12 Duties of Loyalty to Employer 12 Duties of Loyalty to Employer

We will now turn to the duties that employees have to employers--during and sometimes even after the employment relationship ends. Some of these duties shape how, when, and why employees change jobs. We will consider the fiduciary duties some employees have during the employment relationship, the application of non-compete agreements (these are unenforceable in some states, like California), and trade secret misappropriation. We will also evaluate the policy interests on either side of enforcing these duties--including a desire to facilitate innovation and economic mobility.

12.1 Scanwell Freight Express STL, Inc. v. Chan 12.1 Scanwell Freight Express STL, Inc. v. Chan

SCANWELL FREIGHT EXPRESS STL, INC., Respondent, v. Stevie CHAN and Dimerco Express (U.S.A.) Corp., Appellants.

No. SC 86022.

Supreme Court of Missouri, En Banc.

April 26, 2005.

Rehearing Denied May 31, 2005.

*478James W. Erwin, Mary C. Bonacorsi, Thompson Coburn LLP, Bradley A. Winters, Mark L. Brown, St. Louis, for appellants.

Charles A. Seigel, III, Michael A. Wolff, St. Louis, for respondent.

STEPHEN N. LIMBAUGH, JR., Judge.

Scanwell Freight Express STL, Inc., sued Stevie Chan for breach of fiduciary duty and Dimerco Express (U.S.A.) Corp. for conspiracy to breach fiduciary duty. Following a jury trial, Scanwell was awarded $54,000 in damages from Chan and $254,000 from Dimerco. After opinion by the Court of Appeals, Eastern District, this Court granted transfer. Mo. Const, art. V, sec. 10. The judgment is reversed, and the case is remanded.

I.

In brief, and in the light most favorable to the verdict as is required where, as here, there is a challenge to the sufficiency of the evidence, Giddens v. Kansas City Southern Ry. Co., 29 S.W.3d 813, 818 (Mo. banc 2000), the facts are as follows:

Scanwell, a freight forwarding business, hired Chan in April 1996 to be the general manager of its St. Louis Office. Chan was an at-will employee, and she was not required to sign a non-compete agreement. While serving as Seanwell’s general manager, Chan made arrangements with Dimerco, Scanwell’s direct competitor, to open a.Dimerco office in St. Louis. At Dimerco’s request, Chan created a “business proposal” for this purpose. She also arranged .for Dimerco to take over the lease of Scanwell’s St. Louis office upon its expiration. Chan resigned from Scanwell effective March 1, 2001, and approximately one month later, Dimerco opened its St. Louis office with Chan as its general manager. Dimerco operated in the same premises that Scanwell previously occupied, employed most of the same employees as Scanwell, and for a while even used the same telephone number. Dimerco also acquired a number of Scanwell’s customers.

Thereafter, Scanwell filed the suit against Chan and Dimerco that is the subject of this appeal.

*479II.

In order to address the dispositive points on appeal, which are instructional error and submissibility, it is first necessary to identify and define the cause of action at issue. Scanwell’s cause of action against Chan is labeled “breach of fiduciary duties.” However, Scanwell describes its claim as a breach of a “fiduciary duty of loyalty,” and its verdict director alleged that Chan committed a “breach of fiduciary duties” by “breachfing] a duty of loyalty,” as if a breach of fiduciary duties is the same as a breach of a duty of loyalty. Although the law is unclear whether or to what degree the two concepts overlap, in this case the question need not be resolved. In the employer-employee relationship, this Court, drawing on the Restatement (2d) of Agency, has implicitly recognized a separate cause of action for beach of the duty of loyalty, Nat’l Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 41 (Mo. banc 1966), and it is apparent from the briefs and argument that that is the claim Scanwell is ultimately pursuing.

Under Trieman, the seminal case on which both sides rely, every employee owes his or her employer a duty of loyalty. Trieman, 409 S.W.2d at 41; see also Rest. (2d) Agency, sec. 387 (1958). The case arose when certain at-will employees were accused of misappropriating trade secrets from them employer in a scheme to compete with the employer. The factual context of the case is especially important because it involves the most common manifestation of the duty of loyalty, and the essence of Seanwell’s claim here, which is that an employee has a duty not to compete with his or her employer concerning the subject matter of the employment. Rest. (2d) Agency, sec. 393 (1958). This Court described the duty of loyalty in the broad and general terms of section 387 of the Restatement (2d) of Agency, stating, “[an employee] must not, while employed, act contrary to the employer’s interests.” Trieman, 409 S.W.2d at 41 (quoting Midland-Ross Corp. v. Yokana, 293 F.2d 411, 412 (3rd Cir.1961)). However, in addressing the corresponding duty not to compete, the Court held, nonetheless, that employees are allowed to “agree among themselves to compete with their then employer upon termination of their employment,” and “[t]hey may plan and prepare for their competing enterprises while still employed.” Id. at 26. Admittedly, the mere decision to enter into competition is “contrary to the employer’s interests,” but the Court saw the need to balance the duty not to compete with the interest of promoting free competition. Id. at 39-41. As some courts have put it, the law allows employees the privilege to plan and prepare for competition in recognition of the “competing interests of allowing an employee some latitude in switching jobs and at the same time preserving some degree of loyalty owed to the employer.” Cudahy Co. v. Am. Lab., Inc., 313 F.Supp. 1339, 1346 (D.Neb.1970); see also Maryland Metals, Inc. v. Metzner, 282 Md. 31, 382 A.2d 564, 569 (1978); Anxton Computer Enter., Inc. v. Parker, 174 N.J.Super. 418, 416 A.2d 952, 955 (A.D.1980).

Although the Trieman Court did not elaborate on the conduct that would constitute a breach of the duty, it necessarily follows that a breach arises when the employee goes beyond the mere planning and preparation and actually engages in direct competition, which, by definition, is to gain advantage over a competitor. The Restatement (2d) of Agency, see. 393, cmt. e, which this Court cited with favor in Trieman, plays on the same idea, further describing the kinds of activities that can constitute a breach of the duty of loyalty. That comment, in pertinent part, states:

*480After termination of his agency, in the absence of a restrictive agreement, the agent can properly compete with his principal as to matters for which he has been employed. Even before the termination of the agency, he is entitled to make arrangements to compete, except that he cannot properly use confidential information peculiar to his employer’s business and acquired therein. Thus, before the end of his employment, he can properly purchase a rival business and upon termination of employment immediately compete. He is not, however, entitled to solicit customers for such rival business before the end of his employment nor can he properly do other similar acts in direct competition with the employer’s business.

(citation omitted).

III.

Applying these standards, this Court concludes that Scanwell presented a submissible case that Chan breached her duty of loyalty. Chan’s actions were clearly contrary to Scanwell’s interests, and when viewed in the light most favorable to the verdict, her actions, in at least two respects, went beyond mere planning and preparation to compete. In these two respects, a more detailed recitation of the evidence of Chan’s activities before she left Scanwell’s employment is necessary, keeping in mind that Dimerco and Scanwell were in direct competition.

First, Chan gave Dimerco confidential information about Scanwell’s operations and customers. This included general information on Scanwell’s customér base and detailed information on a few of Scanwell’s customers. Most of the evidence centered on the fact that Chan gave Dimerco a customer profile of one of Scanwell’s largest customers, which included contact information, special handling requirements, rate structure, billing instructions, and other information. At trial, Chan admitted that the customer profile was confidential “[to] some degree” and that it would be helpful to a competitor in soliciting the business of the customer. Dennis Choy, Scanwell’s president, also testified that this information was confidential and that, in fact, customer profiles were “the most vital pieces of information for any company to keep within [itself].” Although Chan and Dimerco argue that some of the information in the profile was not confidential because it could be obtained from other sources such as the customers themselves, at least some of the information in the profile, such as Scanwell’s air freight rates, was entirely unavailable. Regardless of the extent of the disclosure of confidential information, as other courts have aptly noted, even “slight assistance to a direct competitor can constitute a breach of the employee’s duty of loyalty.” Cameco, Inc. v. Gedicke, 157 N.J. 504, 724 A.2d 783, 789 (1999).

A second and more egregious activity was that Chan, while still employed by Scanwell, secured Seanwell’s leased premises — Scanwell’s business office — for Dimerco. The key testimony on the matter was uncontroverted. In 1998, Chan, as office manager, signed the original lease of the premises on behalf of Scanwell. The lease termination date was May 31, 2001, and Scanwell was required to exercise the renewal option by January 31, 2001. However, shortly after signing the lease in 1998, the landlord contacted Chan and requested that the termination date be moved up to March 31, 2001, and that the renewal option deadline by moved up to December 1, 2000. Chan agreed, signed the amended lease, and sent it to Scanwell headquarters in Chicago. In the fall of 2000, as the December 1, 2000 deadline approached, Chan, who was by then preparing to leave Scanwell and open the *481Dimerco office, took no action to renew the lease for Scanwell and did not notify Scan-well’s home office that the renewal deadline was approaching.

Then in early February 2001, while still employed by Scanwell and at a time the Scanwell’s premises still could have been relet to Scanwell, Chan, with Dimerco’s approval, negotiated and signed a lease of the same premises for Dimerco. Although Chan signed the lease on February 15, 2001, it was on February 20, 2001, that Chan first informed Scanwell that she planned to resign. That same day, she sent a letter to her supervisor at Scanwell, M.B. Hassan, stating, “[t]he new rental lease has been turned back to the landlord] and will not be renewed. You can contact [the landlord’s agent] if you have [a] different arrangement. Otherwise the lease will end[ ][in] March.”

While Chan and Dimerco claim that there are no cases holding that an employee owes a “duty to remind” his employer of its legal rights and obligations, they miss the larger issue. Chan did not merely fail to remind Scanwell of the renewal deadline, she arranged for Scanwell’s direct competitor to take over the premises, and, in doing so, prevented Scanwell from being able to re-lease the premises after the renewal deadline had passed. As a result of her actions, Scanwell lost its business office, and Scanwell customers who thereafter called or visited the office talked with Dimerco representatives.

IV.

Despite this Court’s conclusion that Scanwell made a submissible case on the dissemination of confidential information and the proof relating to the lease, instructional error requires reversal. Chan and Dimerco contend the instruction defining “a fiduciary relationship” was overbroad and that the verdict director gave the jury a “roving commission.” This Court agrees on both points.

The definitional instruction given in this case stated that “A fiduciary relationship is established when one reposes trust and confidence in another in the handling of certain business affairs.” Apparently, this instruction was offered under the misconception that the cause of action was one for breach of fiduciary duty rather than breach of the duty of loyalty. Even then, the instruction set out nothing more than the relationship that gives rise to a duty, but without identifying the duty. The existence of a duty, of course, is a matter of law for the court to decide, see, e. g., Senn v. Manchester Bank of St. Louis, 583 S.W.2d 119, 132 (Mo. banc 1979); Siefert v. Leonhardt, 975 S.W.2d 489, 492 (Mo.App.1998), but it is the breach of the duty that is for the jury to decide. It is the duty, then, that must be defined in the instructions, rather than the relationship that gave rise to the duty.

Where, as here, an allegation of breach of the duty of loyalty is presented in the context of an employee acting in competition with his or her employer, a proper definitional instruction of the duty of loyalty, consistent with the foregoing analysis, must set out the following elements: 1) In general, an employee must not, while employed, act contrary to the employer’s interest; 2) however, an employee may agree with others to compete upon termination of the employment and may plan and prepare for them competing enterprise while still employed; and 3) but an employee may not, while still employed, go beyond mere planning and preparation and act in direct competition with the employer. See Trieman, 409 S.W.2d at 26, 41; Rest. (2d) Agency, sec. 393, cmt. e. In the absence of such a definitional instruction, the jury was unaware of the conduct that the law prohibits, and prejudice re-*482suited because the jury was allowed to conclude that even mere planning and preparation for competition breached the duty.

This Court also concludes that Chan’s verdict director, Instruction No. 7, constituted an impermissible “roving commission.” “A ‘roving commission’ occurs when an instruction assumes a disputed fact or submits an abstract legal question that allows the jury ‘to roam freely through the evidence and choose any facts which suit[ ] its fancy or its perception of logic’ to impose liability.” Seitz v. Lemay Bank and Trust Co., 959 S.W.2d 458, 463 (Mo. banc 1998) (quoting Davis v. Jefferson Sav. & Loan Ass’n, 820 S.W.2d 549, 556 (Mo.App.1991)). Instruction No. 7 stated:

Your verdict must be for Plaintiff on its claim against Defendant Stevie Chan for breach of fiduciary duties if you believe:
First, Defendant Stevie Chan, the General Manager of Plaintiff, owed a duty of loyalty to Plaintiff, and
Second, during her employment with Plaintiff, Defendant Stevie Chan made arrangements to have Defendant Dimerco take over Plaintiffs business operation including securing Plaintiffs business lease for Defendant Dimerco, disclosing confidential information of Plaintiff to Dimerco, and
Third, in so acting, Defendant Stevie Chan breached a duty of loyalty owed to Plaintiff, and
Fourth, as a direct result of Defendant Stevie Chan’s conduct Plaintiff was harmed.

Even if the duty of loyalty referred to in paragraphs “First” and “Third” had been properly defined, paragraph “Second” is fatally defective. By couching paragraph Second so that the ultimate allegation was that “Chan made arrangements for Dimer-eo to take over Seanwell’s business operation,” the verdict director made actionable the aggregate of all of Chan’s conduct in making those arrangements, even those arrangements that involved mere “planning and preparation.” The jury was not limited to the allegations relating to the lease and the dissemination of confidential information because those allegations were preceded by the word “including,” which, generally speaking, is not a word of limitation. “Including” is a word of enlargement; “[wjhen used in connection with a number of specified objects, it implies that there may be others which are not mentioned.” St. Louis County v. State Highway Comm’n, 409 S.W.2d 149, 153 (Mo. 1966). It may well be then, that the jury, in arriving at its verdict, took into consideration not only evidence relating to the lease and confidential information, but also evidence of other plans and preparations that were not actionable. It is in this way that the jury was given a roving commission.

V. Conclusion

For the foregoing reasons, Scanwell’s judgment against Chan must be reversed. Seanwell’s judgment against Dimerco for conspiracy must be reversed as well because it is wholly derivative of the judgment against Chan, see Rice v. Hodapp, 919 S.W.2d 240, 245 (Mo. banc 1996), and because the definitional instruction and the separate verdict directing instruction suffered from the same infirmities as those pertaining to Chan. Reversed and remanded.

WHITE, C.J., WOLFF, STITH, PRICE and TEITELMAN, JJ., and SAUER, Sp.J., concur.

RUSSELL, J., not participating.

12.2 Rem Metals Corp. v. Logan 12.2 Rem Metals Corp. v. Logan

Argued May 10,

reversed June 28, 1977

REM METALS CORPORATION, Respondent, v. LOGAN, Appellant.

(TC 48428, SC 24779)

565 P2d 1080

*716Kenneth S. Klarquist, Portland, argued the cause for appellant. With him on the briefs were James Campbell and Klarquist, Sparkman, Campbell, Leigh, Hall & Whinston, Portland.

Malcolm J. Montague, Portland, argued the cause for respondent. With him on the brief were Clemens E. Ady and White, Sutherland, Parks & Allen, Portland.

Before *Denecke, Chief Justice, and Tongue, Linde and Campbell, Justices.

TONGUE, J.

*717TONGUE, J.

This is a suit in equity to enforce "noncompetition” provisions of two employment agreements between plaintiff and defendant, who had been employed by plaintiff as a welder of precision titanium castings. Defendant appeals from a decree enjoining him from engaging in such work for a period of six months in Oregon for Precision Castparts Corporation, a competitor of plaintiff. We reverse.

The primary question presented for decision in this case, according to plaintiff Rem, is whether, as an employer, it had a sufficient "protectible interest” in the skills and knowledge of defendant as a skilled craftsman engaged as a repair welder of precision titanium castings, so as to justify enforcement of such a "noncompetition” agreement as a "reasonable restraint” upon defendant.1

The titanium castings on which defendant Logan worked as a repair welder were produced by his employer, the plaintiff, under contract with Pratt & Whitney Aircraft Division for use as bearing housings for jet aircraft engines under exceedingly strict specifications. Only three companies are engaged in the production of such castings for Pratt & Whitney. These include plaintiff, Precision Castparts (its principal competitor) and Misco of Michigan (a smaller company).

In the process of the production of such castings any defects are repaired by welding performed by skilled welders who are "certified” by Pratt & Whitney inspectors as being sufficiently skilled to be entrusted with this important work. There was also some evidence that titanium is a "rare” or "reactive” metal and is difficult to weld.

Defendant was one of two or three "certified” *718welders employed by plaintiff and was plaintiffs best welder, with a proficiency rating of 98.3 per cent. Other welders rated below 95 per cent. There was testimony, however, that three other welders had been able to become sufficiently qualified so as to be "certified” for Pratt & Whitney work after 20 hours of training and that during 1966 seven of plaintiff’s welders (including defendant) were so "certified.”

Defendant Logan had been previously employed by Wah Chang Corporation, where he learned to weld electrodes of titanium. He was employed by plaintiff in 1969 and subsequently signed two employment contracts, as did nearly all Rem employees, including provisions to the effect that for a period of one year after termination he would not engage in any business in competition with Rem within the United States, "whether as principal, agent, employer, consultant or otherwise.”

In 1972 defendant was transferred to the welding department. He testified that he became "certified” in "less than two weeks,” and that no one gave him "any instruction before he took the certification test” for the welding of titanium.

Plaintiff offered testimony describing its training program for welders. When asked whether Rem had any "trade secrets in the welding department that are not generally known in the industry,” that witness answered that "Rem was able to do a better job,” to ship ahead of its schedules, and with fewer "rejects” from Pratt & Whitney than its competitors, so that "there is something we must be doing that our competitors are not doing.” Rem’s president testified that defendant received job training at Rem and "extensive written procedures prepared by Rem” which enable him to weld titanium castings. He also testified, however, that it was nevertheless not surprising that defendant Logan was able to become "certified” within "a matter of a few days,” as testified by Logan.

*719Rem’s supervisor of welding testified that:

"I don’t think its a matter of disclosing inasmuch as it is its instructional nature. If a welder’s in the tank doing the work, we’re qualifying it and giving what instructions we are capable of.”

There was also testimony by another former Rem titanium welder, since employed by Precision Cast-parts, that he observed no differences in the welding procedures and techniques at Rem and at PCP except that Rem uses a "vacuum tank,” while PCP uses a "plastic bubble,” both of which are standard techniques.

On September 18, 1976, defendant Logan, after being refused a wage increase of 50 cents per hour by Rem, went to work at that increased rate for Precision Castparts. Plaintiff offered evidence that, as a result, it was unable for a period of two weeks to ship castings worth approximately $25,000 to Pratt & Whitney and that it then had difficulty in maintaining its shipping schedules of such titanium castings because it did not have welders who were "able to complete the weld repair cycle in a satisfactory manner.” It appears, however, that Rem was then able to train two welders who "shortly thereafter were able to pass the qualification test of Pratt & Whitney.” Plaintiffs witnesses also testified to their concern over Rem’s continued ability to compete with Precision Castparts, its principal competitor, which by then had 14 or 15 titanium welders, including defendant Logan.2

It would serve no useful purpose to discuss at length the many authorities on the subject of the enforcement ability of noncompetition provisions in employment contracts.3 The general rule, as adopted for application *720in such cases in Oregon in Eldridge et al v. Johnston, 195 Or 379, 403, 245 P2d 239 (1952), is as follows:

"Three things are essential to the validity of a contract in restraint of trade: (1) it must be partial or restricted in its operation in respect either to time or place; (2) it must be on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public. * * *”* **4 (Emphasis added)

As also stated in North Pacific Lbr. v. Moore, 275 Or 359, 364, 551 P2d 431 (1976):

"To be entitled to the protection which a noncompetition covenant purports to provide, the employer must show that he has a 'legitimate interest’ entitled to protection. * * *”

At the outset, it is important to bear in mind that this is not a case involving an employee whose regular duties involved frequent dealings with customers of his employer and who had access to "customer lists” or other similar confidential information relating to customers, as involved in Cascade Exchange v. Reed, 278 Or 749, 565 P2d 1095 (1977).

In our judgment, this case falls within the rule as stated in Blake, Employee Agreements Not to Compete, 73 Harv L Rev 625, 652 (1960), as follows:

"* * * It has been uniformly held that general knowledge, skill, or facility acquired through training or experience while working for an employer appertain exclusively to the employee. The fact that they were acquired or developed during the employment does not, *721by itself, give the employer a sufficient interest to support a restraining covenant, even though the on-the-job training has been extensive and costly. In the absence of special circumstances the risk of future competition from the employee falls upon the employer and cannot be shifted, even though the possible damages is greatly increased by experience gained in the course of the employment.” (Emphasis added)

To the same effect, although under different facts, it was held in McCombs et al v. McClelland, 223 Or 475, 485, 354 P2d 311 (1960) that:

"* * * The fact that defendant may have gained considerable experience while in plaintiffs employ is not grounds for injunctive relief. An employer cannot by contract prevent his employee upon termination of the employment from using skill and intelligence acquired or increased and improved through experience or through instruction received in the course of employment, * * *.”5

We recognize, however, as does Blake, supra (at 653), that on any given set of facts it may be difficult to "draw a line” between "training in the general skills and knowledge of the trade, and training which imparts information pertaining especially to the employer’s business” and that this is the "central problem” in such cases. In other words, as stated by Blake, supra (at 647):

"* * * Its objective is not to prevent the competitive use of the unique personal qualities of the employee— either during or after the employment — but to prevent competitive use, for a time, of information or relationships which pertain peculiarly to the employer and which the employee acquired in the course of the employment. * * *”6

In such a case, however, the burden of proof is upon *722the employer to establish the existence of "trade secrets,” "information or relationships which pertain peculiarly to the employer,” or other "special circumstances” sufficient to justify the enforcement of such a restrictive covenant. See Arthur Murray Dance Studios of Cleveland v. Witter, 105 NE2d 685, 709 (Ohio Com Pl 1952) and cases and authorities cited therein.

Based upon our examination of this record, which we review de novo, and under the facts and circumstances of this case, we hold that this employer failed to sustain that burden of proof. Although defendant received training and experience while employed by plaintiff which developed his skill as a repair welder of titanium castings, plaintiff did not, in our judgment, establish by sufficient and credible evidence "special circumstances” of such a nature as to entitle Rem to demand the enforcement upon this defendant by injunction of this "noncompetition” clause as a "reasonable restraint.”

For these reasons, the decree of the trial court is reversed.

12.3 CTI, Inc. v. Software Artisans, Inc., 3 F.3d 730 (1993) 12.3 CTI, Inc. v. Software Artisans, Inc., 3 F.3d 730 (1993)

3 F.3d 730 (1993)

COMPREHENSIVE TECHNOLOGIES INTERNATIONAL, INCORPORATED, Plaintiff-Appellant,
v.
SOFTWARE ARTISANS, INCORPORATED; Marshall Dean Hawkes; Igor A. Filippides; Randall L. Sterba; Richard T. Hennig; David R. Bixler; Alvan S. Bixler, Defendants-Appellees, and
Mark A. Hawkes, Defendant.

No. 92-1837.

United States Court of Appeals, Fourth Circuit.

Argued March 30, 1993.
Decided August 25, 1993.
Opinion and Judgment Vacated and Case Dismissed on Petition for Rehearing September 30, 1993.

731*731 732*732 Cynthia Lee Clark, Chantilly, VA, argued, for plaintiff-appellant.

Philip A. Gagner, Shaughnessy, Borowski & Gagner, Washington, DC, argued (Robert J. Zeknick, Szabo, Quinto, Zelnick & Erickson, P.C., Woodbridge, VA, on brief), for defendants-appellees.

Before HALL, MURNAGHAN, and WILLIAMS, Circuit Judges.

 

OPINION

 

WILLIAMS, Circuit Judge:

Comprehensive Technologies International, Inc. (CTI), brought this action for copyright infringement against former employees Dean Hawkes, Igor A. Filippides, Randall L. Sterba, Richard T. Hennig, and David R. Bixler (the Defendant employees). CTI also named as defendants Alvan S. Bixler and Software Artisans, Inc. (SA), a corporation formed by Alvan Bixler and several of the Defendant employees shortly after their departure from CTI. CTI contended that "Transend," a computer program developed by the Defendants, infringed upon the copyrights CTI held in its "Claims Express" and "EDI Link" computer programs. CTI appended numerous state law causes of action, including trade secret misappropriation, breach of confidentiality, and breach of contract.[1] CTI also alleged that Hawkes 733*733 breached his covenant not to compete with CTI by performing services for SA, soliciting CTI's customers, and hiring CTI's former employees. After a bench trial, the district court entered judgment for the Defendants on all counts.

CTI now appeals and offers four reasons for reversal. First, CTI contends that, in granting judgment for Defendants on its copyright infringement claim, the district court failed to apply the appropriate standard for determining whether Transend is substantially similar to Claims Express and EDI Link. Second, CTI contends that under the Virginia Uniform Trade Secrets Act, Va. Code Ann. § 59.1-336 to -343 (Michie 1992), the district court erred in finding that Defendants did not misappropriate its trade secrets. Third, CTI challenges the district court's conclusion that Hawkes's covenant not to compete with CTI is unreasonable and hence unenforceable under Virginia law. Last, CTI charges that the district court committed reversible error by expressing "bias" against its software.

With regard to CTI's copyright infringement and trade secret misappropriation claims, we affirm the judgment for the Defendants. We agree, however, with CTI's contention that Hawkes's covenant not to compete is enforceable. We therefore vacate the judgment for Hawkes on CTI's claim for breach of contract, and remand for the district court to determine whether Hawkes has breached his covenant not to compete. We find CTI's charge of bias to be without merit.

 

I.

 

 

Factual Background

 

CTI, a California corporation with its principal place of business in Chantilly, Virginia, is engaged in defense related services. CTI was founded in 1980 by Celestino Beltran, who at the time of trial served as CTI's president, chief executive officer, and chairman of the board of directors. By 1988 Beltran was hoping to diversify CTI's operations into newly emerging technologies. At that time, Beltran's next door neighbor, Alvan Bixler, worked for the Electronic Data Interchange Association (EDIA). Electronic data interchange, or EDI, is the computer-to-computer transmission of business transactions in proprietary or standard formats. After discussing EDI with Alvan Bixler and conducting his own research on the subject, Beltran concluded that EDI technology presented substantial growth potential in the small business market.

With the approval of his board of directors, Beltran established a Software Products Group and designated Dean Hawkes to lead it. Hawkes was given the responsibility to design, develop, test, and market software that would enable clients to process and transmit data through EDI technology. CTI selected Igor Filippides as the Software Products Group's Acting Vice President for Sales and gave him primary responsibility for marketing the software. Other members of the Software Products Group included Sterba, Hennig, and David Bixler, who together wrote the actual software. To boost the marketability of its products, CTI obtained an agreement from EDIA to assist CTI in the development of its software. Pursuant to that agreement, Alvan Bixler collaborated with CTI as a consultant on EDI technology.

Each of the Defendant employees except Hawkes signed CTI's standard Confidentiality and Proprietary Information Agreement. Under the Agreement, each employee agreed not to disclose or use, directly or indirectly, during his employment and for three years thereafter any confidential, proprietary, or software-related information belonging to CTI. The Agreement specifically identified the Claims Express and EDI Link projects as confidential. Although Hawkes did not sign a Confidentiality and Proprietary Information Agreement, he did sign an Employment Agreement that contained similar but more restrictive provisions. In addition to promising confidentiality, Hawkes agreed that during the term of his employment he would not compete with CTI, solicit CTI's 734*734 customers, or employ CTI's current or former employees.

The Software Products Group undertook to develop two software packages for personal computers. The first, Claims Express, is an electronic medical billing system. Claims Express transmits information that conforms to two specific insurance claims forms, the "HFCA 1500" and the "UB 82." The program has been successfully marketed. CTI's second software package, EDI Link, is not specific to the health care industry. It is designed to permit users to create generic forms, enter data on the forms electronically, test that data for errors, and store both the forms and the data on a computer. Although CTI expended substantial effort on EDI Link, at the time of trial the program had not been completed and had never been sold or marketed. Trial testimony indicated that between 35 and 85 percent of the program had been completed.

In February 1991, all of the Defendant employees left CTI. Hawkes executed a formal Termination Agreement with CTI. In that Agreement, Hawkes agreed to rescind his Employment Agreement in return for $50,000 and more than $20,000 worth of equipment. Hawkes also agreed that he would not disclose or use CTI's confidential information, and that, for a period of one year following his departure, he would not (1) compete with CTI, (2) solicit CTI's customers, or (3) hire CTI's employees.

In April 1991, the Defendants incorporated Software Artisans, Inc., located in Fairfax, Virginia. By July 1991, SA had developed and begun to market its own program called Transend. According to its User's Manual, Transend creates a "paperless office environment" by enabling its users to process business forms on a computer. (J.A. at 1592.) Transend is similar to Claims Express and EDI Link in that it is designed to prepare forms for transmission by EDI. Transend permits the user to input data, check the data for errors, and prepare the data for transmission by EDI.

 

II.

 

 

Copyright Infringement

 

The district court concluded that Defendants did not infringe upon CTI's copyrights in Claims Express and EDI Link. See 17 U.S.C.A. § 501(a) (West Supp.1993) (defining copyright infringement). The court found that Transend was not a literal copy of either Claims Express or EDI Link, see Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 701 (2d Cir.1992) (literal copying can prove infringement), nor was it substantially similar to either program, see Dawson v. Hinshaw Music, Inc., 905 F.2d 731, 732 (4th Cir.1990) (access and substantial similarity can prove infringement), cert. denied, 498 U.S. 981, 111 S.Ct. 511, 112 L.Ed.2d 523 (1990); Whelan Assocs., Inc. v. Jaslow Dental Lab., Inc., 797 F.2d 1222, 1232 (3d Cir. 1986), cert. denied, 479 U.S. 1031, 107 S.Ct. 877, 93 L.Ed.2d 831 (1987). The district court acknowledged that under Whelan CTI could prove infringement by showing substantial similarities between the structure, sequence, and organization of the programs, but found that CTI had not met its burden of proof on that issue. The court accepted CTI's evidence that the programs shared some characteristics but nonetheless found that the similarities were either derived from common sources available to the average programmer or were dictated by the functions of the programs. The court also found that, to the extent that CTI may have possessed proprietary algorithms,[2] Defendants had not copied any of them.

CTI contends that the district court failed to apply the correct test to determine substantial similarity and therefore erred in concluding that the structure, sequence, and organization of Transend were not substantially similar to that of Claims Express and EDI Link. We review the district court's factual findings on substantial similarity for clear error, Data East USA, Inc. v. Epyx, Inc., 862 F.2d 204, 206 (9th Cir.1988); Whelan, 797 F.2d at 1233 n. 25, and we review its conclusions of law de novo, Whelan, 797 F.2d at 1233 n. 25.

CTI points out that the district court criticized the Whelan test of substantial similarity 735*735 as overly simplistic,[3] but never stated which alternative test should be used to evaluate substantial similarity. CTI believes that the district court should have applied the Second Circuit's "abstraction-filtration-comparison" analysis, first announced in the Computer Associates opinion. Computer Assocs., 982 F.2d at 706-12. CTI argues that if the district court had used the Computer Associates test, it would have identified six similarities between Transend and the CTI programs:

(1) the organization of data dictionary in the data base;
(2) the establishment of form data;
(3) the use of the header file name "username.rec";
(4) the unique identifiers in the sort record;
(5) the use of 41 characters for the key length to accommodate names and addresses; and
(6) some of the field names.

(CTI's Br. at 11.) According to CTI, these similarities prove infringement.

The difficulty with CTI's position is that it has not identified any evidence in the record indicating that these similarities were proved at trial. We will not sift through the record to piece together support for CTI's contentions.[4] See Fed.R.App.P. 28(a)(4), (e) (appropriate references to the record are required); Friedel v. City of Madison, 832 F.2d 965, 969 (7th Cir.1987) ("It is not the court's duty on appeal to wade through the record and make arguments for either party."); AMP, Inc. v. Fleischhacker, 823 F.2d 1199, 1203 (7th Cir.1987) ("We will not search through the record in an endeavor to locate material which the parties have failed to provide us. It is neither the role nor the obligation of an appellate court to cast about in the record for facts and argument upon which the parties may rely." (Internal quotation marks and brackets omitted).) Because CTI has not identified any evidence demonstrating that the district court clearly erred, we affirm the district court's finding that Transend was not substantially similar to either Claims Express or EDI Link.[5]

 

III.

 

 

Trade Secrets

 

The district court also found that CTI did not prove that the Defendants misappropriated a trade secret. Under Virginia law a "trade secret" is

information, including but not limited to, a formula, pattern, compilation, program, device, method, technique, or process, that:
1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Va.Code Ann. § 59.1-336; see also Dionne v. Southeast Foam Converting & Packaging, Inc., 240 Va. 297, 397 S.E.2d 110, 113 (1990) (discussing definition of trade secret). For purposes relevant to this case, "misappropriation" means the "use of a trade secret of another without express or implied consent by a person who ... [a]t the time of ... use, knew or had reason to know that his knowledge of the trade secret was ... [a]cquired under circumstances giving rise to a duty to maintain its secrecy or limit its use." Va. Code Ann. § 59.1-336.

In denying CTI's claim for trade secret misappropriation, the district court found that CTI did not possess any trade secrets and that, even if CTI did possess trade secrets, the Defendants had not misappropriated 736*736 them.[6] The court found no evidence that CTI's purported trade secrets — the organization of Claims Express and EDI Link, the database access techniques of the two programs, and the unique identifiers of the two programs — derived independent economic value from not being generally known or were not readily ascertainable by proper means. Consequently, the court concluded that CTI's purported trade secrets failed to satisfy all of the elements necessary to prove a trade secret. The district court also concluded that the Defendants did not "copy" any trade secrets, implying that Defendants did not "use" or otherwise misappropriate them.[7] (J.A. at 65.)

CTI argues that in granting judgment for Defendants on its trade secrets claim, the district court misapplied the law. Although we review the district court's determination that a trade secret does not exist for clear error, Integrated Cash Management Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir.1990); Telex Corp. v. International Business Machs. Corp., 510 F.2d 894, 928 (10th Cir.), cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46 L.Ed.2d 244 (1975); K-2 Ski Co. v. Head Ski Co., 506 F.2d 471, 477 (9th Cir.1974), we independently review the district court's conclusions of law and the court's application of the law to the facts, Rawl v. United States, 778 F.2d 1009, 1014 & n. 9 (4th Cir.1985), cert. denied, 479 U.S. 814, 107 S.Ct. 67, 93 L.Ed.2d 25 (1986).

CTI reads the district court's opinion as ruling as a matter of law that the organization of its database, its database access techniques, and its unique identifiers could not constitute trade secrets because each of their composite elements was in the public domain. CTI argues vociferously (and correctly) that although a trade secret cannot subsist in information in the public domain, it can subsist in a combination of such information, as long as the combination is itself secret. See Integrated Cash Management, 920 F.2d at 174; Continental Data Sys., Inc. v. Exxon Corp., 638 F.Supp. 432, 443 (E.D.Pa.1986); Q-Co Indus., Inc. v. Hoffman, 625 F.Supp. 608, 617 (S.D.N.Y.1985); Dickerman Assocs., Inc. v. Tiverton Bottled Gas Co., 594 F.Supp. 30, 35-36 (D.Mass. 737*737 1984). According to CTI, each of its alleged trade secrets is just such a combination of publicly available information.

In making this argument, CTI misreads the district court's opinion. The district court did not rule that unique combinations or arrangements of publicly available information cannot receive protection as trade secrets. Rather, the district court held that CTI failed to present any evidence that its database organization, its access techniques, and its identifiers were not themselves publicly available. The court specifically found that the arrangement and interaction of the functions of Claims Express and EDI Link were "common to all computer programs of this type." (J.A. at 63.) Information that is generally known cannot qualify as a trade secret. See Va.Code Ann. § 59.1-336 (Michie 1992). Consequently, the district court did not misapply the law; it simply found insufficient evidence to support CTI's claim. The district court correctly concluded that CTI failed to prove that the organization, database access techniques, and identifiers of CTI's software constituted trade secrets.

Even if CTI had demonstrated that these items constituted trade secrets, CTI has not convinced us that the district court clearly erred in finding that the Defendants did not misappropriate any of CTI's alleged trade secrets. CTI points to the short development time and the complete lack of design documentation for Transend as strong circumstantial evidence of misappropriation. Although this evidence does raise some suspicions, Defendants provided a colorable explanation for the absence of design documentation. First, Defendant's expert, Dr. Rotenstreich, testified that it was not atypical for small software companies to neglect to prepare extensive design documentation. Second, Sterba testified that he and the others disliked the amount of paperwork involved in documenting their designs, that they preferred to use a "whiteboard" for their design work, and that they placed much of the information that would ordinarily appear in design documentation in the code itself. In light of this testimony, CTI's circumstantial evidence is not enough to convince us that the district court clearly erred in finding that the Defendants did not copy (or "use") any of CTI's alleged trade secret information. See id. (wrongful use of a trade secret constitutes misappropriation).

We find instructive the Fifth Circuit's decision in Plains Cotton Cooperative Ass'n v. Goodpasture Computer Service, Inc., 807 F.2d 1256, 1263 (5th Cir.), cert. denied, 484 U.S. 821, 108 S.Ct. 80, 98 L.Ed.2d 42 (1987):

[T]he trade secrets allegedly involved here are particular implementations of software functions.... [T]he misuse of these implementations can occur only through copying the particular software designs on a sufficiently specific level.... [The trade secrets] are matters of design, where the issue of misuse boils down to evidence of copying. If no copying occurred on any level, appellant cannot demonstrate that appellees misused the trade secrets they allegedly possessed.
....
... If appellees did not in any way "copy" any part of appellant's protected idea or expression, then appellant cannot demonstrate trade secret misappropriation any more than it can show copyright infringement.

(Emphasis added.) As the district court noted, CTI produced insufficient evidence that Transend copied any unique designs or functions of either Claims Express or EDI Link. Without proof of copying at the functional (or ideational) level, CTI has not proved that Defendants "used" and thereby misappropriated any of its trade secret information. The district court correctly concluded that the Defendants did not misappropriate any trade secret information belonging to CTI.

In sum, we conclude that the district court did not misapply the law and that its findings of fact are not clearly erroneous. We affirm the district court's entry of judgment for Defendants on CTI's misappropriation claim.

 

IV.

 

 

Covenant Not to Compete

 

CTI next argues that the district court should have enforced Dean Hawkes's 738*738 covenant not to compete. In his Termination Agreement, Hawkes agreed that, for a period of twelve months following his departure from CTI, he would not

engage directly or indirectly in any business within the United States (financially as an investor or lender or as an employee, director, officer, partner, independent contractor, consultant or owner or in any other capacity calling for the rendition of personal services or acts of management, operation or control) which is in competition with the business of CTI. For purposes of this Agreement, the "business of CTI" shall be defined as the design, development, marketing, and sales of CLAIMS EXPRESS) and EDI LINK) type PC-based software with the same functionality and methodology....

(J.A. at 714.) Virginia has established a three-part test for assessing the reasonableness of restrictive employment covenants. Under the test, the court must ask the following questions:

"(1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?
(2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?
(3) Is the restraint reasonable from the standpoint of a sound public policy?"

Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 389 S.E.2d 467, 469 (1990) (citation omitted); Meissel v. Finley, 198 Va. 577, 95 S.E.2d 186, 188 (1956). If a covenant not to compete meets each of these standards of reasonableness, it must be enforced. Roanoke Eng'g Sales Co. v. Rosenbaum, 223 Va. 548, 290 S.E.2d 882, 884 (1982). As a general rule, however, the Virginia courts do not look favorably upon covenants not to compete, Grant v. Carotek, Inc., 737 F.2d 410, 411 (4th Cir.1984), and will strictly construe them against the employer, Clinch Valley Physicians, Inc. v. Garcia, 243 Va. 286, 414 S.E.2d 599, 601 (1992); Grant, 737 F.2d at 411. The employer bears the burden of demonstrating that the restraint is reasonable. Richardson v. Paxton Co., 203 Va. 790, 127 S.E.2d 113, 117 (1962).

The district court refused to enforce the covenant not to compete because it concluded that the covenant was broader than necessary to protect CTI's legitimate business interests. First, the court held that the scope of the employment restrictions was too broad because the restrictions precluded Hawkes from working for a competitor in any capacity, even as a janitor. The court implied that CTI did not have a legitimate interest in preventing Hawkes from working for a competitor in a menial capacity. Second, the district court concluded that the geographic scope of the agreement was broader than necessary to protect CTI's interests. The court found that CTI had marketed Claims Express only in Virginia, Nebraska, and perhaps one other state, and therefore CTI did not have a legitimate interest in restricting Hawkes's employment throughout the United States. (J.A. at 66-67.)

We review the enforceability of the covenant not to compete de novo. Brunswick Corp. v. Jones, 784 F.2d 271, 274 n. 2 (7th Cir.1986).

CTI asserts that under the facts of this case the employment restrictions were reasonably necessary to protect its business interests.

Although the district court believed that the covenant was categorically overbroad because it precluded Hawkes from working for a competitor of CTI in any capacity, the Virginia Supreme Court has enforced similarly broad restrictions. In Roanoke Engineering, the Court enforced a three-year restriction on an employee's right to "own, manage, operate, control, be employed by, participate in, or be associated in any manner with the ownership, management, operation or control of any business similar to the type of business conducted by" the employer. Roanoke Eng'g, 290 S.E.2d at 882 (emphasis added). In Blue Ridge, the Court upheld a three-year covenant under which the employee could not "open or be employed by or act on behalf of any competitor of Employer which renders the same or 739*739 similar services as Employer"). Blue Ridge, 389 S.E.2d at 468 (emphasis added). The covenant in Hawkes's agreement properly restricts him from competitive employment that would, in all likelihood, substantially interfere with CTI's business. See Stoneman v. Wilson, 169 Va. 239, 192 S.E. 816, 819 (1938); cf. Grant, 737 F.2d at 412 (covenant which restrained more than direct competition with the employer was unreasonable); Worrie v. Boze, 191 Va. 916, 62 S.E.2d 876, 881 (1951) (approving use of covenants to prevent injurious competition).

Moreover, as Vice President of CTI's Software Products Group, Hawkes necessarily came in contact with confidential information concerning both CTI's products and its customers. Hawkes's access to such confidential information makes the covenant not to compete more reasonable. As the Virginia Supreme Court has noted,

[t]he fact that the employment is of such a character as to inform the employee of business methods and trade secrets which, if brought to the knowledge of a competitor, would prejudice the interests of the employer, tends to give an element of reasonableness to a contract that the employee will not engage in a similar business for a limited time after the termination of his employment, and is always regarded as a strong reason for upholding the contract.

Stoneman, 192 S.E. at 819 (internal quotations omitted); Meissel, 95 S.E.2d at 191 (possession of trade secrets and confidential information is an "important consideration" in testing the reasonableness of a restrictive covenant); cf. Community Counselling Serv., Inc. v. Reilly, 317 F.2d 239, 244 (4th Cir. 1963) (even in absence of covenant not to compete, employee may not appropriate trade secrets and confidential information rightfully belonging to his former employer). Similarly, in Roanoke Engineering, an employee had access to confidential financial records, lists of customers and suppliers, and detailed knowledge of overhead factors, pricing policies, and bidding techniques. Roanoke Eng'g, 290 S.E.2d at 885. The Virginia Supreme Court held that this information enabled the employee to become a "formidable competitor" of his former employer, and concluded that a restriction barring the employee from working for competitors in any capacity was no greater than necessary to protect the employer's legitimate business interests. Id.

Hawkes poses a similar danger to CTI's business. As the individual primarily responsible for the design, development, marketing and sale of CTI's software, Hawkes became intimately familiar with every aspect of CTI's operation, and necessarily acquired information that he could use to compete with CTI in the marketplace.[8] When an employee has access to confidential and trade secret information crucial to the success of the employer's business, the employer has a strong interest in enforcing a covenant not to compete because other legal remedies often prove inadequate. It will often be difficult, if not impossible, to prove that a competing employee has misappropriated trade secret information belonging to his former employer. Eden Hannon & Co. v. Sumitomo Trust & Banking Co., 914 F.2d 556, 561 (4th Cir.1990) (applying Virginia law). On the facts of this case, we conclude that the scope of the employment restrictions is no broader than necessary to protect CTI's legitimate business interests.

As a second ground for invalidating the covenant not to compete, the district court concluded that the geographic scope of the employment restrictions — "within the United States" — was greater than necessary to protect CTI's business. (J.A. at 66.) The district court merely noted that CTI had marketed Claims Express in only three states and therefore did not have a national market for its product.

The district court clearly erred in concluding that CTI did not have a national market for Claims Express. See Fed.R.Civ.P. 52(a) (findings of fact are reviewed for clear error). CTI licensed Claims Express in at least ten states: California, Colorado, Connecticut, Florida, Iowa, Kansas, Maryland, Nebraska, New York, and Oregon. This list alone demonstrates 740*740 that CTI's customers were dispersed throughout the country and not concentrated in any particular geographic area. CTI's operation was neither local nor regional, but national. Other evidence of a national market for Claims Express was similarly compelling. Some of CTI's customers were value-added resellers who had agreed to market Claims Express to their own customers. These value-added resellers were located in California (BAS Microtech), Colorado (Dakkro Corporation), Connecticut (Robert Austin), Kansas (Computing Services, Inc., and Resource & Development Services), and Nebraska (The Churchhill Group, LTD). CTI also identified for the district court specific customer prospects in Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Texas, Washington, and the District of Columbia.[9] CTI presented Claims Express and EDI Link (albeit in preliminary form) at national EDIA trade shows in both 1989 and 1990. Finally, CTI presented evidence that it faced direct competition from companies located in California, Colorado, Georgia, Idaho, Illinois, Indiana, Kansas, Maryland, Michigan, Minnesota, New Jersey, Ohio, Oregon, South Carolina, Texas, Utah, and Virginia, and that it faced potential competition from companies in Arizona, California, Georgia, Maryland, North Dakota, Ohio, Oklahoma, Tennessee, and Texas. Given the breadth of the market for Claims Express, we cannot see how anything less than a nationwide prohibition could conceivably protect CTI's business interests. Because CTI had a national market for its product, the restrictions on Hawkes's employment throughout the United States were no greater than necessary to protect it from competition by Hawkes. See Roanoke Eng'g, 290 S.E.2d at 885 (restriction geographically co-terminous with territory in which employer did business was reasonable); see also National Homes Corp. v. Lester Indus., Inc., 404 F.2d 225, 227 (4th Cir.1968) (under Virginia law, injunctive relief against former employee should be extended to entire state, even though employer had record of sales in only widely scattered sections of the state); cf. Alston Studios, Inc. v. Lloyd V. Gress & Assocs., 492 F.2d 279, 283 (4th Cir.1974) (invalidating restrictive covenant because it did not limit its applicability to appropriate "areas of possible competition" (emphasis added)). CTI fully satisfied the first test of reasonableness.

Having determined that the covenant not to compete is reasonable from CTI's point of view, we must next determine whether the covenant is reasonable from Hawkes's point of view, i.e., whether the curtailment on Hawkes's ability to earn a living is unduly harsh or oppressive. Although the agreement applies throughout the United States, it restricts Hawkes from engaging in only an extremely narrow category of business. Hawkes may not render personal services to, or perform acts of management, operation, or control for, any business in competition with "the business of CTI," which the agreement defines as "the design, development, marketing and sales of CLAIMS EXPRESSTM and EDI LINKTM type PC-based software with the same functionality and methodology." (J.A. at 714.) The agreement therefore permits Hawkes to design, develop, market and sell any software of a type different from Claims Express or EDI Link, any software of the same type having a different functionality or methodology, or any software of the same type having the same functionality and methodology that is not designed to run on personal computers. Hawkes is also free to compete with any other branch of CTI's business. Because Hawkes retains broad employability under the agreement, the agreement is not unduly harsh or oppressive. See Blue Ridge, 389 S.E.2d at 469.

In light of the foregoing, we conclude that the covenant not to compete is no greater than necessary to protect CTI's business and is not unduly harsh or oppressive. Hawkes does not suggest, and we do not find, that the covenant is unreasonable from the standpoint of public policy. We therefore hold that the covenant is enforceable.

741*741 Because the district court found the covenant unenforceable, it did not reach the question whether Hawkes violated the covenant by participating in the development of Transend. Consequently, we vacate the judgment of the district court for Dean Hawkes on this issue and remand for a determination whether Hawkes has breached his agreement.

 

V.

 

 

Bias

 

Finally, CTI contends that the district court committed reversible error by expressing "bias" against CTI's software in a footnote to its opinion.[10] CTI speculates that the district court's failure to appreciate the value of computers may have predisposed it to grant judgment against CTI. This argument clearly has no merit.

 

VI.

 

 

Conclusion

 

In sum, we affirm the judgment of the district court for the Defendants on CTI's claims for copyright infringement and trade secret misappropriation. We vacate the judgment of the district court for Dean Hawkes on CTI's claim for breach of the covenant not to compete and remand for further proceedings.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

MURNAGHAN, Circuit Judge, concurring in part and dissenting in part:

While I fully concur with the majority opinion insofar as it disallows recovery on a copyright or trade secrets basis, I reluctantly come to another conclusion with respect to whether CTI, as employer, could enforce as reasonable and not unduly harsh or oppressive the Hawkes covenant not to compete. The covenant not to compete held valid by the majority is operable "within the United States." The district court found that a reasonable covenant would restrict competition only in "Virginia, Nebraska and perhaps one other state." The majority has enhanced CTI's claim to proof of reasonableness by naming 31 states in which CTI has licenses, clients, or potential clients, but that still leaves 19 others, every one of which, it seems to me, is "within the United States." While the majority characterizes CTI's business as "national," it has provided no justification for calling it all inclusive.

The question of validity or not of the noncompete undertaking is one to be decided by the law of the Commonwealth of Virginia. The decision announced by the majority, that a company with business in only 31 states may enforce a non-compete clause in all 50, is a mathematically dubious one on a Virginia point of law. However, the same decision, if announced by the Virginia Supreme Court, would carry more authority than any decision on the point announced by the Fourth Circuit. See Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967) (applying the rule of Erie R. Co. v. Tompkins[1] in a nondiversity case when underlying substantive rule is based on state law because "the State's highest court is the best authority on its own law."). I feel and have suggested that the question should be certified to the Supreme Court of Virginia. Unfortunately, my colleagues on the panel feel otherwise. Hence, I must make as 742*742 educated a guess as possible as to what the Virginia law is.[2]

A restraint on an employee is unreasonable if it is greater than is necessary to protect the employer in its legitimate business interest and unreasonable from the employee's standpoint as unduly harsh in curtailing his legitimate efforts to earn his livelihood. Richardson v. Paxton Co., 203 Va. 790, 795, 127 S.E.2d 113, 117 (1962). "Whatever [the employer's] subjective intent, we must give effect to the language of the agreement, strictly construed." Linville v. Servisoft of Virginia, Inc., 211 Va. 53, 55, 174 S.E.2d 785, 787 (1970).

Because restraints of trade are disfavored in Virginia, we must give effect to the language of the agreement, strictly construed. See Linville v. Servisoft of Virginia, Inc., 211 Va. 53, 55, 174 S.E.2d 785 (1970); Richardson v. Paxton Co., 203 Va. 790, 127 S.E.2d 113 (1962). We construe the agreement, reading it literally and construing it favorably to the employee, as an attempt to impose a post-employment restraint upon Gress [employee] without geographic or other limitation. We must therefore decline Alston's [employer's] invitation to read into the agreement limitations which simply are not there.

Alston Studios, Inc. v. Lloyd V. Gress & Associates, 492 F.2d 279, 285 (4th Cir.1974). "Conceivably the non-competition clause could be interpreted more narrowly, but Virginia law requires that it be strictly construed against the employer...." Grant v. Carotek, Inc., 737 F.2d 410, 412 (4th Cir. 1984).

The Supreme Court of Virginia has never approved a non-compete clause that restricts employment "within the United States." To the contrary, Virginia courts have repeatedly held that non-compete clauses should be limited to a geographical area no greater than is necessary to protect the employer's legitimate business interests. Where Virginia courts have enforced non-compete contracts, the contracts have restricted competition only within "quite narrow and well defined geographic limitations." Alston Studios, 492 F.2d at 283 n. 5. See, e.g., Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 371, 389 S.E.2d 467, 469 (1990) (covenant that prohibited employment only in territories serviced by the former employee, not in the company's entire market area, enforced); Roanoke Eng'g Sales Co., Inc. v. Rosenbaum, 223 Va. 548, 552, 290 S.E.2d 882, 884 (1982) (three year restriction that broadly limited an employee's right to be employed by any similar business enforced; court specifically noted that the restriction was reasonable because it was geographically co-terminous with the territory in which the employer did business, which involved only two states); Meissel v. Finley, 198 Va. 577, 581, 95 S.E.2d 186, 190 (1956) (covenant with restrictions that applied only within a radius of 50 miles of Norfolk enforced); Worrie v. Boze, 191 Va. 916, 922-26, 62 S.E.2d 876, 879-81 (1951) (covenant that restricted competition within 25 miles of dance studio enforced); Stoneman v. Wilson, 169 Va. 239, 245, 192 S.E. 816, 818 (1938) (agreement of employee not to go into the hardware business for five years within a limited geographical radius enforced); Power Distribution, Inc. v. Emergency Power Eng'g, 569 F.Supp. 54 (E.D.Va.1983) (non-compete contract that restrained former employee from employment with anyone in competition with employer found too broad because area in which plaintiff competed was not fixed and thus the limitation could extend "to every location where plaintiff might potentially compete, which included at least the entire United States").

Perhaps the Virginia Supreme Court would agree that the noncompete clause applicable 743*743 to the employee, Hawkes, was reasonable, but in doing so it would have severely to limit, curtail or even contradict what it has said before. I do not accept that we are free to treat a controlling state rule of law applied by the highest court in the Commonwealth of Virginia so cavalierly.

Accordingly, I would hold the non-compete clause overbroad and hence invalid. I would uphold the district court throughout. So to that extent I dissent.

[1] CTI also alleged intentional interference with economic relations, breach of fiduciary duty, conspiracy to induce breach of contract, and statutory conspiracy, but dismissed these claims voluntarily and with prejudice at the close of its case. CTI also named former employee Mark A. Hawkes as a defendant, but dismissed all of its claims against him. He is not a party to this appeal.

[2] An algorithm is a mechanical computational procedure. Whelan, 797 F.2d at 1229.

[3] Other courts share the district court's criticisms of the Whelan test. See, e.g., Computer Assocs., 982 F.2d at 705.

[4] The Joint Appendix was itself in excess of 3400 pages. We note, however, that Defendants's expert, Dr. Rotenstreich, whose testimony the district court credited, testified that there was nothing in the source code of Transend that indicated that it had been copied from either EDI Link or Claims Express. (J.A. at 600.)

[5] In light of our disposition, we need not decide whether to adopt the Computer Associates test for copyright infringement of computer programs.

[6] The district court also stated that CTI's trade secrets claims were "probably preempted" by § 301(a) of the Copyright Act, 17 U.S.C. § 301(a) (1988). We have recently held that § 301(a) does not preempt claims for trade secret misappropriation under state law. Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 660 (4th Cir.1993).

[7] At one point in its opinion, the district court seemed to conflate CTI's trade secrets claim with its copyright claim. The court stated that "the trade secret claims are basically the same as the copyright claims." (J.A. at 65.) For purposes of analysis, however, the district court properly separated the two causes of action.

This separation can sometimes be difficult in the context of computer programs, for the owner of a computer program can often seek protection under both statutory schemes. Computer programs can simultaneously constitute "literary works" under federal copyright law, see 17 U.S.C.A. § 102(a)(1) (West Supp.1993), and "processes" or "programs" under state trade secret law, see Va.Code Ann. § 59.1-336. Thus, if a person having a confidential relationship with the owner of a copyrighted, trade secret computer program copies the owner's program, the person may both infringe upon the owner's copyright and misappropriate his trade secret. Cf. Trandes Corp., 996 F.2d at 664-65 (copying a trade secret computer program constituted misappropriation). Directly copying the trade secret computer program of another is the most basic form of misappropriation.

It should be noted, however, that a claim for misappropriation of a trade secret does not require the same proof as a claim for copyright infringement. To establish the latter, a plaintiff must prove that the defendant copied its expression. Dawson, 905 F.2d at 732. The law of trade secrets, on the other hand, protects ideas, without regard for the form of expression. See Va.Code Ann. § 59.1-336 (trade secrets include formulas, patterns, compilations, programs, devices, methods, techniques, and processes); Computer Assocs., 982 F.2d at 717 ("trade secret doctrine protects the discovery of ideas"); Technicon Medical Info. Sys. Corp. v. Green Bay Packaging, Inc., 687 F.2d 1032, 1038 (7th Cir.1982) ("trade secret law applies to the contents or ideas in a work"), cert. denied, 459 U.S. 1106, 103 S.Ct. 732, 74 L.Ed.2d 955 (1983). Thus, two computer programs may be sufficiently dissimilar on the level of expression to defeat liability for copyright infringement, but they may be sufficiently similar on a more abstract or ideational level to establish liability for trade secret misappropriation. But where, as here, the plaintiff has failed to prove substantial similarities or copying at any level, see infra, including the purely ideational level, the plaintiff can establish neither copyright infringement nor trade secret misappropriation.

 

[8] Hawkes's Employment Agreement specifically acknowledged that in the course of his employment Hawkes would have access to much of CTI's confidential and secret information.

[9] CTI even identified customer prospects in both Ontario, Canada, and the former Yugoslavia.

[10] The district court wrote:

Although not a factor in resolution of the case, it is remarkable that something as simple as a form on which a doctor or hospital submits a claim for reimbursement directly to an insurance company, which could be prepared by an ordinary draftsman in consultation with health care and insurance company personnel, filled out on a word processor by anyone with a tenth grade education at the doctor's or hospital's office, and "faxed" forthwith to the insurance company, can become so complicated when these simple tasks are to be handled, in the interest of "paperlessness," by computer. The time spent on development of the software for this endeavor was enormous and was estimated in terms of "man years." The uninitiated and those not captured by the genius of the computer must wonder whether it is worth the candle. Perhaps the true genius lies with the marketer who successfully persuades the consumer that there is a need for this expensive program so the consumer's operation can become "paperless." (J.A. at 58.)

 

[1] 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

[2] In that I have the assistance of the district judge, who has had intimate relationship with Virginia law. "As we have noted in the past `in determining state law in diversity cases where there is no clear precedent,' we accord `substantial deference to the opinion of a federal district judge because of his familiarity with the state law which must be applied.'" National Bank of Washington v. Pearson, 863 F.2d 322, 327 (4th Cir.1988) (quoting Caspary v. Louisiana Land & Exploration Co., 707 F.2d 785, 788 n. 5 (4th Cir.1983)). My panel colleagues hail from South Carolina and West Virginia and I from Maryland. The district judge, acting in the Eastern District of Virginia, refused to enforce the covenant because it was geographically overbroad and unreasonably curtailed the employee's legitimate efforts to earn a living.

12.4 Hopper v. All Pet Animal Clinic, Inc. 12.4 Hopper v. All Pet Animal Clinic, Inc.

Glenna HOPPER, D.V.M., Appellant (Defendant), v. ALL PET ANIMAL CLINIC, INC., a Wyoming corporation; and Alpine Animal Hospital, Inc., a Wyoming corporation, Appellees (Plaintiffs). ALL PET ANIMAL CLINIC, INC., a Wyoming corporation; and Alpine Animal Hospital, Inc., a Wyoming corporation, Appellants (Plaintiffs), v. Glenna HOPPER, D.V.M., Appellee (Defendant).

Nos. 92-254, 92-255.

Supreme Court of Wyoming.

Oct. 1, 1993.

*535Kennard F. Nelson of Kirkwood & Nelson, Laramie, for Glenna Hopper, D.V.M.

Patricia L. Simpson and C.M. Aron of Aron, Hennig & Simpson, Laramie, for All Pet Animal Clinic, Inc. and Alpine Animal Hosp., Inc.

Before MACY, C.J., and THOMAS, CARDINE, GOLDEN and TAYLOR, JJ.

TAYLOR, Justice.

These consolidated appeals test the enforceability of a covenant not to compete which was included in an employment contract. The district court found that the covenant imposed reasonable geographic and durational limits necessary to protect the employers’ businesses and enjoined a veterinarian from practicing small animal medicine for three years within a five mile radius of the city limits of Laramie, Wyoming. The district court denied a damage claim for breach of the employment agreement brought by the veterinarian’s two corporate employers because it was speculative. The veterinarian appeals from the decision to enforce the terms of the covenant. In the companion case, the corporate employers appeal the decision to deny damages.

We hold that the covenant’s three year duration imposed an unreasonable restraint of trade permitting only partial enforcement of a portion of that term of the covenant. We affirm the district court’s conclusions of law that the remaining terms of the covenant were reasonable. We also affirm the district court’s judgment refusing damages because the finding that damages were unproven is not clearly erroneous.

I. ISSUES

In Case No. 92-254, appellant, the veterinarian, frames the following issues:

A. The trial court abused its discretion in failing to consider the undue hardship to the appellant in granting the injunction.
B. The trial court abused its discretion in granting the injunction as appellees failed to prove the existence of irreparable harm.
C. The trial court abused its discretion in granting the injunction as the restrictive covenant was overbroad.

Appellees, the corporate employers, rephrase the issues:

A. Whether the evidence is sufficient to sustain the district court’s finding that enforcement of the covenant not to compete would not cause appellant to suffer undue hardship[.]
B. Whether the evidence is sufficient to sustain the district court’s finding that *536appellees suffered irreparable injury as a result of appellant’s breach of the covenant not to compete^]
C. Whether the covenant not to compete in question here is reasonable[.]

In Case No. 92-255, appellants, the corporate employers, question:

I. Whether the court’s finding that the amount of damages suffered by appellants is speculative and was not proven by appellants by a preponderance of the evidence is contrary to the evidence^]
The veterinarian responds:
Did the trial court err in finding that the amount of damages claimed by Appellants was speculative and not proven by a preponderance of the evidence?

II. FACTS

Following her graduation from Colorado State University, Dr. Glenna Hopper (Dr. Hopper) began working part-time as a veterinarian at the All Pet Animal Clinic, Inc. (All Pet) in July of 1988. All Pet specialized in the care of small animals; mostly domesticated dogs and cats, and those exotic animals maintained as household pets. Dr. Hopper practiced under the guidance and direction of the President of All Pet, Dr. Robert Bruce Johnson (Dr. Johnson).

Dr. Johnson, on behalf of All Pet, offered Dr. Hopper full-time employment in February of 1989. The oral offer included a specified salary and potential for bonus earnings as well as other terms of employment. According to Dr. Johnson, he conditioned the offer on Dr. Hopper’s acceptance of a covenant not to compete, the specific details of which were not discussed at the time. Dr. Hopper commenced full-time employment with All Pet under the oral agreement in March of 1989 and relocated to Laramie, discontinuing her commute from her former residence in Colorado.

A written Employment Agreement incorporating the terms of the oral agreement was finally executed by the parties on December 11, 1989. Ancillary to the provisions for employment, the agreement detailed the terms of a covenant not to compete:

12. This agreement may be terminated by either party upon 30 days’ notice to the other party. Upon termination, Dr. Hopper agrees that she will not practice small animal medicine for a period of three years from the date of termination within 5 miles of the corporate limits of the City of Laramie, Wyoming. Dr. Hopper agrees that the duration and geographic scope of that limitation is reasonable.

The agreement was antedated to be effective to March 3, 1989.

The parties executed an Addendum To Agreement on June 1, 1990. The addendum provided that All Pet and a newly acquired corporate entity, Alpine Animal Hospital, Inc. (Alpine), also located in Laramie, would share in Dr. Hopper’s professional services. As the President of All Pet and Alpine, Dr. Johnson agreed, in the addendum, to raise Dr. Hopper’s salary. The bonus provision of the original agreement was eliminated. Except as modified, the other terms of the March 3, 1989 employment agreement, including the covenant not to compete, were reaffirmed and Dr. Hopper continued her employment.

One year later, reacting to a rumor that Dr. Hopper was investigating the purchase of a veterinary practice in Laramie, Dr. Johnson asked his attorney to prepare a letter which was presented to Dr. Hopper. The letter, dated June 17, 1991, stated:

I have learned that you are considering leaving us to take over the small animal part of Dr. Meeboer’s practice in Laramie.
When we negotiated the terms of your employment, we agreed that you could leave upon 30 days’ notice, but that you would not practice small animal medicine within five miles of Laramie for a three-year period. We do not have any. non-competition agreement for large-animal medicine, which therefore does not enter into the picture.
I am willing to release you from the non-competition agreement in return for a cash buy-out. I have worked back from the proportion of the income of All-*537Pet and Alpine which you contribute and have decided that a reasonable figure would be $40,000.00, to compensate the practice for the loss of business which will happen if you practice small-animal medicine elsewhere in Laramie.
If you are willing to approach the problem in the way I suggest, please let me know and I will have the appropriate paperwork taken care of.
Sincerely,
[Signed]
R. Bruce Johnson, D.V.M.

Dr. Hopper responded to the letter by denying that she was going to purchase Dr. Meeboer’s practice. Dr. Hopper told Dr. Johnson that the Employment Agreement was not worth the paper it was written on and that she could do anything she wanted to do. Dr. Johnson terminated Dr. Hopper’s employment and informed her to consider the 30-day notice as having been given. An unsigned, handwritten note from Dr. Johnson to Dr. Hopper, dated June 18,1991, affirmed the termination and notice providing, in part:

Per your request to abide by your employment agreement with All Pet and Alpine as regards termination:
Be advised that your last day of employment is July 18, 1991 for reasons that we are both aware of and have discussed previously.

Subsequently, Dr. Hopper purchased Gem City Veterinary Clinic (Gem City), the practice of Dr. Melanie Manning. Beginning on July 15, 1991, Dr. Hopper operated Gem City, in violation of the covenant not to compete, within the City of Laramie and with a practice including large and small animals. Under Dr. Hopper’s guidance, Gem City’s client list grew from 368 at the time she purchased the practice to approximately 950 at the time of trial. A comparison of client lists disclosed that 187 clients served by Dr. Hopper at Gem City were also clients of All Pet or Alpine. Some of these shared clients received permissible large animal services from Dr. Hopper. Overall, the small animal work contributed from fifty-one to fifty-two percent of Dr. Hopper’s gross income at Gem City.

All Pet and Alpine filed a complaint against Dr. Hopper on November 15, 1991 seeking injunctive relief and damages for breach of the covenant not to compete contained in the Employment Agreement. Notably, All Pet and Alpine did not seek a temporary injunction to restrict Dr. Hopper’s practice and possibly mitigate damages during the pendency of the proceeding. Trial was conducted on September 28, 1992.

The district court, in its Findings of Fact, Conclusions of Law and Judgment, determined that the covenant not to compete was enforceable as a matter of law and contained reasonable durational and geographic limits necessary to protect All Pet’s and Alpine’s special interests. The special interests found by the district court included: special influence over and direct contact with All Pet’s and Alpine’s clients; access to client files; access to pricing policies; and instruction in practice development. Dr. Hopper was enjoined from practicing small animal medicine within five miles of the corporate limits of the City of Laramie for a period of three years from July 18, 1991. The district court found that the amount of damages suffered by All Pet and Alpine was speculative and not proven by a preponderance of the evidence.

III. STANDARD OF REVIEW

A trial of this case was before the court. By request of one of the parties, specific findings of fact and conclusions of law were stated under W.R.C.P. 52(a) (hereinafter Rule 52(a)). Rule 52(a) states:

General and special findings by court.— Upon the trial of questions of fact by the court, or with an advisory jury, it shall not be necessary for the court to state its findings, except generally for the plaintiff or defendant, unless one of the parties requests it before the introduction of any evidence, with the view of excepting to the decision of the court upon the questions of law involved in the trial, in which case the court shall state in writing its special findings of fact separately *538from its conclusions of law; provided, that without such request the court may make such special findings of fact and conclusions of law as it deems proper and if the same are preserved in the record either by stenographic report or by the court’s written memorandum, the same may be considered on appeal. Requests for findings are not necessary for purposes of review. The findings of a master, to the extent that the court adopts them, shall be considered as the findings of the court. Findings of fact and conclusions of law are unnecessary on decisions of motions under Rules 12 or 56 or any other motion except as provided in subdivision (c) of this rule.

While the specific language of Rule 52(a) differs from its federal counterpart, F.R.C.P. 52(a), in part because current federal rules require findings of fact and conclusions of law in all cases of trial to the court without a request of parties, this court has adopted the view that the similarity in language and purpose of the state and federal rules permits resort to federal precedent for aid in effectuating the intent of Rule 52(a). Whitefoot v. Hanover Ins. Co., 561 P.2d 717, 720 (Wyo.1977).

Unfortunately, on appeal, the parties have misconstrued the appropriate standard of review relevant to such findings and conclusions. We believe this confusion results from a misapplication of principles of review utilized for jury verdicts and administrative law with those related to facts found by the court. The factual findings of a judge are not entitled to the more limited review afforded a jury verdict. 9 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure: Civil, § 2585 at 730 (1971).

The purpose of specific findings under Rule 52(a) is to inform the appellate court of the underlying facts supporting the trial court’s conclusions of law and disposition of the issues. Lebsack v. Town of Torrington, 698 P.2d 1141, 1146 (Wyo.1985); Cline v. Sawyer, 600 P.2d 725, 730 (Wyo.1979); Whitefoot, 561 P.2d at 720. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Shores v. Lindsey, 591 P.2d 895, 899 (Wyo.1979); 9 Wright & Miller, supra, § 2585 at 729, 731. Deference is given to the opportunity of the trial court to assess the credibility of the witnesses. Shores, 591 P.2d at 899. Because this court does not weigh the evidence de novo, findings may not be set aside because we would have reached a different result. Shores, 591 P.2d at 899; 9 Wright & Miller, supra, § 2585 at 732-33. The appellant bears the burden of persuading the appellate court that the finding is erroneous. 9 Wright & Miller, supra, § 2585 at 729.

On appeal, findings of fact are not set aside unless clearly erroneous. Shores, 591 P.2d at 899; Whitefoot, 561 P.2d at 720; 9 Wright & Miller, supra, § 2585 at 729. The definitive test of when a finding is clearly erroneous was adopted by the United States Supreme Court in United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). “A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Id. at 395, 68 S.Ct. at 542. See Citibank, N.A. v. Wells Fargo Asia Ltd., 495 U.S. 660, 670, 110 S.Ct. 2034, 2041, 109 L.Ed.2d 677 (1990), cert. denied, — U.S. —, 112 S.Ct. 2990, 120 L.Ed.2d 868 (1992) (reaffirming the United States Gypsum Co. test). Wyoming accepted this standard for Rule 52(a) in Shores, 591 P.2d at 899. Alternatively, a determination that a finding is against the great weight of the evidence means a finding will be set aside even if supported by substantial evidence. Rocky Mountain Turbines, Inc. v. 660 Syndicate, Inc., 623 P.2d 758, 762 (Wyo.1981); Shores, 591 P.2d at 899; 9 Wright & Miller, supra, § 2585 at 735 n. 10.

Conclusions of law made by the district court under Rule 52(a) are not binding upon this court and are reviewed de novo. Shores, 591 P.2d at 900; 9 Wright & Miller, supra, § 2588 at 752. “Findings of fact of *539the trial judge can also lose the insulation of the clearly erroneous standard if they are induced by an erroneous view of the law, United States v. United States Gypsum Co., * * * 333 U.S. at 394, 68 S.Ct. at 541; and United States v. Richberg, * * * 398 F.2d 523 ([5th Cir.] 1968), or contain factual and legal conclusions that reflect the application of an improper legal standard.” Shores, 591 P.2d at 899-900.

IV. DISCUSSION

A. The Enforceability of a Covenant Not to Compete

The common law policy against contracts in restraint of trade is one of the oldest and most firmly established. Restatement (Second) of Contracts §§ 185-188 (1981) (Introductory Note at 35). See Dutch Maid Bakeries v. Schleicher, 58 Wyo. 374, 131 P.2d 630, 634 (1942). The traditional disfavor of such restraints means covenants not to compete are construed against the party seeking to enforce them. Commercial Bankers Life Ins. Co. of America v. Smith, 516 N.E.2d 110, 112 (Ind.App.1987). The initial burden is on the employer to prove the covenant is reasonable and has a fair relation to, and is necessary for, the business interests for which protection is sought. Tench v. Weaver, 374 P.2d 27, 29 (Wyo.1962).

Two principles, the freedom to contract and the freedom to work, conflict when courts test the enforceability of covenants not to compete. Ridley v. Krout, 63 Wyo. 252, 180 P.2d 124, 128 (1947). There is general recognition that while an employer may seek protection from improper and unfair competition of a former employee, the employer is not entitled to protection against ordinary competition. See, e.g., Duffner v. Alberty, 19 Ark.App. 137, 718 S.W.2d 111, 112 (1986) and American Sec. Services, Inc. v. Vodra, 222 Neb. 480, 385 N.W.2d 73, 78 (1986). The enforceability of a covenant not to compete depends upon a finding that the proper balance exists between the competing interests of the employer and the employee. See Restatement (Second) of Agency § 393 cmt. e (1958) (noting that without a covenant not to compete, an agent, employee, can compete with a principal despite past employment and can begin preparations for future competition, such as purchasing a competitive business, before leaving present employment).

Wyoming adopted a rule of reason inquiry from the Restatement of Contracts testing the validity of a covenant not to compete. Dutch Maid Bakeries, 131 P.2d at 634 (citing Restatement of Contracts §§ 513-515 (1932)); Ridley, 180 P.2d at 127. The present formulation of the rule of reason is contained in Restatement (Second) of Contracts, supra, § 188:

(1) A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if
(a) the restraint is greater than is needed to protect the promisee’s legitimate interest, or
(b) the promisee’s need is outweighed by the hardship to the promi-sor and the likely injury to the public.
(2) Promises imposing restraints that are ancillary to a valid transaction or relationship include the following:
(a) a promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold;
(b) a promise by an employee or other agent not to compete with his employer or other principal;
(c) a promise by a partner not to compete with the partnership.

See also Restatement (Second) of Contracts, supra, §§ 186-187. An often quoted reformulation of the rule of reason inquiry states that “[a] restraint is reasonable only if it (1) is no greater than is required for the protection of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.” Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L.Rev. 625, 648-49 (1960).

*540A valid and enforceable covenant not to compete requires a showing that the covenant is: (1) in writing; (2) part of a contract of employment; (3) based on reasonable consideration; (4) reasonable in durational and geographical limitations; and (5) not against public policy. A.E.P. Industries, Inc. v. McClure, 308 N.C. 393, 302 S.E.2d 754, 760 (1983). See Tench, 374 P.2d at 29; Ridley, 180 P.2d at 128; Dutch Maid Bakeries, 131 P.2d at 634; and Wyo. Stat. § 1-23-105 (1988). The reasonableness of a covenant not to compete is assessed based upon the facts of the particular case and a review of all of the circumstances. American Sec. Services, Inc., 385 N.W.2d at 79.

While many factors may be considered by the court in evaluating reasonableness as a matter of law, a useful enumeration is contained in Philip G. Johnson & Co. v. Salmen, 211 Neb. 123, 317 N.W.2d 900, 904 (1982):

The considerations to be balanced are the degree of inequality in bargaining power; the risk of the covenantee losing customers; the extent of respective participation by the parties in securing and retaining customers; the good faith of the covenantee; the existence of sources or general knowledge pertaining to the identity of customers; the nature and extent of the business position held by the covenantor; the covenantor’s training, health, education, and needs of his family; the current conditions of employment; the necessity of the covenantor changing his calling or residence; and the correspondence of the restraint with the need for protecting the legitimate interests of the covenantee.

Wyoming has previously recognized that the legitimate interests of the employer, covenantee, which may be protected from competition include: (a) the employer’s trade secrets which have been communicated to the employee during the course of employment; (b) confidential information communicated by the employer to the employee, but not involving trade secrets, such as information on a unique business method; and (c) special influence by the employee obtained during the course of employment over the employer’s customers. Ridley, 180 P.2d at 129.

The enforceability of a covenant not to compete using the rule of reason analysis depends upon a determination, as a matter of law, that the promise not to compete is ancillary to the existence of an otherwise valid transaction or relationship. Restatement (Second) of Contracts, supra, § 187. If, for example, the contract of employment containing the covenant not to compete fails for lack of consideration, adhesion or other contractual excuse, the covenant is without effect. Reddy v. Community Health Foundation of Man, 171 W.Va. 368, 298 S.E.2d 906, 915 (1982). The covenant is also without effect because it is not ancillary when it is made in a promise subsequent to the transaction or relationship. Restatement (Second) Contracts, supra, § 187 cmt. b.

When Dr. Johnson made the oral promise of employment to Dr. Hopper, the specific terms of the covenant were not discussed. Dr. Johnson testified that no terms for a geographic radius or time restriction on competition were stated during formation of the oral contract of employment. Without terms and without a writing, Wyo.Stat. § 1-23-105, a promise not to compete at this time failed as ancillary to the creation of the relationship.

The written Employment Agreement Dr. Hopper signed does contain a covenant not to compete which is ancillary to the previously agreed provisions for employment memorialized from the oral contract. Restatement (Second) of Contracts, supra, § 187 cmt. b recognizes that in an ongoing transaction or relationship, a promise not to compete may be made before the termination of the relationship and still be ancillary as long as it is supported by consideration and meets other requirements for enforceability. It is necessary to analyze whether Dr. Hopper’s promise not to compete, made after the creation of the relationship while executing the written Employment Agreement, was supported by consideration.

*541Wyoming has never determined whether a promise not to compete made during the employment relationship is supported merely by the consideration of continued employment or must be supported by separate contemporaneous consideration. This court’s decision in Ridley offers useful insight. An employment relationship with a mechanic was formed prior to the execution of the written contract containing the employee’s ancillary promise not to compete. Ridley, 180 P.2d at 125. While we did not specifically address the sufficiency of the consideration, the written contract with the mechanic contained separate consideration. In addition to the promise to continue employment for a term of ten years, the employer agreed, as consideration for the promise not to compete, to teach the mechanic new skills as a locksmith and in business operation. Id. at 125-26.

Authorities from other jurisdictions are not in agreement on whether continued employment provides sufficient consideration or whether separate consideration is required to create an ancillary covenant not to compete made during the existence of the relationship. See Howard A. Specter & Matthew W. Finkin, Individual Employment Law and Litigation § 8.02 (1989) (collecting cases). We believe strong public policy favors separate consideration.

The better view, even in the at-will relationship, is to require additional consideration to support a restrictive covenant entered into during the term of the employment. This view recognizes the increasing criticism of the at-will relationship, the usually unequal bargaining power of the parties, and the reality that the employee rarely “bargains for” continued employment in exchange for a potentially onerous restraint on the ability to earn a living.

Id., § 8.02 at 450. The separate consideration necessary to support an ancillary promise not to compete made after creation of the employment relationship would include promotion, pay raise, special training, employment benefits or other advantages for the employee. Ridley, 180 P.2d at 125-26; Stevenson v. Parsons, 96 N.C.App. 93, 384 S.E.2d 291, 293 (1989); Records Center, Inc. v. Comprehensive Management, Inc., 363 Pa.Super. 79, 525 A.2d 433, 435 (1987); Cukjati v. Burkett, 772 S.W.2d 215, 218 (Tex.App.1989). See Or.Rev.Stat. § 653.295 (1991) (requiring bona fide advancement of the employee to enforce a covenant not to compete entered into after creation of the employment relationship).

The written Employment Agreement Dr. Hopper signed contains no evidence of separate consideration, such as a pay raise or other benefit, in exchange for the covenant not to compete. Standing alone, the covenant not to compete contained in the Employment Agreement failed due to lack of separate consideration. Restatement (Second) of Contracts, supra, § 187. However, on June 1, 1990, the parties executed the Addendum to Agreement. In that agreement, Dr. Hopper accepted a pay raise of $550.00 per month. This agreement restates, by incorporation, the terms of the covenant not to compete. We hold that the Addendum to Agreement, with its pay raise, represented sufficient separate consideration supporting the reaffirmation of the covenant not to compete. Therefore, the district court’s findings that the covenant was ancillary to an employment contract and that consideration was received in exchange for the covenant are not clearly erroneous.

The contract permitted either Dr. Hopper or her corporate employers to terminate her employment with notice. The agreement did not state a length of employment and it permitted termination at will. Without more, the terms present the potential for an unreasonable restraint of trade. For example, if an employer hired an employee at will, obtained a covenant not to compete, and then terminated the employee, without cause, to arbitrarily restrict competition, we believe such conduct would constitute bad faith. Simple justice requires that a termination by the employer of an at will employee be in good faith if a covenant not to compete is to be enforced. Dutch Maid Bakeries, 131 P.2d at 635-36; American Nat. Ins. Co: v. Coe, *542657 F.Supp. 718, 723 (E.D.Mo.1986). See Adrian N. Baker & Co. v. Demartino, 733 S.W.2d 14, 18 (Mo.App.1987) (enforcing covenant not to compete when discharge of employee occurred with good cause).

Under the present facts, we cannot say that the termination of Dr. Hopper occurred in bad faith. Trial testimony presented evidence of increasing tension prior to termination in the professional relationship between Dr. Johnson and Dr. Hopper. This tension, however, did not appear to result in the termination. The notice of termination was given after Dr. Hopper was confronted about her negotiations to purchase a competitive practice and after Dr. Hopper had termed the employment contract worthless. We cannot find in these facts a bad faith termination which would provide a reason to depart from the district court’s finding that the contract of employment was valid. With the determination that as a matter of law the covenant is ancillary to a valid employment relationship, we turn to the rule of reason inquiry.

Employers are entitled to protect their business from the detrimental impact of competition by employees who, but for their employment, would not have had the ability to gain a special influence over clients or customers. Ridley, 180 P.2d at 131. Beckman v. Cox Broadcasting Corp., 250 Ga. 127, 296 S.E.2d 566 (1982) illustrates the principle in the broadcast industry where the clients are the viewers of a particular station. Beckman was a television weather forecaster whose contributions to the “Action News Team” had been extensively promoted by Cox during his employment. Id. at 567. The promotion and Beckman’s personality succeeded in attracting viewers to watch the television station. When his contract with Cox expired, Beckman accepted employment with a competitive television station in the same city and sought a declaratory judgment to determine the validity of a restrictive covenant which prevented him from appearing on television for six months within a radius of thirty-five miles of Cox’s station offices. Id.

The Supreme Court of Georgia agreed that Beckman was entitled to take to a new employer his assets as an employee which he had contributed to his former employer. Id. at 569. “It is true that an employee’s aptitude, skill, dexterity, manual and mental ability and other subjective knowledge obtained in the course of employment are not property of the employer which the employer can, in absence of a contractual right, prohibit the employee from taking with him at the termination of employment.” Id. The covenant permitted Cox to recover from the loss of Beckman’s services by implementing a transition plan while still permitting Beckman to work as a meteorologist, but not to the extent of appearing on air with a competitive television station. Id. The Beckman court determined that the business interests of Cox required protection which enforcement of the reasonable terms of the covenant provided. Id.

The special interests of All Pet and Alpine identified by the district court as findings of fact are not clearly erroneous. Dr. Hopper moved to Laramie upon completion of her degree prior to any significant professional contact with the community. Her introduction to All Pet’s and Alpine’s clients, client files, pricing policies, and practice development techniques provided information which exceeded the skills she brought to her employment. While she was a licensed and trained veterinarian when she accepted employment, the additional exposure to clients and knowledge of clinic operations her employers shared with her had a monetary value for which the employers are entitled to reasonable protection from irreparable harm. See Reddy, 298 S.E.2d at 912-14 (discussing the economic analysis applied to restrictive covenants). The proven loss of 187 of All Pet’s and Alpine’s clients to Dr. Hopper’s new practice sufficiently demonstrated actual harm from unfair competition.

The reasonableness, in a given fact situation, of the limitations placed on a former employee by a covenant not to compete are determinations made by the court as a matter of law. See, e.g., Jarrett v. *543 Hamilton, 179 Ga.App. 422, 346 S.E.2d 875, 876 (1986). Therefore, the district court’s conclusions of law about the reasonableness of the type of activity, geographic, and durational limits contained in the covenant are subject to de novo review.

All parties to this litigation devoted extensive research to evaluations of the reasonableness of various covenants not to compete from different authorities. However, we find precedent from our own or from other jurisdictions to be of limited value in considering the reasonableness of limits contained in a specific covenant not to compete. See Specter & Finkin, supra, § 8.03 at 454-55. For example, in Cukjati, 772 S.W.2d at 216, 218, the Court of Appeals of Texas held a covenant not to compete was unreasonable because it limited a veterinarian from practicing within twelve miles of his former employer’s clinic in North Irving, a community within the Dallas-Fort Worth metropolitan area. Because evidence from that proceeding disclosed that Dallas area residents are unlikely to travel more than a few miles for pet care, the court found the restriction unreasonable. Id. at 218. The number of veterinarians and the demands upon their services obviously varies between Laramie, Wyoming and metropolitan Dallas, Texas, creating a different usage pattern. We believe the reasonableness of individual limitations contained in a specific covenant not to compete must be assessed based upon the facts of that proceeding. Ridley, 180 P.2d at 131.

Useful legal principles do emerge from a survey of relevant authorities and may certainly be applied to decisions about the reasonableness of the type of activity, geographic, and durational limitations. Testing the reasonableness of the type of activity limitation provides an opportunity for the court to consider the broader public policy implications of a covenant not to compete. Tench, 374 P.2d at 29. The decision of the Court of Appeals of Ohio in Williams v. Hobbs, 9 Ohio App.3d 331, 9 OBR 599, 460 N.E.2d 287 (1983) explains. The Williams court determined that enforcing a covenant not to compete restricting a radiologist’s uncommon specialty practice would violate public policy because the community would be deprived of a unique skill. Id. at 290. In addition, the court held the type of activity limitation was unreasonable because it created an undue hardship on the physician where there were only a limited number of osteopathic hospitals available to practice his specialty. Id.

The Court of Appeals of Arkansas, in an en banc opinion, used a similar analysis in reviewing a covenant not to compete which restricted an orthopedic surgeon from practicing medicine within a radius of thirty miles from the offices of his former partners. Duffner, 718 S.W.2d at 113-14. The court held that the covenant interfered with the public’s right to choose an orthopedic surgeon and that enforcement of the covenant created an unreasonable restraint of trade. Id. at 114. In determining that no business interests of the partnership were lost, the court noted that while the surgeon provided normal post-operative care for those patients he had operated on while associated with the partnership, he had not “appropriated” any of the partnership’s “stock of patients” when he moved to another office. Id.

Enforcement of the practice restrictions Dr. Hopper accepted as part of her covenant not to compete does not create an unreasonable restraint of trade. While the specific terms of the covenant failed to define the practice of small animal medicine, the parties’ trade usage provided a conforming standard of domesticated dogs and cats along with exotic animals maintained as household pets. As a veterinarian licensed to practice in Wyoming, Dr. Hopper was therefore permitted to earn a living in her chosen profession without relocating by practicing large animal medicine, a significant area of practice in this state. The restriction on the type of activity contained in the covenant was sufficiently limited to avoid undue hardship to Dr. Hopper while protecting the special interests of All Pet and Alpine.

*544In addition, as a professional, Dr. Hopper certainly realized the implications of agreeing to the terms of the covenant. While she may have doubted either her employers’ desires to enforce the terms or the legality of the covenant, her actions in establishing a small animal practice violated the promise she made. In equity, she comes before the court with unclean hands. Dutch Maid Bakeries, 131 P.2d at 634. If Dr. Hopper sought to challenge the enforceability of the covenant, her proper remedy was to seek a declaratory judgment. Wyo.Stat. § 1-37-103 (1988). See Stevenson, 384 S.E.2d at 293 (declaratory judgment action brought by veterinarian against former employer to challenge covenant not to compete); Beckman, 296 S.E.2d at 567 (declaratory judgment action brought by television weather forecaster after former employer refused release from covenant not to compete).

The public will not suffer injury from enforcement of the covenant. Dr. Hopper’s services at All Pet and Alpine were primarily to provide relief for the full-time veterinarians at those clinics. In addition to dividing her time between the clinics, she covered when others had days off or, on a rotating basis, on weekends. While Dr. Hopper provided competent care to All Pet’s and Alpine’s clients, her services there were neither unique nor uncommon. Furthermore, the services which Dr. Hopper provided in her new practice to small animal clients were available at several other veterinary clinics within Laramie. Evidence did not challenge the public’s ability to receive complete and satisfactory service from these other sources. Dr. Hopper’s short term unavailability resulting from enforcement of a reasonable restraint against unfair competition is unlikely, as a matter of law, to produce injury to the public.

Reasonable geographic restraints are generally limited to the area in which the former employee actually worked or from which clients were drawn. Commercial Bankers Life Ins. Co. of America, 516 N.E.2d at 114-15; Brewer v. Tracy, 198 Neb. 503, 253 N.W.2d 319, 322 (1977). When the business serves a limited geographic area, as opposed to statewide or nationwide, courts have upheld geographic limits which are coextensive with the area in which the employer conducts business. Torrence v. Hewitt Associates, 143 Ill.App.3d 520, 97 Ill.Dec. 592, 596, 493 N.E.2d 74, 78 (1986). A broad geographic restriction may be reasonable when it is coupled with a specific activity restriction within an industry or business which has an inherently limited client base. System Concepts, Inc. v. Dixon, 669 P.2d 421, 427 (Utah 1983).

The geographical limit contained in the covenant not to compete restricts Dr. Hopper from practicing within a five mile radius of the corporate limits of Laramie. As a matter of law, this limit is reasonable in this circumstance. The evidence presented at trial indicated that the clients of All Pet and Alpine were located throughout the county. Despite Wyoming’s rural character, the five mile restriction effectively limited unfair competition without presenting an undue hardship. Dr. Hopper could, for example, have opened a practice at other locations within the county.

A durational limitation should be reasonably related to the legitimate interest which the employer is seeking to protect. Restatement (Second) of Contracts, supra, § 188 cmt. b.

In determining whether a restraint extends for a longer period of time than necessary to protect the employer, the court must determine how much time is needed for the risk of injury to be reasonably moderated. When the restraint is for the purpose of protecting customer relationships, its duration is reasonable only if it is no longer than necessary for the employer to put a new [individual] on the job and for the new employee to have a reasonable opportunity to demonstrate his [or her] effectiveness to the customers. If a restraint on this ground is justifiable at all, it seems that a period of several months would usually be reasonable. If the selling or servicing relationship is relatively complex, a longer period may be called for. Courts seldom criticize restraints of six months or a year on *545the grounds of duration as such, and even longer restraints are often enforced.

Blake, 73 Harv.L.Rev. at 677 (footnote omitted). See Amex Distributing Co., Inc. v. Mascari, 150 Ariz. 510, 724 P.2d 596, 604-05 (1986) (quoting Blake and applying rule in determining that a three year duration of a covenant not to compete was unreasonable).

The evidence at trial focused on the durational requirement in attempting to establish the three year term as being necessary to diffuse the potential loss of clients from All Pet and Alpine to Dr. Hopper. Dr. Charles Sink, a licensed veterinarian, testified as an expert on behalf of All Pet and Alpine and indicated that in Wyoming, his experience correlated with national studies that disclosed about 70% of clients visit a clinic more than once per year. The remaining 30% of the clients use the clinic at least one time per year. Dr. Johnson estimated that at All Pet and Alpine, the average client seeks veterinarian services one and one-half times a year. Apart from this data about average client visits, other support for the three year durational requirement was derived from opinion testimony. Dr. Johnson admitted that influence over a client disappears in an unspecified “short period of time,” but expressed a view that three years was “safe.” He also agreed that the number of clients possibly transferring from All Pet or Alpine to Dr. Hopper would be greatest in the first year and diminish in the second year.

We are unable to find a reasonable relationship between the three year durational requirement and the protection of All Pet’s and Alpine’s special interests. Therefore, enforcement of the entire durational term contained in the covenant not to compete violates public policy as an unreasonable restraint of trade. Restatement (Second) of Contracts, supra, § 188. Based on figures of client visits, a replacement veterinarian at All Pet and Alpine would be able to effectively demonstrate his or her own professionalism to virtually all of the clinics’ clients within a one year durational limit. Since no credible evidence was presented supporting the need for multiple visits to establish special influence over clients, a one year limit is sufficient to moderate the risk of injury to All Pet and Alpine from unfair competition by Dr. Hopper.

A one year durational limit sufficiently secures All Pet’s and Alpine’s interests in pricing policies and practice development information. Pricing policies at All Pet and Alpine were changed yearly, according to Dr. Johnson, to reflect changes in material and service costs provided by the clinics as well as new procedures. Practice development information, especially in a learned profession, loses its value quickly as technological change occurs and new reference material become available. We hold, as a matter of law, that enforcement of a one year durational limit is reasonable and sufficiently protects the interests of All Pet and Alpine without violating public policy.

Under the formulation of the rule of reason inquiry adopted by Wyoming from the first Restatement of Contracts, the unreasonableness of any non-divisible term of a covenant not to compete made the entire covenant unenforceable. Restatement of Contracts, supra, § 518. It is perhaps due to the arbitrary nature of this rule that no previous decision of this court has permitted enforcement of a covenant not to compete. Tench, 374 P.2d at 29; Ridley, 180 P.2d at 133; Dutch Maid Bakeries, 131 P.2d at 636. The conceptual difficulty of the position taken in the former Restatement of Contracts, supra, § 518 leads to strong criticism by noted authors and the rejection of this so-called “blue pencil rule” by many courts.

In very many cases the courts have held the whole contract to be illegal and void where the restraint imposed was in excess of what was reasonable and the terms of the agreement indicated no line of division that could be marked with a “blue pencil.” In the best considered modern cases, however, the court has decreed enforcement as against a defendant whose breach has occurred within an area in which restriction would clear *546 ly be reasonable, even though the terms of the agreement imposed a larger and unreasonable restraint. Thus, the seller of a purely local business who promised not to open a competing store anywhere in America has been prevented by injunction from running such a store within the same block as the one that he sold. In some cases it may be difficult to determine what is the exact limiting boundary of reasonable restriction; but often such a determination is not necessary. The question usually is whether a restriction against what the defendant has in fact done or is threatening would be a reasonable and valid restriction. The plaintiff should always be permitted to show the actual extent of the good will that is involved and that the defendant has committed a breach within that extent. If a restriction otherwise reasonable has no time limit, it is quite possible for the court to grant injunctive relief for a specific and reasonable time.

Arthur L. Corbin, Corbin on Contracts § 1390 at 69-73 (1962) (footnotes omitted and emphasis added).

Restatement (Second) of Contracts, supra, § 184, which we now adopt, accepts the Corbin view permitting enforcement of a narrower term which is reasonable in a covenant not to compete:

(1) If less than all of an agreement is unenforceable under the rule stated in § 178 [dealing with restraints in violation of public policy in general], a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange.
(2) A court may treat only part of a term as unenforceable under the rule stated in Subsection (1) if the party who seeks to enforce the term obtained it in good faith and in accordance with reasonable standards of fair dealing.

The position adopted in Restatement (Second) of Contracts, supra, § 184 does not permit the court to add to the terms of the covenant.

Sometimes a term is unenforceable on grounds of public policy because it is too broad, even though a narrower term would be enforceable. In such a situation, under Subsection (2), the court may refuse to enforce only part of the term, while enforcing the other part of the term as well as the rest of the agreement. The court’s power in such a case is not a power of reformation, however, and it will not, in the course of determining what part of the term to enforce, add to the scope of the term in any way.

Id. at § 184 cmt. b.

We believe the ability to narrow the term of a covenant not to compete and enforce a reasonable restraint permits public policy to be served in the most effective manner. Businesses function through the efforts of dedicated employees who provide the services and build the products desired by customers. Both the employer and the employee invest in success by expressing a commitment to one another in the form of a reasonable covenant not to compete. For the employer, this commitment may mean providing the employee with access to trade secrets, customer contacts or special training. These assets of the business are entitled to protection. For the employee, who covenants as part of a bargained for exchange, the covenant provides notice of the limits both parties have accepted in their relationship. The employee benefits during his tenure with the employer by his or her greater importance to the organization as a result of the exposure to the trade secrets, customer contacts or special training. When the employer-employee relationship terminates, a reasonable covenant not to compete then avoids unfair competition by the employee against the former employer and the specter, which no court would enforce, of specific performance of the employment agreement. When the parties agree to terms of a covenant, one of which is too broad, the court is permitted to enforce a narrower term which effectuates these public policy goals without arbitrarily invalidating the entire agreement between the parties and creating an uncertain business environment. In those instances *547where a truly unreasonable covenant operates as a restraint of trade, it will not be enforced.

Other jurisdictions have recognized that “[t]he arbitrary rule of ‘all or nothing at all’ in the enforcement of noncompetitive agreements has, in some cases, led to results of questionable equity.” Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 371, modified on other grounds, 190 N.W.2d 413 (Iowa 1971) (adopting rule permitting total or partial enforcement of non-competitive agreements to the extent reasonable under the circumstances). See Insurance Center, Inc. v. Taylor, 94 Idaho 896, 499 P.2d 1252, 1255-56 (1972); Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53, 61 (1970); and Wood v. May, 73 Wash.2d 307, 438 P.2d 587, 591 (1968). In applying what it termed a “rule of best result” approach to partial enforcement, the Supreme Court of Appeals of West Virginia summarized a sound three-step procedure for reviewing a covenant not to compete:

(1) The court must determine that the covenant is reasonable, and is being used reasonably by the employer. If not, the covenant is set aside. If the covenant is inherently reasonable the inquiry continues. (2) The employer must show, under the circumstances, what legitimate interests of his are implicated. When these are established, the reasonable covenant is presumptively enforceable in its entirety. (3) The employee is then given the chance to rebut the presumptive enforceability of the covenant by showing either that he has no company trade assets to abuse, or that the assets made available to him properly belong to him, or that the interests asserted by the employer may be protected by a partial enforcement of the covenant. If the employee prevails in this latter regard then the covenant may be tailored by the court to comport with the equities of the case.

Reddy, 298 S.E.2d at 917.

Enforcement of a one year dura-tional term, along with the other terms of the covenant not to compete, is reasonable in light of the circumstances of this case.

Public policy is fairly served by this restraint on unfair competition by Dr. Hopper. All Pet and Alpine established irreparable harm from the loss of clients to unfair competition which entitled them to in-junctive relief. While the terms of the covenant, as enforced, restrict Dr. Hopper’s practice for a limited time, she will suffer no undue hardship from compliance with her bargained for promise. We, therefore, affirm the district court’s conclusions of law that the type of activity and geographic limitations contained in the covenant not to compete were reasonable and enforceable as a matter of law. Because we hold that the covenant’s three year du-rational term imposed a partially unreasonable restraint of trade, we remand for a modification of the judgment to enjoin Dr. Hopper from unfair competition for a duration of one year from the date of termination.

B. Damages for Violation of a Covenant Not to Compete

Wyoming’s general rules of damage recovery are well established. “Damages must be proven with a reasonable degree of certainty; however, proof of exact damages is not required.” Coulthard v. Cossairt, 803 P.2d 86, 92 (Wyo.1990). In awarding damages, a court may not speculate or conjecture about the proper amount. Reiman Const. Co. v. Jerry Hiller Co., 709 P.2d 1271, 1277 (Wyo.1985). A fundamental principle of damage assessment declares that a person injured receives only compensation for his loss and no more. UNC Teton Exploration Drilling, Inc. v. Peyton, 774 P.2d 584, 592 (Wyo.1989).

No previous decision of this court has considered the proper measure of damages for a breach of a covenant not to compete which is ancillary to a valid employment contract. However, consistent with our general principles of damage recovery, we accept the view that “[l]ost profits are generally recognized as a proper element of recovery for breach of a covenant not to compete.” Matter of Is-bell, 27 B.R. 926, 930 (Bankr.W.D.Wis. *5481983). Accord Robert S. Weiss and Associates, Inc. v. Wiederlight, 208 Conn. 525, 546 A.2d 216, 226 (1988) and Weinrauch v. Kashkin, 64 A.D.2d 897, 407 N.Y.S.2d 885, 886 (1978). See Dunn v. Ward, 105 Idaho 354, 670 P.2d 59, 61 (1983) (holding that in a sale of a business with a covenant not to compete, the measure of damages is lost profits and amount for impairment of goodwill). The lost profits are calculated based on a “net” figure requiring proof that: “(1) net profits were lost; (2) the amount of those profits can be determined with a reasonable degree of certainty; and (3) the defendant’s breach was the proximate cause of the lost profits.” Jeffrey L. Lid-dle & William F. Gray, Jr., Proof of Damages for Breach of a Restrictive Covenant or Noncompetition Agreement, 9 Employee Relations L.J. 455, 460 (1983). See Wyoming Bancorporation v. Bonham, 563 P.2d 1382, 1385 (Wyo.1977) (stating the rule that calculation of lost future profits must be made with “best proof available as to amount of loss”).

All Pet and Alpine presented three approaches to computing a damage figure. The first system considered an average fee charged for veterinarian services at All Pet and Alpine which was multiplied by the number of clients believed lost to Dr. Hopper. The second method considered the amount of profit realized by Dr. Hopper on the services she provided to former clients of All Pet and Alpine. The third approach calculated a loss of profits at All Pet and Alpine from a reduction in the total number of client visits in the year following Dr. Hopper’s departure.

All three of All Pet’s and Alpine’s methods of damage calculation were based on figures for gross profits. In his testimony, Dr. Johnson speculated that his net profits from the lost clients would be ninety percent of the gross. He based this figure on the incredible assumption that his only costs for servicing these clients would be drugs. Dr. Johnson testified that his other fixed costs, including mortgage and receptionist, were paid for by the first clients who come in to the clinics. He assumed that the profit margin from all clients lost to Dr. Hopper would be at a higher rate because the lost clients would be served at the clinics after all fixed costs were paid.

The finding of the district court that the amount of damages suffered was speculative and unproven by a preponderance of the evidence is not clearly erroneous. The ninety percent net profit assumption defies logic and does not represent any attempt to apply common accounting principles, such as prorating of expenses. The necessary costs of doing business, such as costs of drugs dispensed, accounting charges, staff wages and depreciation on the value of equipment, were never established. Calculating the cost and expense of operation is an essential item in the proof of damages in a suit seeking net lost profits for violation of a covenant not to compete. Mills v. Murray, 472 S.W.2d 6, 16 (Mo.App.1971). Without these calculations, All Pet’s and Alpine’s damage claims fail.

Y. CONCLUSION

A well-drafted covenant not to compete preserves a careful and necessary economic balance in our society. While there are many layers to the employer-employee relationship, preventing unfair competition from employees who misuse trade secrets or special influence over customers serves public policy. Tempering the balance is the need to protect employees from unfair restraints on competition which defeat broad policy goals in favor of small business and individual advancement. Courts, in reviewing covenants not to compete, must consider these policy implications in assessing the reasonableness of the restraint as it applies to both employer and employee.

Affirmed as modified and remanded for issuance of a judgment in conformity herewith.

CARDINE, J., filed dissenting opinion.

CARDINE, Justice,

dissenting.

Glenna Hopper has beaten the system. Just prior to being terminated, Dr. Hopper informed Dr. Johnson that “the [covenant] isn’t worth the paper it’s written on.” And *549she was right. Upon termination, she went into the veterinary business in violation of her covenant not to compete. From July 15, 1991, until October 6, 1992, Dr. Hopper practiced small animal medicine in violation of her solemn promise in her employment agreement not to compete. Whether she continued to practice small animal veterinary medicine after October 6, 1992, in violation of the covenant is not disclosed by the record on appeal.

The court has now decided as a matter of law that a one-year non-competition restriction is reasonable, and a longer period is unreasonable. This pronouncement establishes for the future the period during which competition can be restricted. In this case, appellant may have continued violating the covenant during her appeal— or she may have complied. We do not know. The trial court, on remand, should determine this question, and appellant ought to at least satisfy the one-year non-compete now imposed by this court.

I would hold, therefore, that the covenant was supported by consideration from the beginning and was lawful and enforceable, and I would require that appellant be enjoined from that part of the practice of veterinary medicine specified in the covenant not to compete from the date the trial court, on remand, enters its modified judgment for at least the one-year period which this court now finds reasonable.