As many of you know from my post last week, the Federal Trade Commission (FTC) just proposed a ban on noncompetes with virtually no exceptions. And, the FTC has also placed nondisclosure agreements (NDAs) in its crosshairs.

No one knows this area better than Russell, and I mean no one, so please join Ben and me as we get Russell’s insights and take a look at the FTC’s proposed ban, the lead up to its announcement, what the proposed ban would do and when, the potential practical and legal problems with the proposed ban, the opportunity to provide comments to the FTC about it, what employers should do in the interim to protect their trade secrets and customer goodwill, and predictions on where this all goes.

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

December was unusually busy and 2023 started with a bang courtesy of the Federal Trade Commission’s (FTC) proposed rule banning noncompetes.  Here are the noteworthy cases and posts from last month, with several notable posts regarding the FTC’s big announcement on Thursday, for good measure:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Courts continue to scrutinize claims of irreparable injury in trade secret cases, and no court runs a tighter ship than the U.S. District Court for the Southern District of New York.  In Tomgal LLC v. Castano, District Court Judge John Koeltl of the U.S. District Court for the Southern District of New York denied an injunction request, reasoning that irreparable injury did not exist because any injury arising from the misappropriated trade secrets could be easily calculated.  Judge Koeltl found “every unit of inventory that [defendant] Fashion Code sells to a Robin Ruth distributor is a sale that Robin Ruth did not make,” i.e., profits from the sale of the products containing the misappropriated trade secrets could be easily monetized. Judge Koeltl also rapped the plaintiff’s knuckles on laches grounds, finding that a 7-month delay was substantial and unreasonable.
  • If you don’t identify your trade secrets with particularity, you are not going to get an injunction.  That is the simple message that many federal courts are sending to trade secret owners, and a recent decision by District Court Judge Nugent of the U.S. District Court for the Northern District of Ohio is the latest. To date, most of the discussion regarding trade secret identification has been at the discovery stage but now courts are reinforcing that message by denying early requests for an injunction. In Collar Jobs, LLC v. Slocum, Judge Nugent denied the request for an injunction against a former joint venture partner, expressing concern that “it is not entirely clear what Collar Jobs’ ‘trade secret’ is.”   He also questioned the novelty of the alleged “platform” trade secret before him, which appeared to be a combination trade secret of customer and prospect data.
  • So Judge Nugent’s opinion begs the following question: should the DTSA be amended to include a requirement that trade secret identification is provided early in a case?  In an article for Law360, Willenken LLP’s Amelia Sargent details recent rulings by the U.S. Courts of Appeal for the Seventh Circuit and Ninth Circuit recognizing the need for identification and advocates for that amendment.  It’s a good read and Amelia’s points are reasonable and sound.
  • A recent decision out of Massachusetts cuts against the trend of decisions broadly interpreting the extraterritorial reach of the DTSA.  In Sysco Machinery Corp. v. Cymtek Solutions, Inc., District Court Judge Leo Sorokin of the U.S. District Court for Massachusetts ruled the sale of products in the U.S. that were made using the alleged trade secrets, without more, did not qualify as “an act in furtherance” of misappropriation under the DTSA.  According to Judge Sorokin, the defendant Cymtek used the misappropriated trade secrets improperly to make competing machines in Taiwan, but all of that conduct occurred in Taiwan or outside the United States; as a result, on this record, he found that there was neither “misappropriation” in the United States nor an “act in furtherance of the offense . . . committed in the United States” as required under §1837(2) of the DTSA.  Contrast this ruling to the decisions described in my September 2021 post.  Tough to reconcile in my judgment.

Continue Reading Monthly Wrap Up (January 9, 2023): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

Earlier today, the Federal Trade Commission announced it has issued a proposed rule banning noncompetes. This development should come as no surprise since President Biden issued an executive order in July 2021 authorizing the FTC and other agencies to investigate the unfair use of noncompetes and other restrictive covenants and curtail their use. I expect that most of the commentary will focus on noncompetes and the ability of the FTC to effectively legislate over a body of law reserved for the states for over a hundred years. However, what should be of particular concern to the trade secret community is that the proposed FTC rule also potentially targets nondisclosure agreements (NDAs) that are “written so broadly” as to amount to “de facto noncompetes.” In other words, employers in California, Oklahoma and North Dakota–states that forbid noncompetes–may find that their employee NDAs could qualify as de facto noncompetes under the FTC’s new rule. As explained below, this post briefly describes how we got here, what the proposed rule addresses, and suggests some actions employers can take to protect themselves in the meantime.

Continue Reading It’s Official: The Federal Trade Commission Seeks to Ban Noncompetes and Overly “Broad” NDAs

2022 was a momentous year in trade secret and restrictive covenant law. Join BenRussell and me as we take a look back on some of the more significant developments in trade secret and restrictive covenant law from the past year and what we are expecting in the coming year. We discuss recent criminal prosecutions for use of no-poach agreements, legislative changes to state noncompete and nonsolicitation laws, federal regulatory and legislative efforts to limit or ban noncompetes, eye-popping trade secret damage awards, and developing trends in the way trade secret cases are being handled and tried.

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

Part I of this post explored the increasing number of trade secret cases being presented to juries for damages, rather than to a judge for an injunction. This development appears to have accelerated in the past 6 months, as juries awarded $2 billion in a verdict for Appian Corp., a $65 million verdict against Goodyear Tire & Rubber Company, and a $105 million verdict against Ford Motor Company. Part II (below) describes the many forces that I believe are contributing to this shift, as well as the impact this development will have on trade secret owners, small companies, large companies and lawyers whose practices focus on trade secret cases.

Continue Reading The Changing Shape of Trade Secret Trials: An Increasing Shift to Juries and What that Means for Trade Secret Owners and their Lawyers (Part II)

There is a subtle but important shift that is taking place in the way that many trade secret cases are being litigated and going to trial.  In the not-too-distant past, the vast majority of trade secret owners focused primarily on getting an injunction–generally in the form of a TRO or preliminary injunction–against a former employee.  However, some trade secret owners are increasingly pursuing a different path–namely, a claim for damages–usually against a large partner, vendor, customer or competitor with substantially deeper pockets.  Because these claims for damages are generally determined by a jury, unlike an injunction which is decided by a judge, this development presents a potentially seismic shift in how some trade secret cases are litigated.  As I explain below, several of these cases have resulted in substantial verdicts in recent months and they more closely resemble the path taken in many patent damages cases.  This post analyzes this development, offers some theories on why these changes are now taking place, and provides some thoughts on what clients and lawyers long accustomed to seeking injunctions need to do to adapt to these changes. Continue Reading The Changing Shape of Trade Secret Trials: An Increasing Shift to Juries and What that Means for Trade Secret Owners and their Lawyers (Part I)

On Wednesday, December 21, 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. 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 Wednesday.  Hope you can join me.

I had a trial this month, so I was delayed in my wrap up of noteworthy developments from November.  Here they are:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Who would have thought a case about broccoli seeds could sprout so many interesting legal issues?  Certainly not me.  But the U.S. Court of Appeals for the Sixth Circuit just issued an opinion in Caudill Seed & Warehouse Co. v. Jarrow Formulas, Inc., that is, to quote the jurist Robert Bork, a veritable “intellectual feast” of trade secret issues.  In the culmination of a nearly-decade long dispute, the Sixth Circuit affirmed the verdict and several rulings by the district court about the viability of trade secrets arising from the collective research for those broccoli seeds.  The opinion is worth reading for several reasons.  In particular, the opinion provides guidance on what needs to be shown to assert a combination trade secret, which is a trade secret composed of multiple publicly available elements.  The Sixth Circuit held that because a combination trade secret has those publicly available elements, the trade secret owner must make an additional showing that the combination trade secret is unique, a requirement normally not imposed on other trade secrets.  The opinion is also noteworthy for its analysis of what needs to be shown for misappropriation of a combination trade secret as well for its analysis of the damages related to the defendant’s saved costs in connection with the research and development of those broccoli seeds.  For other takes on the Sixth Circuit’s opinion, check out Anthony Ferrara’s post for McDermott Will & Emery’s trade secrets section for its IP Update Blog and Siena Sylvester’s post for Sheppard Mullin’s Trade Secrets Law Blog.
  • And while we’re on the topic of an opinion covering multiple interesting trade secret issues, the U.S. District Court for the Central District of California has issued a highly factual decision that addresses, among other things, the intersection of a researcher’s general skill and knowledge and his former employer’s confidential research information. In Masimo Corp. v. True Wearables, Inc., Judge James Selna issued an injunction restraining the former researcher and his current company from using trade secrets arising from pulse oximetry, which involves measuring oxygen in the blood.  The opinion addresses a range of tricky issues such as the use of trade secrets from memory, the concept of independent development and a good discussion of the affirmative defense of what is readily ascertainable under California law, but I found Judge Selna’s application of the “person of ordinary skill in the art” test to differentiate the former employee’s general skill and knowledge to be particularly important.  Courts have grappled with tests to distinguish an employee’s general skill and knowledge from an employer’s trade secrets, and so far as I can tell, this is the first time that a court has used this objective test from the patent world to separate the two categories of information.
  • IBM scored a major victory in a dispute brought by a Chinese venture capital partner against one of IBM’s Chinese affiliates, securing the dismissal of a complaint for failure to state a claim for relief and lack of personal jurisdiction grounds.  In a post for The IP Watchdog, Alex Pronk summarizes the ruling in Beijing Neu Cloud Oriental System Tech. Co., Ltd. v. International Business Machines Corporation, in which U.S. District Court for the Southern District of New York Judge Alvin Hellerstein found that (a) the plaintiff had failed to adequately identify the trade secrets at issue (confidential customer information), and (b) that the information was “available through public and independent sources”, reasoning “it is implausible that [IBM] would not be able to identify potential users of IBM technology without [Beijing Neu Cloud] having identified some of them.”
  • Would you like insurance coverage for your trade secrets case?  Then you should review the U.S. Court of Appeals for the First Circuit’s opinion in Lionbridge Tech., LLC v. Valley Forge Ins. Co., which held that a trade secret claim that allegedly caused reputational damage to the plaintiff triggered defamation coverage for what were otherwise traditional trade secret claims.  Hannah Cohen details the opinion for the Trade Secrets section of McDermott Will & Emery’s IP Update Blog.
  • Here’s a head-scratcher out of California dismissing a statute of limitations defense.  In Pinkerton Tobacco v. Kretek Int’l, the defendant Kretek produced evidence that plaintiff knew in 2016 that Kretek was importing and selling a competing device that included the trade secrets, knew that another party (Ericsson) was involved in the manufacture of that device, and suspected that Ericsson was using the trade secrets to manufacture the device that he had sold to the plaintiff. As a result, Kretek moved for summary judgment, arguing the plaintiff’s claim was barred by the three-year statute of limitations because the plaintiff knew that the device was manufactured using its trade secrets. The U.S. District Court for the Central District of California, however, denied the motion, reasoning that the defendant had only shown that the plaintiff had knowledge that the product was manufactured using misappropriated trade secrets, as opposed to demonstrating that the defendant had the requisite knowledge of the trade secrets themselves.  Mark Klapow and Ryan Fitzgerald have a post for Crowell’s Trade Secret Trends Blog on this curious decision.
  • Wrestling with what you need to plead to ensure that your DTSA claim satisfies the interstate commerce requirement?  Then check out U.S. District Court for the Northern District of Ohio Judge Bridget Brennan’s opinion in Health Care Facilities Partners, LLC v. Diamond, which lays out the particulars required to satisfy that pleading requirement.

Continue Reading Monthly Wrap Up (December 15, 2022): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

Bailey Cavalieri is a proud sponsor of this year’s American Intellectual Property Law Association (AIPLA) 2022 Trade Secrets Summit, taking place December 8-9 in Miami, Florida.

I will be leading a panel discussion on “The Changing Shape of Trade Secret Trials: What You Need to Know to Prepare and Try Today’s Trade Secret Cases,” on Thursday, December 8 at 11:00 AM (ET) with Nicole Galli of ND Galli Law LLC, Benesch’s Scott Humphrey, and jury consultant DecisionQuest’s Ann Greeley, Ph.D. and Michael Biek, Ph.D.

I’ll also be facilitating a panel discussion on “Exploring the Contours of What is a Trade Secret: A deep dive on confidential information vs. trade secrets, employee’s general skill and knowledge vs. an employer’s trade secrets, and their role in the enforcement of restrictive covenants” on Friday, December 9 at 11:15 AM (ET) with Procopio’s Mindy Morton, Russell Beck and Cozen O’Connor’s Jim Gale.

For more information about the 2022 AIPLA Trade Secret Law Summit and to register, please click here.  Hope you can join us!

While there was minimal legislative actively last month, there were a number of interesting decisions and articles on the trade secret and restrictive covenant front:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Perhaps the biggest news last month was the $104.65 million verdict against Ford Motor Co. delivered by a Michigan federal jury for the breach of its contract with Versata Software and the misappropriation of Versata’s trade secrets.   The dispute arose over a 2004 agreement between Versata and Ford for software that Versata developed to manage how components in Ford vehicles would be configured during assembly.  Versata had been a vendor of Ford’s since the 1990’s until 2015 when Ford terminated the relationship.  The jury found that after off-ramping Versata, Ford improperly reverse engineered the software for its own use.  The jury awarded $22.39 million to Versata for three of the software trade secrets and $82.26 million for Ford’s breach of contract.  Ford plans to appeal.  Like the Goodyear case that I recently wrote about, this dispute highlights the fact that trade secret cases don’t just involve departing employees.
  • Speaking of cases involving employees, Patently O‘s Dennis Crouch did an informal survey of 10 recently filed federal trade secret cases.  Dennis noted that all 10 of the cases involved employer/employee disputes and many arose in the sales representative context over customer and sales information.  One of the cases, Cartiga, LLC v. Robles, provides a textbook example of how NOT to respond to a cease-and-desist letter from your former employer’s lawyer (the emojis below were attached as an exhibit to the complaint):
  • Having prevailed before the U.S. Court of Appeals for the Eleventh Circuit, Boeing successfully secured the dismissal of trade secrets claims asserted against it by arguing that a limitation of liability provision in its nondisclosure agreement (NDA) also applied to the same trade secret claims.  Reasoning that because the NDA’s choice of law provision applied to those trade secret claims, the U.S. District Court for the Northern District of Alabama held that the NDA’s limitation of liability provision applied to those claims as well.  That opinion, Alabama Aircraft Indus., Inc. v. The Boeing Company, can be found here.
  • The U.S. Court of Appeals for the Third Circuit issued yet another opinion taking a narrow approach to a trade secrets claim, affirming the trial court’s decision to deny an injunction against a group of employees.  In Matthews Int’l Corp. v. Lombardi, the Third Circuit found that the trial court properly exercised its discretion to limit injunctive relief to a single bad actor and not impose a broader injunction against the remaining individual defendants preventing them from otherwise lawfully competing.  The other individuals had already agreed, as memorialized by a subsequent order, to (1) return all of the plaintiff’s information, (2) remove the information from their devices, and (3) refrain from servicing customers who had the plaintiff’s cremation equipment.  The Third Circuit reasoned that no injunction was necessary for multiple reasons, including the absence or expiration of any restrictive covenants, the absence of any breach and the plaintiff’s inability to show irreparable injury.  Isaiah Weedn has a good summary of the case in Sheppard Mullin’s Trade Secrets Law Blog.
  • Federal courts continue to grapple with the importance of circumstantial evidence to demonstrate misappropriation at the summary judgment stage.  Last month, I wrote about a decision out of the U.S. District Court for the Northern District of Illinois holding mere possession of a trade secret was insufficient to show use.  However, in Clean Energy v. Trillium Transportation Fuels, Inc., Magistrate Peter Bray of the U.S. District Court for the Southern District of Texas held that “proof of ‘use’ often depends upon circumstantial evidence” and found that the circumstantial evidence presented to him was sufficient to deny the defendants’ motion for summary judgment.  The cases probably can be reconciled by the fact that there was more circumstantial evidence to offer in the Clean Energy case, but the decisions do highlight a schism on the significance of direct vs. circumstantial evidence.
  • Federal courts are also split on the availability of the inevitable disclosure doctrine under the DTSA, according to Mintz’s Oliver Ennis, Nicholas Armington and Adam Samansky in an article for The National Law Journal.
  • One of the signature developments of the DTSA has been the mind-numbing number of opinions addressing motions to dismiss under Federal Rule of Civil Procedure 12(b)(6).  Fisher & Phillips’ David Walton provides a five-step action plan for making sure your bases are covered if you are filing a claim under the DTSA.  Maxwell Goss also has an earlier post this year on the same topic that was published by The Michigan Law Journal.
  • Is there a circuit split on the enforceability of forum selection clauses?  Given the many differences between state laws on restrictive covenants, a forum selection clause can be outcome determinative.  Sarah Tisher of Beck Reed Riden has a post about that split and the prospects that the U.S. Supreme Court may address it.
  • The avoided cost theory of damages continues to gain traction as an element of damages in trade secret cases, advises Andrea Feathers for Sheppard Mullins Trade Secrets Law Blog.  In essence, the doctrine recognizes the cost savings that a misappropriator realizes when it is able to shortcut the research or development of a product or service by using that trade secret.  Heather writes about a recent decision of the U.S. District Court for the Southern District of California in Medimpact Healthcare Sys. v. IQVIA Inc., No. 19cv1865-GPC(DEB), 2022 U.S. Dist. LEXIS 186470, at *1 (S.D. Cal. Oct. 7, 2022), that recognized the availability of the doctrine but deferred ruling on how best to calculate those damages in further briefing.  Heather’s post provides a solid summary of the development of this theory of damages and the key decisions that have led to its increasing recognition and use by trade secret owners.

Continue Reading Monthly Wrap Up (November 11, 2022): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts