A recent opinion from the U.S. District Court for the Northern District of Illinois has stirred up a hornets’ nest of commentary because it appears to recognize the viability of the inevitable disclosure doctrine under the Defend Trade Secrets Act (DTSA).  Those familiar with the DTSA will recall that the inevitable disclosure doctrine was supposed to be prohibited under the DTSA because of California Senator Diane Feinstein’s concern that the doctrine might be enforced against California residents.  Now, in what appears to be the first federal appellate court opinion construing the DTSA, the U.S. Court of Appeals for the Third Circuit may have further muddied the waters about the inevitable disclosure doctrine in Fres-co Systems USA, Inc. v. Hawkins, Case No. 16-3591, ___ Fed. Appx. __ (3rd Cir. 2017), 2017 WL 2376568 (June 1, 2017) (a link to the opinion can found here). Continue Reading Fres-co Systems v. Hawkins: Did The Third Circuit Just Create More Confusion Around The DTSA’s Ban On The Inevitable Disclosure Doctrine?

A recent $6.9 million verdict by a Pennsylvania state court judge serves as a stark warning to employers that hire a group of employees who resign together en masse. The case, B.G. Balmer & Co. Inc. v. Frank Crystal & Co., out of Chester County in Pennsylvania arose out of claims that a group of insurance brokers violated the non-solicitation clause in their employment agreements with their former employer, B.G. Balmer.

These mass exodus cases happen frequently in the financial services industry and can be particularly dangerous cases, especially where the employees improperly solicit colleagues or clients to join them before leaving. These cases are notoriously contentious and emotional — think about your standard non-compete case, throw in a cup of betrayal, shake well, and then add a healthy jolt of steroids. I have not yet been able to locate the trial court’s opinion yet (I understand it may be filed under seal) but Gregory D. Hanscom has a fine post about the case in Fisher & Phillips ‘ Non-Compete and Trade Secrets Blog.

According to Gregory, the group of departing employees first began to consider switching insurance brokers from B.G. Balmer to Frank Crystal & Co. when they individually met with a recruiter in May 2003. Less than three months later, those employees all resigned from B.G. Balmer on the same day (never a great idea) and promptly started working for Crystal.  After they left, about 20 of B.G. Balmer’s clients switched their accounts to Crystal.

After B.G. Balmer secured a preliminary injunction restraining the employees (affirmed on appeal by the Pennsylvania Superior Court), the dispute proceeded to a bench trial to determine the ultimate issues of liability and damages. According to Gregory’s account of the case, B.G. Balmer effectively painted a sinister picture of the employees’ actions. B.G. Balmer argued that the former employees engaged in a calculated and concerted effort to disrupt its business by resigning on the same day and attempting to induce a number of clients to switch insurance brokers. The trial court rejected the employees’ argument that the clients chose to switch insurance brokers on their own volition, and not because of any improper solicitation.

The trial court awarded $2.4 million in compensatory and $4.5 million in punitive damages, an unusual ruling since judges are generally perceived as being less willing to award punitive damages than juries.

Watch Out for Breach of Fiduciary Duty Claims In addition to claims of the breach of a non-compete or non-solicitation agreement, one of the common claims that arise in these mass exodus cases is whether the former employees breached their fiduciary duties to their former employer when they planned to leave.  Many states, including Ohio, impose a fiduciary duty of loyalty on an employee not to compete or harm his or her employer while he/she is on that employer’s payroll.

Most states do recognize that an employee has the right to prepare to leave his or her job. Consequently, routine preparations to compete — interviewing, leasing office space, hiring an accountant, forming a company, issuing business cards — are frequently permitted.  So long as the employee takes those actions after hours and not at the office, those actions will generally found to be proper.

However, things can get more interesting when the employee recruits others to leave while they still share the same employer.  In my experience, courts will tolerate 2 or 3 employees having conversations about leaving their job together. However, courts grow more suspicious as that number grows, particularly when the departures then appear timed to put the former employer in the lurch or cause it substantial damage.   My experience and research indicate that the facts of each case dictate whether the employees acted inappropriately.

However, there is one line in the sand that will trigger a finding of a breach of the duty of loyalty: if the employee solicits a customer before leaving.  In my experience, courts will tolerate some mistakes but it is the solicitation of clients before resigning, misconduct that is compounded exponentially in mass exodus cases, that sets courts off the deep end. The punitive award in the B.G. Balmer case is an important reminder of that fact.

Takeaways For the employees looking to avoid a mass exodus claim against them, take heed of the Trade Secret Litigator’s Seven Deadly Sins of Departing Employees. These rules are particularly important to follow in mass resignation cases because as the B.G. Balmer case makes clear, every action may take on a more sinister note when it is coupled with the actions of other co-workers who are planning on leaving. The cumulative effect of this evidence can be devastating.

For employers taking on a group of employees, make sure that they follow their non-solicitation agreements, if they have any. If they do not have those agreements, make certain that they also do not solicit co-workers or clients until after they leave. Make sure they keep it clean.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Cases. Posts and Articles:

  • There has been an uptick in media coverage and criticism of non-competes this week, which dovetails with the growing legislative efforts in several states to limit or restrict the use of non-competes.  “More firms requiring non-compete agreements: Efforts to retain employees being tested in courts, statehouses,” reports Jonnelle Mart for The Wall Street Journal’s Market Watch. Likewise, The Los Angeles Times has chimed in, “Contracts, court rulings giving employers legal upper hand: Emboldened by Supreme Court decisions and a weak job market, employers are starting to require workers to sign away their rights in return for a job.”
  • “Legally Smited Eaton Asks Supreme Court of Mississippi to Reinstate Civil Trade Secret Theft Case Against Five Former Employees,” reports Todd Sullivan in his Sullivan’s Trade Secrets and Employee Defections Blog.
  • Texas “Appeals Court OKs Extension Of Insurer’s Noncompete Deal,” advises Law360.
  • “Can Confidential Info That’s Not a Trade Secret Be Misappropriated?” asks Eric Ostroff in his Protecting Trade Secrets Blog as he discusses a recent case out of Arizona.
  • Jon Cavicchi is ramping his Trade Secrets Vault Blog back up. Check out his many new posts, including his re-posting of some valuable advice on “Implementing a Trade Secret Audit.”
  • “Is An Assigned Non-Compete Agreement Enforceable?” asks Monika Vyas Scott for Burr & Forman’s Non-Compete Trade Secrets Law Blog and she summarizes the law in states throughout the Southeast.
  • For those looking for more on the Illinois Appellate Court’s recent decision that an employee must be employed at least two years for a non-compete to be enforceable, Kenneth Vanko is not quite yet done venting about the reasoning in Fifield v. Premier Dealer Services.
  • “Scientist pleads guilty in Pa. trade secrets case” reports Associated Press. Tung Pham, who was charged with stealing trade secrets from his employer to take to a competitor in China, pleaded guilty in federal court in Philadelphia to seven counts of wire fraud, prosecutors said last week.
  • “Medtech inventor claims Ethicon lawyer tricked him into divulging trade secrets” advises the Massachusetts Medical Device Journal. Todd Sullivan also provides his take on the case here.
  • For tips on dealing with whistleblowers and trade secrets, check out Robert Milligan’s post “An Employee Is Stealing Company Documents…That Can’t Be Protected Activity, Right?” for Seyfarth Shaw’s Trading Secrets Blog.
  • “When An Employee Goes ‘Snowden:’ State High Court To Decide If An Employer Can Be Liable For A Rogue Employee’s Disclosure of Confidential Information,” reports Joe Wilson for Kelley Drye’s DC Metropolitan Business Law Alert.
  • “iPads and Blackberries: The Hidden Dangers for Employers,” warns Amy Dehnel for Berman Fink Van Horn’s Georgia Non-Compete & Trade Secrets Reporter.
  • For a primer on “Health Care Non-Compete Agreements,” in Tennessee, check out Cole Dowsley’s post for Thompson Burton’s Litigation & Dispute Resolution Blog.

Cybersecurity Posts and Articles:

  • “NIST Releases Draft Outline of Cybersecurity Framework for Critical Infrastructure,” notes the National Institute of Standards and Technology’s Tech Beat.
  • For two completely different takes on recent testimony before the House Energy and Commerce Oversight Subcommittee yesterday, compare “China Bears Burden Of Stopping IP Theft, Panel Hears,” from Law360 with “U.S. Defenses ‘Feeble’ against Chinese Cyber Threat, Experts Testify,” from Main Justice.
  • “Report Details Data Breaches in California,” advises Cheryl Miller for Corporate Counsel.
  • “US, China kick off annual dialogue with talks on cybersecurity,” reports The Washington Post.
  • “You Aren’t Using These 10 Simple Security Settings,” laments Jess Fee for Mashable.

06122013One of the issues that divides many states is whether a covenant not to compete that is offered after the start of employment is enforceable.  Most states (such as Florida, Illinois, Massachusetts, New York and Ohio) recognize that mere continued employment is sufficient consideration to support a non-compete that is signed after an employee begins working for his or her employer. 

However, a sizable minority of states (such as North Carolina, Pennsylvania and Texas) generally refuse to enforce a non-compete that is presented after an employee begins work. In those states, continued employment is considered insufficient consideration as a matter of law and those states require that any non-compete signed after an employee has begun working must be supported by new and independent consideration such as a genuine promotion, stock options or some other tangible exchange.

Not surprisingly, things can get tricky in jurisdictions that do not recognize “subsequent” non-competes when it is unclear when the employee actually begins working or where there is a potential number of employment agreements.  On May 31, 2013, the Pennsylvania Supreme Court was forced to address this situation and determine whether a signed offer letter that did not mention a non-compete was the parties’ agreement or whether a subsequent employment agreement with a restrictive covenant signed on the employee’s first day of work constituted the actual employment contract.

In Pulse Technologies, Inc. v. Notaro, the Pennsylvania Supreme Court found that the signed offer letter that did not mention a non-compete was not a binding  employment contract between the parties.  Instead, the Supreme Court held that the non-compete included in the formal employment agreement signed on the employee’s first day was part of the actual contract between the employer and employee, and that the non-compete was therefore supported by consideration (new employment) and enforceable. (A copy of the opinion can be found as a PDF below; a special thanks to Mark Grace of Cohen & Grace for giving me an update on the opinion).

Background Facts:  In 2005, Pulse Technologies extended an offer of employment to Peter Notaro in a letter that described the new position, responsibilities, location, base salary, benefits, effective date and confidentiality requirements. The offer letter stated “You will be asked to sign our employment/confidentiality agreement” and that “[w]e will not be able to employ you if you fail to do so.”  Finally, the offer letter stated “the first day of employment you will be required to sign an Employment Agreement with definitive terms and conditions outlining the offer terms and conditions contained herein.” The letter did not mention any covenant not to compete.

Notaro signed the offer letter as instructed and on the first day of his employment with Pulse Technologies, he was asked to sign an employment agreement that contained a covenant not to compete. Notaro read, understood and signed the employment agreement and never objected or questioned the non-compete.

In 2010, Notaro resigned from Pulse Technologies to join a competitor, MK Precision, LLC.  Pulse Technologies sued to enforce the non-compete and secured a preliminary injunction enforcing it. However, on appeal, the Pennsylvania Superior Court of Appeals reversed and vacated the preliminary injunction, reasoning that because the offer letter did not mention the non-compete, the subsequent non-compete was not supported by adequate consideration.

The Pennsylvania Supreme Court’s Reasoning: The Pennsylvania Supreme Court rejected that reasoning, reversed the Appellate Court’s holding and reinstituted the non-compete. The Supreme Court held that the offer letter was simply part of the hiring process and did not constitute the actual employment contract between Notaro and Pulse Technologies. 

Focusing on the language and circumstances surrounding the offer letter, the Supreme Court concluded that the offer letter was simply intended to summarize a number of the key terms of the proposed employment relationship and that it was executed with “a view toward executing a binding contract in the future.” The Supreme Court emphasized that the offer letter’s language made clear that execution of an actual employment agreement would be required for any employment relationship and that as a result, the restrictive covenant was ancillary (or a essentially a condition) of the proposed employment relationship. Consequently, the subsequent non-compete was enforceable because it was supported by consideration — the offer and acceptance of employment at the start of the parties’ relationship.

The Takeaway:  If you are an employer in a state that does not recognize continued employment as sufficient consideration for a non-compete, this is an important decision. To its credit, the Pennsylvania Supreme Court did not elevate form over substance and instead took a hard look at the language and the circumstances of the offer letter and properly recognized that it was not the actual employment agreement. This decision should provide comfort to employers who do not expect that an offer letter will summarize each and every term of the prospective employment.

However, on a practical level, the most effective step that an employer can take to avoid this situation is to be open from the beginning about its expectation that a new employee will have to sign a restrictive covenant. It is always preferable to explain to a prospective employee that a restrictive covenant will be part of any employment package. Not only will that approach ensure that an employer has conformed with the law in jurisdictions such as North Carolina, Pennsylvania and Texas, but it will reduce the potential for confusion, bitterness or litigation in the future.

Pulse Technologies v. Notaro.pdf (51.34 kb)

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Cybersecurity Posts and Articles: 
  • Last week’s report from the privately-funded IP Commission has triggered a lot of commentary on the issue of China, cybersecurity, and the international misappropriation of trade secrets. The Economist has chimed in, “Fighting China’s hackers: Is it time to retaliate against cyber-thieves?,” The New York Times has offered an Op-Ed “Preventing a U.S.-China Cyberwar,” as has Gerry Smith for The Huffington Post, “‘Hacking Back’ Could Deter Chinese Cyberattacks, Report Says.” Lisa Kilday also has a post for The IP Watchdog, as does Sophie Yu for Orrick’s Trade Secrets Watch Blog.
  • For a contrarian view of the report and its authors, see TechDirt’s article, “Fear Mongering Report Suggests ‘IP Theft From China’ One Of The Biggest Problems America Faces.”
  • “A primer on the keys to a complete cybersecurity incident response plan: Inside counsel that understand cybersecurity become defenders of their companies,” advises Daniel Lim for Inside Counsel.
  • “Hackers Find China Is Land of Opportunity,” reports Edward Wong for The New York Times.
  • “FTC Fires Back In Cybersecurity Case,” reports Brent Kendall for The Wall Street Journal’s Law Blog.
  • “FTC Announces Information about Upcoming Mobile Security Forum,” advises Mike Nonanka for Covington’s Inside Privacy Blog.
  • Rob Radcliff provides his take on BYOD policies in his Smooth Transitions Blog.
  • “Employers Must Obtain Employee Consent For BYOD Programs,” recommends Yaron Dori and Jeff Kosseff of Covington & Burling LLP for Law360.
Trade Secrets and Non-Compete Cases, Posts and Articles
  • “Kolon Asks 4th Circ. To Ax $920M DuPont Trade Secrets Award” reports Law360.  In a summary of the oral arguments before the 4th Circuit Court of Appeals, Scott Flaherty reports that Kolon focused on Judge Robert Payne’s denial of its motion to recuse himself because of his former firm’s involvement in a patent dispute for DuPont and on what Kolon believed was DuPont’s failure to provide proof on a trade secret by trade secret basis.
  • “Illinois Appellate Court Partially Reverses Broad Non-Compete Injunction Against Physicians,” reports Molly Joyce for Seyfarth Shaw’s Trading Secrets Blog.
  • “Customer Lists as Trade Secrets: What Protections Are Sufficient?” asks Eric Ostroff in his Protecting Trade Secrets Blog.
  • Brian Bialas suspects that the recent AMD v. Feldstein decision by the U.S. District Court of Massachusetts may have extended the inevitable disclosure doctrine in Massachusetts. In his post for Foley & Hoag’s Massachusetts Noncompete Law Blog, Brian notes the fact that Judge Hillman entered an injunction despite the defendants’ protestations that they had already turned over all confidential information to a third-party neutral after the lawsuit was commenced, reasoning that they, “must all remember large amounts of confidential AMD information that they learned during their employment.”  (For more on the decision, see my take here).
  • A case out of New York’s Fourth Appellate Department suggests that coupling a grant of stock options with a non-compete can be a messy affair if not done right, advises Jonathan Pollard in a recent post for the non-compete blog.
  • “Former Outback Steakhouse Employee Not Necessarily ‘Down Under’ For Allegedly Breaching Fiduciary Duty” advises Amy Dehnel for Berman Fink & Van Horn’s Georgia Non-Compete & Trade Secret News Blog.
  • In “Pennsylvania Appellate Court Orders Sanctions for Plaintiff’s Bad-Faith Trade Secret Misappropriation Claims,” Scott Schaeffers examines the recent Kraft v. Downey case for Seyfarth Shaw’s Trading Secrets Blog.
  • Rob Radcliff provides his take on BYOD policies in his Smooth Transistions Blog.
  • “Employers Must Obtain Employee Consent For BYOD Programs,” recommends Yaron Dori and Jeff Kosseff, Covington & Burling LLP for Law360.
  • “Chinese Trade Secret Theft Hits Universities,” reports Press Millen for Womble Carlyle’s Trade Secrets Blog.
  • “Non-Compete Agreements Aren’t for Everyone: The Necessity of Proving a ‘Legitimate Business Interest,’” advises Betsy Lensan Cook of Womble Carlyle for National Law Review.
  • “Exercise Gym Instructor Enjoined By Non-Compete Agreement,” reports David Poppick for Epstein Becker’s Trade Secrets & Noncompete Blog.
Computer Fraud and Abuse Act Posts and Cases:
  • “Password Sharing and the Computer Fraud and Abuse Act, Revisited,” considers Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • A Pennsylvania Court of Appeals has rejected the two-prong test (objective test of speciousness and subjective test for bad faith) used by many federal courts for an award of attorneys fees for a bad faith trade secrets action under the Pennsylvania Uniform Trade Secrets Act reports Law360. In Kraft v. Downey, the Superior Court reversed a trial court’s dismissal of a claim for attorneys fees by the defendants, even though the plaintiffs prevailed at trial on other claims. (A hat tip to Mark Grace for forwarding the opinion to me).
  • Ericsonn and Airvana have reached an agreement in principle to settle their trade secrets case, Bloomberg is reporting. Airvana had secured a preliminary injunction in New York Supreme Court that had threatened to disrupt a $3 billion opportunity with Sprint and had resulted in Airvana’s claim that Ericsonn had violated the injunction. For more on the case and injunction, see my March post here.
  • For the latest involving the prosecution of Walter Liew for the alleged theft of DuPont’s titanium dioxide trade secrets, see “Feds Say Execs Can’t Ax DuPont Trade Secrets Charges,” as reported by Law360.
  • “Using Computer Forensics to Investigate IP Theft,” advise Sid Venkatasen and Elizabeth McBride for Law Technology News.
  • “Kentucky Court Finds No Insurance Coverage for Trade-Secrets Claim,” reports Eric Ostroff in his Trade Secrets Law Blog.
  • “Massachusetts Federal Court Takes Jurisdiction Over ‘One-Man’ Georgia Corporation Whose Agent Allegedly Stole Trade Secrets in Massachusetts,” reports Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
  • “Recapping the Latest Blue Belt Tech. Non-Compete Dispute (This Time vs. Stryker),” summarizes Jonathan Pollard for the non-compete blog.
  • “Act On Clarifying Ownership of Work-Related Social Media Accounts Before You Become ‘Dinner,'” recommends Daniel Schwartz in his Connecticut Employment Law Blog.
  • If you are into podcasts, check out, “The Administration is Focused on Preventing Trade Secrets Misappropriation. Your Business Should Be, Too,” by Victoria Cundiff of Paul Hastings.
  • “Proposed Non-Compete Legislation in Connecticut Follows Legislative Trend” advises Kenneth Vanko in his Legal Developments in Non-Competition Blog.
  • If you are interested in more on the $44 million verdict in the Wellogix/Accenture dispute, check out “I Thought We Broke Up Years Ago! Why You Should “Throw Out” Trade Secrets As Soon As A Business Relationship Ends” by Matthew Kugazaki and Valerie Goo for Orrick’s Trade Secrets Watch and Eric Ostroff’s “A Cautionary Tale About Sharing Trade Secrets With Consultants — Fifth Circuit Affirms $44 Million Verdict.”

Cybersecurity Posts and Articles:

  • “California law would require breach notice if online account information is stolen,” reports Dan Kaplan for SC Magazine.
  • “Cyber Compliance: Hiring a Cybersecurity IT Firm for Rookies,” advises Christopher Matthews for The Wall Street Journal’s Risk & Compliance Reporter.
  • “Why CISPA is a global problem,” warns TechnoLlama.
  • “Data Breach – Your Organization Needs a Plan” recommends Nicole Reiman of Schnader Harrison Segal & Lewis LLP for JDSupra.
  • “Corporate Security’s Weak Link: Click-Happy CEOs: Top Bosses, Exempt From Companywide Rules, Are More Likely to Take Cyber-Attackers’ Bait,” reports The Wall Street Journal. For more on Spearphishing (or attacks geared towards senior executives better known as whaling, see my post here).
  • “GSA, DOD Solicit Advice On Revamping Cybersecurity,” advises Kathryn Brenzel for Law360.

Computer Fraud and Abuse Act Posts and Cases: 

  • “Applying Georgia Long-Arm Statute, Eleventh Circuit Finds No Personal Jurisdiction Based on Internet Activity” in a CFAA dispute, courtesy of Colin Freer for Berman Fink Van Horn’s Georgia Non-Compete and Trade Secret News Blog.

01042013Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • Bloomberg has received withering criticism for allowing the presumably confidential information of its customers to be viewed (and most likely used) by its reporters. Last week, Bloomberg said it had now restricted its journalists from accessing information about terminal subscribers, including when they last logged on, when they subscribed and how often they accessed features like news or the chat function. CNBC, The New York Times and The Wall Street Journal all have comprehensive articles on the scandal. Bloomberg’s troubles underscore the challenges of maintaining ethical screens and walls between business units who have potentially divergent interests over confidential information. 
  • “Credit Suisse says ex VP stole trade secrets in move to Goldman,” reports Reuters
  • “5th Circ. Affirms $44M Wellogix Jury Award In Trade Secret Spat,” reports Law360.
  • “Trade Secret ‘Watch List’: Bill Would Establish Monitoring List of Countries Engaging in Cybertheft, and Make U.S. Intelligence Czar the Point Person,” reports Robert Isaackson for Orrick’s Trade Secrets Watch.
  • “New Massachusetts Superior Court Noncompete Decision Discusses the ‘Material Change’ Defense and Shows the Benefit to Employers of Having a ‘Material Change’ Clause in Noncompete Agreements,” advises Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
  • Josh Durham reports on the latest non-compete involving a doctor, “NC Court of Appeals Orders Injunction In OB-GYN Covenant Not To Compete Case,” for Poyner Spruill’s Under Lock & Key Blog.
  • And while we are talking about physician non-competes, the recent $39 million “Tuomey verdict could make hospitals more cautious in doctor contracts,” advises Adam Kerlin for Reuters.
  • “Florida Court Discusses Trade Secrets in Discovery,” reports Solomon Genet for the Trade Secrets Law Blog.
  • “Show Me the Money – Injunctions are Not Cheap,” warns Rob Radcliff in his Smooth Transitions Blog.
  • “You Can’t Reverse Blue-Pencil a Non-Compete,” advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • “Trade Secrets Law Still Murky in Georgia Courts,” reports Alyson Palmer for Corporate Counsel.
  • Fracking and trade secrets remain a combustible combination, as Law 360 reports that, “Enviros Must Show Need To Get Trade Secret Docs: Pa. Court.”
  • For an excellent summary of the key points of the new Texas Uniform Trade Secrets Act, see, “Texas Trade Secrets Law Gets Business-Friendly Upgrade,” by Jesse Davis for Law360.
  • A recent study finds that over 90% of innovative products are never patented, reports Eric Ostroff in a recent post for his Trade Secrets Law Blog. According to Eric, the study looked at the “R&D 100 Awards” to reach its conclusions. The results of this study of course reinforce the importance of making sure your trade secret protections are adequate.
  • Attention eBay shoppers: “Coca Cola’s secret formula for sale for 15 million dollars,” reports DailyBhaskar.com

Cybersecurity Posts and Articles:

  • The theft of nearly $45 billion was from New York banks by cyberthieves was widely reported in the past week. For an analysis of the legal fallout, see, “Lessons From the New York ATM Heist,” by Jason Weinsten for Steptoe’s Cyberblog.
  • “Legal Showdown on Cybersecurity: Hotelier Wyndham Challenges FTC’s Authority to Police Corporate Data Practices,” reports The Wall Street Journal.
  • “Cyberattacks Against U.S. Corporations Are on the Rise,” reports The New York Times.
  • “‘Bring Your Own Device’ is Evolving from a Trend to a Requirement,” advises Arik Hesseldahl for All Things Digital
  • “Hacking back: Digital revenge is sweet but risky,” advises Melissa Riofrio for PCWorld.  

Computer Fraud and Abuse Act Posts and Cases:

  • “No Damages? Illinois Federal Court Tosses Computer Fraud and Abuse Act Claim Alleging Hacking of Law Firm Network,” reports Paul Freehling for Seyfarth Shaw’s Trading Secrets Blog.
  • “Should Lying About Your Age Online Be a Federal Crime?” asks Peter Torren in an article for Corporate Counsel.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Cybersecurity Posts and Articles:

  • Well, it’s official: “U.S. Blames China’s Military Directly for Cyberattacks,” reports The New York Times. Also see “PENTAGON: Chinese Hackers Have Stolen Data From ‘Almost Every Major U.S. Defense Contractor,'” asserts The Business Insider, “Pentagon report says U.S. computer hacking ‘appears to be attributable’ to Chinese government,” reports The Verge and “U.S. Says China’s Government, Military Used Cyberespionage,” reports The Wall Street Journal.
  • “A cybersecurity primer for legal departments: Understanding the basic terms and concepts needed to protect your company from cyber attacks” by David Lim for Inside Counsel.

Trade Secret and Non-Compete Posts and Articles:

  • Less than two months after its introduction, Texas has adopted the Uniform Trade Secrets Act effective Sept. 1, 2013, reports Orrick’s Trade Secrets Watch Blog. It appears that the version adopted is similar to that proposed by Dallas State Senator John Carona and will include a presumption in favor of granting protective orders to protect trade secrets in litigation, including limiting access to confidential information to attorneys and their experts. (For more on the proposed statute, see my post earlier this year as well as Robert Milligan’s recent post).
  • Connecticut is joining the list of states tinkering with their non-compete laws, advises Daniel Schwartz in his Connecticut Employment Law Blog.  In “Bill Targets Non-Compete Agreements But Would Also Create New Cause of Action,” Daniel reports that the bill allows “reasonable” non-competes but would permit an aggrieved employee the right to sue if the non-compete was unreasonable or the employee was not provided with at least 10 days to consider the non-compete before signing it.
  • “Chinese Couple Sentenced to 3 Years and 1 Year for Theft of GM Hybrid Technology,” advises Todd Sullivan in his Trade Secrets Blog.
  • And in another prosecution, “Ex-Frontier Chemist Dodges Prison For Disclosing Recipes,” as Law360 reports that the U.S. District Court for Utah sentenced Prabhu Prasad Mohapatra to time served — three days — and ordered him to pay $3,435 in restitution.
  • “Georgia Supreme Court Rejects Independent Claim for Inevitable Disclosure of Trade Secrets,” reports Eric Ostroff in his Trade Secrets Law Blog.  Kenneth Vanko has a post on the case as well in his Legal Developoments in Non-Competition Agreements Blog.
  • Eric Ostroff also has a fine post entitled “Five Ways to Protect Trade Secrets When an Employee Departs.”  If you have not bookmarked Eric’s blog, you should as he is churning out very good content regularly.
  • Those in Pennsylvania should be aware of a decision out of the U.S. Eastern District of Pennsylvania reports the Employee Discrimination Reporter. In De Lage Landen v. Thomasian, the District Court refused to enforce a non-compete despite proof that the former employee had breached a non-solicitation provision by approaching a former colleague. The court reasoned that the parties were not sufficient competitors, there was no showing of future harm, money damages were available, and therefore no irreparable harm was present.
  • “Fracking and Trade Secrets: An Introduction,” advises Kenneth Vanko in his Legal Developoments in Non-Competition Agreements Blog.
  • “Fisher/Unitech (Basically) Loses Non-Compete Fight Against Former Sales Exec,” advises Jonathan Pollard for the non-compete blog.
  • “Doctor Non-Solicitation Agreement Not Supported By Legitimate Business Interest,” reports Zach Jackson for Epstein Becker’s Trade Secrets & Noncompete Blog.
  • “Employers Slow To Guard Data Amid Social Media, Tech Boom,” bemoans Erin Coe for Law360.
  • “Data Security Policies and Procedures Still Lacking,” warns Catherine Dunn for Corporate Counsel.
  • In “Unleashing job hoppers could give economy a bounce,” Reynolds Holdings posits in an article for Reuters that releasing unemployed workers from their non-competes might help the economy.
  • “China Non-Competes. The Basics Have Become Clearer,” advises Dan Harris in his China Law Blog.

Computer Fraud and Abuse Act Posts and Cases:

  • “California Federal Court Dismisses Computer Fraud and State Unfair Competition Claims Alleged Against Ex-Employees Accused Of Stealing Computer Source Code,” reports Paul Freehling for Seyfarth Shaw’s Trading Secrets Blog.
  • “Programmer Arrested For Cyberattack On Ex-Employer,” reports Law360.
  • “Use a Software Bug to Win Video Poker? That’s a Federal Hacking Case,” proclaims Kevin Paulson for Wired.
  • “Who’s at Fault for the CFAA Mess? Blame Congress,” sighs Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog. Sounds good to me.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • House Intelligence Committee Chairman Mike Rogers (R-MI) has announced that he will be presenting a bill later this year that will penalize foreign countries that sponsor hackers that attempt to steal trade secrets from U.S. companies. In an article for Main Justice, Katy O’Donnell writes that Rogers will be considering some unconventional remedies such as suspension of visas and other tools.
  • “DuPont Wins Kolon Property In $920M Recovery Effort,” reports Law360.
  • For the latest on the Eagle v. Morgan social media ownership case, see Jessica Mendelson’s post for Seyfarth Shaw’s Trading Secrets Blog. As Jessica details, the trial court found that Dr. Eagle’s former employer misappropriated her LinkedIn profile but that Dr. Eagle failed to prove her damages.
  • “Live Events Agency Sues Former Employees And Independent Contractor For Breach Of Non-Solicitation Agreements,” advises John Paul Nefflen for Burr & Forman’s Non-Compete Trade Secrets Blog.
  • “Patterson Atty Gained Secrets Through Ruse, Doc Says,” reports Law360. According to the article, the attorney approached a Pennsylvania physician to advise him and then extracted information from the inventor of surgical stapling technologies in order to give a client a leg up in licensing negotiations.
  • “Cease and Desist Letters Enjoy an Absolute Privilege from Libel Claims,” advises Kara Maciel for Epstein Becker’s Trade Secrets & Non-Compete Blog.
  • “MGA’s Trade Secrets Claim On Brink In Bratz Case,” reports Law360, as MGA fights upstream to revive its trade secrets claim.
  • “Restaurant Industry Giant Landry’s Sues Former Employee & Rival Restaurant Company,” advises Jonathan Pollard in the non-compete blog.
  • “Many U.S. Businesses in China Cite Data Theft,” reports Carlos Tejada for The Wall Street Journal’s Corruption Currents Blog. According to the survey, 26% of companies with a presence in China have had their trade secrets stolen and 40% see the risks rising.
  • “How New Trade Secret Legislation Impacts Pharma Compliance Programs,” reports Fish & Richardson’s Jose Sierra for the Pharmaceutical Compliance Monitor.
  • “Practice Tip: Don’t Call Your Liquidated Damages Clause a ‘Penalty In the Contract,” cautions Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • For the litigators: “Sanctions For Deleted Facebook Give Employers A Boost,” reports Law360. Epstein Becker has a post about the case as well.

Cybersecurity Posts and Articles:

  • In The Wall Street Journal’s “Weekend Interview” entitled, “Why China is Reading Your Email,” cyber expert Timothy Thomas believes the recent cyber attacks are part of a military strategy and that an offensive strategy may be needed.
  • “Cyberattacks Seem Meant to Destroy, Not Just Disrupt,” notes Nicole Petlroth for The New York Times Bits Blog.
  • “New Hacking Study Shows What Good Guys Are Up Against,” advises The Wall Street Journal’s Digits Blog.

Computer Fraud and Abuse Act Posts and Cases:

  • “Aaron Swartz’s Prosecutors Were Threatened and Hacked, DOJ Says,” reports David Kravets for Wired.
  • “Is the Computer Fraud and Abuse Act a Failed Experiment?” asks Brian Bialas in Foley & Hoag’s Massachusetts Noncompete Law Blog, in a rejoinder to Eric Goldman’s post on the CFAA last week.

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • Add Illinois to the list of states considering legislation over their non-compete laws, as Kenneth Vanko advises in “A Brief Commentary on Illinois’ Proposed Noncompete Agreement Act” in his Legal Developments in Non-Competition Agreements Blog. Ken reports that, unlike the legislation in Minnesota, Michigan and Massachusetts which seeks to scale back or limit non-competes, the proposed legislation would tend to benefit employers.
  • “Schwab Says Ex-Advisers Diverted $47M In Accounts To Rival,” reports Law360.  Epstein Becker’s Peter Altieri has a post about the dispute as well.
  • “DuPont Trade-Secret Prosecutors Add Charges Against Liew,” reports Bloomberg.
  • “Recent Non-Compete Case Highlights Pennsylvania’s ‘Worthless Employee Doctrine’ advises Jonathan Pollard for the non-compete blog. This poorly-named doctrine holds that an employer cannot enforce a non-compete against an employee that it just terminated for poor performance.
  • The Unintellectual Property Blog has a post about a recent software trade secret dispute in Delaware against Cisco. In ExpertUniverse v. Cisco, the court applied the California Uniform Trade Secret Act and dismissed ExpertUniverse’s claims because it failed to adequately describe its trade secrets and demonstrate misappropriation.
  • “Want to avoid a prosecution under the Economic Espionage Act? You might want to consult “Economic Espionage Act: Seven Tips to Close a Fast-Growing Compliance Gap” by Lauren M. Papenhausen and Benjamin Franklin of McDermott, Will & Emery, LLP for Bloomberg Law.
  • Looking for a primer on forensic computer examinations?  Then check out “Nuts and Bolts for Terms Commonly Used in Trade Secret Computer Forensic Investigations” by Jonathan Karchmer for Seyfarth Shaw’s Trading Secrets Blog.
  • “It takes a village to protect trade secrets,” advises Naomi Fine of Pro-Tech for Forbes.
  • “Protecting Your Closely Held Business,” recommends Peter Vilmos for Burr & Forman’s Trade Secrets Non-Compete Blog.
  • In “Trade Secrets for Sale,” Douglas Alexander proposes a robust and aggressive trade secret protection program for EBN.
  • In “A Little-Publicized Change in Patent Law on Secret Prior Art,” Paul F. Prestia details changes in the America Invents Act that may permit an inventor to preserve an invention as a trade secret indefinitely for Corporate Counsel.  For more on this issue of the newly revised section §102(a)(1), see my post last fall.

Cybersecurity Posts and Articles:

  • Lots of articles on the Obama Administration upping its calls for China to address the reported cybersecurity attacks.  The New York Times is reporting that “Cyberattacks Prominent in Obama Call With New Chinese President.” Also check out “U.S. Demands That China End Hacking and Set Cyber Rules,” also by The Times, and “Obama Aide Demands China Stop Hacking” by The Wall Street Journal.  The Journal also had an op-ed piece this week by John Wohlsetter entitled “Chinese ‘Hackers’ Is a Misnomer. They’re Spies.”  Finally, Todd Sullivan provides his thoughts and takes the Administration to task for taking so long to single out China.
  • “How to avoid being hacked: Strong passwords and other security tips” recommends Anick Jasdenun for SiliconValley.com

Computer Fraud and Abuse Act Posts and Cases:

  • Looking for an update of recent CFAA cases? Then check out Shaw E. Tuma’s excellent summary here.
  • “When leaving your job, make sure you do this if you really want to violate the Computer Fraud and Abuse Act!”, another fine post by Shawn Tuma.