As we all await rulings on the lawsuits challenging the FTC’s Noncompete Rule (one of which may be decided later today), we provide an update on the Knicks/Raptors trade secret case that we previously discussed on EBG’s Spilling Secrets Podcast Series and blogged about here.
Although the Knicks had a successful year on the court, they suffered an in court loss last week to the Toronto Raptors.
In the March 2024 edition, Bracket-Busting Trade Secret and Non-Compete Disputes in Sports, we discussed the Knicks’ federal court action against the Toronto Raptors for theft of trade secrets. We noted that the Knicks sought neither a Temporary Restraining Order nor a Preliminary Injunction and that the defendants filed a motion to dismiss or, alternatively, to stay the case pending arbitration before the Commissioner of the NBA.
In a lawsuit filed in the United States District Court for the Southern District of New York, the Knicks alleged that their former employee and now current Raptors employee, Ikechukwu Azotam, misappropriated the Knicks’ confidential and proprietary information at the behest of the Raptors, in violation of the Defend Trade Secrets Act (“DTSA”), Computer Fraud and Abuse Act (the “CFAA”), as well as various common law claims. The defendants moved to dismiss or, alternatively, to compel arbitration pursuant to the NBA’s Constitution and By-Laws, which provide that the NBA Commissioner shall have complete and final jurisdiction over any dispute involving two or more members of the NBA.
On June 28, 2024, the Court granted the defendants’ motion and compelled arbitration of the dispute. As an initial matter, the Court ruled that the parties agreed to arbitrate the threshold question of arbitrability, meaning that it is for the NBA Commissioner, not the Court, to determine arbitrability. The Knicks argued that arbitration before the NBA Commissioner would prohibit them from vindicating their statutory rights because the NBA Constitution imposes a $10 million damages cap, but neither DTSA nor the CFAA cap damages. Like a Hakeem Olajuwon (yes, he played for the Raptors after Houston) block, the Court rejected this argument. The Court compelled arbitration to determine the threshold issues of arbitrability pursuant to the NBA Constitution, and it also stayed the case while the parties arbitrate.
Although the Knicks lost in court, the game is not over; it will simply be played at a different venue than the Knicks had desired. It is likely that the Knicks filed in federal court to keep the litigation public, but the dispute will become much less public as it proceeds in arbitration.
In other NBA news last week, a former Minnesota Timberwolves employee pled guilty in Minnesota state court to a misdemeanor charge of unauthorized computer access. The employee, Somak Sarkar, was fired and arrested in March for allegedly stealing a hard drive containing thousands of internal files, including “strategic NBA information” from a Timberwolves team executive.
According to the initial complaint, security footage revealed that Sarkar twice entered the office of a Timberwolves executive vice president, who had reported that he was missing a hard drive containing private team information. Another employee was able to recover the hard drive from Sarkar, and the Timberwolves conducted a forensic analysis, which revealed that Sarkar had accessed more than 5,000 files and downloaded them onto another device.
The Knicks and Timberwolves cases are a reminder that all employers, whether in professional sports or any other industry, must remain vigilant in protecting their confidential information and trade secrets. As we previously reported, a Trade Secret Tune Up is the preferred method to ensure that your company has the proper policies and procedures in place to best protect your trade secrets and confidential information.
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