A recent decision from the Delaware Court of Chancery serves as a powerful reminder of the consequences employees may face for disloyal conduct—and the importance of clear employer policies and agreements to protect their trade secrets and discourageemployeedisloyalty.
Background: The Sorrento v. Mack Case
In Sorrento Therapeutics Inc. and Scilex Pharmaceuticals Inc. v. Anthony Mack, Case No. 2021-0210, Vice Chancellor Paul A. Fioravanti Jr. ordered a former pharmaceutical executive to pay more than $5.3 million in attorney fees to his former employers, Sorrento Therapeutics Inc. and Scilex Pharmaceuticals Inc. The award represents one-third of the $16.1 million in legal fees and expenses the plaintiffs incurred over the course of litigation that spanned more than three years.
The executive was the former president of Scilex who was working on approvals for pain-management products. He agreed to stay on as president following the acquisition of Scilex by Sorrento based in part on the promise of the pain management products in the pipeline. The executive received $12 million in connection with the acquisition and additional compensation after the transaction was completed. On the same day that Sorrento offered him the president’s position, the executive secretly formed a competitor, Virpax Pharmaceuticals, which later went public in 2021 and obtained licenses for three pain-management products that were originally offered to Scilex.
The Court’s Findings
The underlying dispute arose in March 2021, when Sorrento and Scilex accused the executive and Virpax Pharmaceuticals of breaching restrictive covenant and other agreements, usurping corporate opportunities, misappropriating trade secrets, and interfering with business relationships. In a September 2023 ruling, the court found that the executive had violated restrictive covenants in his agreements and breached his duty of loyalty by diverting corporate opportunities and using company resources to develop a competing venture while still employed by Scilex/Sorrento. The court later found the executive’s conduct to be ”willful and malicious,” warranting fee shifting under Delaware law as a sanction.
The executive raised numerous objections to the fee application, arguing that the plaintiffs’ lawyers’ billing records contained insufficient detail, that too many lawyers had worked on the matter, that their hourly rates were excessive, that the fees were disproportionate to the damages recovered, and that the application included fees for experts who did not testify or offer opinions at trial. He also claimed he lacked the financial ability to pay. The court rejected each of these arguments, finding that the complexity of the case—which involved technical evidence related to drug development, regulatory processes, and digital forensics—justified the fees incurred. The court further noted that the fees were justified given the substantial compensation paid to the executive. Finally, the court viewed the fee award as damages to punish the executive for his misconduct and spoliation of certain evidence, stating that his “predicament is of his own making.”
Lessons for Employees
This case underscores the very real financial and legal risks employees face when they engage in disloyal conduct. The executive’s actions did not merely result in liability for the underlying breach but also caused him to reimburse his former employers for millions of dollars in legal fees. Employees should understand that breaching fiduciary duties, misappropriating trade secrets, and violating restrictive covenants can lead to consequences that extend far beyond the direct damages caused.
Lessons for Employers
While employees bear the risk of significant personal financial exposure, employers are not without recourse—provided they have the right protections in place. This case highlights the value of measures employers can take to protect their interests and intellectual property. Sorrento and Scilex were able to pursue—and ultimately prevail on—claims for breach of employment agreements, restrictive covenant violations, and trade secret misappropriation in large part because they implemented protections that were memorialized in clear, enforceable agreements.
Employers seeking to safeguard their businesses should consider implementing the following protective measures:
- Non-Disclosure/Confidentiality Agreements: Clearly define what constitutes trade secrets and other confidential information and prohibit their use or disclosure during and after employment.
- Non-Compete and Non-Solicitation Agreements: Restrict departing employees from launching or joining competing ventures and soliciting clients or colleagues for a defined period following separation.
- Invention Assignment Agreements: Ensure that any inventions, innovations, or business opportunities developed during employment are explicitly assigned to the employer.
- Security Measures: Limit access to trade secrets on a need-to-know basis is critical. This includes physical measures (locked facilities, restricted areas) and digital measures (password protections, encryption, role-based access controls, and network segmentation). Implement robust cybersecurity measures, including firewalls, intrusion detection systems, data loss prevention tools, and monitoring of employee access to sensitive files. Document management systems that track who accesses, copies, or transmits trade secret materials can also be valuable both as a deterrent and as a source of evidence in the event of misappropriation.
- Trade Secret and Corporate Opportunity Policies: Adopt and distribute clear written policies identifying categories of trade secret and confidential information, outlining employee obligations, and specifying consequences for violations. Establish clear written policies requiring employees to disclose and offer business opportunities to the company before pursuing them personally.
- Employee Training: Regular training programs should educate employees about what constitutes a trade secret, their obligations under company policy and applicable agreements, and best practices for safeguarding confidential information.
- Exit Interviews and Offboarding Procedures: Upon an employe’s departure, conduct exit interviews reminding the employee of ongoing confidentiality obligations, retrieve all company property and materials, and revoke access to company systems. Having the departing employee acknowledge in writing that they have returned all confidential materials is a best practice.
Well-drafted agreements not only deter misconduct but also provide the contractual foundation necessary to pursue meaningful remedies when breaches occur, in addition to remedies available under law for trade secret theft. As this case demonstrates, the availability of fee shifting as a remedy can serve as a powerful deterrent and a critical tool for making employers whole when they are forced to litigate against disloyal former employees. Employers who adopt clear, comprehensive employment policies and agreements position themselves to enforce their rights effectively when the need arises. For guidance on drafting enforceable employment agreements and protecting your company’s trade secrets, contact Frier Levitt’s employment team.
Co-Managing Partner
General Counsel