Yesterday afternoon, as expected, the Federal Trade Commission (FTC) announced its Final Rule banning noncompetes throughout the United States during an open hearing available to the public. The FTC’s Final Rule is more measured than the proposed rule announced on January 5, 2023 in several key respects–most notably, (1) nonsolicitation agreements are not prohibited, with some caveats explained below and (2) nondisclosure agreements (NDAs) seem to be on somewhat better footing, as the FTC has abandoned its proposed de facto noncompete test, also with some caveats below. Not unexpectedly, the vote broke down along party lines, 3-2, with the Democratic commissioners voting in favor and the Republican commissioners voting against it. The Final Rule is not yet effective, and the U.S. Chamber of Commerce has already filed a lawsuit challenging it today. Many commentators (including yours truly) believe the Final Rule will not survive that litigation. And while it is an inherently political rule, it does provide some lifelines for employers eager to protect their trade secrets and customer relationships. Here are my preliminary thoughts on what employers and employees need to know.

Continue Reading The FTC’s Final Rule Banning Noncompetes: It could have been a lot worse

On Thursday, March 21, 2024, I will be speaking at the Defense Research Institute’s 2024 Business and Intellectual Property Litigation Super Conference on a panel, “Tips from the Trenches: Litigating and Trying Trade Secret Cases as a Plaintiff and Defendant, What Every Business Needs to Know,” with Ben Fink of Berman, Fink, Van Horn P.C. and Mark Klapow of Crowell & Moring LLP. Here is a description of the program:

“Trade secrets are increasingly becoming the preferred protection for intellectual property. As a result, trade secret disputes and verdicts have dominated the news, as juries have awarded $2B to Appian Corp., $65M against Goodyear Tire & Rubber, and $105 million against Ford Motor Company, only to see some of those verdicts reduced or eliminated by the courts. These big verdicts and the challenges in upholding them, signal a potentially significant shift away from how trade secret cases have been traditionally litigated, as employers have previously relied on injunctions to prevent employees and others from taking their trade secrets. This presentation will address the importance of trade secret litigation in protecting your IP, the potential paradigm shifts in trade secret litigation, and guide trade secret owners and their lawyers in adapting to these changes.”

You can register for this CLE here.  The conference starts at 2:30 p.m. today. Ben, Mark and I speak tomorrow at 11:30 a.m. and we hope you can join us.

In a post last year, I proposed a solution for a recurring problem in trade secret litigation–namely, the situation where a former employee takes information but quickly regrets their conduct and looks for a way to resolve the dispute. As readers will recall, I proposed a “safe harbor” that would allow that former employee to provide disclosures and an injunction to address their former employer’s legitimate concerns. After my post, several colleagues, including my friends and fellow trade secret travelers Russell Beck and Mark Klapow, noted a potential dilemma for a trade secret owner. They suggested that I should consider a similar protection for plaintiffs whose suspicions about trade secret misappropriation never fully materialize or who face litigation costs that outstrip that litigation’s utility. To afford protection to those trade secret owners, this post proposes an “off ramp” procedure early in a trade secret dispute that would hopefully alleviate those situations.

Continue Reading Another Idea for Improving the Defend Trade Secrets Act: Providing an “Off Ramp” to the Plaintiff Who Wants to Avoid a Costly Litigation

On Thursday, March 14, 2024 and Friday, March 15, 2024, I will be speaking at the AIPLA 2024 Trade Secret Summit on three panels. The Trade Secret Summit has become one of the premiere trade secret law events, with thought leaders and trade secret experts meeting to debate and discuss key developments in trade secret law. Applied Materials has graciously agreed to host this year’s Summit at its Santa Clara, California headquarters.

On Thursday, March 14 at 10:15 a.m., I am going to be moderating a panel with Neal Weinrich of Berman Fink Van Horn, Barry Brown of Applied Materials and Leigh Ann Buziak of Blank Rome LLP entitled “Protecting Trade Secrets in a World with No Noncompetes – Non-Disclosure, Return of Information and IP Assignment Provisions.” Then at 11:15 a.m., I will be speaking with Jim Pooley and Russell Beck of Beck Reed Riden on a roundtable discussion of “Potential Changes and Improvements to the DTSA.” Finally, on Friday, March 15 at 9:30 a.m., I will be joining David Almeling of O’Melveny and Mindy Morton of Procopio for a panel on “Equitable Remedies in Trade Secret Litigation: Injunctions, Disgorgement and Royalties.”

You can register for this CLE here.  The conference starts at 8:30 a.m. and I hope you can join us.

On Wednesday, March 6, 2024, I will be speaking at the State Bar of Georgia ICLE – Restrictive Covenants and Trade Secrets CLE on a panel entitled “The Assault on Noncompetes: Update on FTC, NLRB and State Efforts to Ban or Curtail the Use of Noncompetes.” I am going to be presenting with Rachel P. Steely of Foley & Lardner LLP’s Houston office, Ben Fink of Berman Fink & Van Horn PC in Atlanta and Eric Wostroff of Meland Budwick in Miami.

You can join remotely and register for this CLE here.  The conference starts at 8:30 a.m. and our panel will start at 2:50 p.m. ET on Wednesday.  Hope you can join me.

On Tuesday, January 30, 2024, I will be giving a one-hour Webinar/CLE for the Ohio State Bar Association (OSBA) entitled “Trade Secret and Restrictive Covenant Law Year in Review.”

As readers of this blog know, the number of trade secret and restrictive cases continues to grow each year. As a result, trade secret disputes and verdicts have dominated the news, as juries have awarded $2 billion to Appian Corp., $65 million against Goodyear Tire & Rubber, and $105 million against Ford Motor Company, only to see some of those verdicts reduced or eliminated by the courts. At the same time, federal and state legislators, as well as the Federal Trade Commission, are aggressively moving to curtail the use of restrictive covenants and non-disclosure agreements. In this seminar, I’ll give an update on these and other important legal and legislative developments, as well as practical tips for employers and businesses to minimize their risk and protect themselves in the event of litigation.

You can register for this CLE here.  It starts at 1 p.m. ET on Tuesday.  Hope you can join me.

On January 1, 2024, California officially began exporting its ban on noncompetes, nonsolicits, broad confidentiality agreements, and likely no-recruits to the rest of the country.

As Russell Beck has written, in September and October, California passed two laws that together will: (1) expand the scope of California’s ban on employee noncompetes and other restrictive covenants; (2) export California’s law to void contracts between non-California residents signed outside of California; (3) require companies to provide notice to their employees and certain former employees that their noncompetes are void; and (4) impose penalties for violations. According to the legislation, “California’s public policy against restraint of trade law trumps other state laws . . . .” 

In this episode, JohnBen, and Russell discuss California’s new laws, what the laws purport to do, and what companies can do to limit the impact of the new laws.

Listen to us on Spotify or Apple Podcasts. Or, if you’re just looking for the feed, it’s here: Fairly Competing RSS feed.

And if you’re interested in hearing more on this legislation, here is a link to a brainstorming session on the new laws with over 40 of the leading trade secret / restrictive covenant / employee mobility lawyers from around the country: Responding to California’s New, Expanded, Anti Restrictive Covenant Laws.

Preparing for California’s newly expanded noncompete ban and anti-restrictive covenant laws
(Episode 23)

A recent scandal unites two of my favorite passions: college football and trade secret litigation. As most sports fans are aware, the University of Michigan’s polarizing head coach Jim Harbaugh was suspended last Friday by the Big Ten Conference as part of a disciplinary action against Michigan for improperly recording and stealing signs in violation of the conference’s Sportsmanship Policy. The scandal unfolded quickly as the NCAA announced it was investigating Michigan’s football team on October 20, and then metastasized as The Washington Post and The Wall Street Journal began to cover it. Michigan has a splendid football team this year and one of the strongest teams in college football. But from my vantage point, Michigan’s administration has put that potential championship season at risk by mishandling its response to the scandal and provoking a confrontation with the Big Ten’s Commissioner, Tony Petitti. As explained below, Michigan’s mistakes provide a case study for parties accused of stealing another’s trade secrets on how to avoid the hard lessons that Michigan is absorbing now.

Continue Reading Five Lessons Trade Secret Defendants Can Learn from the Michigan Sign-Stealing Scandal

A debate is growing within the trade secret community about the scope of information that should be protected–specifically, confidential information that does not rise to the level of a trade secret. This debate is largely between employers and their counsel who want to have every available tool to protect all of their information, and those who believe existing trade secret law provides adequate protection and therefore, information that doesn’t meet that standard isn’t worthy of protection (hence, the derogatory moniker “mere confidential information”). On October 12, 2023, in Hanneman Family Funeral Home & Crematorium v. Orians, the Ohio Supreme Court addressed this issue as well as another noteworthy issue–whether customer information shared with the government can qualify as a trade secret. But as a concurring opinion by Justice Patrick Fischer persuasively argues, the Supreme Court passed up on an opportunity to squarely decide the issue of whether “mere confidential information” should be preempted (and therefore not protectable), a ruling that would be in line with the majority of other states holding the UTSA prohibits claims seeking protection for information that doesn’t rise to the level of a trade secret.

Continue Reading Ohio’s Supreme Court Ducks the Question of Whether “Mere Confidential Information” Is Protectable

Another busy month, lots of developments in high-profile trade secrets cases, the latest on the FTC’s proposed noncompete ban, and trade secret identification continues to bedevil the federal bench:

Noteworthy Defend Trade Secret Act and other federal decisions, articles and posts:

  • The mammoth jury verdict against Goodyear Tire & Rubber has been set aside. Readers will recall that punitive damages accounted for $62.1 million of the $65 million award, which I predicted would result in a remittitur reducing them under Ohio law. However, U.S. District Court Judge Sara Lioi of the U.S. District Court for the Northern District of Ohio went a step further and set aside the entire jury verdict, reasoning that CODA Development had not sufficiently identified its trade secrets or that the information did not qualify as a trade secret. (Her opinion can be found at CODA Dev. v. Goodyear Tire & Rubber Co.) Frankly, this was a stunning ruling, as Judge Lioi could have directed out these claims at trial and avoided the verdicts altogether, or she could have granted Goodyear’s motion for summary judgment on the same grounds last year. In her ruling, Judge Lioi defended her decision to dismiss the claims now, noting that she had expressed concern about the claims at trial and reserved the right to dismiss them later. Unfortunately, Judge Lioi’s ruling may encourage defendants to repeatedly challenge identification at every stage of the litigation and trial.
  • Other federal courts are requiring the identification of trade secrets with greater particularity at different junctures of litigation, as they grapple with whether the information before them deserves protection. In Dental Services v. Miller, a Seattle federal court denied a request for temporary restraining order, finding that the plaintiff had failed to provide “sufficient detail to establish a trade secret.” And in United Source One, Inc. v. Frank, the U.S. District Court for the District of Maryland denied a motion for a default judgment because the plaintiff failed to sufficiently describe two of the four trade secrets at issue in that case.
  • Plaintiffs frequently insist that there should be a presumption of irreparable harm when they are seeking an injunction. Not surprisingly, both the U.S. Courts of Appeal for the Second Circuit and the Fifth Circuit have recently rejected those requests. In JTH Tax, LLC d/b/a Liberty Tax Service v. Agnant, the Second Circuit rejected a franchisor’s argument that a stipulation of irreparable harm in its franchise agreement created that presumption; see Davis Gilbert’s Neal Klausner’s post on that ruling. And in Direct Biologics L.L.C. v. McQueen, the Fifth Circuit held that courts applying Texas law can decline to apply a presumption of irreparable injury when there is no independent proof of harm. The Fifth Circuit affirmed the district court’s rejection of that presumption, holding that not only did the employer fail to produce any evidence that the former employee disclosed or used its confidential information but that the evidence in fact showed the exact opposite (question: what good is a presumption if you have to also show proof?). For more on that opinion, see McDermott Will & Emery’s Alexander Piala’s post for Lexology and Eron Reid’s post for Seyfarth Shaw’s Trading Secrets Blog.
  • A mistrial was declared in another high-profile trade secret case pending in the U.S. District Court for the Northern District of California after the jury acknowledged it was deadlocked over the claims before it. In that case, Masimo Corp. is seeking $1.8 billion in damages against Apple, as well as co-ownership of 5 Apple pulse oximetry patents that Masimo said use its technology. The case has already generated a number of noteworthy opinions, including one addressing the issue of separating an employee’s general skill and knowledge from trade secret information.
  • Questions over ownership of key trade secrets can derail a request for an injunction, as a plaintiff is learning in a New Jersey federal court. In JRM Construction Management, Inc. v. Plescia, the defendant was able to sufficiently dispute whether the trade secrets in question–Excel templates used to estimate and prepare final budgets for client project bids–were created by another company in the late 1990s. The defendants also challenged the confidentiality of the information because it was shared with customers who didn’t sign NDAs. Given these disputes over the central issues in the lawsuit, District Court Judge Evelyn Padin held that an injunction was premature and that “robust discovery” was needed.
  • Late to discover that a former employee may have used your trade secrets in a patent application? Then you should check out Robins Kaplan’s Sharon Roberg-Perez’s article for IAM analyzing a recent decision by the U.S. District Court for Delaware. In Illumina Inc v Guardant Health, et al., the court found the former employer Illumina had presented sufficient evidence of fraudulent concealment to toll the statute of limitations. The court found that there was evidence that former employees had taken steps to conceal their activities with regard to their new company Guardant, including anonymously incorporating the company when they were still Illumina employees. Moreover, according to Sharon, Guardant had removed the names of one of Illumina’s former employees from the applications prior to their issuance as patents.
  • Delaying your request for a preliminary injunction for 6 months because of discovery disputes can undermine the urgency of your request and claim of irreparable injury, at least according the U.S. District Court for the Middle District of Florida. In Partners Insight, LLC v. Gill, Judge Sheri Polster Chappel found this delay, coupled with waiting for 5 months to file the lawsuit, doomed the plaintiff’s request for an injunction.
  • A challenge to an NDA on the grounds that it was facially overbroad was rejected as premature by Judge Pamela Barker of the U.S. District Court for the Northern District of Ohio. In AB Pratt & Co. v. Bridgeport Group, LLC, Judge Barker rejected a motion to dismiss the NDA and other claims, reasoning that any analysis of the scope and breadth of the NDA would involve a factually-intensive inquiry inappropriate at the motion to dismiss stage.
  • Looking for a primer on DTSA caselaw in the U.S. Court of Appeals for the Third Circuit? Then check out Houston Harbaugh’s Henry Sneath’s post for JDSupra.
Continue Reading Monthly Wrap Up (May 12, 2023): Noteworthy Trade Secret and Restrictive Covenant Decisions, Posts and Articles