Most employee restrictive covenant disputes arise as a result of an employer’s concern about the potential loss of customer relationships and customer goodwill. These disputes generally involve sales representatives or high level business executives that have relationships with key customers; these disputes also frequently involve defenses that the employees had pre-existing business relationships with the customers that should fall outside the non-compete or non-solicitation agreement at issue. These disputes can be very fact-driven and the subject of very different recollections. For these reasons, non-solicitation cases can be especially messy. Unfortunately, a recent case out of the U.S. Court of Appeals for the Sixth Circuit, Hall v. Edgewood Partners Insurance Center, Inc., Case No. 18-3481/3482, highlights a doctrine — that an employee has rights to clients he/she acquired on his/her own time and dime — that may make these cases more complicated, expensive and problematic. Continue Reading Whose Customer Is It Anyway? The Sixth Circuit Further Clouds New York’s Already Murky Law on Non-Solicitation Agreements
Given the ubiquity of thumb-drives and use of personal devices for work, it should come as no surprise that former employees frequently download and even retain their former employer’s sensitive information on their personal devices. A Symantec study in 2013 found that ½ of the employees surveyed admitted to keeping confidential corporate data from their previous employer and 40% planned to use it in their new jobs. However, is the fact that an employee downloaded confidential information, standing alone, enough to trigger a lawsuit and possibly an injunction? A recent case out of the U.S. District Court for the Southern District of New York, AUA Private Equity Partners, LLC v. Soto, Case No. 1:17-cv-8035 (April 5, 2018), held downloading and refusing to return confidential information was enough to give rise to a claim under the Defend Trade Secrets Act (DTSA) (for more on that case, see William Brian London’s post for Fisher & Phillips’ Non-Compete and Trade Secrets Blog). As for the other question — whether a court will be willing to enter an injunction based on downloading — the answer is less clear.
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.
Employers who want to hire from a competitor frequently have to contend with the potential fallout from the new employee’s non-compete. Any misstep in that hiring process can easily lead to costly and time-consuming litigation. If an employer wants to go forward with that hire but try to minimize its risk of litigation, one popular approach is to implement affirmative steps safeguarding the prior employer’s trade secrets and avoiding solicitation of the former employer’s customers (see my previous posts on how that strategy has been used successfully by Hewlett Packard and Google in other cases). However, there is another more unconventional approach: paying an employee to sit out the duration of her non-compete (what is known as a “garden leave”) and indemnifying that employee from a future lawsuit so long as she abides by her non-compete. This approach was successfully implemented in a recent dispute in the highly competitive and apparently lucrative e-discovery market. The case, Document Technologies, Inc. v. LDiscovery, LLC, 17-2659-cv (2nd Circuit April 24, 2018), offers a nice case study on the use of indemnity provisions to defuse allegations of breach and provides a roadmap for employers who may have the pocket book to support this approach.
Continue Reading A Well-Drafted Indemnity And Garden Leave Thwart A Non-Compete In New York
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 month of August (warning, there are a lot):
Defend Trade Secrets Act
- Munger Tolles’ Miriam Kim, Carolyn Hoecker Luedtke and Laura Smolowe have put together another fine summary of the trends they are tracking under the Defend Trade Secrets Act. There are several interesting findings in the summary. For example, state courts and state law remain the preferred forum and substantive law for trade secrets claimants, at least at this time. According to the summary, while 378 DTSA cases have been filed in federal and state courts, more than 515 complaints with trade secret claims have been filed with no DTSA claims in federal and state courts throughout the U.S. I have to admit that I was surprised by this finding, as I expected that litigants would be eager to secure a federal forum using the DTSA. I suspect that most of those state law cases involve restrictive covenants and that the plaintiffs are more comfortable with a local judge enforcing a non-compete or want to avoid entanglements arising from the DTSA’s limitations on injunctions. Or it might be that they simply want to go with the law they know best, which would be the more developed state trade secret law regime. In any event, a very interesting finding.
- One of the more recent (and unexpected) developments under the DTSA has been the number of motions to dismiss challenging DTSA claims. Olga May has a post for Fish & Richardson’s Litigation Blog detailing those decisions on those motions, which range from challenges to the specificity of the trade secrets pleaded to whether the complaint comports with the standards under Twombly and Iqbal.
- For an update on the modest number of ex parte seizure order filings under the DTSA, see Michael Renuad of Mintz Levn’s article in the National Law Journal.
Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:
Trade Secret and Non-Compete Cases. Posts and Articles:
- “Seagate Technology Recoups $630 Million Trade-Secrets Award” reports Business Week. A Minnesota state appeals court has ruled that an arbitrator didn’t exceed his authority in awarding Seagate $525 million (and an additional $105 million in interest) in its trade secret dispute with Western Digital and a former Seagate employee. The arbitrator had found that some of the defendants’ evidence was fabricated regarding three of the trade secrets at issue and entered judgment against Western and the employee, Sining Mao, as a sanction.
- “Even Preparing To Compete In Texas May Be Prohibited During A Non-Competition Covenant Period” advises Paul Freehling for Seyfarth Shaw’s Trading Secrets Blog. Rob Radcliff also has a post on this decision, “Anti-Planning Provisions – A New Non-Compete Weapon?” in his Smooth Transitions Blog.
- And speaking of Texas, “Physician Noncompetition Agreements May Be Challenged More Often After Recent Texas Appellate Decision” warns Randy Bruchmiller for Seyfarth Shaw’s Trading Secrets Blog.
- “Five Year Non-Compete Enforced In Indiana” reports Peter Steinmeyer for Epstein Becker’s Trade Secrets & Noncompete Blog.
- For the latest on non-compete legislation in Massachusetts, see “Massachusetts Noncompete Bill – Hearing Date” by Russell Beck in his Fair Competition Law Blog. Seyfarth Shaw’s Erik Weibust also has a post on the legislation.
- The Southern District of New York has recently held “Marketing Concepts Are Not Trade Secrets” advises Eric Ostroff in his Trade Secrets Protection Blog.
- In “Don’t Chase Your Tail in Pursuit of the “Perfect Non-Compete,” Michael Greco offers some sound and practical advice in Fisher & Phillips’ Non-Compete and Trade Secrets Blog.
- “The Line Between Trade Secrets and Patents: Getting Dual IP Coverage on the Same Technology” recommends Matthew Poppe and Morvarid Metanat for Orrick’s Trade Secrets Watch Blog.
- “Myriad’s Trade Secret Trump Card: The Myriad Database of Genetic Variants” reports Courtenay Brinckerhoff of Foley & Lardner for JDSupra Law News.
- “The next controversy in genetic testing: clinical data as trade secrets?” ask Robert Cook-Deegan, John M. Conley, James P Evans and Daniel Vorhaus for The European Journal of Human Genetics.
- “The Business End Of The ‘Snowden Lessons'” reports Anne Sutton of Dentons and Erik Laykin of Duff & Phelps Corp. for Law360.
- “More Answers To Your Noncompete Questions” provides Donna Ballman for her Screw You Guys, I am Going Home Blog.
- “Texas Public Information Act: Shielding Your Company from the Open Records Sword” advises Jack Skaggs of Jackson Walker for JDSupra Law News.
- In “Trade Secrets Whistleblower SLAPPed In Effort to Dismiss Lawsuit,” Ken Vanko reports on the recent dismissal of a whistleblower claim brought against Anhueser-Busch in his Legal Developments in Non-Competition Agreements Blog. For more on this case, see my post from the spring.
Cybersecurity Posts and Articles:
- Looking to limit others from digitally eavesdropping you? Then check out “Digital Tools to Curb Snooping” by Somni Semgupta for The New York Times Bigs Blog.
- “U.S. Cybersecurity Plan Not Designed To Increase Regulation, Officials Say” claims Bloomberg BNA.
- “How America Is Fighting Back Against Chinese Hackers” advises Adam Clark Estes for Gizomodo.
Computer Fraud & Abuse Act Posts and Articles:
- “MIT Intervenes In Release Of Aaron Swartz Case Details” reports Gerry Smith for The Huffington Post.
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:
- In yet another non-compete case involving a physician, an Illinois appellate court has affirmed a trial court’s rejection of a covenant not to compete because the employer, a medical clinic, lacked a protectible interest in the patient base at issue. Jeff Glass reports on the case, Gastroenterology Consultants of the North Shore, S.C. v. Meiselman, M.D., et al., for SmithAmundsen’s Labor and Employment Law Update. According to Jeff, the following facts caused the court to side with the doctor: prior to forming the corporation, he practiced for a decade in the area; after forming the clinic, he continued treating these patients and personally billed them, as opposed to the clinic; the clinic did not help him with advertising or marketing; and finally, his compensation depended on his independent practice.
- “U.S., China Aim To Curb IP Theft Standoff With Talks” reports Law360.
- Looking to protect your trade secrets under Chinese law? Then consult “Chinese Translation: Protecting Trade Secrets in China Requires Knowing Complex Layers of Laws and Practices,” by Mimiao Hu, Shelley Zang and Xiang Wang for Orrick’s Trade Secrets Watch.
- “Former engineer at Bergen County based company charged with stealing trade secrets,” reports NewJersey.com. Ketankumar “Ketan” Maniar planned to relocate to India with trade secrets stolen from his employer, Becton, Dickinson and Company, U.S. Attorney Paul J. Fishman said.
- For companies looking for a trade secrets lawyer, Kenneth Vanko has some fine practical advice, “The Employee’s First Client Meeting,” in his Legal Developments in Non-Competition Agreements Blog.
- In the sad but true column, “(Practically) No Comment: White House Plea for Public Input on Trade Secret Theft Draws 13 Responses advise L. Kieran Kieckhefer and Warrington Parker for Orrick’s Trade Secrets Watch Blog. For 2 of the 13 responses, see Peter Torren’s opinion here and my submission here.
- “New Oklahoma Law Clarifies Enforceability of Non-Solicitation of Employee Covenants” reports Daniel Joshua Salinas for Seyfarth Shaw’s Trading Secrets Blog.
- Jason Cornell of Fox Rothschild provides “A Comparison Of New York And Florida Law Governing Non-Compete Agreements” for Mondaq.
- “Can My Employer Enforce A Noncompete When We Get Our Customers Through Bidding?” asks Donna Ballman in her Screw You Guys, I’m Going Home Blog.
- A New York Federal “Court Finds Potential Liability For Sending Cease And Desist Letter reports Lauri Rasnick for Epstein Becker’s Trade Secrets & Noncompete Blog. For more on the risks of a claim of intentional interference from a cease and desist letter, see my post here.
- “District of Connecticut Addresses Trade Secret Act Preemption advises Eric Ostroff in his Protecting Trade Secrets Blog.
- “Why Non-Competes are bad for the economy,” advises Laura Ellerman for Frith & Ellerman’s Virginia Non-Compete Law Blog.
- “Public Policy Trumps Non-Compete in North Carolina,” reports Eric Welsh for Parker Poe’s Trade Secrets & Unfair Competition Reporter Blog.
- “Medical Device Manufacturer Bound By The Restrictive Covenants It Implemented,” reports Zachary Jackson for Epstein Becker’s Trade Secrets & Non-Compete Blog.
Cybersecurity Posts and Articles:
- In an interesting Op-Ed piece for The New York Times entitled “Elizabethan Cyberwar,” Jordan Chandler Hersch and Sam Adelsberg liken the current cyber conflict between China and the U.S. to the battle for the seas between Elizabethan England and Spain, arguing that China is sponsoring cyber-pirates to level the playing field with the U.S.
- “Facebook Urges Cooperation To Tackle Mobile Security Risks,” reports Law360.
- “Mobile Device Forensics – Are You in the Know?” asks James Whitehead in a guest post for Seyfarth Shaw’s Trading Secrets Blog.
- The IP Commission’s adoption of the “hack back” defense continues to stir controversy. GCN’s William Jackson asks “The hack-back vs. the rule of law: Who wins?” and Lisa Shuchman expresses concern in “IP Theft Report Offers Over-the-Top Solutions” for Corporate Counsel.
- And The Wall Street Journal’s Christopher Matthews chimes in as well, in “Support Grows to Let Cybertheft Victims ‘Hack Back.'”
- Public Interest “Group Backs FTC Authority In Wyndham Data Breach Case,” reports Law360.
Computer Fraud and Abuse Act Posts and Cases:
- “Recent Alleged Cyberattack By Ex-Employee Demonstrates Importance of Employer Diligence On Protecting Network Passwords,” advises Robert Milligan for Seyfarth Shaw’s Trading Secrets Blog.