Non-Solicitation Agreements

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.
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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.


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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.


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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.


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A recent opinion from the U.S. District Court for the Northern District of Illinois has stirred up a hornets’ nest of commentary because it appears to recognize the viability of the inevitable disclosure doctrine under the Defend Trade Secrets Act (DTSA).  Those familiar with the DTSA will recall that the inevitable disclosure doctrine was supposed to be prohibited under the DTSA because of California Senator Diane Feinstein’s concern that the doctrine might be enforced against California residents.  Now, in what appears to be the first federal appellate court opinion construing the DTSA, the U.S. Court of Appeals for the Third Circuit may have further muddied the waters about the inevitable disclosure doctrine in Fres-co Systems USA, Inc. v. Hawkins, Case No. 16-3591, ___ Fed. Appx. __ (3rd Cir. 2017), 2017 WL 2376568 (June 1, 2017) (a link to the opinion can found here).
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AT_YOUR_OWN_RISKWhen moving to enforce a non-compete, the last thing a litigator wants to do is to stumble out of the gates and struggle over a profound legal issue that could delay consideration of that normally urgent request.   A new and little-talked-about section of the Defend Trade Secrets Act (DTSA), however, has the potential to trip up employers seeking to enforce non-competes if they are not prepared to address this new entanglement.

There has been a significant amount of commentary about the DTSA and its new amendments since President Obama signed the DTSA into law on May 11, 2016. The “whistle-blower” immunity and ex parte seizure order, for example, have generated the most discussion to this point.  However, the section of the DTSA that may have the greatest future impact on litigation under the DTSA is 18 U.S.C. §1839(3)(A)(i)(1)(I), which prohibits injunctions that “prevent a person from entering into an employment relationship.”

That new provision, which I will refer to as the “No-Ban-on-Employment” provision, was intended to curb, if not eliminate, the use of the inevitable disclosure doctrine under the DTSA.  However, it may have a significant unintended consequence–namely, it may complicate employers’ efforts to enforce non-competes through temporary restraining orders (TRO), the key legal mechanism for non-compete disputes.  For the reasons below, employers may want to reconsider invoking the DTSA when they want to enforce their non-competes because of the potential complications of this section’s language and instead opt to file them in state court, at least in the short-term.  As the DTSA is likely to overtake the Uniform Trade Secret Act (UTSA) as the dominant statutory regime for trade secret law, this DTSA provision may well set another blow in motion to the viability of the non-compete as an effective tool to protect trade secrets.


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Mitigating Your Trade Secret Risk When Hiring an Employee From a Competitor: The Trade Secret Litigator’s Five Golden Rules for On-Boarding A New Employee (Part II)
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Thursday Wrap-Up (June 6, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web
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