Non-Solicitation Agreements

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As readers of this blog already know, the Federal Trade Commission issued a final rule banning the use of most employee noncompetes throughout the United States.  It’s estimated that this new rule will impact at least 30 million employment contracts, including even confidentiality agreements and other forms of employee restrictive covenants.  Several lawsuits, including…

Yesterday afternoon, as expected, the Federal Trade Commission (FTC) announced its Final Rule banning noncompetes throughout the United States during an open hearing available to the public. The FTC’s Final Rule is more measured than the proposed rule announced on January 5, 2023 in several key respects–most notably, (1) nonsolicitation agreements are not prohibited, with some caveats explained below and (2) nondisclosure agreements (NDAs) seem to be on somewhat better footing, as the FTC has abandoned its proposed de facto noncompete test, also with some caveats below. Not unexpectedly, the vote broke down along party lines, 3-2, with the Democratic commissioners voting in favor and the Republican commissioners voting against it. The Final Rule is not yet effective, and the U.S. Chamber of Commerce has already filed a lawsuit challenging it today. Many commentators (including yours truly) believe the Final Rule will not survive that litigation. And while it is an inherently political rule, it does provide some lifelines for employers eager to protect their trade secrets and customer relationships. Here are my preliminary thoughts on what employers and employees need to know.Continue Reading The FTC’s Final Rule Banning Noncompetes: It could have been a lot worse


On Thursday, March 14, 2024 and Friday, March 15, 2024, I will be speaking at the AIPLA 2024 Trade Secret Summit on three panels. The Trade Secret Summit has become one of the premiere trade secret law events, with thought leaders and trade secret experts meeting to debate and discuss key developments in trade secret…

On Tuesday, January 30, 2024, I will be giving a one-hour Webinar/CLE for the Ohio State Bar Association (OSBA) entitled “Trade Secret and Restrictive Covenant Law Year in Review.”

As readers of this blog know, the number of trade secret and restrictive cases continues to grow each year. As a result, trade secret disputes and…

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Another busy month, lots of developments in high-profile trade secrets cases, the latest on the FTC’s proposed noncompete ban, and trade secret identification continues to bedevil the federal bench:

Noteworthy Defend Trade Secret Act and other federal decisions, articles and posts:

  • The mammoth jury verdict against Goodyear Tire & Rubber has been set aside. Readers will recall that punitive damages accounted for $62.1 million of the $65 million award, which I predicted would result in a remittitur reducing them under Ohio law. However, U.S. District Court Judge Sara Lioi of the U.S. District Court for the Northern District of Ohio went a step further and set aside the entire jury verdict, reasoning that CODA Development had not sufficiently identified its trade secrets or that the information did not qualify as a trade secret. (Her opinion can be found at CODA Dev. v. Goodyear Tire & Rubber Co.) Frankly, this was a stunning ruling, as Judge Lioi could have directed out these claims at trial and avoided the verdicts altogether, or she could have granted Goodyear’s motion for summary judgment on the same grounds last year. In her ruling, Judge Lioi defended her decision to dismiss the claims now, noting that she had expressed concern about the claims at trial and reserved the right to dismiss them later. Unfortunately, Judge Lioi’s ruling may encourage defendants to repeatedly challenge identification at every stage of the litigation and trial.
  • Other federal courts are requiring the identification of trade secrets with greater particularity at different junctures of litigation, as they grapple with whether the information before them deserves protection. In Dental Services v. Miller, a Seattle federal court denied a request for temporary restraining order, finding that the plaintiff had failed to provide “sufficient detail to establish a trade secret.” And in United Source One, Inc. v. Frank, the U.S. District Court for the District of Maryland denied a motion for a default judgment because the plaintiff failed to sufficiently describe two of the four trade secrets at issue in that case.
  • Plaintiffs frequently insist that there should be a presumption of irreparable harm when they are seeking an injunction. Not surprisingly, both the U.S. Courts of Appeal for the Second Circuit and the Fifth Circuit have recently rejected those requests. In JTH Tax, LLC d/b/a Liberty Tax Service v. Agnant, the Second Circuit rejected a franchisor’s argument that a stipulation of irreparable harm in its franchise agreement created that presumption; see Davis Gilbert’s Neal Klausner’s post on that ruling. And in Direct Biologics L.L.C. v. McQueen, the Fifth Circuit held that courts applying Texas law can decline to apply a presumption of irreparable injury when there is no independent proof of harm. The Fifth Circuit affirmed the district court’s rejection of that presumption, holding that not only did the employer fail to produce any evidence that the former employee disclosed or used its confidential information but that the evidence in fact showed the exact opposite (question: what good is a presumption if you have to also show proof?). For more on that opinion, see McDermott Will & Emery’s Alexander Piala’s post for Lexology and Eron Reid’s post for Seyfarth Shaw’s Trading Secrets Blog.
  • A mistrial was declared in another high-profile trade secret case pending in the U.S. District Court for the Northern District of California after the jury acknowledged it was deadlocked over the claims before it. In that case, Masimo Corp. is seeking $1.8 billion in damages against Apple, as well as co-ownership of 5 Apple pulse oximetry patents that Masimo said use its technology. The case has already generated a number of noteworthy opinions, including one addressing the issue of separating an employee’s general skill and knowledge from trade secret information.
  • Questions over ownership of key trade secrets can derail a request for an injunction, as a plaintiff is learning in a New Jersey federal court. In JRM Construction Management, Inc. v. Plescia, the defendant was able to sufficiently dispute whether the trade secrets in question–Excel templates used to estimate and prepare final budgets for client project bids–were created by another company in the late 1990s. The defendants also challenged the confidentiality of the information because it was shared with customers who didn’t sign NDAs. Given these disputes over the central issues in the lawsuit, District Court Judge Evelyn Padin held that an injunction was premature and that “robust discovery” was needed.
  • Late to discover that a former employee may have used your trade secrets in a patent application? Then you should check out Robins Kaplan’s Sharon Roberg-Perez’s article for IAM analyzing a recent decision by the U.S. District Court for Delaware. In Illumina Inc v Guardant Health, et al., the court found the former employer Illumina had presented sufficient evidence of fraudulent concealment to toll the statute of limitations. The court found that there was evidence that former employees had taken steps to conceal their activities with regard to their new company Guardant, including anonymously incorporating the company when they were still Illumina employees. Moreover, according to Sharon, Guardant had removed the names of one of Illumina’s former employees from the applications prior to their issuance as patents.
  • Delaying your request for a preliminary injunction for 6 months because of discovery disputes can undermine the urgency of your request and claim of irreparable injury, at least according the U.S. District Court for the Middle District of Florida. In Partners Insight, LLC v. Gill, Judge Sheri Polster Chappel found this delay, coupled with waiting for 5 months to file the lawsuit, doomed the plaintiff’s request for an injunction.
  • A challenge to an NDA on the grounds that it was facially overbroad was rejected as premature by Judge Pamela Barker of the U.S. District Court for the Northern District of Ohio. In AB Pratt & Co. v. Bridgeport Group, LLC, Judge Barker rejected a motion to dismiss the NDA and other claims, reasoning that any analysis of the scope and breadth of the NDA would involve a factually-intensive inquiry inappropriate at the motion to dismiss stage.
  • Looking for a primer on DTSA caselaw in the U.S. Court of Appeals for the Third Circuit? Then check out Houston Harbaugh’s Henry Sneath’s post for JDSupra.

Continue Reading Monthly Wrap Up (May 12, 2023): Noteworthy Trade Secret and Restrictive Covenant Decisions, Posts and Articles

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While there was minimal legislative actively last month, there were a number of interesting decisions and articles on the trade secret and restrictive covenant front:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Perhaps the biggest news last month was the $104.65 million verdict against Ford Motor Co. delivered by a Michigan federal jury for the breach of its contract with Versata Software and the misappropriation of Versata’s trade secrets.   The dispute arose over a 2004 agreement between Versata and Ford for software that Versata developed to manage how components in Ford vehicles would be configured during assembly.  Versata had been a vendor of Ford’s since the 1990’s until 2015 when Ford terminated the relationship.  The jury found that after off-ramping Versata, Ford improperly reverse engineered the software for its own use.  The jury awarded $22.39 million to Versata for three of the software trade secrets and $82.26 million for Ford’s breach of contract.  Ford plans to appeal.  Like the Goodyear case that I recently wrote about, this dispute highlights the fact that trade secret cases don’t just involve departing employees.
  • Speaking of cases involving employees, Patently O‘s Dennis Crouch did an informal survey of 10 recently filed federal trade secret cases.  Dennis noted that all 10 of the cases involved employer/employee disputes and many arose in the sales representative context over customer and sales information.  One of the cases, Cartiga, LLC v. Robles, provides a textbook example of how NOT to respond to a cease-and-desist letter from your former employer’s lawyer (the emojis below were attached as an exhibit to the complaint):
  • Having prevailed before the U.S. Court of Appeals for the Eleventh Circuit, Boeing successfully secured the dismissal of trade secrets claims asserted against it by arguing that a limitation of liability provision in its nondisclosure agreement (NDA) also applied to the same trade secret claims.  Reasoning that because the NDA’s choice of law provision applied to those trade secret claims, the U.S. District Court for the Northern District of Alabama held that the NDA’s limitation of liability provision applied to those claims as well.  That opinion, Alabama Aircraft Indus., Inc. v. The Boeing Company, can be found here.
  • The U.S. Court of Appeals for the Third Circuit issued yet another opinion taking a narrow approach to a trade secrets claim, affirming the trial court’s decision to deny an injunction against a group of employees.  In Matthews Int’l Corp. v. Lombardi, the Third Circuit found that the trial court properly exercised its discretion to limit injunctive relief to a single bad actor and not impose a broader injunction against the remaining individual defendants preventing them from otherwise lawfully competing.  The other individuals had already agreed, as memorialized by a subsequent order, to (1) return all of the plaintiff’s information, (2) remove the information from their devices, and (3) refrain from servicing customers who had the plaintiff’s cremation equipment.  The Third Circuit reasoned that no injunction was necessary for multiple reasons, including the absence or expiration of any restrictive covenants, the absence of any breach and the plaintiff’s inability to show irreparable injury.  Isaiah Weedn has a good summary of the case in Sheppard Mullin’s Trade Secrets Law Blog.
  • Federal courts continue to grapple with the importance of circumstantial evidence to demonstrate misappropriation at the summary judgment stage.  Last month, I wrote about a decision out of the U.S. District Court for the Northern District of Illinois holding mere possession of a trade secret was insufficient to show use.  However, in Clean Energy v. Trillium Transportation Fuels, Inc., Magistrate Peter Bray of the U.S. District Court for the Southern District of Texas held that “proof of ‘use’ often depends upon circumstantial evidence” and found that the circumstantial evidence presented to him was sufficient to deny the defendants’ motion for summary judgment.  The cases probably can be reconciled by the fact that there was more circumstantial evidence to offer in the Clean Energy case, but the decisions do highlight a schism on the significance of direct vs. circumstantial evidence.
  • Federal courts are also split on the availability of the inevitable disclosure doctrine under the DTSA, according to Mintz’s Oliver Ennis, Nicholas Armington and Adam Samansky in an article for The National Law Journal.
  • One of the signature developments of the DTSA has been the mind-numbing number of opinions addressing motions to dismiss under Federal Rule of Civil Procedure 12(b)(6).  Fisher & Phillips’ David Walton provides a five-step action plan for making sure your bases are covered if you are filing a claim under the DTSA.  Maxwell Goss also has an earlier post this year on the same topic that was published by The Michigan Law Journal.
  • Is there a circuit split on the enforceability of forum selection clauses?  Given the many differences between state laws on restrictive covenants, a forum selection clause can be outcome determinative.  Sarah Tisher of Beck Reed Riden has a post about that split and the prospects that the U.S. Supreme Court may address it.
  • The avoided cost theory of damages continues to gain traction as an element of damages in trade secret cases, advises Andrea Feathers for Sheppard Mullins Trade Secrets Law Blog.  In essence, the doctrine recognizes the cost savings that a misappropriator realizes when it is able to shortcut the research or development of a product or service by using that trade secret.  Heather writes about a recent decision of the U.S. District Court for the Southern District of California in Medimpact Healthcare Sys. v. IQVIA Inc., No. 19cv1865-GPC(DEB), 2022 U.S. Dist. LEXIS 186470, at *1 (S.D. Cal. Oct. 7, 2022), that recognized the availability of the doctrine but deferred ruling on how best to calculate those damages in further briefing.  Heather’s post provides a solid summary of the development of this theory of damages and the key decisions that have led to its increasing recognition and use by trade secret owners.

Continue Reading Monthly Wrap Up (November 11, 2022): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts

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The economic carnage unleashed by the COVID-19 virus has disrupted virtually every industry in the United States.  At last count, more than 38 million workers had lost their jobs and made claims for unemployment benefits.  And while states have begun easing restrictions on the ability of many businesses to reopen, it is reasonable to expect there will be further turnover, leading to the departure of many employees to competitors.  Feeling more vulnerable because of the downturn, employers will inevitably look to enforce restrictive covenants, including non-competes and non-solicitation agreements, against those former employees.  How will courts tend to handle requests to enforce restrictive covenants, especially non-competes, in this difficult economy?  One guide may be looking at how they handled similar requests during the last economic downturn in 2008 in the state of Ohio.
Continue Reading Back to the Future: Do Restrictive Covenant Cases from the 2008 Recession Offer Clues to How Courts Will Rule in the Aftermath of COVID 19?

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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

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Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:

Legislative Developments
  • 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.

Continue Reading Monthly Wrap Up (October 27, 2017): Noteworthy Trade Secret and Restrictive Covenant Posts from Around the Web

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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.

Continue Reading Monthly Wrap Up (Sept. 8, 2017): Noteworthy Trade Secrets, Non-Compete and Cybersecurity Posts from Around the Web