By Matthew Holt, of Jones, Skelton & Hochuli
Introduction
In the competitive world of professional sports, teams are constantly seeking advantages over one another. This pursuit often leads to disputes that transcend what happens between the lines, finding their way into the legal arena. One such case is the recent lawsuit involving the New York Knicks and the Toronto Raptors, which raises significant questions regarding trade secrets in the realm of sports. This article explores the details of the lawsuit, the legal implications for trade secrets, and broader implications for professional sports organizations.
Background of the Lawsuit
In 2023, the New York Knicks (“Knicks”) filed a lawsuit against their division-rival Toronto Raptors (“Raptors”), alleging that the Raptors had improperly obtained and utilized confidential information relating to player scouting, game strategies, and other proprietary data.[i] The Knicks claimed this breach of trade secrets was a result of the Raptors hiring a former Knicks employee, Ikechukwu Azotam, a director of video/analytics/player development assistant who had access to sensitive information during his tenure with the team.[ii] Further, the Knicks alleged that the head coach of the Raptors conspired with this employee to bring this information over to the Raptors.
The Knicks contended that this information constituted trade secrets under both federal and state law, specifically the Defend Trade Secrets Act (DTSA) and the Uniform Trade Secrets Act (UTSA). The suit sought damages for the alleged misappropriation of these secrets and an injunction to prevent further use of the proprietary information.
Trade Secrets: Legal Framework
Definition and Criteria
Trade secrets are defined under the DTSA as information that (i) derives independent economic value from not being generally known to, or readily ascertainable by, others, and (ii) is subject to reasonable efforts to maintain its secrecy.[iii] The key elements of trade secrets include:
- Secrecy: The information must be kept confidential and not be available to the public.
- Economic Value: The information must provide a competitive advantage.
- Reasonable Efforts: The holder of the trade secret must take steps to protect it, such as nondisclosure agreements (NDAs) and internal controls.
In the context of professional sports, trade secrets can include a variety of sensitive data such as player performance metrics, scouting reports, and proprietary training techniques. This data at times is available to the public or the league at large; however, how a team uses the data and breaks it down can create a proprietary interest and lead to this information qualifying as a trade secret.
Legal Protections
The DTSA provides federal protection for trade secrets and allows for civil remedies, including monetary damages and injunctive relief. The UTSA, a model code regarding trade secrets adopted by many states, offers similar protections at the state level. Both frameworks emphasize the need for reasonable measures to protect trade secrets, which can include employee training, confidentiality agreements, and secure data management systems.
Analysis of the Knicks-Raptors Case
Allegations of Misappropriation
The Knicks’ lawsuit hinges upon the assertion that the Raptors had engaged in misappropriation by employing a former Knicks staff member who had access to sensitive materials. The Knicks argued that this employment constituted a breach of trust and confidentiality, as the employee would have been privy to information that the team had invested considerable resources to develop and protect.
The Raptors countered these claims by asserting that the information in question was either publicly available or independently derived, thereby falling outside the scope of protected trade secrets. The outcome of this case was expected to hinge on the determination of whether the Knicks had taken sufficient measures to protect their proprietary information and whether the Raptors’ actions constituted a breach of those protections.[iv]
Legal Implications
The case carries significant legal implications for how trade secrets are viewed and protected in professional sports. A favorable ruling for the Knicks could establish a precedent that courts will stringently protect confidentiality practices within sports organizations, forcing teams and employees to become even more conscientious of confidentiality issues when staff transition between franchises. Conversely, a ruling in favor of the Raptors may assuage teams’ fear of legal repercussions when recruiting or hiring employees from other franchises, potentially undermining the protections afforded to trade secrets.
This case spent over a year in the courts before being sent to arbitration through the NBA to be resolved. This is due to a provision in the NBA Constitution, which forces disputes between teams to be settled via league-sponsored arbitration.[v] The Knicks attempted to argue that the provision was too broad and would allow for non-basketball issues to be forced into arbitration if it involved a dispute between teams or their employees. However, the judge ignored this claim because that issue is beside the point as the alleged trade secret misappropriation is an issue regarding fair play and basketball operations, which is well within the purview of this arbitration provision.[vi] Furthermore, the Knicks attempted to highlight the potential for bias due to Commissioner Adam Silver’s close relationship with the Toronto Raptors’ owner, and chair of the NBA Board of Governors, Larry Tanenbaum.[vii] However, the judge was once again unconvinced by claims of impropriety by the Knicks. The judge pointed out that the Knicks agreed to this provision in their agreement with the NBA knowing Silver could have biases. As the NBA waits for the decision to be handed down from Commissioner Silver, the sports world at large could also be impacted by the ripple effects of the decision. This case could lead to teams and leagues taking a much different approach in how they go about protecting their intellectual property.
Broader Implications for Trade Secrets in Sports
Competitive Advantage
The sports industry is characterized by its competitive nature, and teams are continuously searching for methods to gain an edge over their rivals. In the NBA this can be seen in the massive explosion of analytics and film study being used on a broader scale by teams throughout the league. Even in the past 10 years there has been a massive shift in how the sport is played and what data teams look at in order to gain a competitive edge.[viii] This will only continue to change as teams get better at utilizing data to find solutions for their issues. Along with new ways to analyze data with the integration of wearable technology like WHOOP and other devices, there is now more data than ever for teams to analyze.[ix] This data holds immense value to teams for their own use and for opposing teams looking to gain an edge. Accordingly, teams have and will continue to fiercely guard against misappropriation of their proprietary data in these areas.
The management of trade secrets will play a crucial role in organizations in order to maintain their competitive edge. Organizations invest heavily in analytics, scouting, and player development, all of which can be considered trade secrets if proper steps are taken to protect this valuable information. The outcomes of cases like the Knicks-Raptors lawsuit may influence how teams approach the development and protection of these assets.
Employee Mobility and Trade Secrets
The Knicks-Raptors case also touches on the broader issue of employee mobility in professional sports. The sports industry often witnesses the movement of personnel among teams, raising questions about how much information an employee can carry to a new organization. In many sports it is not uncommon for employees to move team to team very quickly with little to no time off in between. However, some sports, like Formula 1 (“F1”), institute a leave period, often referred to as garden leave, in which employees are paid a pre-negotiated amount by their former team to wait a year before moving to their next job.[x] This is commonplace in F1 and often leads to engineers or technical directors sitting out for a season while still being paid. This allows their former team to change their tactics so that the former employee cannot take valuable information over to their new employer. While the legality of non-compete clauses has been challenged in the United States[xi], a garden leave policy like in F1 would remove the issue of limiting earning capacity by covering their salary in exchange for their compliance with the leave clause.
I don’t believe garden leave provisions will ever become common in American sports leagues for several reasons. First, there is the issue of precedent. In American leagues coaches and staff move from organization to organization all the time without having to sit out for a year. Introducing such a restriction would be unprecedented, limiting career opportunities for these coaches. Furthermore, the cost benefit analysis of paying a staff member their salary to not work for a year does not make sense for American leagues. In F1, hiring a technical director from a competitor can result in moving up in the standings, potentially worth millions in prize money. However, leagues like the NFL, NBA, or MLB do not have the same level of specific prize money allocated for placement, while there is also a weaker correlation between staff and league success. For example, some coaches in these leagues have won numerous titles but often cannot recreate the same success when brought to other organizations. The competitive style and structure also differs significantly. In F1, these technical directors compete against their previous teams every week, whereas in American leagues, teams might only face their former staff members a few times a year. This reduces the perceived threat of insider knowledge.. Moreover, the cost is going to often be higher in American sports due to the inflated contracts some coaches have, but the benefit will be much lower. Instead, robust confidentiality clauses can effectively protect sensitive information without requiring organizations to pay large sums to employees.. Considering these factors, along with other challenges,, it is rather unlikely we will see this approach taken up in American leagues.
While unlikely a system like garden leave comes into play in Americansports leagues, it is an interesting thought ahead of the Knicks-Raptors arbitration decision. If the arbitration yields a decision which leans toward protecting trade secrets more robustly, this could lead to stricter limitations on the movement of personnel in the NBA and elsewhere, impacting team dynamics and career trajectories. It could also lead to more stringent confidentiality and non-disclosure provisions in contracts for staff members that would greatly decrease their ability to carry over information learned in previous positions.
Evolving Nature of Trade Secrets
The digital age has transformed how teams gather and store data. With the increasing reliance on technology for player evaluation and performance metrics, the risk of trade secret misappropriation has grown. The Knicks-Raptors lawsuit highlights the need for organizations to adapt their trade secret protections to address these evolving threats. This may include investing in cybersecurity measures and employing technology that ensures confidential information remains secure.
Conclusion
The legal battle between the Knicks and Raptors serves as a critical case study in the realm of trade secrets within professional sports. It underscores the importance of robust protections for proprietary information, the competitive nature of the sports industry, and the implications of employee movement on trade secret law. As the case unfolds, it will undoubtedly influence how sports organizations approach the safeguarding of their intellectual assets, the legal frameworks that govern such protections, and hiring practices.
The outcome of this lawsuit has the potential to reshape the landscape of trade secrets in sports, impacting how teams manage their confidential information and the legal obligations that arise from the complex interplay of competition, innovation, and personnel movement in the high-stakes world of professional athletics.
[i] Baxter Holmes This isn’t the 11 herbs and spices’: Inside this unprecedented Knicks-Raptors lawsuit Nov. 30, 2023 8:00 AM ET ESPN https://www.espn.com/nba/story/_/id/39007136/this-11-herbs-spices-unprecedented-knicks-raptors-lawsuit
[ii] Id.
[iii] 18 U.S.C. § 1839.
[iv] Michael McCann, Knicks-Raptors Espionage Case Heads to Arbitration, Sportico, June 29, 2024 8:00 AM, https://www.sportico.com/law/news/2024/knicks-raptors-trade-secrets-arbitration-1234786067/
[v] Id.
[vi] Id.
[vii] Id.
[viii] Dwight Powell, Exploring the Evolution of Basketball Analytics, EuroBasket (Feb. 10, 2024) https://www.eurobasket.com/Eurocup/news/853183/Exploring-the-Evolution-of-Basketball-Analytics
[ix] Mike Guevara, How WHOOP Helps Me Build Trust with NBA Players, WHOOP (May 11, 2018)
[x] Fred Smith, Aston Martin’s New Technical Director May Not Start for “A Couple of Years”, ROAD AND TRACK (Jun. 25, 2021), https://www.roadandtrack.com/news/a36843834/aston-martins-new-technical-director-may-not-start-for-a-couple-of-years/.
[xi] Rob Wile, Biden administration bans noncompete agreements, setting up legal showdown with business groups, NBC News (Apr. 23, 2024 2:57 PM MST),
