Here are last month’s noteworthy cases, article and posts, as well as a few other cases that I didn’t have room for in last month’s wrap up post:
Noteworthy Defend Trade Secret Act and Other Federal Cases, Posts and Articles:
- Can an employee be prohibited from communicating with his/her new employer’s lawyers? If there is a risk that they might share details of other trade secret disputes, they can, at least according to the U.S. Court of Appeals for the Sixth Circuit. In Stryker Emp. Co., LLC v. Abbas, Case No. 22-1563 (6th Cir. Feb. 16, 2023) (Clay, Bush, JJ.; Sutton, C.J.), the Sixth Circuit affirmed an injunction enforcing, among other things, a provision limiting the employee, Abbas, from communicating with his employer’s (Alphatec) counsel. Stryker was involved in three other cases against Alphatec involving other former Stryker employees, and the Sixth Circuit found that Abbas “was privy to confidential information that if disclosed to Alphatec or Alphatec’s counsel, would detrimentally affect Stryker” in those other lawsuits. McDermott Will & Emery’s Tessa Kroll has a summary of the decision. I have to confess this decision seems extreme, given that a standard confidentiality order would achieve the narrow purpose sought–protection of confidential information involving a pending litigation–and the breadth of this ruling may unfairly impinge on the ability of counsel to engage in joint defense communications.
- The winner of this month’s Gladys Kravitz Award is EmergencyMD, LLC, an employer that couldn’t resist peering into the Gmail account of its former employee. That snooping led to a viable claim under the Stored Communications Act (SCA), ruled the U.S. Court of Appeals for the Fourth Circuit. In Carson v. EmergencyMD, LLCC, et al. the Fourth Circuit reversed the district court’s summary judgment dismissal of the former employee’s SCA claim, finding genuine issues of fact existed over whether the defendants’ accessing of the emails was unintentional and whether EmergencyMD’s policies authorized the defendants’ obtaining and disclosing their former employee’s emails.
- How much risk does a cannabis-loving employee truly pose to his employer’s trade secrets? Not very much, according to Judge Kenneth Bell of the U.S. District Court for the Western District of North Carolina in Microban Int’l Ltd. v. William Bartley Kennedy. The employee had been terminated for ingesting a marijuana gummy bear before an important meeting, and Judge Bell found the former employee’s “hollow threats” to share his employer’s confidential information uttered during severance negotiations were insufficient for an injunction.
- Illinois proudly claims the title of the Land of Lincoln. But it has another honor that it doesn’t boast about nearly as much. It is the birthplace of the infamous inevitable disclosure doctrine (see PepsiCo, Inc. v. Redmond), a doctrine much maligned by scholars and lawyers representing employees in trade secret cases. Fortunately, the doctrine may be close to expiring as a recent case, Petrochoice, LLC v. Amherdt, suggests. Judge Jorge Alonso of the U.S. District Court for the Northern District of Illinois rejected the former employer’s inevitable disclosure argument, ruling that the information the former employer was attempting to limit (the employee Amherdt’s “level” of performance of his “sales skills”) “is precisely the sort of sales acumen that employees are permitted to take with them.”
- When can a new employer be vicariously liable for its newly-hired employee’s alleged trade secret misappropriation? In Alert Enterprises, Inc. v. Rana, Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California dismissed claims by a former employer to include a competitor, SoloInsight, who hired a former employee who had downloaded over 2,600 of Alert Enterprises’ files and deleted other information to cover up those and other transfers. SoloInsight represented that none of those files had been uploaded to its system, which the plaintiff had to acknowledge in its complaint. On this record, Judge Scott Corley found there were no plausible claims of use or disclosure by SoloInsight and that it could not be vicariously liable for conduct that occurred before it hired that employee.
- Many of the decisions ordering early trade secret identification fail to provide guidance on how a plaintiff should identify those trade secrets with particularity. The reason for this is obvious: the descriptions themselves include allegedly proprietary information and therefore the key portions of the court’s analysis are frequently under seal. This reality means there aren’t many decisions to assist trade secret owners on what qualifies as a defensible identification. However, in Carlyle Interconnect Tech. Inc. v. Foresight Finishing LLC, the U.S. District Court for the District of Arizona provides that rare roadmap. In that case, Judge Steven Logan oversaw a discovery dispute over the identification of the plaintiff’s plating process trade secrets, providing a fine explanation of the factual context at issue, and ultimately holding that the plaintiff must “identify the steps in the process and explain how those steps make their method or process unique.”
- Consistent with the trend that I noted last month, federal courts continue to deny motions to dismiss trade secret claims but remain willing to narrow cases by getting rid of other tort claims. Check out the latest case, PRO MINERAL, LLC v. Marietta, Dist., where the U.S. District Court for the Northern District of Texas kept the trade secret and breach of contract claims but applied Texas’ preemption doctrine to dismiss claims for breach of fiduciary duty and civil conspiracy.
- It must be frustrating for trade secret owners seeking an injunction before courts bound by decisions issued by the U.S. Court of Appeals for the Second Circuit. Why you ask? The fact that they have to contend with the ill-conceived Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009) decision. For those unfamiliar with that opinion, the Second Circuit inexplicably ruled that irreparable injury did not exist in situations where a competitor was simply using trade secrets; the Second Circuit reasoned that the risk of further disclosure was not present because the misappropriating defendant and trade secret owner were both aligned on the issue of disclosure, and neither would therefore benefit from further disclosure. Of course, this rationale runs counter to a central tenet of ownership–namely, the owner’s right to exclude a competitor from using its IP. In Amimon, Inc. v. Shenzen Hollyland Tech Co. Ltd., et al., Judge Edgardo Ramos relied on Faiveley‘s holding and denied Amimon’s request for a preliminary injunction, ruling that it could recover money damages for the alleged misappropriation which was confined to the use of the trade secrets by defendants. It should be noted that Amimon did itself no favors, as its irreparable injury arguments were based on damage to its reputation and the threat that defendants might further share the trade secrets, neither of which were supported by sufficient facts.
Noteworthy State Trade Secret Cases, Decisions and Developments:
- Should confidential information that doesn’t rise to the level of trade secret status still be protectible? This question divides many thought leaders in the trade secret community. In a recent article for Reuters, Mark Halligan persuasively argues that protecting this category of confidential information “undermines the protection of trade secret assets and interferes with lawful and fair business competition.” I agree with Mark. Given the relatively low bar for what information can qualify as a trade secret, it is difficult to justify why anything else is deserving of confidentiality protection, notwithstanding what a broadly written agreement might claim.
- Electronic evidence is critical to demonstrating misappropriation, but by its nature, it’s easily disposed of, so issues of preservation and spoliation are frequently at issue in trade secret cases. Beck Reed Riden’s Jillian Carson and Puneet Dhaliwal have a thorough post on a recent decision by the Massachusetts Superior Court in JFF Cecilia v. Weiner Ventures LLC, et. al., that seems to have created more confusion than clarity on the standard for when that duty to preserve arises.
- Ever wonder why California’s version of the Uniform Trade Secrets Act (UTSA) does not require that a trade secret owner prove the information was not “readily ascertainable”? In his latest post for the IP Watchdog, Jim Pooley walks us through the messy legislative process in Sacramento that led to this element becoming an affirmative defense, as opposed to a definitional element of a trade secret, in California.
State and Federal Legislative Developments:
- 65 bills in 23 states seeking to ban or limit restrictive covenants. Four federal bills a-pending. And a partridge in a pear tree! With all of this legislative activity, Russell Beck’s summary begs the following question: is the FTC’s proposed ban even necessary?
The Latest on the FTC’s Proposed Ban on Noncompetes:
- Can two former U.S. Patent and Trademark Office Directors be wrong? Andrei Iancu (2018 to 2021 under President Trump) and David Kappos (2009 to 2013 under President Obama) argue for preserving noncompetes for high level executives. In an article for The Hill, the former Directors emphasize that noncompetes are “most common in well-paid, high-skill jobs, with some 80 percent of executives signing such clauses” and that “[a]t this senior level of employment, non-competes are essential for protecting trade secrets.”
- It was a sad day in the blogosphere when Ken Vanko hung up his spurs and said goodbye to his Legal Developments in Noncompetition Agreements blog in 2018. As a lawyer focused on representing employees in restrictive covenant cases, Ken’s perspective was important as a ballast in a community dominated by the employer side. Fortunately, Ken remains engaged, as a recent letter to the FTC shows. Like the posts in his blog, his analysis is sound, reasonable and to the point although employers won’t like it (teaser alert: Ken acknowledges the need for noncompetes in some situations but advocates that employers put their money where their mouths are).
- Regulators in Europe are watching the FTC’s efforts with interest, according to Anton Gerber in a post for Sheperd Mullins’ Antitrust Blog.
Section 337 Trade Secret Cases before the International Trade Commission:
- Trade secret owners with problems overseas should never forget the power of a § 337 action before the International Trade Commission (ITC). Covington’s Daniel Valencia and Cody Reeves detail a number of recent ITC rulings, including one involving a trade secret claim in their post for Lexology.
For the Litigators:
- Given the wide variation between state’s restrictive covenant laws, forum selection clause battles are common. A recent decision by the U.S. District Court for the Southern District of New York lays out the principles for the federal first-filed rule. In Tropic Tech., Inc. v. Vendr, Inc., Judge Lewis Liman provides a comprehensive analysis of that rule, which Judge Liman invoked to enjoin the prosecution of a second action filed in California.
- If you have a high-profile trade secrets case, expect media challenges to efforts to seal key pleadings. In Title Source, Inc., Reporters Committee for Freedom of the Press, and Houston Forward Times v. HouseCanary, Inc. f/k/a Canary Analytics, Inc., the San Antonio, Texas Appeals Court found that the plaintiff House Canary’s motion to seal was overly broad because it did not present or cite any testimony or evidence regarding whether the exhibits containing the alleged trade secrets could be redacted and failed to demonstrate that sealing the exhibits was “the least restrictive means to protect its asserted interest.” For more on the ruling, see Jackson Walker’s report here.
- Depositions are ground zero for lawyers behaving badly. Fortunately, the Maryland bar is not tolerating this type of conduct and it is suspending the license of a lawyer who obstructed a deposition, used profanity and directed witnesses not to answer. Thanks to Esquire Deposition Solutions for their post on this ruling.
Computer Fraud and Abuse Act Cases:
- The U.S. Supreme Court’s 2021 ruling in Van Buren v. United States seems to have significantly scaled back Computer Fraud and Abuse Act (CFAA) litigation. In one of the few CFAACCC Information Services, Inc. v. TracTable, Inc., Judge Robert Gettleman of the U.S. District Court for the Northern District of Illinois dismissed the CFAA claim in that case for failure to adequately allege recoverable damages, finding any assessment forming the basis of that claim must be related to the possibility of some type of technological damage.