The issue of trade secret identification, on its face, seems like an elementary and uncontroversial one. In concept, every trade secret plaintiff should be expected to identify the trade secrets in the lawsuit it brings. After all, the plaintiff knows best what it considers to be a trade secret and what it doesn’t consider to be a trade secret, and the defendant shouldn’t be left to guess what those trade secrets might be. For these and other reasons, California, a key bellwether state for trade secret law, has long required by statute that a party claiming trade secret misappropriation identify those trade secrets with specificity before being permitted to conduct discovery relating to its trade secret claim. However, nothing tests the limits of common sense like the realities of litigation, and plaintiffs in California have complained that this procedure has been misused by defendants to frustrate or derail otherwise meritorious trade secret cases. Perhaps for these reasons, courts outside California remain divided over the so-called California rule as several recent rulings have demonstrated. Continue Reading Are Other States Following California’s Lead On Trade Secret Identification?
Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:
- Massachusetts is once again contemplating multiple bills regarding non-competes as well as a possible adoption of what appears to be the DTSA advises Russell Beck in his Fair Competition Blog. Russell and his team also have summaries of legislative activity in Maryland, Maine, Michigan, New York, Oregon, Pennsylvania, Washington and West Virginia, among others.
Here are the noteworthy trade secret, restrictive covenant and cybersecurity posts from the past month or so:
The Defend Trade Secrets Act
- The U.S. District Court for the Eastern District of Texas has found that certain deer registry information qualified as a combination trade secret under the DTSA and Oklahoma’s version of the UTSA, as explained by Michael Weil and Tierra Piens for Orrick’s Trade Secrets Watch blog.
- The issue of whether the DTSA applies to misappropriation that may have taken place prior to the DTSA’s enactment has been one of the more frequent areas of litigation under the DTSA. Jonathan Shapiro of Epstein Becker has a summary on these cases for Law360.
Reports of the Trade Secret Litigator’s death have been greatly exaggerated and in fact, I was spotted on Tuesday at the American Intellectual Property Law Association’s Trade Secrets Summit in Washington, D.C. For those unable to attend, I thought a quick wrap up of the high points of the day’s excellent content would be helpful.
Seyfarth’s Robert Milligan, David Rikker of Raytheon, Mark Mermelstein of Orrick and Christian Scali of The Scali Firm started out the day addressing the dynamics of trade secret litigation, focusing on the key points in successfully managing the in-house/outside counsel relationship. The panel covered an awful lot of ground, but the high points included:
Cease and Desist Letters: The consensus seemed to be that they may be more trouble than they are worth. Each of the outside counsel panelists emphasized the importance of accuracy and timing, as there is always the risk that a client’s investigation may not be complete at the time of drafting the letter. However, the letters can achieve their initial desired effect as David Rikker says Raytheon takes them seriously.
Ex parte TROs: No surprise here, the panel agreed that they are rarely granted except for preservation orders where there are egregious facts giving rise to concerns over spoliation or destruction of evidence.
Special Dangers of Motions to Seal: Protective orders are no longer perfunctory and the panel reported that they are increasingly seeing defendants oppose motions to place trade secrets under seal as defendants use the protective order as an opportunity to lay out their objections to the bona fides of those trade secrets. Robert Milligan said they have almost become the equivalent of summary judgment disputes in California. Of course, the consequences of denial of a motion can be catastrophic so the panel emphasized the importance of making your record for an appeal to preserve your trade secrets.
Criminal Referral: Mark Mermelstein spoke about the advantages of initiating a criminal investigation as opposed to a civil claim. Those pros include the fact that the government can, among other things, use false identities to gather evidence from the potential defendant (civil lawyers are prohibited by the ethical rules from using those means), issue a 2703 order to secure the identities for an ISP address associated with misappropriation or cybertheft, and ultimately issue a search warrant if necessary. Mark also noted that the federal government also can rely on multi-lateral treaties to enlist the help of foreign law enforcement. Finally, Mark observed that a criminal proceeding can be the most effective way of collecting ill-gotten gains as the leverage of jail time may persuade potential defendants to repatriate those moneys.
Mark did identify several reasons why a company may not want to pursue a criminal option. The law of unintended consequences may reign, particularly as the client will ultimately lose control of any criminal investigation to the prosecutors or federal authorities. Fall out could also include damage to customer relationships, since some of those customers could be ensnared as witnesses or even targets. Finally, for publicly-held companies, depending on the scope of the breach and the resulting publicity, a public investigation and prosecution could affect share price or lead to shareholder litigation.
Best Practices for Keeping In-House Counsel Happy: David Rikker listed the following best practices for a healthy counsel relationship: clear and timely communication, helping in-house counsel get the business unit’s buy-in for any investigation or litigation, thorough early case assessment to help manage expectations, and, not surprisingly, no surprises! David emphasized the importance of an early case assessment that includes looking at the pros and cons of a prosecution or litigation. He acknowledged that in-house counsel appreciate that outside lawyers cannot anticipate every eventuality but a frank conversation of uncertainty is important, particularly for the business unit personnel.
On-Boarding: The issue of on-boarding is growing in importance as more companies are hiring people with restrictive covenants or trying to mitigate their risk from trade secret fall out. Robert put together a highly entertaining video of what companies should not do (that video, along with one addressing best practices for on-boarding is available on Youtube and I will provide a link in a future post). All of the outside lawyers emphasized the importance of getting the prospective employee’s written employment agreements as part of the hiring process. From the in-house perspective, David Rikker emphasized the need for a culture of ethics and responsibility — that a company has to make clear that it is not soliciting its competitors’ trade secrets when it hires new employees, and that after hiring, new employees need to understand that they have to keep those trade secrets out of the new employer’s environment.
Off-Boarding: As time was winding down, the panel did not have the opportunity to comprehensively address best practices in the departing employee context. David noted the need for clear rules on, among other things, thumb drive use, third party storage and use of DropBox. Above all, he emphasized the importance of a culture of responsibility.
I will follow up with another post summarizing the rest of the day’s discussions. The content and speakers were generally superb and a special shout out is warranted to Peter Torren of Weisbrod Matteis & Copley, Seth Hudson of Clements Bernard, Orrick’s Warrington Parker and Intel’s Janet Craycroft for their efforts in putting this together for the AIPLA’s Trade Secret Law Committee.
Trade Secret and Non-Compete Cases. Posts and Articles:
- The reaction from the trade secret community to the recently-released Obama IP Strategy Report has been one of disappointment. Expectations soared after the Obama administration announced its trade secrets initiative in February but the recent Report barely mentions trade secrets. In a post for Orrick’s Trade Secrets Watch, Michael Spillner notes the strategy’s need for a civil cause of action. Likewise, Misty Blair of Seyfarth Shaw’s Trading Secrets Blog observes the Report’s failure to address trade secret protection more comprehensively as “a bit of a surprise.”
- “Illinois Appellate Court Requires Two Years of Employment for Postemployment Restrictive Covenants” reports Stacey Smiricky and Trina Taylor of Faegre Baker & Daniels for Lexology. Epstein Becker’s Trade Secrets & Noncompete Blog and Seyfarth Shaw’s Trading Secrets Blog also have posts on the decision. And Kenneth Vanko unloads on the decision in his Legal Developments in Non-Competition Agreements Blog.
- In “Contractual Override of Trade Secret Law,” Dennis Crouch details a recent Federal Circuit decision in his Patently-O Blog affirming a New York federal court’s holding that a non-disclosure agreement’s requirement that confidential information be specifically designated trumped state trade secret law holding otherwise. As a result of the plaintiff’s failure to designate the information as “confidential” under the NDA, the court applied California law and held the information could not qualify as a trade secret. Lesson? Don’t include this language in your NDA, because in my experience, parties rarely have the time (or inclination) to designate each and every piece of information as “confidential.”
- “Are An Employer’s Business Plans Discoverable In Non-Compete Litigation?” asks Jason Cornell of Fox Rothschild about a case in Ohio for Mondaq.
- “New Jersey Federal Court Allows Non-Party to Employment/Non-Compete Agreement to Invoke Arbitration Clause,” advises David Walsh for Jackson Lewis’ Non-Compete & Trade Secret Report Blog.
- “China Worries Improve Prospects Of Trade Secrets Bill” reports Ryan Davis for Law360.
- “Chemical, oil companies fear potential EPA rule will expose trade secrets” advises Julian Hattem for The Hill.
- “Face It: Judges Sometimes Hate Competition Cases” delivers Kenneth Vanko in a bit of hard of truth in his Legal Developments in Non-Competition Agreements Blog.
- “Answers To Your Questions On Noncompete Agreements” provides Donna Ballman for her Screw You Guys, I’m Going Home Blog.
- “Detecting Insider Threats to Trade Secrets” advises Catherine Dunn for Corporate Counsel.
- If you don’t have a non-compete with a Chinese employee, don’t expect to restrain him or her advises the China Bridge IP Law Commentary Blog. In “Why China Supreme Court Agreed with Resigned Employees Establishing Competing Businesses?,” Luo Yanjie details a recent high court ruling explaining Chinese law on this issue.
- For The Wall Street Journal’s take on the recent indictment of Chinese turbine manufacturer Sinovel, see “U.S. Looks to Blunt Corporate Espionage by Chinese Firms.”
- “Best Practices For Enforcing Restrictive Covenants” advises Susan Trench of Arnstein & Lehr for Law360.
Cybersecurity Posts and Articles:
- “Beware the Internet and the danger of cyberattacks,” warns Robert Samuelson for The Washington Post.
- “NSA revelations throw wrench into lawmakers’ cybersecurity push” advises Brendan Sasso for The Hill.
- “5 Ways to Boost Your Company’s Cybersecurity Strategy” recommends Catherine Dunn for Corporate Counsel.
Computer Fraud & Abuse Act Articles, Cases and Posts:
- “You May Not Like Weev, But Your Online Freedom Depends on His Appeal” advises Wired on the appeal of Andrew Aurnheimer of his CFAA conviction.
- “There Is Now a Split Within the District of Massachusetts over the Proper Interpretation of the Computer Fraud and Abuse Act” announces Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
Have a happy and safe Fourth of July!
The corrected version of today’s Thursday Wrap-Up post is posted below. A technical glitch caused the post to inadvertently launch last night so we apologize to our subscribers. We appreciate your loyalty and work hard to deliver valuable content. Thank you for your patience.
Now, to the noteworthy trade secret, non-compete and cybersecurity stories from the past week:
Trade Secret and Non-Compete Cases, Posts and Articles:
- For you sports fans, a budding dispute is emerging in the NBA over the enforceability of Boston Celtics coach Doc Rivers’ non-compete. Rivers, one of the more highly regarded NBA coaches, has been approached by the Los Angeles Clippers but a non-compete in his contract may prevent his move. For their take on the situation, check out Rob Dean’s post, “Calling Foul on Doc Rivers’ Non-Compete Contract,” for Frith & Ellerman’s Virginia Non-Compete Blog as well as Kenneth Vanko’s post in his Legal Developments in Non-Competition Agreements Blog.
- Wondering how the U.S. Supreme Court’s Myriad decision may affect the use of trade secrets? Then check out “In Setting Genes Free, Supreme Court Decision Will Put Greater Emphasis on Trade Secret Protection in Biotech,” by Michael Baniak for Seyfarth Shaw’s Trading Secrets Blog.
- For the latest on the high profile prosecution of Walter Liew and the Pangang Group, see “Trade Secrets Charges Survive Dismissal Bid In DuPont Case,” reports Law360.
- “Creators of 5-hour ENERGY file complaint against DOJ for requesting ‘trade secrets,'” advises Joyce DeWitt for the Statesman Journal Blog.
- In a surprisingly sympathetic article about Sergey Aleynikov’s legal travails entitled “Questions Linger in Case of Copied Code,” Reed Albergotti expresses concern about the most recent prosecution in The Wall Street Journal.
- “Google, Judges Duck Latest Version of Trade Secrets Case,” reports Law360.
- Looking for a “Broker Update” on trade secret and non-compete disputes in the financial industry? Then check out Rob Radcliff’s post in his Smooth Transitions Blog.
- “Enforceability of a Noncompete Agreement will Often Depend Upon Context,” advises Jason Shinn for the Michigan Employment Law Advisor Blog.
- “No, No, No – Your Independent Contractor Cannot Sign a Noncompete. Never. Ever,” exclaims Tiffany Hildreth for Strasburger’s Noncompete Blog.
- “No Sanctions For Text Message Deletion,” advises Christopher Brif for the IT-Lex Blog.
- “Trade Secret Suit Against Defense Co. Sent To Arbitration,” reports Law360.
- “The New Prior User Rights Defense: How Often Will It Be Asserted?” ask Robert A. Pollock and Matthew R. Van Eman for Finnegan’s America Invents Act Blog.
Cybersecurity Posts and Articles:
- “Why The NSA Leaks Will Lead To More Economic Espionage Against American Companies,” warns John Villasenor for Forbes Tech.
- “Why Your CEO Is a Security Risk,” cautions Rohyt Belani for the Harvard Business Review Network Blog.
- Looking for a concise summary of all the pending federal cybersecurity and trade secrets legislation? Then check out “Pols Gone Wild: Congress Discovers Trade Secret Theft and Cybersecurity are Problems; We Sort Through the Explosion of Legislation,” by Sophie Yu and Gabriel M. Ramsey for Orrick’s Trade Secrets Watch Blog.
- “5 Data Breach Risks You Can Prevent,” proclaim Clark Schweers and Jeffrey Hall for Law Technology News.
- “The Public/Private Cooperation We Need on Cyber Security,” advises Harry D. Raduege, Jr. for the Harvard Business Review Network Blog.
- “After Profits, Defense Contractor Faces the Pitfalls of Cybersecurity,” reports The New York Times.
Computer Fraud & Abuse Act Articles, Cases and Posts:
- “Minnesota Federal Court Dismisses Computer Fraud and Abuse Act Claim Based on Departing Employee’s Downloading of Customer List,” reports Erik von Zeipel for Seyfarth Shaw’s Trading Secrets Blog.
- For more on the recent decision denying a motion to dismiss the CFAA claim in the AMD trade secret case, see Erik Ostroff’s post “Computer Fraud and Abuse Act Applied Narrowly In AMD Case,” for his Protecting Trade Secrets Blog.
Trade Secret and Non-Compete Posts and Articles:
- “Can Business Relationships Be Trade Secrets? VA Federal Court Says No” advises Eric Ostroff in his Protecting Trade Secrets Blog. In Cablecom Tax Services v. Shenandoah Telecomms. Co., U.S. District Court Judge Michael Urbanski dismissed a tax consultant’s trade secrets claim against its telecommunications customers, reasoning that the consultant’s alleged relationships with tax authorities, a tax-law “accounting system,” and its ability to negotiate property tax discounts did not qualify as protectable trade secrets under Virginia’s Uniform Trade Secrets Act. Scott A. Schaefers also has a post on this case for Seyfarth Shaw’s Trading Secrets Blog.
- And while we are on the topic of trade secrets cases in Virginia, are you looking for a primer on the epic DuPont v. Kolon case? Then check out the superb post analyzing DuPont’s case by Eulonda Skyles and Michael Spillner for Orrick’s Trade Secrets Watch Blog.
- Speaking of DuPont and Kolon, “Kolon Succeeds in Getting Its Trade Secret Theft Arraignment Postponed,” advises Todd Sullivan in Sullivan’s Trade Secrets Blog.
- “Ex-Advanced Micro Workers Can’t Shake Trade Secrets Suit,” reports Law360 and Bloomberg. For more on the AMD trade secrets dispute, see my post from last month on the recent preliminary injunction restraining those same employees from misappropriating AMD’s trade secrets.
- “Newscaster tripped up by Non-Compete,” reports Dan Frith for Frith & Ellerman’s Virginia Non-Compete Law Blog.
- “It’s Not Just for Patents Anymore: Using the ITC to Combat Theft of Trade Secrets,” recommends Mark Memelstein and Misasha C. Suzuki for Orrick’s Trade Secrets Watch Blog.
- “Hey, I Thought We Had An Agreement: California Appellate Court Allows Party To Seek Attorney’s Fees In Trade Secret Case,” exclaims Paul Henson in a guest post for Seyfarth Shaw’s Trading Secrets Blog.
- Jason Cornell of Fox Rothschild has another post comparing different state’s non-compete laws, this time “A Comparison Of Illinois And Florida Law Governing Non-Compete Agreements,” for Mondaq.
- “UK Supreme Court Rules on Case Involving Misuse of Trade Secrets by Former Employee,” reports Ezra Steinhardt for Covington’s Inside TechMedia Blog.
- Jay Yurkiw of Porter Wright continues to churn out fine posts on e-discovery issues relevant to trade secret and non-compete disputes. For his latest, see “Court Relies on Proportionality to Deny Inspection of Defendant’s Computers, Cell Phones and Email Accounts” for Porter Wright’s Technology Law Source Blog.
- “Deter Cyber Theft Act Would Augment Federal Policy Against Industrial Espionage,” advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
- Interested in the interplay between “Liquidated Damages and Non-Competes”? Then check out Devin C. Dolive’s post for Burr & Forman’s Non-Compete Trade Secrets Law Blog.
Cybersecurity Posts and Articles:
- “Outside Law Firm Cybersecurity Under Scrutiny,” advises Catherine Dunn for Corporate Counsel.
- “China’s Cyber Stonewall: Beijing won’t stop until it pays a price for its Internet thievery,” thunders The Wall Street Journal.
- “How Vulnerable is Your Company to a Cyber Breach?” ask Clark Schweers and Jeffrey Hall for Corporate Counsel.
- “What If China Hacks the NSA’s Massive Data Trove?” ponders Conor Freidersdorf for The Atlantic.
- “Could Overreaction to Cybersecurity Threats Hurt Transparency at Home?” worries David S. Levine for Slate.
Computer Fraud and Abuse Act Posts and Cases:
- In an initial skirmish that will inevitably lead to a lawsuit against the prosecutors in the Aaron Swartz CFAA case, “Judge Rejects Aaron Swartz’s Estate’s Request to Release Names of Individuals Involved in his Prosecution,” reports Hayes Hunt in the From the Sidebar Blog.