Comprehensive Technologies International, Inc. v. Software Artisans, Inc.

United States Court of Appeals for the Fourth Circuit · 1993 · Contracts

3 F.3d 730 (4th Cir. 1993)

Updated July 19, 2026

Contractsnoncompeterestrictive covenantVirginia lawreasonablenesstrade secretscopyright infringementsubstantial similarity

Facts

CTI formed a software group to develop EDI-based personal computer software, including Claims Express and EDI Link, and Dean Hawkes led the group. After the defendant employees left CTI, Hawkes signed a termination agreement receiving compensation in exchange for, among other things, a one-year promise not to compete with CTI, solicit its customers, or hire its employees. Shortly thereafter, the defendants formed Software Artisans and developed Transend, another program designed to process business forms for transmission by EDI. CTI claimed Transend infringed its software, misappropriated trade secrets, and that Hawkes breached his noncompete covenant.

Issue

Whether the district court erred in rejecting CTI's claims for copyright infringement and trade secret misappropriation, and whether Hawkes's one-year covenant not to compete was unenforceable under Virginia law. Also, whether the district court's comments about CTI's software showed reversible bias.

Rule

Under Virginia law, a covenant not to compete is enforceable if it is reasonable under a three-part test: (1) from the employer's standpoint, it is no greater than necessary to protect a legitimate business interest; (2) from the employee's standpoint, it is not unduly harsh or oppressive in curtailing the employee's ability to earn a livelihood; and (3) it is reasonable from the standpoint of sound public policy. A trade secret under Virginia law must derive independent economic value from not being generally known or readily ascertainable and must be subject to reasonable efforts to maintain secrecy; misappropriation requires unauthorized use by one under a duty of secrecy. On appeal, factual findings on substantial similarity and existence of trade secrets are reviewed for clear error, and the appellate court will not search the record for evidentiary support not identified by the appellant.

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Lakeshore Data Systems, a software firm based in Richmond, sells a specialized PC-based freight-routing program to customers and resellers in more than a dozen states. Its product director, Nora Patel, leaves the company after signing a severance agreement that bars her for one year from working anywhere in the United States for a business that designs, develops, markets, or sells PC-based freight-routing software with the same functionality and methodology as Lakeshore’s product.

If Virginia law governs, which is the strongest argument that the covenant is enforceable?

Explanation. Under the majority opinion, a covenant not to compete is enforceable if it is no greater than necessary to protect the employer’s legitimate interests, is not unduly harsh on the employee, and is consistent with public policy. A nationwide restriction may be reasonable where the employer operates in a national market, especially when the functional scope is narrow—here, only PC-based software with the same functionality and methodology. The opinion did not hold that one year alone makes a covenant valid, did not create a severance-pay rule, and did not require proof of actual trade-secret copying before enforcement. (Derived from Comprehensive Technologies International, Inc. v. Software Artisans, Inc. (1993).)