Kenneth Vanko, Russell Beck and I have just completed our fifth Fairly Competing Podcast, “The Lessons of Amazon.com v. Powers.” 

In this episode, we look at the recent non-compete case of Amazon.com v. Daniel Powers. In 2012, Powers was terminated from Amazon where he had previously headed its Web Services division, a unit of Amazon focused on cloud computing solutions for businesses. Powers later joined Google in a similar capacity. This podcast discusses the lawsuit that followed, the favorable result Powers and Google achieved, and the host of non-compete and trade secret issues that arose in this high-profile case.

The case is great template for non-compete and trade secret law, and we discuss the court’s view of the reasonableness of Powers’ contract with Amazon, tactical decisions made by the parties in litigating the case, and the steps taken by Google and Powers to wall off Amazon’s efforts at litigation. 

You can listen to the podcast by visiting the Fairly Competing website or clicking the link below. Or subscribe to the podcast on iTunes. We’d appreciate your feedback.

If you are looking for more on the decision, see our posts here, here and here.

Our next podcast will address practical steps when considering TROs or preliminary injunctions in a trade secret or non-compete dispute.

Listen to this episode

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 Posts and Articles:
  • “Always be the good guy.” That is the title of an excellent post by Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog that should serve as an important reminder to lawyers that in injunctive proceedings, which are so dependent on the exercise of equity, that your client (employer or employee) have the moral high ground.
  • “House Dems Push For China Trade Secret Theft Designation” reports Law360.  Congressmen Sander Levin ( D-Mich.) and Charles Rangel, (D-N.Y.) asked acting U.S.Trade Representative (USTR) Demetrios Marantis  to consider designating China as a “priority foreign country” under Section 182 of the Trade Act of 1974.  According to Law360, the law requires the USTR to identify countries that have inadequate protection of intellectual property rights, and those with the most egregious IP protection records can be targeted as priority. Once the USTR designates a priority foreign country, the trade agency is required under Section 301 of the act to complete an investigation, the results of which may lead to President Obama imposing import duties or taking other action. The Congressmen said that, “as evidence mounts” that the Chinese government is engaging in cybertheft, China may deserve the special designation.
  • Liu Sixing was sentenced to five years by a New Jersey federal judge for stealing defense trade secrets from L-3 Communications, reports the BBC. The trade secrets included information on U.S. missile, rocket and drone technology.
  • New blogger Erik Ostroff advises “Federal Circuit Addresses Uniform Trade Secrets Act Discovery Rule” in his Trade Secrets Law Blog.
  • “Worker stole trade secrets to ‘lure away’ clients, tobacco company says” reports Ken Bradley for the Knowledge Effect Blog for Thomson-Reuters.
  • “Enviros Can’t Make Wyo. Reveal Halliburton Fracking Formula” advises Law360.
  • For those in New York, Neal Dlausnera and David Fisher ask “Are Restrictive Covenants Enforceable Against Employees Terminated Without Cause? ‘Hyde’ indicates the answer may be yes.” In their fine article for The New York Journal, Neal and David consider the recent case of Hyde v. KLS, which may have eroded New York’s longstanding ban on non-competes against terminated employees. (For more on the Hyde case, see my post last year).
  • “Protecting Company Information When Employees Bail: California Alternatives to Employee Non-Compete Agreements” advise Robert Milligan and Jessica Mendelson for Seyfarth Shaw’s Trading Secrets Blog.
  • “Plaintiffs’ Attorneys, Rest Easy: Cease and Desist Letters Likely Aren’t Defamatory,” reports Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • “Litigating Theft of Trade Secrets before the International Trade Commission,” details Peter Toren.
  • “7 Steps to Enhance Post-Employment Restrictive Covenants,” reports Jeffrey Boxer for Corporate Counsel.
  • At last, something they can agree on: the latest on “Apple Inc. (AAPL), Samsung And Their Trade Secrets,” and their appeal to the Federal Circuit reports Michelle Jones for ValueWalk.
  • “The non-compete that didn’t happen,” advises Rob Radcliff for his Smooth Transitions Blog.
Cybersecurity Posts and Articles:
  • “New U.S. law says government agencies will need OK before buying Chinese IT equipment” reports Danielle Walker for SC Magazine.
  • “How to Avoid Getting Duped By A Hacker,” advises The Wall Street Journal’s Digits Technology Blog.
  • “The Question of ‘International Law of Cyberwar,” posits Stewart Baker for Steptoe’s Cyberblog.
Computer Fraud and Abuse Act Posts and Cases:
  • “The Computer Fraud and Abuse Statute is a Failed Experiment,” laments Eric Goldman in a guest post for Forbes.
  • “Another Court Construes the CFAA Narrowly and More of My Thoughts on the Statute,” ponders Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog. Ravindra Shaw provides her take on the same case out of New York, in her post for Jackson Lewis’ Non-Compete & Trade Secrets Report Blog.

Whether a former employee’s use of social media may violate a restrictive covenant remains a special area of concern for many employers.  Two recent cases suggest that courts will treat social media communications no differently than they would any other and will focus on the substance and manner of the communication and evaluate it using the agreement before them. 

In Invidia LLC v Difonzlo, 2012 WL 5576406 (Middlesex [Mass.] County Super. Court, Oct. 22, 2012), a Massachusetts court concluded that a former employee’s announcement on her Facebook page that that she was leaving to join a competitor did not amount to a violation of her non-competition and non-solicitation agreement with her former employer.

The stylist, Maren DiFonzo, worked at the Invidia salon for two years and had signed a non-competition covenant that had two-year and ten-mile restrictions.  When she resigned from Invidia, she immediately began working for a competitor less than two miles away and she posted information about her new position on her Facebook page.  Although Invidia said her departure precipitated an “unprecedented . . . wave of no-shows, cancellations or non responses,” the salon could not demonstrate that she was responsible.

After Invidia’s attorney threatened to sue both DiFonzo and the competitor, she was laid off.  In a conversation with the competitor’s owner, Invidia’s majority owner, Patzleiner, alleged that Invidia simply “intended to send a message” to its employees and “did not care” whether DiFonzo solicited Invidia’s customers.

In rejecting the employer’s request for an injunction, the Superior Court of Middlesex County sidestepped the issue of enforceability of the agreement and instead found that irreparable injury was lacking because Invidia had demonstrated its ability to calculate with reasonable certainty the monetary loss it would sustain for each client DiFonzo took.  The court also found no evidence that DiFonzo breached her confidentiality covenant or solicited any Invidia customers.  The court noted that a few customers had contacted her but “[s]o long as they reached out to [her] and not vice versa, there could be no violation of the non-solicitation provision.” 

In the second, more recent case, Pre-Paid Legal Service, Inc. v. Cahill, Case No. CIV-12-346-JHP (D. Okla., Jan. 21, 2013), an Oklahoma federal court refused to find that a post on a Facebook page amounted to a solicitation (although the court did find evidence of other improper solicitations and enforced the agreement in light of those violations).

Todd Cahill was a top salesman for Pre-Paid Legal.  Prior to leaving and joining Nerium, another multi-level marketing company that sold skin care products, Cahill met with one of his colleagues and solicited him to join him at Nerium.   Cahill then called a meeting of “Elite Leaders” (his team of high performing associates) to tell them he was leaving. Although he did not mention by name the name of his new employer, he told his colleagues that he had lost faith in Pre-Paid Legal and that anyone who was interested should email him.

After that meeting, he left Pre-Paid Legal. There was no evidence that Cahill misappropriated any confidential associate or account information, but he did post information about his new company on several semi-private Pre-Paid Legal Facebook pages (pages Cahill had created to mentor his associates at Pre-Paid Legal). He did not post further to these pages, but he had been posting information about Nerium on his personal Facebook page.

After Pre-Paid Legal sued Cahill for misappropriating its trade secrets and violations of his non-solicitation agreement, the Magistrate assigned to the case found that while Cahill had violated his non-solicitation agreement by approaching his colleagues, he had not solicited them through the use of the Facebook pages.  Relying on the Invidia LLC case above, the Magistrate found that the posts were less explicit in inviting colleagues to join him.

The Takeaway:  These decisions, taken together, are noteworthy because they illustrate that a court will apply the same principles for social media communications that it will apply for other types of communications.  An announcement on a Facebook post that merely informs readers of an employee’s new job is simply not the same as an active solicitation.  Expect more common sense decisions like this one that look at the substance of the communication in question.

Kenneth Vanko, Russell Beck and I have just completed our fourth Fairly Competing Podcast, “Mistakes Employers Make With Their Non-Compete Agreements.”

In this episode, we discuss discuss common errors companies make in drafting non-compete agreements and in enforcing covenants through litigation. Topics include the proper scope of non-compete agreements for various types of employees, damages, and poor decision-making under the pressures of emergency litigation.

You can listen to the podcast at the website here or by clicking the link below. Or subscribe to the podcast on iTunes. We’d appreciate your feedback.

Our next podcast will cover the recent Amazon v. Google non-compete case.

Listen to this episode

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 Posts and Articles:
  • Does a law firm have to reveal its client’s non-compete to the client’s business partners? In “Texas Firm Beats Fraud Suit For Keeping Mum On Noncompete,” Law360 reports that the answer is “no.” The Texas Court of Appeals held that there was no duty to disclose the client’s non-compete by the law firm and its attorney when they negotiated legal documents with those third parties.
  • “Non-Compete Fight in the World of Surgical Robotics: MAKO Surgical Sues Competitor, Former Employee,” advises Jonathan Pollard for the non-compete blog.
  • “FBI arrests NASA contractor employee trying to flee to China,” reports The Washington Examiner.
  • “Stryker Exec Who Jumped Ship Must Hand Over Trade Secrets,” reports Law360.
  • “Protecting Trade Secrets with a Mobile Workforce and Telecommuters,” reports Cliff Atlas for Jackson & Lewis’ Non-Compete & Trade Secrets Report.
  • Even The Economist is writing about the importance of trade secrets, asking, “Can you keep a secret? To patent an idea, you must publish it. Many firms prefer secrecy.”
  • “Mediating Non-Competes in the Medical Device Industry,” explains Michael Greco for Fisher & Phillips’ Non-Compete and Trade Secrets Blog.
  • Will the ability to preserve an invention as a trade secret lead patentholders to withhold the best mode of that invention in their patent applications? In “Patent law’s ‘best mode’ requirement a conundrum for attorneys,” Erin Geiger Smith warns that could be the case for Bloomberg.
  • “5 ways in-house lawyers can support innovation at their companies: Inside counsel have a duty to help drive innovation to success, within the limits of existing law and policy,” advises Eric Esperne in Inside Counsel.
  • Want to enforce a non-compete against a Chinese employee? You need to read, “China Employee Non-Competes. Do Not Try This At Home,” by Dan Harris for his China Law Blog.
Cybersecurity Posts and Articles:
  • “After a Data Breach, Do You Need an Investigator or a Lawyer?” asks Catherine Dunn for Corporate Counsel.
  • “Take Chinese Hacking to the WTO,” urges James P. Farwell for The National Interest.
  • “Infographic: How Criminals Guess Your PIN,” warns Gina Smith for Tech Page One.
Computer Fraud and Abuse Act Posts and Cases:
  • “U.S. v. Nosal: Back In the District Court, the Defendant Isn’t as Fortunate,” reports Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • “The Split in the Circuit Courts Over the Proper Interpretation of the Computer Fraud and Abuse Act Actually Goes Three Ways,” updates Brian Bialas for Foley & Hoag’s Massachusetts Noncompete Law Blog.
  • Is journalist Matthew Keys the latest Aaron Swartz? asks Garance Burke in his article for The Huffington Post entitled, “Matthew Keys’ LA Times Hack: Security Breach Or Harmless Prank?”
  • And in another high profile CFAA prosecution, Orin Kerr writes, “United States v. Auernheimer, and Why I Am Representing Auernheimer Pro Bono on Appeal Before the Third Circuit,” for The Volokh Conspiracy.

In an interesting trade secret case out of New York Supreme Court, Airvana Network Solutions Inc, a Massachusetts broadband network company, has won a preliminary injunction against Ericsson in a trade secrets lawsuit that seeks more than $330 million from the Swedish telecommunications network equipment maker.  On Tuesday, Manhattan State Supreme Court Judge Barbara Kapnick enjoined Ericsson from using certain hardware based on Airvana’s design unless it secures a software license from Airvana.  (A PDF of the opinion can be found below and Law360 has reported on the case fairly extensively).
 
Airvana, founded in 2000 by former Motorola executives, had supplied Ericsson and predecessor Nortel Networks Inc. with hardware and software used to run large wireless data networks.  Under the terms of its agreement with Nortel, Airvana gave Nortel responsibility over the hardware, so long as Nortel used Airvana’s software and paid royalties on any hardware that might be built based on Airvana’s designs.  Ericsson acquired much of Nortel’s wireless equipment business in North America through Nortel’s bankruptcy in 2009, including Nortel’s obligations under the agreement with Airvana
 
In June 2010, Ericsson began working with a joint venture partner, LG Electronics, to develop software that would run on Ericsson’s version of the hardware.  Several months later, Ericsson told Airvana that it no longer needed Airvana’s software because it was developing an alternative solution that would not be based on Airvana’s hardware designs.
 
Airvana alleged that the hardware developed by both Nortel and Ericsson was based on design documents Airvana had transferred as part of their agreement and that the hardware misappropriated the trade secrets of Airvana.

Overcoming Obstacles to Irreparable Injury:  Most of Judge Kapnick’s opinion addresses the parties’ varying interpretations of the agreement and whether Ericsonn’s software was based on the design of the Airvana software, but her analysis of irreparable injury is the most significant part of the opinion.  As those in New York know, proving irreparable injury in the context of a license agreement is very difficult because of New York’s embrace of the Second Circuit’s flawed opinion in Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009).   As readers of this blog may remember, Faiveley essentially held that a former licensee could misappropriate trade secrets so long as it did not disclose them, a ruling that has been inexplicably followed by New York courts.

It appears that Airvana was able to avoid the deadly embrace of Faiveley by arguing that it would go out of business in the absence of injunctive relief ordering payment of royalties by Ericsson.  Of course, the loss of a plaintiff’s enterprise is the quintessential example of irreparable injury, since a monetary judgment has little or no value to a company that has been forced out of business.   However, proving irreparable injury still can be difficult since license disputes by their nature have readily calculable damages by virtue of their previous royalty stream.

The Takeaway:  Never underestimate the power of the “going out of business” claim, even in a licensing dispute.  Ericsson attempted to argue that Airvana’s financial predicament was largely of its own “irresponsible” over-leveraging, an argument that seems to have fallen flat.  Surprisingly, it does not appear, at least from the opinion, that Ericsonn argued that the damages were readily calculable by virtue of the $330 million demand in the complaint.

Airvana v. Ericsonn.pdf (1.68 mb)

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 Posts and Articles:
  • Add Illinois to the list of states considering legislation over their non-compete laws, as Kenneth Vanko advises in “A Brief Commentary on Illinois’ Proposed Noncompete Agreement Act” in his Legal Developments in Non-Competition Agreements Blog. Ken reports that, unlike the legislation in Minnesota, Michigan and Massachusetts which seeks to scale back or limit non-competes, the proposed legislation would tend to benefit employers.
  • “Schwab Says Ex-Advisers Diverted $47M In Accounts To Rival,” reports Law360.  Epstein Becker’s Peter Altieri has a post about the dispute as well.
  • “DuPont Trade-Secret Prosecutors Add Charges Against Liew,” reports Bloomberg.
  • “Recent Non-Compete Case Highlights Pennsylvania’s ‘Worthless Employee Doctrine’ advises Jonathan Pollard for the non-compete blog. This poorly-named doctrine holds that an employer cannot enforce a non-compete against an employee that it just terminated for poor performance.
  • The Unintellectual Property Blog has a post about a recent software trade secret dispute in Delaware against Cisco. In ExpertUniverse v. Cisco, the court applied the California Uniform Trade Secret Act and dismissed ExpertUniverse’s claims because it failed to adequately describe its trade secrets and demonstrate misappropriation.
  • “Want to avoid a prosecution under the Economic Espionage Act? You might want to consult “Economic Espionage Act: Seven Tips to Close a Fast-Growing Compliance Gap” by Lauren M. Papenhausen and Benjamin Franklin of McDermott, Will & Emery, LLP for Bloomberg Law.
  • Looking for a primer on forensic computer examinations?  Then check out “Nuts and Bolts for Terms Commonly Used in Trade Secret Computer Forensic Investigations” by Jonathan Karchmer for Seyfarth Shaw’s Trading Secrets Blog.
  • “It takes a village to protect trade secrets,” advises Naomi Fine of Pro-Tech for Forbes.
  • “Protecting Your Closely Held Business,” recommends Peter Vilmos for Burr & Forman’s Trade Secrets Non-Compete Blog.
  • In “Trade Secrets for Sale,” Douglas Alexander proposes a robust and aggressive trade secret protection program for EBN.
  • In “A Little-Publicized Change in Patent Law on Secret Prior Art,” Paul F. Prestia details changes in the America Invents Act that may permit an inventor to preserve an invention as a trade secret indefinitely for Corporate Counsel.  For more on this issue of the newly revised section §102(a)(1), see my post last fall.
Cybersecurity Posts and Articles:
  • Lots of articles on the Obama Administration upping its calls for China to address the reported cybersecurity attacks.  The New York Times is reporting that “Cyberattacks Prominent in Obama Call With New Chinese President.” Also check out “U.S. Demands That China End Hacking and Set Cyber Rules,” also by The Times, and “Obama Aide Demands China Stop Hacking” by The Wall Street Journal.  The Journal also had an op-ed piece this week by John Wohlsetter entitled “Chinese ‘Hackers’ Is a Misnomer. They’re Spies.”  Finally, Todd Sullivan provides his thoughts and takes the Administration to task for taking so long to single out China.
  • “How to avoid being hacked: Strong passwords and other security tips” recommends Anick Jasdenun for SiliconValley.com. 
Computer Fraud and Abuse Act Posts and Cases:
  • Looking for an update of recent CFAA cases? Then check out Shaw E. Tuma’s excellent summary here.
  • “When leaving your job, make sure you do this if you really want to violate the Computer Fraud and Abuse Act!”, another fine post by Shawn Tuma.

Kenneth Vanko, Russell Beck and I have just completed our third Fairly Competing Podcast, “The 2013 Legislative Update.” 
 
In this episode, we discuss pending legislative proposals to regulate non-compete and trade secrets law in Massachusetts, Minnesota, Michigan, and Texas. We offer our thoughts on the policy behind the bills and the relative chances each will become law.

You can listen to the podcast by visiting the Fairly Competing website or clicking the link below. Or subscribe to the podcast on iTunes. We’d appreciate your feedback.

Our next podcast will discuss common mistakes that employers make in connection with their covenants not to compete.

Listen to this episode

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 Posts and Articles:
  • “Eaton-Frisby fight that started with trade-secrets theft claims set for trial in Mississippi,” reports Alison Grant for The Cleveland Plain Dealer. Todd Sullivan also has his take on the case in his Trade Secrets and Employees Defection Blog.
  • “Judge Trims Fuhu’s Trade Secrets Suit Over Toys R Us Tablet” reports Law360.
  • For an update on the Eagle v. Morgan dispute over ownership of a LinkedIn account, see “Federal Court Questions Whether Damages Exist in LinkedIn Account Ownership Dispute,” by Jessica Mendelson for Seyfarth Shaw’s Trading Secrets Blog.
  • “MGA Maneuvers to Rescue Big Bratz Trade-Secrets Award,” advises Amanda Brondstadt for The American Lawyer.
  • “Can the public interest trump a non-compete?” asks Rob Radcliff in The Smooth Transitions Blog, and his answer is “yes,” at least in the healthcare industry.
  • “Trade Secrets Injunction Order Demonstrates Difficulty of Balancing Competing Interests” advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • Fisher & Phillips’ Michael Greco has his monthly post on highlights in trade secret and non-compete law for February 2013.
  • And Brian Bialas has a similar post of 10 recent noteworthy trade secret and non-compete cases and posts for Foley & Hoag’s Massachusetts Noncompete Law Blog.
Cybersecurity Posts and Articles:
  • “Unintended Consequences of ‘Bring Your Own Device,'” advises Susan Ross for Corporate Counsel.
  • And given the recent news of cyberattacks, David Stewart has decided to revisit the debate over whether U.S. companies should be permitted to “hackback” against foreign cyberspies and crooks in Steptoe’s Cyberblog.
Computer Fraud and Abuse Act Posts and Cases:
  • “Attorney General: Aaron Swartz Case Was a ‘Good Use of Prosecutorial Discretion,’” advises David Kravets for Wired.
  • “Thinking Of Bringing A Computer Fraud And Abuse Act Claim In Federal Court? Consider This Recent Opinion,” warns Josh Durham for Poyner Spruill’s Under Lock & Key Blog.
  • And for an account of a reluctant witness in the Aaron Swartz prosecution, see Quinn Norton’s post for The Atlantic entitled, “Life Inside the Aaron Swartz Investigation.”

Texas has long been considered a fiercely independent state, but Law360 is reporting that the Lone Star State is considering joining the other 47 states that have adopted the Uniform Trade Secrets Act (UTSA).  Dallas State Senator John Carona recently introduced S.B. 953, which Law360 states “would codify and modernize existing Texas common law relating to misappropriation of trade secrets, while enhancing available remedies to aggrieved businesses.”  If Texas adopts the UTSA, that would leave Massachusetts and New York as the only two remaining states that have not adopted some variation of the UTSA (New Jersey enacted the UTSA in 2011).  A link to the proposed statute can be found here.

There are some interesting features to this potential Texas version of the UTSA.  It would create a “presumption in favor of granting protective orders to preserve the secrecy of trade secrets,” a feature that could be at odds with general principles favoring open court proceedings (New Jersey’s version of the UTSA initially offered similar protections but it was eventually amended to remove that presumption).

In addition, S.B. 953 would dispense with the requirement that a trade secret must be in “continuous use” in order to be protected.  The Law360 article quotes Texas lawyer Val Perkins of Gardere Wynne Sewell LLP as noting that Texas common law “currently bars from protection trade secrets that are not actively used in business operations either because they have not yet been deployed or were abandoned.”  Naturally, this change would expand the categories of information available for trade secret protection.

The Texas bill proposes customary provisions under the UTSA, such as preemption (i.e., barring common law claims arising out of the same factual circumstances and providing the UTSA as the sole remedy), attorneys fees for bad faith or malicious conduct, injunctive relief, and the imposition of royalties as a potential remedy for the misappropriation of trade secrets in “exceptional” circumstances.  The Texas bill also tracks some of the noteworthy features of California’s version of the UTSA, which has language essentially permitting the “reverse engineering” of a trade secret provided no improper means are used (Ohio, for example, does not have that language in its version of the UTSA).

This is a very positive step as greater uniformity in the law throughout the country will benefit businesses and employees alike.  I will keep my eye on any further developments and keep everyone posted.