MEMORANDUM TO: FROM: DATE: RE: President Zarghami, President of Nickelodeon Networks John Papaspanos November 12, 2011 The Enforcement of Bloom¶s

Non-Compete Covenant ISSUE Whether a non-compete covenant contained in a former employee¶s employment agreement is enforceable under NY state law, when such a restriction 1) provides the appropriate level of protection for Nickelodeon¶s interests in a specified market, 2) grants Bloom a broad range of options in obtaining another job, and 3) safeguards the interest of the public in creating the proper economic incentives. BRIEF ANSWER Most likely, yes. A covenant is deemed reasonable and enforceable if its provisions 1) do not restrict any greater than is required for the protection of the legitimate interests of the employer, 2) do not impose an undue hardship on the employee, and 3) do not injure the public. Nickelodeon will prove that the covenant 1) safeguards its economic interests by protecting a trade secret and enabling the company to react to the loss of an employee with unique skills, 2) reasonably limits Bloom¶s options for employment by type of activity, geography, and by time, and 3) does not injure the public interest in terms of restricting trade or individual liberty. FACTS In 1982, Nickelodeon acquired a kids¶ TV show in Canada that was highly popular by using a gimmick of sliming the show¶s guests with green slime. Josh Bloom was a production assistant on that show who developed the formula for green slime, the major driver of the show¶s

During his tenure at Nickelodeon. . Since the concept of slime is so integral to Nickelodeon brand recognition. but also in traveling promotional events that Bloom arranged and managed. Bloom was very inventive in his role as ³Slime master. Many recipes have been uploaded onto the internet claiming to be genuine. Besides Bloom and a few select employees of the company. the company explicitly tells any hired employee that the slime recipes and slime-related devices cannot leave the company. At that time. Bloom assumed a more important role in the company. Nickelodeon¶s President Zarghami terminated him immediately thereafter. Bloom was asked to sign a contract containing a covenant not to compete. Nickelodeon sent employees to fairs. Nickelodeon identified the concept of slime as having a strong market potential in the United States and acquired the Canadian TV show largely because of the talent and skills of Bloom in producing slime and capitalizing on its entertainment value.´ in producing several different slime recipes for various uses. no one really knows the exact contents of slime. are secret to the industry and the public at large. In September 2011. but they only list the main ingredients of most of the slime recipes. Accordingly. the former Executive VP of Special Productions of Nickelodeon Networks.commercial success. The product was not only used on the TV shows. he was given a raise in salary and the title of Executive VP of Special Productions. In 1986. resigned from his position in order to accept another job at Family Amusements. carnivals. Inc. Bloom set up different stunts that he would broadcast and then perform on the road. and the use of slime extended to other Nickelodeon TV shows. and thus. Bloom was hired as a producer after Nickelodeon acquired the show. The real recipes have never been published. At such events. parades. Josh Bloom. a subsidiary of MTV Networks. The target audience of TV viewers for Nickelodeon became increasingly aware of the association between slime and Nickelodeon to the extent that slime gained brand recognition. and other local events to promote the TV network.

and. In order to demonstrate that the covenant is reasonable.Although Nickelodeon has used slime less in recent years. employee. You acknowledge and agree that any violation hereof will result in irreparable damage to MTVN. Inc.´ . accordingly. in addition to any other remedies available to MTVN. Bloom can potentially harm Nickelodeon¶s interests by leaking information or even pre-empting the event by implementing a competing marketing plan of his own through Family Amusements. Nickelodeon can then proceed in obtaining a preliminary injunction while the Court determines the merits of the case.´ B. director. it is still used for marketing and major events. Bloom would hold an ownership stake in the company. As a result. talent. Nickelodeon will prove that the non-compete covenant contained in the defendant¶s employment agreement is reasonable and thereby enforceable. you shall not directly or indirectly engage in or participate as an officer. ³MTVN has entered into this Agreement in order to obtain the benefit of your unique skills. yes. MTVN may obtain injunctive and other equitable relief for any breach or threatened breach. Nickelodeon must prove that its provisions 1) do not restrict any greater than is required for the protection of the legitimate interests of the employer. and 3) do not 1 A. Bloom aims to use slime at its events. For these reasons. agent of or consultant for any business directly competitive with that of MTVN. Nickelodeon is concerned that vital knowledge about slime is no longer available to the company. nor shall you make any investments in any company or business competing with MTVN. Bloom has knowledge about a major event in May that is being advertised as a surprise. As the Head of Production at Family Amusements. With Bloom¶s intent to leave the company. Therefore. ³You agree for a period of two (2) years after the termination of your employment (the ³Non-Compete´ Period). which will create an impact on Nickelodeon¶s business. and experience. the association of slime with Nickelodeon may weaken and the competition for advertising sales will result in greater difficulties for Nickelodeon to book venues. Nickelodeon is seeking to enforce the non-compete covenant1 in Bloom¶s employment agreement. Bloom was heavily involved in the marketing plans of the company. Apparently. 2) do not impose undue hardship on the employee. Specifically. In addition. DISCUSSION Most likely.

Id. 561. geography. Since the processes are not patentable. 1223 (1999). BDO Seidman v. 388. v. the former employee was responsible for the spreading of chemical emulsion upon films from which Kodak and motion picture films are made. Id. he would not work for a competitor company for two years.2d 382. 325. as part of the consideration of his employment. 556. 179 N. Nickelodeon will prove that the non-compete covenant is reasonable and thereby enforceable under NY state law.Y. 93 N. a trade secret in the kids¶ TV production industry. The court respected the threat of ³turning over´ any trade secrets and retained an injunctive relief against the former employee and the competitive company. the former employee had signed a noncompete covenant and promised to not disclose any knowledge he would acquire during his employment as to any formulas used by the employer and that. upon termination. In Eastman.E. . The former employer has ³a right to require´ a former employee. the employer ³jealously guarded its processes«and maintained them as a secret asset´ in order to prevent competitive companies from acquiring knowledge about them.S. Therefore. 189 A.Y.2d 1220. Eastman Kodak Co. The company expended a large amount of resources in hiring skilled workers to improve the processes for producing film. Hirshberg. 712 N. and by time. such reasonable contractual engagement upon his part as would reasonably insure the protection of valuable trade secrets.injure the public. 2) reasonably limits Bloom¶s options for employment by type of activity. Accordingly. at 557. Powers Film Products. and 3) does not injure the public interest in terms of restricting trade or individual liberty. 330 (1919).D. by working for a competitor of Nickelodeon. Nickelodeon will prove that the covenant 1) safeguards its economic interests by protecting a trade secret and enabling the company to react to the loss of an employee with unique skills. 1(a) Protects Legitimate Interests of the Employer: Trade Secret Nickelodeon has a legitimate interest in restraining Bloom from leveraging his knowledge and skills of green slime. at 558.

there is a strong likelihood that Bloom will harm Nickelodeon¶s legitimate interests by imparting special knowledge about slime to other people in the industry. and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. 1(b) Protects Legitimate Interests of the Employer: Unique Skills Even if slime is not deemed a trade secret.Similarly. It may be a formula for a chemical compound. the court will enforce the covenant to prevent that occurrence during the two-year period. Bloom was assigned the task to develop the product with the support of a special productions team. Therefore. the slime produced by Nickelodeon holds significant commercial because. device or compilation of information which is used in one's business. pattern. and thus. any company could simply access the internet to acquire the necessary information about slime. and thus. and thus. or extraordinary. a pattern for a machine or other device. slime is not a trade secret2. treating or preserving materials. and accordingly. the basic formula for slime does not have the special characteristics to be used for stunts and gimmicks. If slime is not a trade secret due to the availability of its recipe online. Like the processes for producing film. the methods of creating slime and even its formula are not patentable. Nickelodeon also ³jealously guarded´ the trade secret by requiring any employee to not share information with anyone beyond the company. to hire Bloom and his production team to develop formulas and special devices to use slime for various TV programs. would not have given Bloom a position and ownership stake in that company. a process of manufacturing. Inc. As ³Slimemaster´. then Nickelodeon would not have promoted Bloom as Vice President of the company and Family Amusements. it does not hold any commercial value. then the covenant may be enforced by injuctive 2 First Restatement of Torts Section 757 states that a trade secret may consist of ³any formula. However.´ . Nickelodeon will prove that Bloom holds unique skills and an enforcement of the covenant is reasonably warranted. unique. If the employee¶s services are deemed ³special. or a list of customers. Nickelodeon allocated a substantial amount of resources to purchase the Canadian kids¶ TV show. The opposing council will contend that the basic ingredients of slime can be identified and the information is available on the internet to the public. otherwise. Based on the behavior of companies seeking to maximize profits.

Yates. he had a foundation of knowledge and skills dating back to his career in Canada. even though the employment did not involve the possession of trade secrets or confidential customer lists. In Weitz. Based on TV ratings and advertising sales. the court suggested that the plaintiff must show more evidence to prove the uniqueness of an employee¶s skills. v. and thus. Artists Corp.2d 13 (1947). Weitz. v. (See also Frederick Bros. Id. As the only company in the industry using the concept of slime. he already held unique skills.E. Bloom possesses unique skills. the court held that there was ³no basis exists for enjoining the defendant from pursuing his occupation. he further developed them after decades of developing and experimenting. 72 N.E. 820. 296 N. After the employee resigned from his job and organized his own company. Bloom .2d 245. 13 N. and trying out different recipes and uses of slime. When Bloom was specifically hired to adopt the concept of slime for Nickelodeon¶s kids¶ TV programs. Although the employee may be highly effective in his job and provide highly valuable services to the employer. the plaintiff brought action to enforce the covenant with an injunction. Purchasing Associates. The Canadian kids¶ TV show that was acquired by Nickelodeon was singular in that market and no other competing company used such a product. which also engaged in the data processing business. The court held that the plaintiff did not demonstrate that the defendant¶s services were unique or extraordinary. at 274. the defendant entered into a contract with the plaintiff employer that contained a noncompete covenant that precluded the defendant from working for a business of the type and character operated by his employer with certain geographical and temporal limitations. Id. he can be distinguished from the defendant in Weitz. 196 N. At the time Bloom was hired.relief. at 274. The company was engaged in the business of buying routine supplies for other business organizations on a fee basis. 273.´ Id.Y. Inc. where the injunction was not granted because the employee¶s skills were not unique as to make his replacement impossible or to subject the employer to irreparable injury). if reasonable.Y. 248 (1963). at 274. At Nickelodeon. In the absence of such evidence.2d 267.

Bloom can a) choose from a myriad of jobs so long as they do not involve the use of slime as a trade secret. Ltd. v.3d 724. . 28 N.has been very effective for Nickelodeon and added great value to the company. 51. a court may hold it to be unreasonable without the necessity of weighing the countervailing interests of the promisor and the public. White. 754 (1971). 28 A.D. he can transfer his management and marketing skills to another job position. Because Bloom will use the concept 3 Such discretion is allowed because NY case law supports the existence of the court¶s power to sever the impermissible from the valid and uphold the non-compete covenant to the extent that it is reasonable. b) find new employment in a wide geographical area and c) use his unique skills relating to slime after a reasonable two-year period. A viable replacement cannot be found neither among his team of production personnel. marketing efforts. Kessler & Associates. Bloom is reasonably restricted in choosing the type of job after his employment at Nickelodeon. and commercial success for the last three decades. and by time. if the restraint is too broad to be justified by the promisee's need.2d 45.S. 268 N.2d 631. The extent of the covenant may be limited in three ways: by type of activity. Restatement (Second) of Contracts § 188 (1981). For these reasons. Bloom possesses unique skills and that the covenant reasonably restricts his employment options for the two-year period after he leaves Nickelodeon.2d 751. 724. But after Bloom leaves. by geographical area. it will be virtually impossible to find an employee with his unique skill set. 815 N. [See Michael G. 632 (2006)].Y.E. Karpinski v. nor the broader labor market. In order to protect Nickelodeon¶s legitimate interests. 2: Does not Impose an Undue Burden on Bloom The covenant does not impose an undue burden on Bloom because it restricts him to a reasonable extent. Bloom should be enjoined from disclosing information about slime. 3 As a VP of a major TV network. In any of these cases.Y. the unique skills that once benefitted Nickelodeon will become harmful once Bloom begins working for a competing company. And most importantly. He was a highly competent employee whose concept of slime has been central to Nickeolodeon¶s brand recognition. Ingrasci.

Webber.2d 573. he will be impinging on Nickelodeon¶s interests. 41 N. b) no other Nickelodeon employee can perform Bloom¶s former duties.2d 680. Nickelodeon gradually grew as a TV production company long before the arrival of Bloom and the concept of slime. and e) Bloom will inflict losses on Nickelodeon¶s profits in the short term if we do not develop an alternative concept to slime. Such a strategy is motivated by many reasons: a) Bloom¶s unique skills will not be available in the labor market. 557-59. 189 A. the time restriction gives Nickelodeon sufficient time to identify and develop the next new concept that will replace slime.S. [See Gelder Med.2d 200. and labor to support the efforts of Bloom and his team for nearly thirty years of research and development. 575 (1977)]. Bloom has a reasonable array of employment options without incurring an undue burden in terms of changing occupations or moving long distances. money. Powers Film Products. [See Chernoff Diamond & Co. 327-28 (1919)].S. . Fitzmaurice.Y.Y. Bloom can even return to Canada and use the concept of slime as long as the Canadian company does not directly or indirectly compete against Nickelodeon.D.. Therefore. Inc. c) developing commercially viable concepts like slime requires long lag times.E.of slime for his job at Family Amusements. 651 N. Bloom can effectively work anywhere in the US as long as he does not exercise his unique skills relating to the trade secret of slime. Such action will violate the covenant and the court will enjoin him to comply. Group v. Inc. 179 N.Y. 363 N. v. Eastman Kodak Co. v.. With regard to the limitation by geography.2d 504 (1996).D. 556. 681. he could not have acquired his present-day knowledge and unique skills relating to slime but for his employment at Nickelodeon. Even though Bloom did have a foundational understanding of slime and its usage upon joining Nickelodeon. d) the concept of slime will diminish in popularity over time. In fact. With respect to the limitation by time. 325. Nickelodeon expended vast amounts of resources in terms of time. 234 A.

The restrictions on trade and personal liberty far outweighed any benefit the employer could accrue. By not enforcing Bloom¶s covenant. and the time period in which he must refrain from using the concept of slime for a competitor of Nickelodeon. 708. The plaintiff was involved in the business of manufacturing paper. public policy will create a chilling effect for the development of new concepts in the marketplace. 140 N. The opposition may argue that the court would sanction a . 322. a countervailing interest is at stake: the incentive for companies to develop human capital. Co. 236 N. v.E. at 322. But because Bloom was a key employee at his company. he is reasonably restricted by the type of business activity he can engage in. Id. Because the defendant was an ordinary employee who simply sold wrapping paper. Stenacher. The temporary limitations on Bloom¶s employment options will not enable Nickelodeon to acquire or maintain a monopoly in the kids¶ TV production industry and Bloom¶s ability to pursue his livelihood will not be unreasonably impaired.Y. and therefore void. 712 (1923). A contract by an ordinary workman not to enter other like employment for eight years after leaving his employer would be unreasonable as to make the contract one in restraint of trade and personal liberty. 3) Does not Injure the Public The covenant is reasonable because the enforcement of its provisions will not injure the public. In Clark Paper. 312. unlike the defendant in Clark Paper. the court held it would be against public policy to enjoin him and the covenant was deemed unenforceable.After Bloom leaves Nickelodeon. the geographical places he can seek employment. the plaintiff sought an injunction against a former employee to prevent him from gaining employment with any competitor of the plaintiff in New York for a period of eight years and from disclosing any information about the former employer¶s methods. Clark Paper & Mfg. public policy would favor the non-enforcement of the covenant because it would restrict trade by interfering with the optimal allocation of labor. If Bloom was an ordinary employee.

After several years. it creates net benefits to society by providing the proper incentives to market actors. First. it will set in place the proper incentives to benefit the TV productions industry and society at large. As mentioned above. 2) the consequences of not enforcing the covenant will create a substantial hardship on Nickelodeon as compared to the minimal burden on Bloom if the covenant is enforced. Therefore. by not enforcing the covenant. but rather. companies would develop less new ideas and the decreased turn-over rate for new concepts would favor the established companies and disadvantage the new market entrants. And second. there is adequate competition because many companies compete for the same pool of consumers and sponsors. CONCLUSION Nickelodeon will prove that the covenant is reasonable and the court will enforce it because 1) the restrictions are appropriate and do not restrain Bloom beyond what is necessary to protect the trade secret of slime and other legitimate interests of Nickelodeon. these concepts become obsolete. Accordingly. usually with the inception of new fads. are subject to regular changes in consumer preferences. Bloom¶s covenant not only avoids any injury to the public. concepts like slime. and 3) the covenant¶s enforcement will not injure the public. more so than other types of ³technology´. but that argument would fail.monopoly on the use of slime if it enforced Bloom¶s covenant. the covenant is not unnecessarily interfering with Bloom¶s search for a new job. . Bloom can earn his livelihood without changing industries and he can work in any geographical area as long as his new duties do not involve the subject matter of slime during the two-year period. With regard to Bloom¶s personal liberty.

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