Idexx Laboratories Inc. filed a lawsuit in U.S. District Court in Portland on Aug. 3 alleging that two former employees “misappropriated” confidential and proprietary trade secrets before taking new jobs at rival Vets First Choice.

Allegations over theft of proprietary information is certainly noteworthy, and juicy from a news perspective. The Bangor Daily News, which broke the story on Tuesday, has more on that angle of the story.

However, it’s the other part of the lawsuit—the part where Idexx alleges that the two employees, Dan Leach and Agostino Scicchitano, violated non-compete agreements when they went to work for Vets First Choice, which Idexx views as a direct competitor in the pet-health space—that could have implications for Maine’s innovation ecosystem.

Non-competes—contractual agreements that companies often make employees sign to ensure they can’t leave and immediately go work for a competitor—have for years been a hot topic of debate within startup communities, with the lines drawn between those that view them as antithetical to the idea of innovation (not to mention a violation of employees’ rights to earn a living) and those who believe the right of companies to use such agreements for competitive purposes trumps all else.

The competitive reasons Idexx has for wanting employees to sign non-competes are clear. But what are the larger implications of these agreements when put into the context of a growing innovation ecosystem? Putting it into local context, think about it this way: If a highly skilled employee at one of Maine’s larger companies wanted to leave and apply their skills to a new hot startup in a similar space, the successful enforcement of a two-year non-compete could mean that person could be prevented from contributing their ideas and experience to that startup, or any company in the same sector (whether healthcare or financial technology, etc.), for a two-year period. Because geographic scope is often part of these non-competes, that also means it could potentially send that worker seeking employment outside the state.

Because of these arguments, California has effectively abolished the use and enforceability of non-competes. Massachusetts’ legislature just last week passed a bill that, if signed by the governor, would limit non-competes to one year and require employers to compensate former employees for that year if they choose to enforce the non-compete.

Still, non-competes at large Maine companies are pretty common. The non-competes that Leach and Scicchitano signed when they accepted employment at Idexx (in 2015 and 2010, respectively) specify that upon “voluntary termination” they would agree that for a period of two years they would not “engage (whether for compensation or without compensation) as an individual proprietor, partner, stockholder, officer, employee, director, joint venture, investor, lender, or in any other capacity whatsoever … in any business enterprise which competes with the Company in any business area in which the Company is engaged including, but not limited to, the animal and agricultural diagnostic field and the food and environmental testing field.”

In general, courts consider a number of factors when determining the enforceability of a non compete, including the reasonableness of its scope in terms of time and geography, the potential harm to the employer, impact on the employee, and even the public interest.

Here’s how LawServer, an online resource for legal information, explains how Maine courts have in the past interpreted the enforceability of non-competes:

Maine courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as a business’s good will or confidential information. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.

While there are precedents for how courts have interpreted the enforceability of non-compete agreements in Maine, their use haven’t really been tested when applied to the state’s knowledge workers. LawServer only cites a few previous lawsuits in Maine concerning alleged violations of non-compete agreements—and they involved a salesperson for a pipe and valve distributor, a real estate broker, and an insurance agent.

Vets First Choice does not consider the non-competes signed by Leach and Scicchitano to be enforceable, according to evidence contained in Idexx’s lawsuit. The lawsuit cites conversations between Leach and his supervisor during which Leach claimed Vets First Choice told him that the non-competes he signed wasn’t enforceable.

“We disagree,” writes Janet Britton, Idexx’s associate general counsel, in a cease-and-desist letter sent to Vets First Choice in December 2017, following Leach’s acceptance of employment at the company. “VFC and IDEXX compete directly in the field of veterinary practice intelligence (e.g., data enabled marketing campaigns). As a business analyst working on programs for large manufacturers like Boehringer Ingelheim, Mr Leach had access to IDEXX proprietary and confidential information, which if accessed by a competitor, would unfairly compromise IDEXX’s competitive position.”

In the lawsuit, Idexx claims this is evidence that Vets First Choice “fraudulently induced” Leach and Scicchitano to leave Idexx for its rival. Idexx also makes clear in the lawsuit that it believes Vets First Choice used the same reasoning and recruitment tactics in the hiring of at least nine Idexx employees since 2017.

Why this matters

To those paying attention, it’s been clear for a while now that Idexx and Vets First Choice were on a competitive collision course. While Vets First Choice began as a company offering white-label websites for veterinarian offices and outsourced pharmacy services, it’s been steadily expanding its scope within the pet-health sector. That intention was thrown into stark relief when Vets First Choice in April announced a merger with the animal health division of Henry Schein Inc. that, if successfully closed, would create a publicly traded company with estimated annual revenue of $3.6 billion, making it larger than Idexx, which posted nearly $2 billion in revenue in 2017.

So, for Idexx to begin more aggressively lashing out at this relatively young upstart is not surprising.

Depending on how this case plays out, we could get a judge’s decision that provides guidance on how enforceable non-competes are within the context of Maine’s innovation ecosystem.

From the date Idexx filed its lawsuit on Aug. 3, Vets First Choice has 21 days to file a response, which will either be an “answer,” in which it admits or denies wrongdoing, or a “motion to dismiss,” in which it should include its interpretation of the law and its argument for why the non-competes are unenforceable and that part of the lawsuit should be dismissed. Even if the lawsuit is settled, the judge’s decision on the motion to dismiss could shed some light on how the federal judge will interpret the use of these non-competes in Maine’s innovative ecosystem.

Either way, this will be a case to watch.