2013 promises to be an interesting year. Here are three major developments that I expect in trade secrets law, cybersecurity and non-competition law:
1. On The Trade Secrets Front, A Federal Trade Secret Civil Remedy Will Finally Be Enacted.
I believe that there is sufficient momentum building from (a) the recent Theft of Trade Secrets Clarification Act, an amendment to the Economic Espionage Act (EEA), and (b) growing concern over international misappropriation to get a proposed federal statute over the hump.
Last year may have been a watershed year for getting a federal civil trade secret law. As I wrote earlier this month, a national consensus emerged that the trade secrets and confidential information of American companies have been at risk or compromised from international powers and companies. The bipartisan and prompt action to address the flawed ruling in U.S. v. Aleynikov bears that out. In a year where our political parties and branches of government seemed unable to agree on many issues, they were able to agree on fixing this statute.
The Protecting American Trade Secrets and Innovation Act (PATSIA) was introduced last July but has been mired in committee since its introduction, perhaps because it lacks a Republican Senator to co-sponsor it. PATSIA would amend the EEA to include a civil remedy primarily to address international trade secret cases. The main legal obstacle to its passage is concern over the ability of a trade secret claimant to secure an ex parte seizure order for product incorporating the misappropriated trade secrets and/or to preserve evidence. As I have written before, this provision could be abused and needs to be narrowed to only cover situations involving international misappropriation. If that can be done, we will hopefully see its passage this year.
2. Cybersecurity Litigation In 2013 Will Begin To Define A Standard of Care.
2012 was the year that many companies discovered the severity of the threat posed by cybertheft and hacking. 2013 is the year the proverbial chickens come home to roost, as courts wrestle with the inevitable cases filed by individuals and companies damaged by these cyber-breaches. Given the obvious inability to pursue and collect against cybercriminals and hackers, those damaged will look to the companies that either housed their data or money.
Last year, the U.S. Court of Appeals for the First Circuit reversed a ruling in favor of a bank that had allowed improper transfers of over $500,000 to cybercriminals, essentially finding the bank had failed to properly secure the account of one of its small business customers. In Patco Construction v. People’s United Bank, the First Circuit rejected the bank’s claim that it behaved in a commercially reasonable manner in authenticating the transactions under the Uniform Commercial Code. Expect more cases like this one.
In fact, this year, expect more litigation to ensue against not only financial institutions but companies that have been tasked with implementing, designing or managing security for the accounts in question. Of course, many may be able to rely on contractual limitations, but there will ultimately be a few cases where a court is unwilling to impose those limitations and instead looks to shape a duty. In short, a legal environment is evolving where all businesses will be subject to a duty to provide reasonable security for the data they house and the systems they design or operate. Given the number of incidents last year, there will be litigation this year establishing what that duty is.
3. Expect More Non-Compete Disputes in the Healthcare Industry.
There are three reasons that I think this will be one of the most watched developments in the non-compete area.
First, as the Affordable Care Act comes into effect, expect greater uncertainty and shake outs within the healthcare community. Major changes in the law inevitably lead to litigation and the healthcare industry will be no different, as hospitals and healthcare providers jockey to keep what they have or entice physician practice groups to join them. These movements in the marketplace will of course lead to a greater number of healthcare disputes, which will invariably lead to disputes over restrictive covenants that are part of existing agreements.
Second, this will be exacerbated by the increasing shortage of physicians. The industry’s recognition of this shrinking pool may contribute to greater aggressiveness by healthcare providers, hospitals and others to litigate over these physician relationships.
Finally, don’t expect the federal and state governments to sit idly by while these issues percolate. Consider the dispute between Renown Healthcare and the Federal Trade Commission over Renown’s efforts to use its non-competes against 10 cardiologists in Reno, Nevada; Renown eventually relented after the FTC raised concerns about it having nearly 88% of the market share for cardiologists in that area. The need to service rural or under-served communities, and the political tensions resulting from that need, will cause federal and state agencies to be more willing to insert themselves into these disputes.
Last year, we witnessed an uptick in non-compete cases involving physicians and other healthcare professionals. That trend should continue and increase in 2013.