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NetScout Systems, Inc. v. Hohenstein

Superior Court of Massachusetts, Suffolk, Business Litigation Session

February 14, 2017

NetScout Systems, Inc.
Carl Hohenstein No. 136591

          Filed February 15, 2017


          Kenneth W. Salinger, Justice of the Superior Court.

         NetScout Systems, Inc., seeks a preliminary injunction that would enforce non-competition and other covenants agreed to by Carl Hohenstein when he was employed by Danaher Corporation's subsidiaries. When NetScout acquired Danaher's communications business, Hohenstein became a NetScout employee and Danaher assigned its rights under the contract with Hohenstein to NetScout. Eighteen months later, Hohenstein left NetScout to work for a competitor. Hohenstein agrees he was bound by NetScout's code of business conduct, including its restrictions on the use or disclosure of NetScout's proprietary information. At oral argument, Hohenstein said he does not contest the issuance of an injunction that would bar him from using or disclosing any NetScout proprietary information, helping to develop products or services that would compete with NetScout's offerings, helping to hire away NetScout's employees or contractors, or interfering in any relationship with NetScout's vendors. But Hohenstein contends that NetScout is not entitled to an injanction that would bar Hohenstein from selling or trying to sell products or services that compete with NetScout.

         The Court concludes that, although NetScout is entitled to enforce the noncompetition agreement assigned to it by Danaher, that contract does not bar Hohenstein from selling or trying to sell products or services that compete with those of NetScout. In any case, the contract provisions that barred Hohenstein from selling products and services that compete with those of Danaher and its subsidiaries lapsed in July 2016, twelve months after Hohenstein's employment with Danaher subsidiaries came to an end. The Court will therefore deny NetScout's motion to the extent it seeks to bar Hohenstein from selling products that compete with NetScout's offerings (covered in paragraphs 2 and 3 of the form of order proposed by NetScout). It will allow the motion only to the extent it seeks to protect NetScout's proprietary information and to obtain other relief that is not opposed by Hohenstein (covered in paragraphs 1, 4, 5, 6, and 7 of the proposed order, which the Court will renumber as paragraphs 1 through 5).

         1. Findings of Fact

         The Court makes the following findings of fact based on the affidavits submitted by NetScout and Mr. Hohenstein.

         Hohenstein worked for subsidiaries of Danaher Corporation from January 2001 through July 2015. Throughout this time he was employed at-will, with no fixed contract term. Hohenstein worked for Fluke Networks, Inc., as a sales engineer from September 2004 to April 2014, and as a senior systems engineer through April 2015. He then worked for AirMagnet, Inc. (an affiliated company, also owned by Danaher) as senior systems engineer.

         In late 2011 Hohenstein and Danaher entered into an " Agreement Regarding Solicitation and Protection of Proprietary Interests" that governed Hohenstein's continued employment by Danaher or any of its subsidiaries. This Agreement included provisions requiring Hohenstein not to use or disclose any confidential information belonging to " the Company" for any purpose other than performing his duties as a Danaher employee, and not to compete with " the Company" by soliciting potential customers to purchase, selling or offering to sell, or helping to develop competing products while employed by " the Company" and for twelve months thereafter. The Agreement defined " the Company" to mean " Danaher Corporation including its subsidiaries and/or affiliates." The phrase " the Company" did not include any assigns of Danaher or its subsidiaries or affiliates.

         NetScout acquired Danaher's communications business, which included Fluke Networks and AirMagnet, on July 14, 2015. This was structured as an asset deal, in which Danaher transferred certain assets and liabilities to NetScout, not as a stock transaction.[1] As of that date Hohenstein became a NetScout employee and his employment relationship with any Danaher subsidiary came to an end. As part of this transaction, Danaher assigned to NetScout its rights under the 2011 Agreement between Danaher and Hohenstein. (NetScout has not presented any documentation of this assignment. But Hohenstein does not dispute NetScout's evidence that Danaher assigned its contract rights to NetScout, at least for the purpose of resolving the pending motion for a preliminary injunction.) Hohenstein and NetScout never entered into any non-competition or non-solicitation agreement of their own. During 2016 NetScout asked Hohenstein to sign a " Commission Plan" that contained a statement that the plan was not valid unless it was accompanied by a signed non-compete agreement. Hohenstein never signed the Commission plan or any non-competition agreement with NetScout. But Hohenstein did agree to abide by NetScout's code of business conduct, which limits the use or disclosure of NetScout's proprietary information.

         NetScout says that it sells " application and network performance management products and solutions." Hohenstein worked for NetScout as a principal sales engineer for the mid-Atlantic region, which consisted of the District of Columbia and the states of Pennsylvania, Maryland, Virginia, West Virginia, Ohio, Michigan, Indiana, and Kentucky. He served in a pre-sales and support role in which he made technical presentations to prospective or current customers about NetScout's products, learned about the prospect's or customers IT infrastructures, and helped to explain to prospects and customers how NetScout's products could help them better manage their IT networks. Hohenstein had access to confidential financial information about NetScout's sales and customer accounts in his territory, including information about the customer's networks and technical requirements. He did not have access to similar information about other regions or about customers located outside of his region. He had complete access to information about NetScout's product offerings. (Given the Court's rulings below, it need not make any findings as to whether NetScout has met its burden of proving that the technical product information to which Hohenstein was privy was confidential, as opposed to something that is routinely shared with customers.) Hohenstein accompanied NetScout's account managers on customer visits and built relationships with customers located in NetScout's mid-Atlantic region. He was well compensated by NetScout, which paid him more than $200, 000 per year.

         In January 2017 Hohenstein left NetScout to work for a competitor called Riverbed Technologies, Inc. Like NetScout, Riverbed markets information technology solutions for network performance management, application performance management, and cloud virtualization. Riverbed has published at least one marketing paper that compares the architecture and performance of its products with those sold by NetScout.

         Riverbed employs Hohenstein as its sales engineer director/manager for the New England states (excluding western Connecticut), North New York state, and Eastern Canada. At Riverbed, Hohenstein has no direct customer interaction. Instead he supervises other sales engineers who do have customer contact

         2. Legal Standards

         2.1. Motions for ...

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