Given the ubiquity of thumb-drives and use of personal devices for work, it should come as no surprise that former employees frequently download and even retain their former employer’s sensitive information on their personal devices. A Symantec study in 2013 found that ½ of the employees surveyed admitted to keeping confidential corporate data from their previous employer and 40% planned to use it in their new jobs. However, is the fact that an employee downloaded confidential information, standing alone, enough to trigger a lawsuit and possibly an injunction? A recent case out of the U.S. District Court for the Southern District of New York, AUA Private Equity Partners, LLC v. Soto, Case No. 1:17-cv-8035 (April 5, 2018), held downloading and refusing to return confidential information was enough to give rise to a claim under the Defend Trade Secrets Act (DTSA) (for more on that case, see William Brian London’s post for Fisher & Phillips’ Non-Compete and Trade Secrets Blog). As for the other question — whether a court will be willing to enter an injunction based on downloading — the answer is less clear.
As you will see, I have changed the format of my monthly wrap up post in two ways. First, I am going to start including links to noteworthy decisions that I come across or are forwarded to me. Unfortunately, since neither I nor other bloggers writing in this space can cover everything, this will be a useful feature for those practicing in this area. Second, I am going to provide more commentary on some posts and cases, in the hope of creating further dialogue on many trade secret and non-compete issues. Given the hot button nature of some of these issues, I am going to share my thoughts, for whatever they are worth. Now, on to posts and links from the last month:
- Last week, Democratic Senators Elizabeth Warren, Chris Murphy and Ron Wyden announced their intention to introduce the Workers Mobility Act (WMA) that would abolish non-competes throughout the United States. As many of you will recall, Senator Murphy previously introduced a similar bill, the Mobility and Opportunity for Vulnerability Employees Act (MOVE) but that bill stalled on the Senate floor. Russell Beck has a post with a link to the House and Senate bills, along with his well-reasoned concerns about the breadth and scope of the bills.
- A blog post about legislation over non-competes wouldn’t be complete if there wasn’t some mention of some activity in Massachusetts. Key features of the latest bill under serious consideration would limit non-competes to 12 months (unless the employee stole trade secrets or breached his fiduciary duty) and finally adopt the UTSA. For more details, see Russell Beck’s post in his Fair Competition Blog.
- Idaho (repealing its recent changes in 2016) and Utah (restricting their use against broadcasters) have recently amended their statutes addressing restrictive covenants. See Russell Beck again.
- Colorado has modified its law affecting physician non-competes, carving out protections for physicians treating patients with rare genetic disorders to eliminate any interruption of care for those patients. Peter Greene summarizes the changes in Epstein Becker’s Trade Secrets & Employee Mobility Blog.
The 10-year legal brawl between Goldman Sachs and its former programmer Sergey Aleynikov has spilled over into multiple courts — a federal conviction that was overturned, another conviction by a New York state jury still on appeal today, and finally, the fight in two different courts over payment of his defense fees. While the prosecutions have garnered considerable media attention, the civil litigation over Aleynikov’s demand for advancement of his $10 million in legal fees from Goldman is the most relevant for civil litigators. Why? An order granting advancement, which requires the employer to pay for the former employee’s attorneys fees, can fundamentally alter the course of a trade secret litigation. Last week, the U.S. District Court for New Jersey rejected Aleynikov’s claims for advancement, declining to essentially reconsider a Delaware court’s ruling that Aleynikov had failed to demonstrate that he qualified for advancement under Goldman’s bylaws. As I explain below, the ruling is an important reminder for both employers and employees in trade secret disputes of the power of advancement claims, and the determined resistance an employee may face if he or she pursues that claim.
Continue Reading How Sergey Aleynikov’s 10 Year Legal Battle Highlights The Pros and Cons of Advancement Claims in Trade Secret Disputes
Employers who want to hire from a competitor frequently have to contend with the potential fallout from the new employee’s non-compete. Any misstep in that hiring process can easily lead to costly and time-consuming litigation. If an employer wants to go forward with that hire but try to minimize its risk of litigation, one popular approach is to implement affirmative steps safeguarding the prior employer’s trade secrets and avoiding solicitation of the former employer’s customers (see my previous posts on how that strategy has been used successfully by Hewlett Packard and Google in other cases). However, there is another more unconventional approach: paying an employee to sit out the duration of her non-compete (what is known as a “garden leave”) and indemnifying that employee from a future lawsuit so long as she abides by her non-compete. This approach was successfully implemented in a recent dispute in the highly competitive and apparently lucrative e-discovery market. The case, Document Technologies, Inc. v. LDiscovery, LLC, 17-2659-cv (2nd Circuit April 24, 2018), offers a nice case study on the use of indemnity provisions to defuse allegations of breach and provides a roadmap for employers who may have the pocket book to support this approach.
Continue Reading A Well-Drafted Indemnity And Garden Leave Thwart A Non-Compete In New York
The issue of trade secret identification, on its face, seems like an elementary and uncontroversial one. In concept, every trade secret plaintiff should be expected to identify the trade secrets in the lawsuit it brings. After all, the plaintiff knows best what it considers to be a trade secret and what it doesn’t consider to be a trade secret, and the defendant shouldn’t be left to guess what those trade secrets might be. For these and other reasons, California, a key bellwether state for trade secret law, has long required by statute that a party claiming trade secret misappropriation identify those trade secrets with specificity before being permitted to conduct discovery relating to its trade secret claim. However, nothing tests the limits of common sense like the realities of litigation, and plaintiffs in California have complained that this procedure has been misused by defendants to frustrate or derail otherwise meritorious trade secret cases. Perhaps for these reasons, courts outside California remain divided over the so-called California rule as several recent rulings have demonstrated. Continue Reading Are Other States Following California’s Lead On Trade Secret Identification?
Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:
- Massachusetts is once again contemplating multiple bills regarding non-competes as well as a possible adoption of what appears to be the DTSA advises Russell Beck in his Fair Competition Blog. Russell and his team also have summaries of legislative activity in Maryland, Maine, Michigan, New York, Oregon, Pennsylvania, Washington and West Virginia, among others.
One of the most hotly contested disputes in the Waymo v. Uber trade secrets lawsuit has centered around the disclosure of a forensic consultant’s due diligence report that Uber commissioned after learning that its former star engineer, Anthony Levandowski, had taken confidential files from his former employer Waymo. Uber and Levandowski had vigorously resisted the production of the report but the court order directing its production was recently affirmed by the U.S. Court of Appeals for the Federal Circuit. That due diligence report, which was prepared by the reputable forensics firm Stroz Friedberg, has now been made public. As I discuss below, the report is a jarring document and it has information that may be damaging to both sides. However, its most significant contribution to the lawsuit may be the fact that Uber’s own consultant (Stroz Friedberg) was providing multiple red flags to Uber that it was going to pay $680 million to someone that Stroz Friedberg suspected had lied, destroyed key documents and orchestrated efforts with other former Waymo employees to frustrate its investigation. Waymo is not unscathed by the report either, as it is evident that substantial amounts of highly confidential information made its way out the door, calling into question the safeguards Waymo had in place to protect trade secrets it is now valuing at over $1.8 billion. A copy of the due diligence report can be found here.
I am honored to be presenting the Year in Review for Trade Secrets Law at the plenary session of the American Intellectual Property Law Association’s 2017 Annual Meeting this Saturday, October 21, 2017 at 9 a.m. at the Marriott Wardman Park Hotel in Washington, D.C.
I will be covering significant trade secret developments from the past year, including a discussion of key rulings in the Waymo v. Uber Technologies case, developments under the Defend Trade Secrets Act (DTSA), including recent cases addressing the ex parte seizure order, whistleblower protection and restrictions on injunctions involving employment. I hope to also cover the recent American Bar Association Ethics Opinion reinforcing lawyers’ obligations to protect trade secrets, as well as other noteworthy rulings and opinions.
Registration for the Annual Meeting can be found here. Hope you can join us.
I am very excited to announce that I have been invited to speak on trade secret issues for the 27th All Ohio Annual Institute on Intellectual Property in Cincinnati and Cleveland this week. For those in Kentucky, Ohio and Indiana who may be interested in attending, I will be providing a presentation entitled “What Driverless Cars, Solar Panels and Tapping Robots Can Teach Us About Trade Secrets Law” this Wednesday, September 13, 2017 in Cincinnati and Thursday, September 14, 2017 in Cleveland.
The All Ohio Institute is sponsored by the Cincinnati Bar Association and Cleveland Intellectual Property Law Association, with the cooperation of the Cincinnati Intellectual Property Law Association and the Dayton Intellectual Property Law Association. The Cincinnati presentation will begin at 8:30 a.m. at the Northern Kentucky Convention Center, 1 West River Center Blvd., Covington, Kentucky. The Cleveland presentation will also start at 8:30 a.m. and will be held at the Marriott Downtown at Key Center, 127 Public Square, Cleveland, Ohio.
I will be covering noteworthy developments under the Defend Trade Secrets Act (DTSA), including the forces that led to its enactment, its legislative history, the DTSA’s key provisions, and recent cases involving the DTSA’s ex parte seizure order, whistleblower provision and injunctions involving employment, as well as its interplay with Ohio’s state trade secrets law. I will also cover some of the other big developments in trade secrets law, including the Waymo v. Uber case, the recent American Bar Association opinion reinforcing lawyers’ obligations to protect trade secrets, and other noteworthy rulings and opinions.
Registration for the presentation can be found here. Hope you can join us for what should be a very interesting seminar.
Here are the noteworthy trade secret, restrictive covenant and cybersecurity posts from the month of August (warning, there are a lot):
Defend Trade Secrets Act
- Munger Tolles’ Miriam Kim, Carolyn Hoecker Luedtke and Laura Smolowe have put together another fine summary of the trends they are tracking under the Defend Trade Secrets Act. There are several interesting findings in the summary. For example, state courts and state law remain the preferred forum and substantive law for trade secrets claimants, at least at this time. According to the summary, while 378 DTSA cases have been filed in federal and state courts, more than 515 complaints with trade secret claims have been filed with no DTSA claims in federal and state courts throughout the U.S. I have to admit that I was surprised by this finding, as I expected that litigants would be eager to secure a federal forum using the DTSA. I suspect that most of those state law cases involve restrictive covenants and that the plaintiffs are more comfortable with a local judge enforcing a non-compete or want to avoid entanglements arising from the DTSA’s limitations on injunctions. Or it might be that they simply want to go with the law they know best, which would be the more developed state trade secret law regime. In any event, a very interesting finding.
- One of the more recent (and unexpected) developments under the DTSA has been the number of motions to dismiss challenging DTSA claims. Olga May has a post for Fish & Richardson’s Litigation Blog detailing those decisions on those motions, which range from challenges to the specificity of the trade secrets pleaded to whether the complaint comports with the standards under Twombly and Iqbal.
- For an update on the modest number of ex parte seizure order filings under the DTSA, see Michael Renuad of Mintz Levn’s article in the National Law Journal.