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.
Defend Trade Secrets Act Cases and Posts
- There has been very little authority construing the whistleblower immunity provision that caused so much consternation for employers. A recent case out of U.S. District Court for the Eastern District of Pennsylvania, Christian v. Lannett Co., Inc., E.D. Pa. Case No. 16-963, appears to be the first enforcing the whistleblower immunity. The case began as an employment discrimination case; when the employer learned that the plaintiff had taken documents in support of her claims, it sued her under the DTSA. Holding that “Plaintiff’s alleged disclosure was made to Plaintiff’s counsel pursuant to a discovery Order of this Court, within the context of a lawsuit regarding violations of Title VII, the ADA, and the FMLA,” the court granted summary judgment and dismissed the DTSA claim. As Eric Ostroff notes in his Protecting Trade Secrets Blog, “a strict application of that provision would seem to exclude the plaintiff from its protection, since the disclosure was not “solely for the purpose of reporting or investigating a suspected violation of law.”
- Federal courts have been more than willing to entertain motions to dismiss in DTSA cases on a variety of different grounds (more about that later). However, in AUA Private Equity Partners, LLC v. Soto, the U.S. District Court for the Southern District of New York denied a motion that contended that mere acquisition was insufficient for the element of misappropriation. William Brian London has more on the case in Fisher & Phillips Non-Compete & Trade Secrets Blog.
- The House Judiciary Committee held a hearing earlier this month on the progress and future of the DTSA. Jim Pooley and David Almeling were invited to testify. The focus of the hearing was 28 U.S.C. §1782, which contains a potential loophole allowing one-way discovery by potential foreign plaintiffs that may be used to secure confidential information of American companies; Jim Pooley has a post in his website that summarizes his concerns about that provision.
Noteworthy Trade Secret Cases and Posts
- Those in New York will be interested in a recent decision from the Court of Appeals holding that the “avoided costs” damages theory is not available to trade secret plaintiffs under New York law. The case, TydenBrooks v. Cambridge Security, arose from a certification request from the U.S. Court of Appeals for the Second Circuit. Writing for the majority in a 4-3 decision, Judge Paul Feinman said that compensatory damages for plaintiffs in trade secret cases must be based on the how much the plaintiff loses, not on a competitor’s avoided development costs, which he said tend to be “hypothetical.” For more on the case, see Andrew Denney’s article summarizing the case for The New York Law Journal.
- Unclean hands is a common defense in trade secret cases, owing to the equitable nature of the remedies involved and the fact that they are grounded in business ethics. In his Patently O Blog, Dennis Crouch posts about an unusual decision by the Federal Circuit, Gilead Sciences v. Merck, affirming the use of the defense to negate a $200 million verdict in a patent case.
- Courts are still figuring out the scope of preemption under Texas’ relatively new version of the UTSA. In Steves and Sons, Inc. v. Jeld-Wen, Inc., the U.S. District Court for Virginia, applying Texas law, opted for a broader interpretation when it dismissed an intentional interference claim for confidential information because it arose out of the very same conduct.
- The Federal Circuit vacated a $77 million verdict against Intersil Corp. in a trade secrets and patent case by Texas Advanced Optoelectronic Solutions Inc., ruling Eastern District of Texas jurors wrongly awarded Intersil’s profits to TAOS, something a jury cannot do in trade secrets cases.
- The North Carolina Supreme Court has issued a head-scratcher of a ruling in Krawiec v. Manly, upholding the dismissal of a complaint because the plaintiff did not identify its trade secrets in its complaint with sufficient specificity, according to a post by Parker Poe for JDSupra. The decision could present a plaintiff with the choice between risking its very trade secrets in a public filing or facing dismissal.
- The Tinder v. Bumble trade secret dispute is shaping up to be an interesting dispute. For those looking for more on the back story, The New York Times has a piece and Mona Amer and Harry Moren have the legal side covered in their post for Orrick’s Trade Secrets Watch Blog.
- Waymo’s arbitration against Anthony Levandowski started last week. It is pending before JAMS and while it is supposed to be confidential, Bloomberg has an update for those that are interested.
- And for those trade secret history buffs, Zachary Crockett details the Botched Coca Cola Heist of 2006 for The Hustle. The case involved the clumsy but nearly successful efforts of a secretary to sell several of Coca Cola’s trade secrets to Pepsi.
Noteworthy Non-Compete and Restrictive Covenant Cases and Posts
- Illinois professes to be a reformation state for non-competes. However, a recent post in Epstein Becker’s Trade Secrets & Employee Mobility Blog by Peter Steinmeyer details a recent decision in which the U.S. District Court for the Northern District of Illinois refused to modify a non-compete that would have prevented the employee from working in any position with a competitor. As Peter notes, if your non-compete would prevent a former employee from even serving as a janitor, it may be time to update that non-compete or risk having it rejected.
- It never fails to amaze that some employers don’t understand the legitimate business interests necessary to support a non-compete. In a recent decision out of Tennessee, Sugar Creek Carriages v. Black Hat Carriages, that court rejected an effort to justify a non-compete on the basis of specialized training that was provided to the former employee.
- In a choice of law dispute that determined whether a non-compete would be enforceable or not, the U.S. District Court of Colorado elected to apply Delaware law rather than Colorado law and enforced the non-compete in Executive Consulting Group v. Baggot.
- Can an employer be held to a less restrictive non-compete that it did not intend to present to an employee? The U.S. District Court for the Eastern District of Michigan says that it’s a question of fact for the jury to consider, writes Mark Vanneste for Howard & Howard’s H2 Non-Compete & Trade Secrets Law Blog.
- Ken Vanko points out the potential problems for Sinclair Broadcasting should it elect to enforce its non-compete in his Legal Developments in Non-Competition Agreements Blog.
- For those looking to enforce non-competes against employees in China, the litigation picture is as clear as mud writes Grace Yang in the China Law Blog.
Interesting Procedural Issues and Practical Tips
- Mike Weil of Orrick also submitted a piece for Law360 about whether anonymous posts of trade secrets should be entitled to First Amendment protection.
- Ben Fink has some practical tips for employers hiring an employee from a competitor in Berman Fink Van Horn’s Georgia Non-Compete and Trade Secrets Blog.
- For those following the Department of Justice’s investigation and possible prosecution of so-called “no poaching” agreements between employers, check out Timothy Haley, Ashley Laken and Gerald Maaman, Jr.’s post for Seyfarth Shaw’s Trading Secrets Blog and Clifford Atlas and Colin Thakkar’s post in Jackson Lewis’ Non-Compete and Trade Secrets Report Blog.
- CREATE.org has released its whitepaper ““Protecting Trade Secrets from Cyber and Other Threats: A 2018 edition of the CREATe Whitepaper – “Reasonable Steps” to Protect Trade Secrets.” Every employer should review and consider its recommendations.