Flatiron Health, Inc. v. Tempus, Inc.

Background

Flatiron Health, Inc. sued its former employee, Kenneth Carson, M.D., to enforce a restrictive-covenant agreement called the Covenants Agreement. Flatiron alleged that Carson anticipatorily repudiated, meaning clearly indicated in advance that he would not comply with, the agreement by accepting a position at Tempus Labs, Inc. Flatiron sought declarations that the agreement barred Carson from working for Tempus and soliciting Flatiron customers and employees for one year after leaving Flatiron. It also sought protection for Flatiron’s trade secrets and confidential information and requested a permanent injunction.

Flatiron voluntarily dismissed its claims against Tempus Labs, Inc. The court held a bench trial on January 27, 28, and 30, 2020. On February 19, 2020, it entered a judgment denying Flatiron’s requests for a declaratory judgment and an injunction, and this decision supplied the findings of fact and conclusions of law supporting that judgment.

The Parties’ Businesses and Carson’s Roles

Flatiron’s largest business line provided real-world evidence services: it converted patient-record data into structured information, combined the information into data sets, and sold those data sets primarily to biopharmaceutical companies, regulatory agencies, and researchers. Carson worked at Flatiron as a Senior Medical Director in its Research Oncology Group and helped pharmaceutical customers use Flatiron’s products for population-level outcomes research. He was not involved in helping individual physicians use Flatiron’s data to make treatment decisions.

Tempus operated a clinical laboratory that provided testing, including genomic sequencing, and returned patient-specific reports to physicians. Carson’s planned role at Tempus focused on helping physicians understand and use those reports. The court found that Carson would not curate or analyze the data underlying the reports, work with pharmaceutical companies, perform similar data analysis for pharmaceutical clients, or make strategic business decisions while the non-compete remained in effect. Tempus also restricted his access to certain data and required him not to use or disclose Flatiron’s confidential information.

The Non-Compete

The agreement prohibited an employee for one year after termination from diverting Flatiron business, soliciting or interfering with Flatiron customers and other business relationships, soliciting Flatiron employees, or participating in a business similar to one Flatiron had created or planned. It also defined a “Competing Business” broadly to include businesses providing listed software, data, analytics, clinical-trial, and electronic-medical-record services to listed customers in oncology.

The court applied New York law. Under that law, a non-compete must be reasonable in duration and geographic scope, necessary to protect a legitimate employer interest, not harmful to the public, and not unreasonably burdensome to the employee. The court held that Flatiron’s non-compete was broader than necessary to protect legitimate business interests. The “similar to” language was vague and could reach businesses that merely analyzed health-related data, while the “Competing Business” definition could cover companies that provided only one listed service to one listed type of customer. As applied by Flatiron, the agreement could bar Carson from working in a clinical-laboratory business that did not compete with Flatiron.

The court also found that the non-compete would unreasonably burden Carson by preventing him from working in his chosen field of oncology-related data analytics and would harm the public by preventing him from taking a position where he could make a significant contribution to oncology care. Flatiron also did not show that Carson’s services were unique or irreplaceable or that his departure caused special harm.

The court concluded that the non-compete was unenforceable. Although New York law can permit partial enforcement of an overbroad restrictive covenant, the court declined to do so here. Flatiron imposed the agreement as a condition of Carson’s initial employment and generally required the same covenants from all employees. The court found the overbreadth obvious and questioned whether Flatiron acted in good faith when proposing the language. The court also found that the non-solicitation provision was overbroad because it was not limited to customers with whom Carson developed relationships through his work for Flatiron.

The court did not invalidate the entire Covenants Agreement or refuse to enforce its non-disclosure provision because Carson had not asked it to do so. The court therefore held that the non-disclosure provision remained enforceable. Because the non-compete was unenforceable, Carson had not anticipatorily breached it.

Permanent Injunction

To obtain a permanent injunction, Flatiron had to show irreparable injury, inadequate monetary relief, a favorable balance of hardships, and that an injunction would not harm the public interest. Flatiron did not claim that Carson had actually misappropriated its trade secrets. Instead, it argued that his new position would inevitably require him to disclose them.

The court found that Carson did possess some protectable information, including information about certain Flatiron data sets, data-curation issues, the external-control-arms product, strategic plans for the real-world-evidence business, pricing structure, and research questions posed by pharmaceutical clients. But the court held that Flatiron did not show that Carson’s new role would inevitably lead to disclosure. Tempus’s clinical-laboratory business did not compete with Flatiron’s relevant services, Carson’s new position was not nearly identical to his former one, and the restrictions imposed by Carson and Tempus separated him from work that could create meaningful overlap.

The court concluded that Flatiron had not shown a risk that Carson would disclose its trade secrets or confidential information and therefore had not demonstrated irreparable harm. Flatiron was not entitled to a permanent injunction.

Order

The court ordered that:

- Flatiron’s request for a declaration that Carson was barred from working for Tempus in any capacity and from soliciting Flatiron customers was DENIED. - Flatiron’s request for a declaration that Carson was bound not to retain, use, or disclose Flatiron’s trade secrets and confidential information was GRANTED. - Flatiron’s request for a permanent injunction was DENIED.