British Columbia based Xantrex Technology (Xantrex) makes advanced power electronic products that convert electrical power into other forms of energy.  One of Xantrex’s major markets is renewable energy, and the company is a world leader in production of solar inverters (pictured below).  Solar inverters convert DC power captured by solar panels into AC electrical energy.  The energy is then provided directly to customers or to a utility or electrical grid.

In November 2007, Xantrex sued Advanced Energy Industries (AE) and Christopher S. Thompson in federal court in Colorado, alleging, among other things, breach of Thompson’s employment agreement (against Thompson), misappropriation of trade secrets under Colorado law (against Thompson), breach of fiduciary duty and aiding and abetting such breach (against Thompson and AE, respectively), tortious interference with contract (against AE) and violation of the federal Computer Fraud & Abuse Act (against Thompson and AE). 

Last month Judge Wiley Y. Daniel denied the defendants’ motion to dismiss (based on a forum selection clause in Thompson’s employment agreement) and granted Xantrex’s motion for a preliminary injunction (PI), ordering that Thompson could not work for AE as Vice President and General Manager of Solar Inverters (or work on solar inverter technology for any other North American competitor of Xantrex) for a period of one year (xantrexorder.pdf).  Thompson and AE were also ordered not to use or disclose any Xantrex trade secrets.

Xantrex’s complaint (xantrex.pdf) alleged that Thompson breached his employment agreement by leaving Xantrex and immediately starting employment with AE (the non-compete provision prohibited Thompson from working for any competitor within one year of leaving Xantrex).  Thompson worked on solar inverter technology at Xantrex, and AE entered the solar inverter market shortly before Thompson joined AE. 

While at Xantrex, Thompson was Vice President of Engineering and Product Development and had access to the company’s confidential information.  According to the complaint, Thompson had played a leading role in acquiring and integrating certain cutting edge solar inverter technology into Xantrex’s products. 

The complaint also alleged assorted shenanigans by Thompson shortly before he left Xantrex, including downloading and transferring confidential Xantrex documents from his laptop, attempting to delete files to cover his tracks, and using Xantrex’s confidential market data to create market plans for AE.

Judge Daniel found the PI factors (likelihood of success on the merits, irreparable harm to Xantrex, threatened injury to Xantrex greater than harm of a PI to AE, and effect of PI on public interest) weighed in favor of granting the PI.  The irreparable harm is that AE would get a head start into the solar inverter market based on Xantrex work, money and trade secrets if Thompson were permitted to take a position at AE nearly identical to the one he had at Xantrex.

As to success on the merits of the trade secrets claim, Judge Daniel found enough evidence that the confidential information accessed by Thompson prior to leaving Xantrex rises to the level of trade secrets (e.g., solar inverter product development information and data on the benefits of various product features).  The court also found that Thompson’s rapid accessing of trade secret documents just before leaving Xantrex was of particular concern because his ready recollection of possible trade secrets would make their use by AE possible without him actually telling anyone.  In other words, Thompson’s mere knowledge of the information would make misappropriation likely.

The court also found Xantrex would be likely to succeed on the breach of contract claim.  Interestingly, Judge Daniel analyzed the non-compete provision under Canadian law, which strongly disfavors such restrictive covenants.  The court therefore took a “blue pencil” approach and modified the clause so the geographic restriction, which was global in scope, only covered North America.  With this modification, Judge Daniel found the breach of contract claim likely to succeed under British Columbia law. 

• Previous Entry: Has Gertrude Rothschild Become the Ronald Katz of Clean Tech?
• Next Entry: Apple’s Patent Application May Portend Solar iPhones