For trade secret and non-compete lawyers, it was a productive Spring Meeting at the American Intellectual Property Law Association (AIPLA). Here are some of the highlights from Thursday’s trade secrets track “The Internationalization of Trade Secrets: Big Cases, Big Verdicts and Big Challenges” presentation:
 
Protecting Trade Secrets Overseas. Beth Apperley, AMD’s Corporate VP of Legal, provided a number of practical pointers on structuring agreements and other safeguards for an American company in need of protecting its trade secrets overseas or in its foreign operations. In particular, Beth emphasized the importance of engaging capable foreign counsel conversant in the laws of that state at the outset so that a company can do its homework on the jurisdiction’s trade secret law and remedies. This analysis will allow a company to evaluate how adequately it can protect those trade secrets in that foreign state and decide which trade secrets it wants to use or disclose there. Beth also advised that once a company makes the decision to do business in a foreign country, it is critical to scrutinize and perform due diligence on your future foreign partners.
 
Challenges of Litigating Trade Secrets Disputes against Foreign Defendants. Mike Songer of Crowell & Moring spoke next. Mike was the lead trial lawyer for DuPont in its epic battle with Kolon, a case that resulted in a $920 million verdict last year (in my view, the most important trade secret case last year and a solid No. 1 in my Top 10 for 2011). He was able to share some of his experiences and provide practical pointers involving personal jurisdiction and the inevitable complications with personal service and discovery under the Hague Convention and other treaties. His advice?  Plan for a lot of time for those processes. Mike also emphasized the importance of translators and he shared that they can make or break your trade secrets case against a foreign defendant. For example, in the deposition context, Mike recommended selecting a translator who is not only capable but tough, as battles over what a foreign witness may have said will invariably erupt over key testimony (i.e., did the witness say that he “took” the information or that he “only reviewed” it as it lay in plain sight?).
 
Litigating Spoliation of Evidence Disputes. Griffith Price of Finnegan Henderson spoke next and he used Judge Robert Payne of the Eastern District Court of Virginia’s seminal ruling last year in the DuPont v. Kolon case as a template for examining the emerging issues in spoliation of evidence. For those not familiar with the ruling, after a number of Kolon employees deleted or wrote over approximately 17,000 files, Judge Payne sanctioned Kolon by providing an adverse inference in the jury instructions about the missing evidence at trial,  a ruling that Mike Songer agreed had an significant impact on the jury in the DuPont case. In a highly entertaining but substantive presentation, Griff also weaved the importance of litigation holds and what happens to data and information when a party or former employee tries to delete or write over it on a computer. Griff’s key takeaway? The cover up is always worse than the crime.
 
Managing Mobile Employees and Their Personal Devices. Ron Johnstone, Vice President and Associate General Counsel of Yahoo Inc! provided some sobering advise under the topic of personal devices. Ron has concluded that as a practical matter, it is nearly impossible in the present employment environment to completely manage employees who are using their personal devices to access work files and confidential information. He advised that, short of banning that practice outright, companies have to accept the risk of security breaches, prepare for the worst, and manage employee expectations. To accomplish this, Ron recommended implementing and reinforcing a culture of security, reserving the ability to “wipe” devices clean if any devices are lost or stolen, ongoing training and annual acknowledgements, and otherwise managing employee expectations about the privacy that they will have to surrender in exchange for the convenience of using their personal devices for work. Ron also raised an unforeseen issue that increasingly arises in the context of personal devices: recovering the information for possible litigation, an important reminder given the spoliation and preservation issues raised by Griff.
 
Litigating Trade Secrets Cases in the ITC and the Impact of the TianRui Group decision. Bryan Wilson of Morrison & Foerster’s  Palo Alto office spoke about the pros and cons of litigating a trade secrets claim before the International Trade Commission (ITC). It appears that the ITC is an under-utilized tool for trade secret plaintiffs, as Bryan’s research only revealed two previous reported trade secret cases before the ITC. While the ITC may only allow a litigant to bar importation of a foreign product into the U.S., it does provide significantly more confidentiality than traditional lawsuits because of the ITC’s presumption of confidentiality and the fact that many filings are under seal and not available to the public. As for the decision in TainRui Group (for more on the opinion, check out this post), Bryan wondered whether the decision really reflects what the Federal Circuit Court of Appeals really thinks is happenining in China, as the majority opinion seemed to reflect a “somebody’s got to do something about China!” theme and the minority opinion seemed to suggest “what did you expect to happen in China”?
 
Legislative Update. Peter Torren of Weisbrod Mateis & Copley provided a comprehensive update on the Economic Espionage Act, the pending Cyber Information Sharing and Protection Act (CISPA), the New Jersey Uniform Trade Secret Act and relevant recent decisions construing those and other federal statutes. As a former federal prosecutor, Peter was dismayed by the recent rulings in U.S. v. Aleynikov and U.S. v. Nosal, noting that one recent commentator had characterized the decisions’ combined effect as “disastrous” for the IP community and a failure by the legal system to adequately protect the software community. Peter said the pending civil amendment to the EEA is still in committee and he urged the Senate to adopt language to eliminate a future result like Aleynikov.
 
On behalf of the AIPLA’s Trade Secrets Law Committee, I would like to thank the panel for the outstanding presentation, their hard work and practical insights. The content provided by the speakers at the Spring Meeting was especially tremendous. AIPLA’s Trade Secrets Law Committee Chair, Dan Westman, and I are going to see if the Committee can make that content available to AIPLA Trade Secret Committee members in the future, perhaps through webinars and other media.

Here are the noteworthy posts, articles and cases of the past week:   Trade Secret and Covenant Not to Compete Articles, Cases and Posts: 
  • Are CBS and ABC about to get in a row over the theft of trade secrets? According to The Hollywood Reporter, CBS attorneys have sent a strongly worded cease and desist letter that claims that a new ABC reality series, Life in the Glass House, is being produced by 18 Big Brother veterans who might reveal private information about the inner workings of the show. Spats over the misappropriation of ideas and pitches are common in the entertainment industry but rarely do you have two major networks threating to litigate against one another. 
  • Can a church assert a trade secrets claim? Northern California District Court Judge Lucy Koh has answered in the affirmative, rejecting a plaintiff’s claim that the Free Exercise clause would entangle courts in thorny constitutional issues, reports Professor Howard Friedman in his Religious Clause Blog. For more about this fascinating case, The Art of Living Foundation v. Doe, check out my post about this case last fall; it involves some interesting questions about determining the identity of anonymous whistleblowers who disclose confidential information over the Internet. 
  • If you want to enforce your non-compete in Massachusetts, you’d better comply with your own agreement, advises Foley & Hoag’s Massachusetts Non-Compete Blog. In that recent case, Ace Precision v. FHP Associates, a Massachusetts court concluded that the plaintiff, who was attempting to enforce a covenant accompanying an asset sale, could not enforce the non-compete because it had defaulted by failing to pay royalties under the agreement. 
  • A Sanofi Aventis scientist has been sentenced to 18 months in prison for stealing the pharmaceutical company’s trade secrets and putting them up for sale through the U.S. branch of a Chinese chemicals company. Yuan Li, 30 years old, was sentenced by New Jersey District Court Judge Joel Pisano as part of a plea agreement reached in January.
  • Former Silicon Valley engineer Subin Zhang was convicted of stealing trade secrets from his former employer Marvell Semiconductor by Northern California District Court Judge Ronald Whyte. Zhang was found guilty on three counts of theft and copying of trade secrets for downloading the trade secrets from a secure database, one count of duplication of trade secrets for loading those trade secrets onto a laptop, and one count of possession of stolen trade secrets. 
  • A recent New York trial court opinion, MSCI Inc. v. Jacob, has received a lot of attention from trade secret bloggers because it may be the first New York case requiring a plaintiff to identify its trade secrets before proceeding further with discovery. Womble Carlyle, Seyfarth Shaw, Littler and Epstein Becker’s blogs all have fine posts about the case. 
  • Ken Vanko has a good wrap-up of some recent developments, including a discussion of a recent Pennsylvania case, Outdoor Lighting Perspectives Franchising, Inc. v. OLP-Pittsburgh, Inc., involving a franchisee’s successful effort to scale back a broad non-compete. 
  • Russell Beck has updated his 50 state non-compete survey for those looking for developments in their state.
Cybersecurity:
  • Hacker Fight! “Pirates Bay Scolds Anonymous for Cyberattacks on Its Behalf,” reports Andy Greenberg of Forbes.
News You Can Use and Other Articles of Interest: 
  • Want to keep Google and others from tracking you? The New York Times has some tips on “How to Muddy Your Tracks on the Internet.” 
  • The Times also advises that “Taking E-Mail Vacations Can Reduce Stress, Study Says.” 
  • As for light reading, Mark Zuckerberg is getting a lot of attention as the Facebook IPO draws near, as New York Magazine gushes about “The Maturation of the Billionaire Boy-Man.”

On Monday, I wrote about recent media reports describing Delaware Chancery Court Judge Leon Strine, Jr.’s Opinion enforcing two confidentiality agreements between Martin Marietta and Vulcan to bar Martin Marietta from undertaking a hostile bid for Vulcan for the next four months (that post is below).  I have since been able to get a copy of the Opinion, which is attached as a PDF at the end of this post.  While it is not a light read (138 pages long), it is well written, well reasoned, and thoroughly entertaining. 

Given the prominence of the Delaware Chancery Court, the high profile nature of the dispute and the law firms involved (Skadden Arps and Wachtell Lipton), Judge Strine’s Opinion has generated tremendous media interest (see recent analyses provided by The Wall Street Journal and The New York Times to name just a few).  While it does not apply a traditional trade secret analysis (i.e., reasonableness of safeguards, readily ascertainable, valuable to competitors, etc.), it is still an important decision in an important jurisdiction laying out sound principles for enforcing a non-disclosure agreement (NDA).  As a result, it provides four important lessons for those in the trade secret community.
 
First, the Opinion should remind us that in the context of written confidentiality agreements, we should not hesitate to make forceful public policy arguments for their enforcement.  It is easy to get caught up in defending the language of a contract, but it is always important to emphasize the intent and goals of the contract at issue.  To that end, Vulcan’s counsel did a fine job of hammering the need for the enforcement of these agreements in the financial market so that future commercial parties could be confident that their disclosure of proprietary information would not be used against them. 

Judge Strine’s Opinion repeatedly emphasized those goals.  In particular, Judge Strine repeatedly wrote about the need for ensuring that these agreements continue to be meaningful as risk-reducing devices to enable companies to more readily consider voluntary, value-maximizing M&A transactions.  He also focused on the parties’ expectations and the importance of discouraging future parties from trying to “end-run contractual pre-disclosure procedures.” 
 
Second, in commercial contracts subject to Delaware law, contractual stipulations that acknowledge irreparable injury in the event of a material breach will be enforced.  In the post-eBay v. MercExchange world, many courts have increasingly been unwilling to presume irreparable injury and have required parties to make a showing of irreparable harm to justify an injunction. 

However, in the wake of the Martin Marietta decision, commercial parties that rely on Delaware law are now armed with a powerful and well-reasoned decision that should make it easier for them to secure a presumption of irreparable harm provided their agreement includes this stipulation.  In essence, Judge Strine gave Vulcan a pass on irreparable injury  As these stipulations are frequently in license agreements and commercial NDAs, this could be a significant ruling for the trade secret community when enforcing contracts applying Delaware law.

Third, the Opinion reinforces the importance of making a reasonable request for injunctive relief.  At the trial/preliminary injunction hearing, Vulcan made what the court deemed to be a measured request for injunctive relief — namely, a four month injunction that would prevent Martin Marietta from offering its slate of directors at an upcoming Vulcan shareholder meeting.  Judge Strine commended Vulcan for that request and I suspect it also helped Vulcan win a number of close calls on credibility in what was a well-argued and hard-fought case.  Moreover, that request was particularly shrewd as it appears unlikely that an appellate court will be able to do anything before that June meeting.
 
Finally, it reminds us that courts are still willing to impose what amounts to a non-compete (or cooling off period) if they find that a defendant has misbehaved and substantially breached a confidentiality agreement.  Martin Marietta forcefully argued that Vulcan was trying to impose a condition not found in the agreement (in this case, what is known in the M&A community as a standstill agreement) but Judge Strine found that this remedy protected the expectations of both parties going into the NDA.  In this respect, this case mirrors many trade secret cases where a plaintiff argues that a non-disclosure agreement should be enforced to forbid future conduct to ensure that the goals of the agreement are met (most notably, the recent Allergan v. Merz case).

Not surprisingly, Martin Marietta has announced it will appeal from this ruling.  I will continue to monitor the case as there is sure to be future fireworks.

92437285-Chancellor-Strine-s-opinion-in-Martin-Marietta-Materials-v-Vulcan-Materials[1].pdf (352.98 kb)

05072012On Friday, Delaware Chancery Judge Leo Strine, Jr. issued a 100+ page opinion finding that gravel material supplier Martin Marietta Materials “thoroughly breached” confidentiality agreements with competitor Vulcan Materials during merger negotiations and as a result, its effort at a hostile takeover bid would be prohibited for the next four months. It appears that Martin Marietta used confidential information provided under the agreement to formulate the hostile bid.

The companies are the two largest construction materials suppliers in the United States. I have tried to get the opinion from the Chancery Court’s website but it does not appear to be available yet, so I am relying on the various media reports of this significant opinion.

According to Bloomberg, Martin Marietta sued on Dec. 12, 2011, the same day it made the hostile bid, in a preemptive move to get the court to rule that the offer wasn’t prohibited by a May 2010 confidentiality agreement between the companies. Vulcan countersued, seeking an injunction against the hostile bid. The takeover would have created the world’s largest producer of sand, gravel and crushed stone.

The Wall Street Journal has reported that Judge Strine ruled that allowing Martin Marietta to benefit from nonpublic materials supplied during friendly talks would set an unfair precedent for corporate deal-making overall. “If the cost of sharing information is to be at the mercy of the other party…a typical CEO [would] tend not to risk sharing,” Judge Strine wrote. “Rewarding a breaching party like Martin Marietta would encourage other parties to end-run contractual pre-disclosure procedures,” he added.

Injunctions like this are exceedingly rare and it will be interesting to see what Martin Marietta did to warrant this order. The opinion may prove to be an important one not only in hostile merger transactions but for many potential acquisitions involving smaller companies. Failed acquistions are among the more frequent types of trade secret disputes; given the prominence of the Delaware Chancery Court, this opinion could be an extremely important one in that context.

I will update this post when I am able to retrieve and review the opinion.

Here are this week’s notable posts, articles and links: Trade Secrets and Covenant Not Compete Posts, Articles and Links: 
  • In a high profile case filed in California last week, American International Group and its subsidiary ILFC sued the co-founder and former chief executive of its aircraft-leasing business, Steven Udvar-Házy, and accused the industry veteran of stealing trade secrets and other confidential information for Air Lease Corp., a rival company he now runs.  The complaint alleges several employees, while still working at ILFC, downloaded confidential files and allegedly diverted deals with certain ILFC customers to Air Lease, before leaving to join Air Lease.  The case has generated a lot of headlines in the financial press and will be worth following. 
  • Law360 is reporting that two former Alliance-Bernstein executives have been held in contempt for using confidential information to lure their former clients to their new employer, Morgan Stanley. The two executivies, Peter A. Gelwarg and Kenneth A. Mayer, apparently violated a June 2011 TRO issued by New York Supreme Court Judge Eileen Bransten.
  • Does the practice of psychology fall within “the practice of medicine”? In Thomas Krajacich v. Great Falls Clinic, the Montana Supreme Court recently found that it did, at least based on its review of the four corners of the covenant not to compete. The court affirmed a lower court’s ruling that three psychologists who had left a medical practice forfeited their partnership shares when they began competing with their former partners. (A PDF copy of the opinion can be found below).
  • How long can a non-compete last in Texas? According to Strasburg’s Non-Compete Blog, in a recent case, Heritage Operating v. Rhine Bros., the Fort Worth Court of Appeals found that a 10 year covenant that accompanied the sale of a business was not per se unreasonable.
  • In the latest article extolling prior user rights under the America Invents Act (AIA), Fast Company’s John Villasenor concludes that the AIA’s new prior user rights have effectively given trade secrets a “promotion” over patents. In “5 Ways To Leverage Trade Secrets,” John writes that trade secrets “retain the same advantages as before in terms of offering a competitive advantage, while one of their risks–the possibility of being held liable for practicing your own trade secret–has been lowered.” 
  • Two weeks ago, I wrote about a non-compete dispute between an Ohio radio station and a pair of its former radio personalities over whether a streaming online show was covered by that non-compete. Stark County Court of Common Pleas Judge Charles E. Brown, Jr. has since issued his opinion finding that WDJQ’s covenant not to compete did not apply to the online venture launched by Patrick DeLuca and Charlotte DiFranco. (A copy of the opinion can be found in the second PDF below).
  • Apple is notoriously good at keeping its trade secrets secure. Its latest idea? Building its own employee-only restaurant to keep prying ears from listening to shop-talk between Apple employees. 
  • In the latest legislative development involving non-competes, Tennessee’s legislature recently eliminated the six-year limitation on non-compete agreements and extended the statute to include osteopathic physicians, reports Burr & Forman’s new Non-Competes & Trade Secrets Blog. However, the statute will continue to prohibit non-compete agreements for physicians specializing in emergency medicine.
China and Trade Secrets:
  • “US Grapples With Growing Threat From Trade Secret Theft,” reports The Wall Street Journal. The article details efforts by the Obama administration to work more closely with the private sector to address this threat which it details is primarily originating within China. The Journal says the catalyst for this planned public-private partnership was a recent study released by The Center for Responsible Enterprise and Trade, or Create, a nonprofit that promotes “better practices in the supply chains of multinationals on issues like corruption and intellectual property rights.” According to the article, Pamela Passman, a former deputy general counsel at Microsoft who founded Create, said trade secret theft is becoming an “epidemic,” but isn’t discussed much because of the sensitivities involved.
Computer Fraud & Abuse Act Articles and Posts: 
  • The Computer Fraud and Abuse Act (CFAA) does not apply to throttling cases, according to the Eastern District of New York. The practice of “throttling,” or limiting heavy users’ access to Internet servers to free up bandwidth for others has spawned a number of lawsuits against ISPs who are struggling to manage their bandwith. Robert Milligan of Seyfarth’s Trading Secrets Blog reports that in Serrano v. Cablevision Systems Corp., the Eastern District dismissed a class action under the CFAA, finding the claims were barred “by the clear language of the Terms of Service and the Acceptable Use Policy.”
Cybersecurity Articles and Posts:
  • The U.S. House of Representatives passed the Cyber Intelligence Sharing and Protection Act (CISPA) last week, and it is shaping up to be a battle as it moves to the Senate. The Washington Post has a good summary of the legislation.
  • For a fairly balanced view of CISPA, check out Alex Howard’s “Passage of CISPA in the U.S. House Highlights Need for Viable Cybersecurity Legislation” on O’Reilly’s Radar.
  • “An Ex-FBI Cybersecurity Expert’s Dire Warnings for Corporate America,” reports Catherine Dunn of Corporate Counsel. Former FBI official Shawn Henry has become one of the stronger advocates for greater corporate emphasis on cybersecurity.
News You Can Use:
  • “Do iPhones Make Us Narccisists”? asks SmartMoney.  
Krajacich v. Great Falls.pdf (144.86 kb) DeLuca v. DA Peterson.pdf (1.13 mb)

Last month, I wrote about Allergan’s “Botox” trade secret dispute with its competitor, Merz Pharma, a dispute that led to an extraordinary injunction forbidding Merz from rolling out its drug Xeomin for cosmetic purposes for 10 months. That post generated a lot traffic; in fact, it was easily the most popular post that I have written over the past year. Given that it struck a chord, I thought it would be useful to outline what lessons can be drawn from that case.

First, a quick recap for those not familiar with the case. Judge Andrew Guilford of the Central District of California came down like a ton of bricks on Merz Pharma, forbidding it from rolling out its drug, Xeomin, for ten months because of the misappropriation of trade secrets by a team of seven former Botox sales representatives and sales managers from Allergan. Merz had defeated Allergan’s motion for a temporary restraining order in August 2010, after assuring the court that Merz did not have any of Allergan’s trade secrets and no intention of using its trade secrets. 

Subsequent events, however proved otherwise. After a pre-trial conference, Merz produced thousands of documents and emails which indicated that the sales team had in fact taken proprietary documents with them and they had been circulated within Merz. At the close of the nine day bench trial, Judge Guilford stated that he had concluded there were “dramatic acts of misappropriation” and his opinion emphasized that his findings of fact were “largely based” on the credibility of the witnesses. Judge Guilford also identified nearly a dozen confidential Allergan documents that Merz had in its possession prior to the TRO conference in August 2010, including internal emails circulating a confidential Allergan PowerPoint addressing its launch of another cosmetic product (Juvederm), detailing Allergan’s sales volumes in specific territories, Allergan employee information that was apparently used for recruiting purposes, and information about Allergan’s Partner Privilege Program. 
 
So what are the lessons we can draw from this case?

Lessons for In-House Counsel:
 
1. Keep an Eye on New Research and Sales Teams. Of course, in retrospect, it all seems so obvious. A new sales team from a competitor is brought aboard and is under tremendous pressure to deliver sales for a potential blockbuster product. The temptation to bring proprietary information to meet those goals and to cut corners may be too tough to ignore in this highly-pressurized situation.

In-house counsel need to be attuned to these situations, and it may be a tough tightrope to walk. Periodic audits and deep dives to make sure that the team is not succumbing to the temptation may be necessary. However, the best approach may be the old-fashioned approach: a face-to-face meeting with the entire team to reinforce the importance of safeguarding the previous employer’s information and business interests. Establishing that personal bond may be the most effective way to communicate the importance of abiding by the safeguards in place to avoid litigation.

2. Don’t get Complacent after an Early Win. It is easy to envision what may have happened here: the client probably felt that the storm had passed and did not want to commit any further spend to the litigation. It’s a tough situation to manage, but in-house counsel have to remember that only the first battle has been won, and not the war. 

It appears that Merz may have let its guard down, because there are a number of telltale signs: not following up on all of the forensic examiner’s hits (a sure sign to me that the client wanted to scale back its expenses in the case); failure to search appropriate computers; and failure to timely produce relevant documents. 

3. Make Sure Management Has Your Back. In order to effectively manage any situation like this one, counsel needs to know that they have senior management’s support. Before the hiring of the team is complete, in-house counsel should be supportive of the hire but make sure that management knows of the potential for trouble and the need for its backing to avoid a similar result.

Lessons for Outside Counsel:
 
1. Don’t Oversell at the TRO Conference. This is a really tough one to put into practice, as the emotion and intensity of a TRO conference, particularly one with the stakes of this kind of case, can cause the best of us to get carried away. However, it is clear that the district court felt that the first court got burned at the TRO stage. Reading Judge Guilford’s quotes from the TRO conference is enough to make you cringe. At the time that Merz’s counsel were making forceful statements about not using or wanting Allergan’s trade secrets, Merz’s new sales team was circulating proprietary information and trying to cover their tracks. The lesson? Be measured in your statements at the TRO conference because you never know what lurks around the corner.

2. Let Your Forensic Expert Do His Job. It appears that the forensic expert retained by Merz was not fully utilized by counsel. Indeed, Judge Guilford emphasized the disconnect between the forensic examiner and the trial team. Dylan Wiseman’s post on the Littler Unfair Competition & Trade Secrets Counsel Blog, has a solid analysis:

The Merz defendants’ own computer forensic review was arguably superficial. The search terms were developed by the Merz defendants without consultation or input from their computer forensic expert. Further, the search terms oddly did not include the term “Allergan.” The Merz defendants also did not search the computers belonging to the four former Allergan employees who had joined Merz Aesthetics. The Merz defendants also did not include any portable storage media from the 50 custodians they had identified as potentially having Allergan’s information. Likewise, the results of the Merz defendants’ computer forensics, which produced “thousands” of hits, were not analyzed by its own consultant, but rather were turned over to the Merz defendants and their outside counsel. The court concluded that “the Merz Defendants’ searches for Allergan’s trade secrets and confidential information were inadequate.

3. If You Have a Good Case, Don’t Let an Early Setback Deter You. Allergan and its outside counsel should be commended as it would have been easy to throw in the towel after a disheartening loss at the TRO stage. I feel like I am giving a motivational speech to my 12 year old’s football team, but it had to be extraordinarily tough to get up off the mat after that early loss and turn this case around. Allergan and its trial team concluded that they had the goods on the former employees that had departed based on their own forensic examination of their laptops and other devices. They persevered despite a significant setback early on by staying the course, perhaps the most important lesson of all.

I’m active in the American Intellectual Property Law Association’s Trade Secrets Law Committee and for those who are either attending the AIPLA’s Spring Meeting in Austin, Texas or still considering it, I wanted to let you know that a panel that I helped organize will be speaking on a number of significant trade secret issues with an emphasis on the increasingly international aspects of trade secrets disputes. 
 
The presentation, “The Internationalization of Trade Secret Disputes:  Big Cases, Big Verdicts and Big Challenges” is scheduled for the morning of May 10, 2012 and runs from 9 a.m. to noon. The topics and speakers include:

  • “Managing and Protecting Your Trade Secrets Overseas – Best Practices to Minimize Misappropriation” – Beth Apperley of AMD in Austin, Texas;
  • “Employees Without Borders:  Managing personal devices and digital technology in an increasingly mobile world” – Ron Johnstone of Yahoo in Sunnyvale, California;
  • “Overcoming the Special Challenges of Litigating against Foreign Parties and Companies” — Michael J. Songer of Crowell & Moring’s Washington, D.C. office;
  • “Litigating Spoliation of Evidence Disputes:  Fallout from the DuPont v. Kolon case and how to use, or avoid, it in your trade secret case” – Griffith Price of Finnegan’s Washington, D.C. office;
  • “Litigating Trade Secret Cases before the ITC – The future of TianRui Group v. ITC and the fallout on trade secret protection internationally” – Bryan Wilson of Morrison Foerster’s Palo Alto, California office; and
  • “Update on Pending Trade Secret Legislation – Status of the Economic Espionage Act, Cybersecurity Bill, New Jersey’s recent adoption of UTSA and recent state trade secret and non-compete legislation” – Peter J. Toren of Weisbrod Mateis & Copley in Washington, D.C.

Mark Halligan of Nixon Peabody’s Chicago office and one of the prominent voices in the trade secret community will be serving as moderator.  Having had the privilege to help put together the presentation and assemble the panel with Dan Westman of Morrison Foerster and David De Bruin of Michael Best, I am excited about the presentation as it hits a number of big decisions and topics in the news — DuPont v. Kolon, TianRui Group v. ITC, mobile devices, and the Economic Espionage Act, among others.
 
It is not too late to register for the AIPLA’s Spring Meeting (here’s the link).  Hope to see you there!

Here are the noteworthy posts of the week: Trade Secret and Covenant Not to Compete Posts, Cases and Articles: 
  • In the latest high profile battle over which state’s law should apply (i.e., California v. every other state), sports agent Aaron Mintz is battling his former employer Priority Sports & Entertainment over the enforceability of his non-compete. Mintz filed a lawsuit in California on the day he left Priority Sports to join powerhouse Creative Artists Agency. Mintz, who has resided in California for the past 11 years, is challenging the enforceability of his employment agreement’s choice of law provision, which provides that Illinois law will apply and he is asking the California federal court to set aside the restrictive covenant on the grounds that it is against California’s public policy. 
  • Does an employer get screwed if it can’t extend its non-compete past the expiration date? Littler’s Unfair Competition & Trade Secrets Counsel Blog has a fine post about this rule in many states — namely, that even if an employee breaches a non-compete, an employer cannot extend the covenant past its expiration date to get the full benefit of its covenant.  For what it is worth, Ohio is an exception to this general rule, as it allows an employer to get the full term of its covenant provided the employer initiates the action before the expiration of the non-compete. 
  • Ignore a permanent injunction and you may find yourself in jail, at least that’s what a Nebraska insurance agent is learning.  Larry Hall was jailed because of his most recent violation of a judge’s order that he stop writing policies and commissions to certain clients, having been held in contempt before for violating a previous injunction enforcing a non-compete, according to the insurance website ProducersWEB.com.
  • Freedom of Information Act Requests (FOIA) seeking potential trade secrets are becoming a hot topic.  Law360 is reporting that power plant operator PPL Montana LLC has sued the EPA to stop it from releasing data to two environmental groups about upgrades to its Montana coal-fired plant, arguing the move would reveal confidential business information to competitors.
China and Trade Secrets:
  • Should you be worried about employees providing trade secrets to Chinese competitors?  Peter Torren says you should and notes that 86% of recent prosecutions under the Economic Espionage Act (EEA) have had a connection to China in an article for Forbes entitled “Chinese Espionage:  The Risks Within U.S. Companies.”  Peter urges Congress to act on the pending Cybersecurity legislation and proposed civil amendment to the EEA.
  • U.S. corporations have lost more than $13 billion due to spying and that’s just for cases now under FBI investigation according to FBI counterintelligence chief Frank Figliuzzi in an article entitled “China-linked economic spying on the rise” according to a post by The Beaumont Enterprise.
Posts and Articles on Procedural Issues Important in Trade Secret Disputes:
  • What does it take to persuade a court to order the imaging of computers of a departing employee?  KL Gates has a fine post in its Electronic Discovery Law Blog about a recent case, United Factory Furniture Corp. v. Alterwitz,  that provides a template for what you may need to show to image that evidence (always good to have in your hip pocket in a trade secret case).
  • You have great electronic evidence but can you authenticate it?  Given the growing importance of social media and other electronic communications in litigation, authentication may be a greater challenge than you might expect.  Eric Goldman’s Technology & Marketing Blog reports on a recent case allowing “circumstantial” authentication and provides other links to cases looking at this issue.
  • Are settlement negotiations discoverable? The Eastern District of Texas says “maybe,” according to a post about a recent ruling in a patent case, Hill v. Abt.  According to EDtexweblog, in the context of determining the reasonableness of a royalty rate, “[w]hether the license negotiations and settlement discussions are properly discoverable will likely depend on whether, within the context of each case, they are an accurate reflection of the patents’ underlying value and whether their probative value exceeds their prejudicial effect.”
Cybersecurity Articles and Posts:
  • “With so much at stake, companies turn to hired hackers” according to the Los Angeles Times.
  • “Is the boss spying on you? Cyber-snooping on rise,” according to an article by The Palm Beach Post News.
  • “Do you have a data breach response plan?” asks tech blogger Pete DiNardo (thanks to Mark Halligan for locating this one, which I missed from last February).
  • “Refund Tax Fraud, iPhone, Feed Identity Theft By Employees” reports Janet Novack of Forbes.
News You Can Use:
  • “Is Your Smartphone Making You Less Productive?” asks the Harvard Business Review.
  • “FBI: Disinfect Your Computer Or Risk Losing Internet Access Come July” advises Adrian Kingsley-Hughes of Forbes.

04242012A recent survey by Harris Interactive for security software provider FileTrek has some discouraging findings regarding American attitudes about confidential information in the workplace. Here are the particulars:

Although most adults (79%) agree that taking confidential files outside the office is grounds for termination, a majority of Americans (90%) nevertheless believe people remove confidential documents from the workplace. Most adults surveyed said that if they were going to risk taking confidential documents, they would use a USB drive (55%).

Not surprisingly, the study also found a “generational gap” in attitudes about confidential information in the workplace. While a solid majority (68%) of the so-called Millennial generation (those between the ages of 18-34) believe it is acceptable to remove confidential files out of the office, only 50% of the 55+ age group believe the same.  In addition, adults 55 and older are more likely to believe someone should be fired for taking confidential information than their younger counterparts (86% vs. 74% of those ages 18-54).

Though 40% of adults surveyed said it is never acceptable to remove confidential company information out of the office, the report found there are circumstances for which they believe it is acceptable:

  • 48% – when boss says it’s okay to do so;
  • 32% – to finish a late night project from home instead of having to stay at the office;
  • 30% – to work over the weekend or while on vacation;
  • 16% – when it is confidential information about themselves;
  •  2% – when it can be brought back to the office before the boss knows it was gone;
  •  2% – to show something to family or friends who promise to keep it confidential (my personal favorite).

FileTrek’s CEO, Dale Quayle, interprets the survey’s results to mean that “[t]oday’s workforce believes information is an asset to be shared, and while companies have benefited from this collaborative attitude with new technologies and increased productivity, there are risks too.” 

The takeaway? Employers need to be prepared to address these attitudes with better education and training to make sure that employees fully understand the importance of preserving the confidentiality of trade secrets and other proprietary data. As I wrote a couple of months ago, building and reinforcing a culture of security is the first and most important step. And unfortunately, if the message does not get through, they may need to be prepared to use litigation to protect themselves. (Thanks to Jon Hyman’s excellent Ohio Employers Law Blog, which had a post about the study this month).

To what extent should a company enforce a covenant not to compete? Should it enforce against every employee that leaves to join a competitor? Should it enforce the covenant to its full terms or reach a compromise with the departing employee? These are some of the thorny questions that companies and their lawyers face when a valued researcher, manager, officer or sales representative leaves for a competitor.
 
However, simply because you can potentially restrict someone under a covenant not to compete does not necessarily mean that you should. “Exhibit A” in that discussion is what ESPN described as “Transfergate” — a commotion last week involving University of Wisconsin basketball coach Bo Ryan, who came under withering criticism for imposing a number of heavy-handed restrictions on the transfer request of an unhappy freshman player named Jarod Uthoff. 
 
The National Collegiate Athletic Association requires a player to sit out a year if he or she wishes to transfer to another school, but its rules also give a coach the discretion to “block” an athlete from transferring to specific schools.  Ryan wielded that perogative like a hammer. He not only blocked Uthoff from transferring to any of the other eleven schools within the Big Ten Conference, but also barred him from transferring to any of the twelve teams in the Athletic Coast Conference, nearby Marquette, and, in what was viewed as a display of vindictiveness,  Iowa State University, a school located near Uthoff’s hometown. 
 
Wisconsin and Ryan ultimately backed down after Ryan’s ill-fated interview on ESPN Radio’s “Mike & Mike in the Morning” Show. Cutting its losses, Wisconsin announced it would allow Uthoff to transfer to any school outside the Big Ten. 
 
You may now be asking, that is all well and good, but what does this have to do with covenants not to compete?  Several things.  First, don’t let emotion drive the decision-making process. Non-compete disputes are notoriously emotional affairs — feelings of betrayal, rushed decision-making, fears about the loss of a business. It’s easy to get swept up, as Ryan apparently did in wanting to stick it to Uthoff. However, remember that you may find yourself playing to a higher authority (a judge) so it is important to take a deep breath and apply a measured approach.
 
Second, consider the facts on the ground. An employer may receive assurances from the former employee and his/her new employer that eliminate the need for rushing into court. If they offer proof of their intention to protect the former employer’s trade secrets and not solicit its customers and employees, it may be prudent to find a way to reach a compromise. (See the IBM v. Visentin case for an effective example of this strategy). Conversely, there may be cirmcumstances where compromise won’t be possible — such as situations involving serious misconduct by the former employee or the mass exodus of senior executives — which may require enforcement of the covenant in its entirety.  
 
Third, remember that the actions that you take may ultimately be reviewed under the microscope of litigation.  To illustrate, Ryan and Wisconsin lost considerable credibility in the debate when they added Iowa State and the entire ACC conference to their “do not transfer” list. They appeared mean-spirited and unreasonable. 

As most non-compete disputes involve considerations other than the letter of the contract, equitable considerations can sway the day. A company may squander the high road if it appears to be punitive in its negotiations or legal position with its former employee. Indeed, many covenant not to compete cases are fought not only in the courts but in the media, so efforts at perceived over-reach can truly boomerang (Witness Cisco’s battle with HP over HP’s efforts to enforce a non-compete against Paul Perez last year). 

The takeaway? Consider every potential dispute on its facts, protect your legitimate interests but be open to compromise where appropriate, and minimize the emotion as best you can.