In a significant legal resolution, DraftKings has reached a confidential settlement with Michael Hermalyn, the former executive the company accused of stealing trade secrets before resigning to join Fanatics, a direct competitor in the sports betting and merchandise industry. The lawsuit, which had been playing out in both Massachusetts and California, centered around whether Hermalyn could legally work at Fanatics and what services he could offer, given the restrictions in his non-compete and non-solicitation agreements with DraftKings.
The settlement was announced on Monday through a joint court filing in federal court in Boston, bringing an end to the months-long litigation. The case had been brewing since February, when Hermalyn left DraftKings and moved to California to take on a leadership role at Fanatics, the online sports merchandise giant that expanded into sports betting last year.
DraftKings filed suit against Hermalyn, claiming that he violated the terms of his contract by taking confidential information and attempting to solicit employees from his former company before leaving for Fanatics. Specifically, DraftKings accused Hermalyn of using trade secrets to assist Fanatics as it built out its “VIP” client team, a direct challenge to DraftKings’ own high-value customer relationships. The company sought to block Hermalyn from performing certain duties at Fanatics, particularly those involving areas he had direct knowledge of during his tenure.
In response, Hermalyn denied the accusations, asserting that he had not misappropriated any trade secrets and that his move to Fanatics was legal under the terms of his contract. He also filed a counterclaim in California, arguing that his non-compete agreement should not be enforceable under state law, which has more lenient restrictions on such contracts.
In April, U.S. District Judge Julia Kobick in Boston granted a preliminary injunction that restricted Hermalyn’s activities at Fanatics for a period of 12 months. The ruling prohibited him from engaging in any work related to DraftKings’ business, but did not bar him from continuing his role at Fanatics. Despite this legal hurdle, Hermalyn remained employed by Fanatics, and his position as head of the company’s Los Angeles office was still listed on the Fanatics website as of Tuesday.
The legal saga took another twist when the 1st U.S. Circuit Court of Appeals upheld the injunction in September, rejecting Hermalyn’s attempt to have the ruling overturned. With the case heading toward a potential long-term legal battle, both parties moved to resolve the conflict outside of court. Their settlement was finalized with the understanding that Hermalyn would adhere to the terms of his contract with DraftKings, while both companies agreed to dismiss the lawsuit with confidential terms.
A statement from Hermalyn’s attorney, Russell Beck, confirmed that all litigation had been resolved and dismissed. “Mr. Hermalyn will abide by his contractual commitments to DraftKings,” Beck said. Fanatics issued a similar statement, while DraftKings chose not to comment further.
This settlement marks a significant moment in the ongoing competition between sports betting companies and those involved in the broader sports industry, like Fanatics, which is making aggressive moves into the sports betting market. Hermalyn’s move to Fanatics underscores the increasingly blurred lines between these companies as they vie for control of high-value customer segments in a rapidly evolving market.
While the case may have been resolved, it highlights ongoing concerns in the business world over the enforceability of non-compete agreements and the protection of trade secrets. With the legal landscape for tech and sports-related businesses continually shifting, companies must carefully navigate the complexities of employment law to protect their intellectual property and maintain competitive advantages.
Read more: