And away we go:
Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:
- If an employer presents specific evidence that former employees emailed, printed out or took copies of customer lists, is that sufficient evidence to establish that those former employees misappropriated those trade secrets for purposes of defeating summary judgment? In Busey Bank v. Michael G. Turnery, et al., U.S. District Court for the Northern District of Illinois Judge Sara Ellis concluded that it was not enough since “mere possession of trade secrets does not suffice to plausibly allege disclosure or use of those trade secrets, even when considered in conjunction with solicitations of former clients.” A link to the opinion can be found here, and Law360′s article on the case can be found here. The opinion is interesting to me in two respects: (1) it is consistent with an emerging trend requiring direct, rather than circumstantial, proof of misappropriation (see my earlier post on the Wisk Aero v. Archer Aviation case and on other federal cases finding that mere downloading isn’t enough for an injunction); and (2) reading between the lines, it seemed like Judge Ellis saw this case as an employee “raiding case” masquerading as a trade secrets case.
- Although most trade secret disputes arise in the employer/employee relationship, a recent opinion by the U.S. Court of Appeals for the Second Circuit serves as a reminder that the contours of trade secret law are often shaped by disputes in the public records context. In a post for Crowell’s Government Contracts Legal Forum, John McCarthy, Anuj Vohra and Daniel Wolff describe the decision that better defined what degree of competitive harm needs to be presented to support a trade secret invocation under the 2016 FOIA Improvement Act.
- Discovery disputes are common in trade secret litigation because of the nature of information at issue (i.e., highly sensitive trade secrets) and the potential intrusiveness of some of the types of discovery (imaging and forensic analysis of personal devices). However, a defendant’s continued resistance and non-compliance with discovery requests and court orders led to the rarest of sanctions–a default on the merits. In RedWolf Energy Trading, LLC v. BIA Capital Management, LLC, et al., the U.S. District Court for the District of Massachusetts imposed this sanction against the individual defendant and his company. Erik Weibust details the court’s 72-page decision for Epstein Becker’s Trade Secrets & Employee Mobility Blog. Erik’s post highlights the fact that the defendant tried to save costs on a discovery vendor (blaming him for its failure) and is now on the hook for more than $10 million in damages.
- And the U.S. District Court of Massachusetts is not the only court that has issued terminating sanctions against a party for failing to abide by discovery obligations and court orders. For a comprehensive list of spoliation cases involving requests for severe sanctions, check out Arent Fox’s Linda Jackson, Matthew Prewitt, Taniel Anderson, Nadia Patel and Pascal Naples’ article for The National Law Journal describing multiple cases over the past 3 years in which courts have imposed severe sanctions on recalcitrant parties.
- Speaking of discovery disputes, there is an interesting decision coming out of the Wisk Aero v. Archer Aviation case in the U.S. District Court for the Northern District of California (for more on that case and its well-reasoned decision denying a preliminary injunction, see my post from last year). U.S. District Court Judge Orrick affirmed the ruling of Magistrate Judge Donna Ryu that permitted the individual defendants accused of trade secret theft in that case to review the trade secrets at issue; frankly, given the need for a defendant to evaluate the trade secret claims against it, it never fails to amaze me that employers and trade secret owners resist these types of disclosures. However, the most interesting feature of the Magistrate’s order is that each defendant was only allowed to view the trade secret for 15 minutes. Jim Pooley briefly touches on this dispute in a post he wrote for The IP Watchdog as he describes the many situations where courts have to balance competing policies and interests in trade secret litigation.
- Steve Brachman has a post for the IP Watchdog on the viability of an argument that the DTSA’s policy supporting federal protection for trade secrets trumps a forum selection clause directing litigation to Denmark. In Amyndas Pharmaceuticals, S.A. v. New Zealand Pharma AS, the U.S. Court of Appeals for the First Circuit rejected that and other arguments and shipped the case out to a Danish court. The First Circuit made short work of the argument that the terms “defendants’ venue” meant anything other than the corporate headquarters of that defendant, reasoning any other interpretation would render the phrase meaningless. Dennis Crouch also has a post on the decision for the Patently-O blog.
Noteworthy State Law Decisions on Restrictive Covenants and Trade Secrets:
- Fairfax Circuit Court Judge Richard E. Gardiner has awarded $23 million in attorneys’ fees and entered final judgment for the Virginia jury verdict that awarded Appian Corp. over $2 billion in damages against Pegasystems, a Massachusetts software company accused of willfully misappropriating Appian’s trade secrets. According to Law360, Appian alleged that Pegasystems “engaged in an unlawful campaign of corporate espionage”, relying on at least one employee of a government contractor working with Appian as a “spy” to get copies of Appian’s confidential software and documents.
- With the advent of remote work, it was inevitable that the geographical scope of a noncompete would be challenged by a former employee who worked remotely. In an article for Law360, Archer Law’s Brian Gargano, Nicole McDonough and Daniel DiFiglio analyze Onward Search LLC v. Noble, a July 2022 decision by the U.S. District Court for the District of Connecticut. The court rejected the employer’s expansive definition of places of employment covered by the restrictive covenants at issue, and confined the restrictive covenant’s radii to the employer’s actual offices, and not the home location of the former employee.
- New employers are frequently sued in restrictive covenant cases under the theory that they tortiously interfered with the former employee’s restrictive covenant by hiring them to compete. However, it looks like the Georgia Court of Appeals may have made that a tougher claim to assert, at least in Georgia. Ben Fink writes about a recent decision, Parnell v. Sherman & Hemstreet, Inc., 2022 WL 2070942 (Ga. App. June 9, 2022), which reversed a court’s order denying a motion to dismiss brought by the former employer, a competing real estate brokerage firm. According to Ben, the Court of Appeals found that the new employer was not a “stranger” to the business relationship and therefore it had a legitimate business interest in having the former employee solicit the customers at issue.
- Eli Lilly was able to use Indiana’s preemption doctrine to secure the dismissal of unjust enrichment, fraud and deceptive trade practices act claims brought against it by an app developer, SensorRX. In his opinion, U.S. District Court Judge Robert Conrad held that these claims arose out of allegations of misappropriation that should have been asserted under Indiana’s Uniform Trade Secrets Act and that they were therefore barred under the preemption doctrine.
Restrictive Covenant Legislative Activity:
- House Representative Mike Garcia (D-CA) recently introduced legislation entitled the Restoring Workers’ Rights Act of 2022 that would ban non-competes against employees who are not exempt under the Federal Labor and Standards Act (FLSA). Russell Beck was the first to describe the proposed legislation in his Fair Competition Blog. According to Russell’s post, the legislation would not only ban non-compete but would also prohibit the use of non-solicitation agreements and other restrictive covenants, including NDAs that seek to protect confidential information that does not qualify as a trade secret. Marcus Mintz, Michael Wexler and Jeremy Cohen also have a post on the legislation for Seyfarth Shaw’s Trading Secrets Blog.
- I promised myself that I wouldn’t write anything further on the District of Columbia’s efforts to ban non-competes but since Congress approved the legislation on September 21, the effective date of the statute (October 1) is now upon us. For those who want an executive summary of that legislation, check out Russell Beck’s post in his Fair Competition Law Blog.
China and Trade Secret Protection:
- In a post in The China Law Blog entitled “The Chinese Government is Coming for Your Company Secrets,” Dan Harris details the levers that the Chinse Communist Party (CCP) may be using to put pressure on Chinese expatriates working in the United States, including threats to their family members in China. This would mark a serious escalation of the CCP’s tactics to secure the trade secrets of military and technology firms.
- Bloomberg‘s Jordan Robertson and Drake Bennett’s article, “China Wanted GE’s Secrets, But the US Got China’s Instead,” is a great read about the investigation and prosecution of Arthur Gau and Xu Janjung in Cincinnati for allegedly misappropriating General Electric’s trade secrets for the CCP.
The Latest on the FTC and Restrictive Covenants:
- The FTC has announced a five-year strategic plan that includes a focus on noncompetes, as reported by Erik Weibust for Epstein Becker’s Trade Secrets & Employee Mobility Blog.
Computer Fraud & Abuse Act:
- There is an interesting case out of the U.S. District Court of Maryland, Infotek Corporation v. Preston, that addresses the level of proof needed to establish damages under the Computer Fraud & Abuse Act (CFAA). The cases arises from a former employee’s unauthorized snooping of the billing practices of his former employer, Infotek, that in turn led to the indictment of Infotek’s president. U.S. District Court Judge Catherine Blake denied Infotek’s motion for summary judgment, reasoning that she was not going to “rubberstamp” Infotek’s investigation expenses and that there remained questions about whether those expenses were reasonably necessary.