey Weinberger, a partner in Munger, Tolles & Olson in Los Angeles and president-elect of the local chapter of the Assn. of Business Trial Lawyers.
Such cases usually do not go to trial, he said, but instead turn on whether plaintiffs can obtain an injunction in the early stages. Settlements usually follow rulings on whether an injunction will be imposed.
“The criteria is whether the material is something you can readily obtain. If you can get customers out of the phone book, that’s one thing; but if a lot of knowledge went into creating it, that tends to be the type of list that’s protected,” Weinberger said.
Whatever the outcome of Bader’s case, the issue is familiar to other technology salespeople in Orange County.
Fred Anson, an information systems manager at Cocensys Inc., an Irvine pharmaceutical company, said he faced a decision similar to Bader’s when he left a job at Businessland Inc., a now-defunct San Jose-based computer retailer.
Anson said he left all his files and documents behind so as not to violate what he felt was his obligation to protect the knowledge. “In the computer industry, one lead may cost you $300 in terms of going to trade shows,” he said.
“That doesn’t mean I didn’t pick up the phone and call my old contacts back,” Anson said. “But I called information first--to get their number.”
