12312011Today’s post features Nos. 4 through 6 of the Top Ten Trade Secret and Non-Compete Decisions of 2011. They are:

6. IBM v. Visentin (U.S. District Court for the Southern District of New York and U.S. Court Appeals for the Second Circuit) and Aspect Software v. Barnett (U.S. District Court for Massachusetts)
These two cases presented the same issue — to what extent should a non-compete be enforced when the new employer and former employee have put safeguards in place to protect the plaintiff’s trade secrets and customer relationships. Both of these cases provide a fine example of what a company should do if it wants to hire an employee with a non-compete but minimize potential entanglements with the former employer (see my previous blog post on the Aspect Software case  where the former employee and new employer incorporated 8 steps to safeguard the plaintiff’s interests).
However, taken together, these two cases also reinforce another feature of non-compete and trade secret cases — their unpredictability.  In Visentin, the Southern District of New York (and later, the Second Circuit) found that the former employee and the new employer (HP) had acted reasonably to protect the business interests of the former employer (IBM) and that the non-compete should not be enforced to prevent the employee’s new job with HP.  In contrast, in Aspect Software, although the district court commended the former employee and his new employer, Avaya, for “the scrupulous steps” they took to safeguard the plaintiff’s trade secrets and customer relationships, it still enforced the non-compete because of concerns that the employee would inevitably use his former employer’s trade secrets.  

As increased employee mobility and a poor economy continue into 2012, look for more cases like Visentin and Aspect Software.  Courts will be forced to balance the interests of all parties and still protect the legitimate interests of the former employer.  These cases may have a profound impact on the viability of the inevitable disclosure doctrine, the traditional counterweight to an employee’s assurances about his or her good faith efforts to protect the former employer’s trade secrets.

5. Mattel v. MGA (U.S. District Court for the Southern District of California, Los Angeles)
Will it ever end? 

When I first started putting this list together, I thought about using movie titles to highlight the key qualities of each case.  When it came to selecting a title for this bitter case, plenty came to mind — “There Will Be Blood” and “Drag Me to Hell” certainly would have captured it nicely.  However, the most fitting title is probably “Reversal of Fortune” as this epic lawsuit, at least in its most recent round, has swung decisively in favor of MGA.

If you are reading this post, you are likely familiar with the history of this dispute which began in 2003, when Mattel first sued MGA for stealing the idea for the pouty-lipped Bratz Line through a former Mattel employee.  In 2008, Mattel won a $100 million jury verdict, only to see that judgment reversed by the Ninth Circuit.  Then, in April 2011, MGA prevailed during the second jury trial, not only persuading the jury to reject Mattel’s claims but also to award MGA $83 million on its trade secret counterclaims.  That award swelled to $310 million when the district court imposed exemplary damages and attorneys fees in post-trial proceedings.
What will the next ruling bring?  No one really knows, as the trade secret version of Jarndyce and Jarndyce continues to work its way through California’s federal courts.

4. U.S. v. Nosal (U.S. Court of Appeals for the Ninth Circuit)
The scope of the Computer Fraud and Abuse Act (CFAA) continues to beguile litigants and courts alike, and no CFAA case raised more eyebrows in 2011 than the Ninth Circuit’s decision in U.S. v. Nosal, 642 F.3d 781 (9th Cir. Apr. 28, 2011). In Nosal, the Ninth Circuit held that the violation of a computer use policy that placed “clear and conspicuous restrictions on the employees’ access” to the employer’s computer system and the specific data at issue could be enough to qualify as conduct that exceeded authorized access, a necesssary element of a CFAA claim. 

Given this taffy-like definition of the critical “accessed without authorization” requirement, Nosal‘s holding has been applied broadly in other contexts. For example, in September, the Northern District of California applied Nosal‘s reasoning to online agreements in a civil dispute between commercial parties.  In Facebook v. MaxBounty, Case No. CV-10-4712-JF (N.D. Cal, Sept. 14, 2011), that district court found that a violation of Facebook’s terms of use could qualify as access without authorization under the CFAA.
Nosal has generated more critical commentary than any other CFAA case in recent memory. While it was initially welcomed by many in the trade secret community because it would bolster employers’ protections under the CFAA, libertarian groups such as the Electronic Frontier Foundation argued that Nosal could criminalize the very acts outlined above as violations of broadly written Terms of Service.
Perhaps as a result of this uproar, the Ninth Circuit indicated on October 27, 2011 that it would rehear Nosal en banc and advised district courts that Nosal was not to be used as precedent in the meantime.  Oral argument was heard on December 15, 2011 and even those reading the tea leaves left in the wake of that argument are having difficulty divining what the Ninth Circuit will do.

We will reveal our top three cases next week, so please stay tuned. In the meantime, have a safe and happy new year.