My Bloom Memo

8/3/2019 My Bloom Memo

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MEMORANDUM

TO: President Zarghami, President of Nickelodeon Networks

FROM: John Papaspanos

DATE: November 12, 2011

RE: The Enforcement of Blooms Non-Compete Covenant

ISSUE

Whether a non-compete covenant contained in a former employees employment agreement is

enforceable under NY state law, when such a restriction 1) provides the appropriate level of

protection for Nickelodeons interests in a specified market, 2) grants Bloom a broad range of

options in obtaining another job, and 3) safeguards the interest of the public in creating the

proper economic incentives.

BRIEF ANSWER

Most likely, yes. A covenant is deemed reasonable and enforceable if its provisions 1) do not

restrict any greater than is required for the protection of the legitimate interests of the

employer, 2) do not impose an undue hardship on the employee, and 3) do not injure the

public. Nickelodeon will prove that the covenant 1) safeguards its economic interests by

protecting a trade secret and enabling the company to react to the loss of an employee with

unique skills, 2) reasonably limits Blooms options for employment by type of activity,

geography, and by time, and 3) does not injure the public interest in terms of restricting trade

or individual liberty.

FACTS

In 1982, Nickelodeon acquired a kids TV show in Canada that was highly popular by using a

gimmick of sliming the shows guests with green slime. Josh Bloom was a production assistant

on that show who developed the formula for green slime, the major driver of the shows


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commercial success. Nickelodeon identified the concept of slime as having a strong market

potential in the United States and acquired the Canadian TV show largely because of the talent

and skills of Bloom in producing slime and capitalizing on its entertainment value. Bloom was

hired as a producer after Nickelodeon acquired the show, and the use of slime extended to other

Nickelodeon TV shows. The target audience of TV viewers for Nickelodeon became

increasingly aware of the association between slime and Nickelodeon to the extent that slime

gained brand recognition. Accordingly, Bloom assumed a more important role in the company.

In 1986, Bloom was asked to sign a contract containing a covenant not to compete. At that

time, he was given a raise in salary and the title of Executive VP of Special Productions.

In September 2011, Josh Bloom, the former Executive VP of Special Productions of

Nickelodeon Networks, a subsidiary of MTV Networks, resigned from his position in order to

accept another job at Family Amusements, Inc. Nickelodeons President Zarghami terminated

him immediately thereafter. During his tenure at Nickelodeon, Bloom was very inventive in his

role as Slime master, in producing several different slime recipes for various uses. The

product was not only used on the TV shows, but also in traveling promotional events that

Bloom arranged and managed. Nickelodeon sent employees to fairs, carnivals, parades, and

other local events to promote the TV network. At such events, Bloom set up different stunts

that he would broadcast and then perform on the road.

Since the concept of slime is so integral to Nickelodeon brand recognition, the company

explicitly tells any hired employee that the slime recipes and slime-related devices cannot leave

the company. Besides Bloom and a few select employees of the company, no one really knows

the exact contents of slime. Many recipes have been uploaded onto the internet claiming to be

genuine, but they only list the main ingredients of most of the slime recipes. The real recipes

have never been published, and thus, are secret to the industry and the public at large.


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Although Nickelodeon has used slime less in recent years, it is still used for marketing and

major events. With Blooms intent to leave the company, Nickelodeon is concerned that vital

knowledge about slime is no longer available to the company. In addition, Bloom was heavily

involved in the marketing plans of the company. Specifically, Bloom has knowledge about a

major event in May that is being advertised as a surprise. Therefore, Bloom can potentially

harm Nickelodeons interests by leaking information or even pre-empting the event by

implementing a competing marketing plan of his own through Family Amusements, Inc.

As the Head of Production at Family Amusements, Bloom would hold an ownership stake in

the company. Apparently, Bloom aims to use slime at its events, which will create an impact

on Nickelodeons business. As a result, the association of slime with Nickelodeon may weaken

and the competition for advertising sales will result in greater difficulties for Nickelodeon to

book venues. For these reasons, Nickelodeon is seeking to enforce the non-compete covenant1

in Blooms employment agreement.

DISCUSSION

Most likely, yes. Nickelodeon will prove that the non-compete covenant contained in the

defendants employment agreement is reasonable and thereby enforceable. Nickelodeon can

then proceed in obtaining a preliminary injunction while the Court determines the merits of the

case. In order to demonstrate that the covenant is reasonable, Nickelodeon must prove that its

provisions 1) do not restrict any greater than is required for the protection of the legitimate

interests of the employer, 2) do not impose undue hardship on the employee, and 3) do not

1 A. You agree for a period of two (2) years after the termination of your employment (the Non-Compete

Period), you shall not directly or indirectly engage in or participate as an officer, employee, director, agent of or

consultant for any business directly competitive with that of MTVN, nor shall you make any investments in any

company or business competing with MTVN.

B. MTVN has entered into this Agreement in order to obtain the benefit of your unique skills, talent, and

experience. You acknowledge and agree that any violation hereof will result in irreparable damage to MTVN, and,accordingly, MTVN may obtain injunctive and other equitable relief for any breach or threatened breach, in

addition to any other remedies available to MTVN.


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injure the public. BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 388, 712 N.E.2d 1220, 1223

(1999). Nickelodeon will prove that the covenant 1) safeguards its economic interests by

protecting a trade secret and enabling the company to react to the loss of an employee with

unique skills, 2) reasonably limits Blooms options for employment by type of activity,

geography, and by time, and 3) does not injure the public interest in terms of restricting trade or

individual liberty. Therefore, Nickelodeon will prove that the non-compete covenant is

reasonable and thereby enforceable under NY state law.

1(a) Protects Legitimate Interests of the Employer: Trade Secret

Nickelodeon has a legitimate interest in restraining Bloom from leveraging his knowledge and

skills of green slime, a trade secret in the kids TV production industry, by working for a

competitor of Nickelodeon. The former employer has a right to require a former employee,

as part of the consideration of his employment, such reasonable contractual engagement upon

his part as would reasonably insure the protection of valuable trade secrets. Eastman Kodak

Co. v. Powers Film Products, 189 A.D. 556, 561, 179 N.Y.S. 325, 330 (1919).

InEastman, the former employee was responsible for the spreading of chemical emulsion upon

films from which Kodak and motion picture films are made. The company expended a large

amount of resources in hiring skilled workers to improve the processes for producing film.

Since the processes are not patentable, the employer jealously guarded its processesand

maintained them as a secret asset in order to prevent competitive companies from acquiring

knowledge about them. Id. at 558. Accordingly, the former employee had signed a non-

compete covenant and promised to not disclose any knowledge he would acquire during his

employment as to any formulas used by the employer and that, upon termination, he would not

work for a competitor company for two years. The court respected the threat of turning over

any trade secrets and retained an injunctive relief against the former employee and the

competitive company.Id. at 557.


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Similarly, Nickelodeon allocated a substantial amount of resources to purchase the Canadian

kids TV show, to hire Bloom and his production team to develop formulas and special devices

to use slime for various TV programs. Like the processes for producing film, the methods of

creating slime and even its formula are not patentable, and thus, Nickelodeon also jealously

guarded the trade secret by requiring any employee to not share information with anyone

beyond the company. As Slimemaster, Bloom was assigned the task to develop the product

with the support of a special productions team. The opposing council will contend that the

basic ingredients of slime can be identified and the information is available on the internet to

the public, and thus, slime is not a trade secret2. However, the basic formula for slime does not

have the special characteristics to be used for stunts and gimmicks, and thus, it does not hold

any commercial value. If slime is not a trade secret due to the availability of its recipe online,

then Nickelodeon would not have promoted Bloom as Vice President of the company and

Family Amusements, Inc. would not have given Bloom a position and ownership stake in that

company. Based on the behavior of companies seeking to maximize profits, the slime produced

by Nickelodeon holds significant commercial because, otherwise, any company could simply

access the internet to acquire the necessary information about slime. Therefore, there is a

strong likelihood that Bloom will harm Nickelodeons legitimate interests by imparting special

knowledge about slime to other people in the industry, and accordingly, the court will enforce

the covenant to prevent that occurrence during the two-year period.

1(b) Protects Legitimate Interests of the Employer: Unique Skills

Even if slime is not deemed a trade secret, Nickelodeon will prove that Bloom holds unique

skills and an enforcement of the covenant is reasonably warranted. If the employees services

are deemed special, unique, or extraordinary, then the covenant may be enforced by injuctive

2First Restatement of Torts Section 757 states that a trade secret may consist of any formula, pattern, device or

compilation of information which is used in one's business, and which gives him an opportunity to obtain an

advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of

manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.


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relief, if reasonable, even though the employment did not involve the possession of trade secrets

or confidential customer lists. Purchasing Associates, Inc. v. Weitz, 13 N.Y.2d 267, 273, 196

N.E.2d 245, 248 (1963). (See also Frederick Bros. Artists Corp. v. Yates, 296 N.Y. 820, 72

N.E.2d 13 (1947), where the injunction was not granted because the employees skills were not

unique as to make his replacement impossible or to subject the employer to irreparable injury).

In Weitz, the defendant entered into a contract with the plaintiff employer that contained a non-

compete covenant that precluded the defendant from working for a business of the type and

character operated by his employer with certain geographical and temporal limitations. The

company was engaged in the business of buying routine supplies for other business

organizations on a fee basis. After the employee resigned from his job and organized his own

company, which also engaged in the data processing business, the plaintiff brought action to

enforce the covenant with an injunction. The court held that the plaintiff did not demonstrate

that the defendants services were unique or extraordinary. Id. at 274. Although the employee

may be highly effective in his job and provide highly valuable services to the employer, the

court suggested that the plaintiff must show more evidence to prove the uniqueness of an

employees skills. Id. at 274. In the absence of such evidence, the court held that there was no

basis exists for enjoining the defendant from pursuing his occupation. Id. at 274.

When Bloom was specifically hired to adopt the concept of slime for Nickelodeons kids TV

programs, he had a foundation of knowledge and skills dating back to his career in Canada.

The Canadian kids TV show that was acquired by Nickelodeon was singular in that market and

no other competing company used such a product. At the time Bloom was hired, he already

held unique skills. At Nickelodeon, he further developed them after decades of developing and

experimenting, and trying out different recipes and uses of slime. As the only company in the

industry using the concept of slime, Bloom possesses unique skills, and thus, he can be

distinguished from the defendant in Weitz. Based on TV ratings and advertising sales, Bloom


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has been very effective for Nickelodeon and added great value to the company. But after

Bloom leaves, it will be virtually impossible to find an employee with his unique skill set. A

viable replacement cannot be found neither among his team of production personnel, nor the

broader labor market. And most importantly, the unique skills that once benefitted

Nickelodeon will become harmful once Bloom begins working for a competing company.

For these reasons, Bloom possesses unique skills and that the covenant reasonably restricts his

employment options for the two-year period after he leaves Nickelodeon.

2: Does not Impose an Undue Burden on Bloom

The covenant does not impose an undue burden on Bloom because it restricts him to a

reasonable extent. Bloom can a) choose from a myriad of jobs so long as they do not involve

the use of slime as a trade secret, b) find new employment in a wide geographical area and c)

use his unique skills relating to slime after a reasonable two-year period. The extent of the

covenant may be limited in three ways: by type of activity, by geographical area, and by time.

In any of these cases, if the restraint is too broad to be justified by the promisee's need, a court

may hold it to be unreasonable without the necessity of weighing the countervailing interests of

the promisor and the public. Restatement (Second) of Contracts 188 (1981).

Bloom is reasonably restricted in choosing the type of job after his employment at Nickelodeon.

[See Michael G. Kessler & Associates, Ltd. v. White, 28 A.D.3d 724, 724, 815 N.Y.S.2d 631,

632 (2006)]. He was a highly competent employee whose concept of slime has been central to

Nickeolodeons brand recognition, marketing efforts, and commercial success for the last three

decades. In order to protect Nickelodeons legitimate interests, Bloom should be enjoined from

disclosing information about slime.3

As a VP of a major TV network, he can transfer his

management and marketing skills to another job position. Because Bloom will use the concept

3Such discretion is allowed because NY case law supports the existence of the courts power

to sever the impermissible from the valid and uphold the non-compete covenant to the extentthat it is reasonable. Karpinski v. Ingrasci, 28 N.Y.2d 45, 51, 268 N.E.2d 751, 754 (1971).


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of slime for his job at Family Amusements, Inc., he will be impinging on Nickelodeons

interests. Such action will violate the covenant and the court will enjoin him to comply.

With regard to the limitation by geography, Bloom has a reasonable array of employment

options without incurring an undue burden in terms of changing occupations or moving long

distances. [See Gelder Med. Group v. Webber, 41 N.Y.2d 680, 681, 363 N.E.2d 573, 575

(1977)]. Bloom can effectively work anywhere in the US as long as he does not exercise his

unique skills relating to the trade secret of slime. In fact, Bloom can even return to Canada and

use the concept of slime as long as the Canadian company does not directly or indirectly

compete against Nickelodeon.

With respect to the limitation by time, Nickelodeon gradually grew as a TV production

company long before the arrival of Bloom and the concept of slime. [See Chernoff Diamond &

Co. v. Fitzmaurice, Inc., 234 A.D.2d 200, 651 N.Y.S.2d 504 (1996); Eastman Kodak Co. v.

Powers Film Products, 189 A.D. 556, 557-59, 179 N.Y.S. 325, 327-28 (1919)]. Nickelodeon

expended vast amounts of resources in terms of time, money, and labor to support the efforts of

Bloom and his team for nearly thirty years of research and development. Even though Bloom

did have a foundational understanding of slime and its usage upon joining Nickelodeon, he

could not have acquired his present-day knowledge and unique skills relating to slime but for

his employment at Nickelodeon. Therefore, the time restriction gives Nickelodeon sufficient

time to identify and develop the next new concept that will replace slime. Such a strategy is

motivated by many reasons: a) Blooms unique skills will not be available in the labor market,

b) no other Nickelodeon employee can perform Blooms former duties, c) developing

commercially viable concepts like slime requires long lag times, d) the concept of slime will

diminish in popularity over time, and e) Bloom will inflict losses on Nickelodeons profits in

the short term if we do not develop an alternative concept to slime.


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After Bloom leaves Nickelodeon, he is reasonably restricted by the type of business activity he

can engage in, the geographical places he can seek employment, and the time period in which

he must refrain from using the concept of slime for a competitor of Nickelodeon.

3) Does not Injure the Public

The covenant is reasonable because the enforcement of its provisions will not injure the public.

The temporary limitations on Blooms employment options will not enable Nickelodeon to

acquire or maintain a monopoly in the kids TV production industry and Blooms ability to

pursue his livelihood will not be unreasonably impaired. A contract by an ordinary workman

not to enter other like employment for eight years after leaving his employer would be

unreasonable as to make the contract one in restraint of trade and personal liberty, and therefore

void. Clark Paper & Mfg. Co. v. Stenacher, 236 N.Y. 312, 322, 140 N.E. 708, 712 (1923).

In Clark Paper, the plaintiff sought an injunction against a former employee to prevent him

from gaining employment with any competitor of the plaintiff in New York for a period of eight

years and from disclosing any information about the former employers methods. The plaintiff

was involved in the business of manufacturing paper. Because the defendant was an ordinary

employee who simply sold wrapping paper, the court held it would be against public policy to

enjoin him and the covenant was deemed unenforceable. Id. at 322. The restrictions on trade

and personal liberty far outweighed any benefit the employer could accrue.

If Bloom was an ordinary employee, public policy would favor the non-enforcement of the

covenant because it would restrict trade by interfering with the optimal allocation of labor. But

because Bloom was a key employee at his company, unlike the defendant in Clark Paper, a

countervailing interest is at stake: the incentive for companies to develop human capital. By

not enforcing Blooms covenant, public policy will create a chilling effect for the development

of new concepts in the marketplace. The opposition may argue that the court would sanction a


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monopoly on the use of slime if it enforced Blooms covenant, but that argument would fail.

First, there is adequate competition because many companies compete for the same pool of

consumers and sponsors. And second, concepts like slime, more so than other types of

technology, are subject to regular changes in consumer preferences. After several years,

these concepts become obsolete, usually with the inception of new fads. Accordingly, by not

enforcing the covenant, companies would develop less new ideas and the decreased turn-over

rate for new concepts would favor the established companies and disadvantage the new market

entrants. With regard to Blooms personal liberty, the covenant is not unnecessarily interfering

with Blooms search for a new job. As mentioned above, Bloom can earn his livelihood

without changing industries and he can work in any geographical area as long as his new duties

do not involve the subject matter of slime during the two-year period. Therefore, Blooms

covenant not only avoids any injury to the public, it creates net benefits to society by providing

the proper incentives to market actors.

CONCLUSION

Nickelodeon will prove that the covenant is reasonable and the court will enforce it because 1)

the restrictions are appropriate and do not restrain Bloom beyond what is necessary to protect

the trade secret of slime and other legitimate interests of Nickelodeon, 2) the consequences of

not enforcing the covenant will create a substantial hardship on Nickelodeon as compared to the

minimal burden on Bloom if the covenant is enforced, and 3) the covenants enforcement will

not injure the public, but rather, it will set in place the proper incentives to benefit the TV

productions industry and society at large.

Documents

My Bloom Memo