CASE
STUDY 6.1: NON-COMPETE AGREEMENTS AND INTELLECTUAL PROPERTY: THE VALUE PARTNERS
SA (ITALY) AND BAIN & COMPANY (USA) CONFLICT IN BRAZIL
Value
Partners, headquartered in Milan, Italy, and recognized as one of the major
European management consulting firms with approximately 150 professionals
working in seven offices in three continents and with clients in over 50
countries, was founded in 1993 by former partners of the Italian offices of
McKinsey & Company. They opened their first overseas offices in São Paulo,
Brazil, and Buenos Aires, Argentina, in 1994. By the end of 1997, its São Paulo
office had 20 employees producing annual revenues of about $5 million,
assisting both Italian clients and local companies.
Rival
Bain & Company, a major management consultancy with over 10,500 employees
and 60 offices in 37 countries, was founded in 1973 by seven former partners
from the Boston Consulting Group, and is headquartered in Boston. Bain
established its São Paulo office in October 1997, and by early November, had
hired away almost all of Value Partners’ staff.
Value
Partners filed criminal charges in Brazil and New York against Bain, alleging
breach of trust and loyalty of its former employees (pirated away by Bain) and
theft of confidential and proprietary information. The New York court ruled
that the case would be more conveniently and efficiently dealt with in Brazil
under the doctrine that New York was not the most convenient place to hear the
case. Unfortunately for Value Partners, Brazilian law offered none of the US’s
significant compensatory and punitive damages for employee disloyalty and theft
of intellectual property. However, the New York federal court also made it
clear that Value Partners was permitted to re-file the lawsuit against Bain in
a more convenient forum.
So,
Value Partners re-filed the case in Boston, the site of Bain headquarters.
After a five-week trial, the jury found Bain & Company liable for unfair
competition and tortuous interference and awarded Value Partners $10 million in
compensatory damages (the full award sought). The trial court, after awarding
another $2.5 million of interest, denied all of Bain’s post-trial motions.
As
labor markets become global and firms develop new forms of relations with
workers in foreign locales (such as IT workers or call centers in overseas
locations), it becomes increasingly difficult to control the movement of
workers from one employer to another and their taking of intellectual property
(such as product or process technology or customer lists and preferences) from
their current employer to their new one. Because the rules (and cultures) are
so different from one country to another, it becomes very difficult to enforce
any non-compete agreements in employment contracts.
This
situation shows how difficult it can be to enforce covenants, like non-compete
agreements, particularly in situations involving firms from outside countries.
The more reasonable a restrictive covenant is, the more likely it is that
courts worldwide will enforce it. But in some jurisdictions, such as in Latin
America and the US state of California, non-compete clauses in employment
contracts are considered illegal. Nevertheless, generally speaking the shorter
the time period of the restraint and the more narrowly defined the people
covered, the more likely it is to be enforced across borders.
Sources:
Hall, L. (2001). Protecting your vital assets. Global HR, July–August, 46–52;
update (2014): http://en.wikipedia.org/wiki/Bain_&_Company;
http://en.wikipedia.org/wiki/Value_Partners. Update in 2021 from: Bain &
Company website (2021): www.bain.com; Value Partners Website (2021): www.valuepartners.com.
Before
you submit your completed case analysis, think how you would answer the
following questions about the quality of your work:
- Have you identified the critical
issues/problems in the case and analyzed the key facts related to the
issues/problems? - Have you discussed a tentative
solution that addresses the issues/problems and how you would implement
your solution? - Is information from the textbook and
other sources integrated into your analysis appropriately? For all
sources, you must provide complete citations. - Before you submit your completed case
analysis, think how you would answer the following questions about the
quality of your work: - Have you identified the critical
issues/problems in the case and analyzed the key facts related to the
issues/problems? - Have you discussed a tentative
solution that addresses the issues/problems and how you would implement
your solution? - Is information from the textbook and
other sources integrated into your analysis appropriately? For all
sources, you must provide complete citations.
Must use textbook
below as 1 source:
Tarique,
I., Briscoe, D. R., & Schuler, R. S. (2022). International Human
Resource Management (6th ed.). Taylor & Francis. https://mbsdirect.vitalsource.com/books/9780429806124
Use 1-2
site(s) from list below:
Dowling,
P. J., Festing, M., & Engle Sr., A. D. (2017). International
Human Resource Management (7th Edition). Cengage.
Wintersberger, D. (2017). International Human Resource Management: A case
study approach. London: KoganPage.