Trade Secret Litigation in the NBA Far From a Slam Dunk

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NBA

Last August 2023, right before the start of the NBA season, the New York Knicks filed a lawsuit against the Toronto Raptors alleging the theft of confidential and proprietary information after the Raptors hired the Knicks’ former Director of Video/Analytics/Player Development Assistant.

The Knicks and Raptors are both teams in the Atlantic Division of the Eastern Conference in the NBA. Over the past decade, the Raptors have been the more successful team and won the NBA championship in 2019, while the Knicks have achieved more recent success (including this year).

What Happened?

On the surface, the lawsuit appears to be a traditional one between two competitors. One company alleges that its competitor hired an employee who provided confidential information to the new employer and, by doing so, violated an employment agreement and other ancillary laws.

In this case, one company (the Knicks) alleges that its employee forwarded sensitive materials from a work account to a personal account, including “scouting reports, player frequency reports, a prep book, and a link to a third-party licensed software.” Allegedly, the “material consists of secret, proprietary information critical to the Knicks’ efforts to maintain a competitive advantage over their rivals, including the Raptors.” The former employer also alleges that the former employee used the former employer’s subscription to a software to transfer over 3,000 files, and that the new employer accessed the information over 2,000 times.

The lawsuit includes claims that are typical in these types of actions: violations of the Computer Fraud and Abuse Act, violations of trade secret laws, violations of an employment agreement, tortious interference, conversion, unfair competition, and unjust enrichment.

But the lawsuit is unique and atypical both from a legal and a sports perspective.

Why Is This Different?

Traditionally, a lawsuit involving the theft of sensitive and confidential materials should proceed at breakneck speed to preserve the status quo. The company concerned about the alleged theft of information will seek a temporary restraining order and ask the court for expedited proceedings so that discovery can be completed within six months.

During those initial six months, a former employer will typically seek a temporary injunction, expedited discovery, and a preliminary injunction (which involves presenting evidence and witness testimony).

Instead, the Knicks have not sought expedited proceedings or an immediate injunction. While the Knicks filed the lawsuit in August 2023, as of March 2024, the parties have not yet even begun discovery. Insofar as allegedly confidential information was shared with a new employer, the new employer still has such information more than six months after the lawsuit was filed.

The case is additionally peculiar from a sports perspective. Teams in the same sports league rarely (if ever) sue each other. Most sports leagues, including the NBA, have a constitution and a collective bargaining agreement that govern disputes among teams or players and include robust arbitration clauses.

The Raptors filed a motion to dismiss the matter and are seeking to send it to arbitration, arguing that the NBA’s constitution should apply and that the NBA’s CEO or commissioner (Adam Silver) should resolve this dispute consistent with an arbitration clause. In response, the Knicks are arguing that the arbitration clause is inapplicable or unenforceable (and as a legal nerd, the court’s decision on this issue will be interesting).

Is Anything Confidential Really at Stake?

Amidst the drama of this dispute, we shouldn’t lose sight of the main question: is anything confidential really at stake?

Players and coaches routinely switch teams, thereby exchanging some information. In fact, the Knicks and Raptors traded players in December 2023, a few months after the Knicks filed this lawsuit. Presumably, those players had access to information that the Knicks consider proprietary. In non-sports industries, one company does not trade its employees to another company, let alone to an alleged competitor against which there is an ongoing lawsuit for alleged theft of confidential information.

It is further unclear what specific kinds of information could be deemed confidential. NBA teams can review recorded games, players even say the names out loud of the plays they are running, and numerous current and former players have podcasts or are media personalities and discuss NBA plays. The information at issue is likely publicly available or, at a minimum, available to all NBA teams.

Moreover, NBA teams often work together (for example, to collectively bargain against the players), making claims of confidential information harder to support. In fact, teams work so closely that there is significant discussion around the application of antitrust laws to sports leagues, an issue that has even been the subject of a Supreme Court decision.

Ultimately, this is an interesting case for what didn’t happen (expedited proceedings), what did happen (a lawsuit against two sports teams who then made a trade with each other), and what might happen (a court ruling regarding the enforceability and application of an arbitration clause). As a result, legal nerds that maybe weren’t interested in sports before will now join ranks of fans to pay close attention to what happens next in the NBA, both on and off the court.