The big news this week was the Ninth Circuit’s decision in U.S. v. Nosal and the Second Circuit’s decision in U.S. v. Aleynikov (briefly addressed below).  Here is a rundown of the notable decisions and posts of another busy week: Trade Secret and Non-Compete Posts and Articles:
  • Yesterday, the U.S. Court of Appeals for the Second Circuit issued its opinion explaining why it vacated the criminal conviction of former Goldman Sachs programmer Sergey Aleynikov in February.  As expected, the Second Circuit held that the actual software he stole was “not produced for or placed in interstate or foreign commerce” as required under the Economic Espionage Act. (A PDF copy of the decision can be found below).  I am in the process of reviewing it more closely and I will have a post addressing it over the weekend. 
  • Massachusetts may be the next state to adopt the Uniform Trade Secrets Act according to Foley Hoag’s Massachusetts Noncompete Blog.  Brian Bialas is reporting the bill was introduced in late January and testimony addressing the pros and cons of the bill was presented to the Massachusetts Joint Committee on the Judiciary on February 28, 2012.  Brian’s take is that bill has received lukewarm support from the legal community because of potential complications with the pending non-compete legislation as well as concerns by lawyers about their ability to recover treble damages.
  • The long-running prosecution of a former Intel engineer who stole technology estimated at $1 billion has resulted in a plea on the eve of trial.  Biswamohan Pani, who prosecutors say downloaded Intel’s confidential documents after joining rival Advanced Micro Devices Inc., could see 20 years’ imprisonment, a $250,000 fine and three years of probation for each count, according to the plea agreement.
  • Akerman’s HR Defense Blog warns of the dangers of failing to tailor your non-competes to how your employees perform their job in “Horse Doctors Make Housecalls: A Lesson in Why Boiler-Plate Non-Compete Agreements May Not Hold Up in Court.”  Kenneth Vanko has a thorough post about the Florida decision, Heiderich v. Florida Equine Veterinary Svcs., Inc, as well.
  • For those doing business in China, a non-disclosure agreement is not enough.  Rather, in a post entitled, “NNN Agreements: Watching the Sausage Get Made,” Dan Harris’ China Law Blog advocates provisions that also restrain competition and forbid use of the trade secrets, and his post details the factors to consider when drafting and negotiating those agreements.
  • U.S. District Court Judge Robert Payne has dismissed Kolon’s antitrust counterclaim against DuPont.  While DuPont had moved for summary judgment on various grounds, including a request that the case be dismissed because of Kolon’s spoliation of evidence (see the update on this request in this previous post), Judge Payne’s summary judgment ruling focused on the the merits of the antitrust issues.  (A copy of the 51-page opinion is attached below).  I believe there are no further claims remaining in this case and Kolon will now be left to appeal this decision to the Fourth Circuit.
  • Watch out for inconsistent forum selection clauses in transactions involving multiple agreements warns Seyfarth Shaw’s Trading Secrets Blog.  The post details a recent ruling by the District Court of Colorado in Robert Stuart v. Marshfield Doorsystems, Inc. which declined to dismiss an action filed in Colorado because only one of the integrated agreements (the employment agreement with the non-compete) specified Chicago as the forum for the dispute. 
Cybersecurity Posts and Articles: 
  • “Why Aren’t Companies Better Prepared for Data Breaches?” asks Catherine Dunn on Corporate Counsel’s website. 
  • The Threat Post Blog has an article warning “Executives Abroad May Get Owned Before They Get Off the Tarmac.” 
  • According to The Wall Street Journal, “The Enemy Within: For the IT staff, the biggest security risk is…the IT staff.” 
News You Can Use:
  • The New York Times’ Personal Tech page has advice for “Eluding a Barrage of Spam Text Messages.”
U.S. v. Aleynikov.pdf (85.90 kb) Dupont v. Kolon – Opinion dismissing antitrust counterclaim.pdf (4.18 mb)

Yesterday, the U.S. Court of Appeals for the Ninth Circuit issued its highly-anticipated ruling in United States v. Nosal, 10-10038. In a 9-2 en banc decision written by Chief Judge Alex Kozinski, the Ninth Circuit reversed its previous ruling by a three-member panel and rejected its expansive reading of the Computer Fraud and Abuse Act (CFAA) finding that violations of an employer’s computer use policy could qualify as the requisite “exceeded authorized access” under the CFAA, and therefore subject a defendant to the CFAA’s criminal provisions. (A copy of the opinion can be found below).

When the three-judge panel of the Ninth Circuit issued the initial ruling last April, there was a firestorm of controversy that the CFAA could now potentially criminalize the conduct of employees who reviewed personal websites like Facebook at work if their employer’s computer usage policy forbid looking at personal websites. And there was also concern that the ruling’s reasoning could be used to criminalize conduct that was inconsistent with the many online Terms and Conditions to which we mindlessly click “AGREE” so we can access that website. 

Indeed, as I wrote last fall, at least one California district court, in Facebook v. MaxBounty, had applied Nosal’s reasoning to that very situation when it found that the CFAA’s civil remedies could apply if a business failed to follow the online instructions of Facebook. There was a remarkable amount of commentary about Nosal, with Professor Orin Kerr and The Wall Street Journal both expressing concern over its potential scope. As a result, many lawyers and businesses have been anxiously waiting for a definitive ruling.

Chief Judge Alex Kozinski’s introduction in many ways evokes U.S. Supreme Court Justice Sonaa Sotomayer’s recent statements in U.S. v. Jones, where she expressed concern about our evolving expectations of privacy and computer usage in the context of the Fourth Amendment. Judge Kozinski wrote:

“Computers have become an indispensable part of our daily lives. We use them for work; we use them for play. Some times we use them for play at work. Many employers have adopted policies prohibiting the use of work computers for nonbusiness purposes. Does an employee who violates such a policy commit a federal crime? How about someone who violates the terms of service of a social networking website?”

Later in the opinion, Judge Kozinski emphasized that very concern, noting that “[t]he government’s construction of the statute would expand its scope far beyond computer hacking to criminalize any unauthorized use of information obtained from a computer. This would make criminals of large groups of people who would have little reason to suspect they are committing a federal crime.”

For a thorough analysis of the opinion, see Robert Milligan’s post at the Trading Secrets Blog. I am certain there will be plenty of commentary in the coming days.

U.S. v. Nosal.pdf (103.39 kb)

04072012Last November, I wrote about the basics of cloud computing as well as some best practices for protecting trade secrets stored in the cloud. Given the fast pace of innovation, and the exponential number of recent reports of hacking and cybertheft, my colleague John Molnar and I decided an update was in order. We have assembled a number of posts on the cloud issue and incorporated our own recommendation.

The Legal Analysis: To date, no court has yet considered the question of whether a company’s placement of trade secrets in a cloud-based network would be unreasonable.  However, as the title of my post suggests, there has been no shortage of articles and posts from legal and technical commentators. 

For example, in a guest post for Forbes entitled “Is It Safe To Store Your Trade Secrets In the Cloud?”, Finnegan lawyers Rob McCauley, Ming Yang, and Jared Schuettenhelm worry about the legal ramifications of storing trade secrets in the cloud. According to their post, if the cloud is known to not be 100% secure, a court might find that a company failed to take reasonable efforts to maintain the confidentiality required for most trade secret claims. Such a ruling would have potentially great ramifications when one considers the fact that cloud computing typically includes e-mail services like Google’s Gmail and Microsoft’s Hotmail as well as document synchronization like Apple’s iCloud. 

To demonstrate that a company protected its trade secrets, Peter Vogel of Gardere recommends negotiating the right to regularly conduct audits, as well as a provision ensuring deletion of all information if and when the relationship with the cloud provider is terminated. These provisions would help insulate a business from any claim that it acted unreasonably in storing confidential information in the cloud.

In a post entitled “How to Avoid Losing Your Trade Secrets When Moving to the Cloud,” IP blogger Peter Toren proposes a two step test for determining if a trade secret owner has made a reasonable effort to ensure confidentiality in the cloud. First, Peter advocates that a business require its cloud service vendor to certify that it has appropriate security procedures. Second, the trade secret owner needs to do more than simply accept the vendor’s assurances at face value, and Peter believes a showing that a company performed due diligence to verify the vendor’s claimed security procedures would demonstrate that it acted reasonably. I would tend to agree.

Technical Considerations: Given the importance of due diligence for verifying the security of cloud storage, what should be checked? Jon Brodkin of InfoWorld gives seven recommendations from the technology research firm Gartner, Inc. While his post is several years old, it provides sound advice like demanding transparency from the cloud service vendor, checking on the specific jurisdiction where the data will be stored in, and ensuring data segregation — all of which remain important today. 

Similarly, as Mary Beth Hamilton of Eze Castle Integration notes in the Wall Street & Technology Blog, a trade secret owner needs to check how the vendor handles external security threats as well as internal data comingling.  But it is not just a vendor’s technology that needs to be investigated. Due diligence should include the vendor’s physical facility as well. Cloud computing expert George Hulme recommends redundant data backup beyond the cloud vendor. Trade secret data would be saved to the cloud while still being backed up locally.

The Takeaway? If concerns about security cannot be resolved, a company may want to consider an in-house private cloud as Bart Copeland, CEO of cloud software provider ActiveState, recommends. While a private cloud might not be right for every enterprise, it would allow the trade secret owner to exercise full control. Of course, some of the benefits of cloud computing would be lost  but the risk of losing those trade secrets and the inability to get legal relief to retrieve or protect them should outweigh those considerations.

Lastly, the best defense of trade secrets in the cloud may be the simplest. A trade secret owner needs to be sure that the benefits of storing a trade secret in the cloud outweigh the risks. Put differently, that which is not stored in the cloud cannot be stolen from the cloud. Consequently, the best protection for a company’s crown jewels is to keep them out of the cloud entirely and only store trade secrets of lesser value in the cloud. 

My colleague Art Stein and I will be speaking on Thursday, April 12th at 12:30 p.m. at the Columbus Intellectual Property Law Association’s April Meeting for the presentation, “The America Invents Act, The Economic Espionage Act and Other Tumultuous Developments in Patent and Trade Secret Litigation.”   

 
This will be the fifth year in a row that Art and I have spoken together at CIPLA and it is truly one of my favorite presentations of the year. Some of the topics we will address will include:
  • Identifying some of the most noteworthy changes to U.S. patent and trade secret law as a result of the America Invents Act (AIA) and how it may affect the strength and the versatility of trade secret protection;
  • Discussing how the interplay between trade secret and patent prosecution may shift under the AIA;
  • Providing insights on likely changes to both patent and trade secret practice as the new provisions of the AIA come fully into effect; and
  • Addressing other major developments in patent and trade secret litigation, including recent developments under the Economic Espionage Act and other relevant trade secret statutes.
Lunch begins at 11:30 a.m. I have attached a brochure with additional details for the presentation in a PDF below. 
 
Art and I hope to see you there. 
 
 
 

Neither snow, nor rain, nor a family Spring Break vacation in Orlando can prevent the Trade Secret Litigator from delivering his Thursday Wrap-Up. Without further ado:
 
Trade Secrets and Covenants Not to Compete Posts and Articles: 

  • China’s role in the theft of the trade secrets of American companies is now the focus of The New York Times Op-Ed page, courtesy of a piece by former counter-terrorism czar Richard Clarke. Following up on the concerns he recently expressed in an interview with The Smithsonian (see my post from last week), Clarke doubts the effectiveness of the various cybersecurity bills pending in Congress and advocates regulations or legislation that would empower the executive branch to notify and assist American companies whom it believes are going to be attacked. 
  • PepsiCo was able to vacate a suspicious $1.26 billion default verdict on a trade secret claim in Wisconsin by demonstrating the claim was barred under the statute of limitations. Todd Sullivan’s Trade Secrets Blog reports on the case, James v. PepsiCo, Inc. The plaintiffs claimed that they met with representatives of PepisCo in 1981 and disclosed certain trade secrets, including their ideas about bottled water called Ultra-Pure. In 2007, one of the plaintiffs tasted Aquafina and concluded it was a copy of Ultra-Pure, the bottled water that they had disclosed over twenty years before. After vacating its own $1.26 verdict, the Wisconsin trial court then dismissed the claims as untimely. 
  • The fine British IP Blog The IPKat is shocked, shocked, I say, to discover that trade secrets are actually very popular here in the U.S. (a bias one would readily expect from our patent brothers here in the U.S., and not from our more enlightened cousins from across the pond).  Last week, Neil Wilkof was aghast about the recent NSF report finding that more businesses used trade secrets than patents to protect their IP and so advised in a post entitled “Whatever the Report Says: Can Trade Secrets Really Be that Important?” In a guest post rejoinder entitled “Much, Much More on the Centrality of Trade Secrets,” James Pooley, the World Intellectual Property Organization Deputy Director General for Innovation and Technology, confirms the importance of trade secrets particularly in process technology and software. 
  • For those in Illinois, Kenneth Vanko’s Legal Developments in Non-Competition Agreements Blog thinks that the main fallout from the Illinois Supreme Court’s decision last year in Reliable Fire Insur. v. Arredondo will be that TROs enforcing non-competes will be tougher to get. Kenneth believes the requirement that a business show a legitimate business interest supporting a non-compete based on the “totality of the circumstances” will require companies to be more creative.
  • Employee handbooks and policies do not qualify as agreements, Littler’s Unfair Competition & Trade Secrets Blog reports. In a recent case in New Jersey, Metropolitan Foods v. Kelsch, the district court found that handbooks did not qualify as agreements and rejected the breach of contract claim, but allowed their use in support of a breach of the duty of loyalty claim. 
  • In light of the circumstantial nature of many trade secrets cases, digital forensics are always important and Seyfarth Shaw’s Trading Secrets Blog has the first of three guest posts by Jim Vaughn of Intelligent Discovery Solutions to walk you through the basics. 
  • Lemko has sued its insurers, claiming that they improperly denied it coverage for its epic trade secret dispute with Motorola, Law360 is reporting. It will be interesting to see how a court rules, given that the Northern District of Illinois found sufficient evidence of Lemko’s misappropriation of Motorola’s trade secrets to go to trial in the underlying case.

Cybersecurity Articles and Posts:

  • The big news this week was the breach of what is now estimated to be 1.5 million credit card accounts processed by Global Payments. For a quick recap, see the Washington Post’s summary, “FAQ: The Global Payments Hack.”

News You Can Use:

  • In light of the last bulletpoint, Forbes offers the following timely advice on “How to Protect Yourself from Credit Card Breaches.”
  • The Wall Street Journal warns “Beware Apps Bearing Unwanted Gifts.”

Former U.S. counter-terrorism czar Richard Clarke was always known as a refreshingly blunt official (few can forget his apology to the 9/11 families for the government’s failure to avert the attacks). True to form, in a recent interview with The Smithsonian, Clarke says Chinese hackers have been systematically stealing trade secrets from American firms on behalf of Chinese and foreign companies for years. 

“I’m about to say something that people think is an exaggeration, but I think the evidence is pretty strong,” Clarke tells Ron Rosenbaum. “Every major company in the United States has already been penetrated by China.” Clarke, who served three presidents as counter-terrorism czar, now operates a cybersecurity consulting firm called Good Harbor in Arlington, Virginia. He believes that, unlike U.S. covert activities which focus upon diplomatic and military secrets, China has been actively using the same techniques to cull information to assist its companies in stealing U.S. technology.

“My greatest fear,” Clarke says, “is that, rather than having a cyber-Pearl Harbor event, we will instead have this death of a thousand cuts. Where we lose our competitiveness by having all of our research and development stolen by the Chinese. And we never really see the single event that makes us do something about it. That it’s always just below our pain threshold. That company after company in the United States spends millions, hundreds of millions, in some cases billions of dollars on R&D and that information goes free to China….After a while you can’t compete.”

Clarke’s fears are not confined to industrial espionage and the commercial losses associated with them. According to the interview, Clarke is worried about the U.S. “supply chain of chips, routers and hardware we import from Chinese and other foreign suppliers and what may be implanted in them—“logic bombs,” trapdoors and “Trojan horses,” all ready to be activated on command so we won’t know what hit us. Or what’s already hitting us.”

The article is a great read and has many other fascinating tidbits. For example, Clarke says he believes the U.S. worked in concert with Israel to launch the infamous Stutnex attack, a worm that temporarily disabled Iran’s nuclear fuel enrichment facility in Natanz, and may have disrupted its operations for months if not years. 

Fascinating stuff and an easy, although disconcerting, weekend read.

Here are the past week’s noteworthy posts, as well as one or two that I didn’t include last week: Trade Secret and Covenant Not to Compete Posts:
  • Nixon Peabody is reporting on the latest social media case involving trade secrets, Christou v. Beatport. In that case, the District Court of Colorado found that an employer had adequately asserted a trade secret claim over log-in and contact information relating to a My Space account. Seyfarth Shaw’s Trading Secrets Blog also has a post on this case.
  • Xiaorong Wang, a former Bridgestone Tires engineer from Hudson, Ohio, has been indicted for allegedly stealing Bridgestone’s trade secrets and giving them to a Chinese polymer maker, Shanghai Frontier Elastomer Co. Wang’s alleged espionage involved burning proprietary information from Bridgestone computers onto six CDs during a five-hour stretch on April 14, 2010, the FBI said in an affidavit. 
  • Speaking of China, Dan Harris’ China Law Blog has an important analysis of the best way to protect trade secrets in China. Dan’s blog is very highly regarded (a regular member of the ABA’s Blawg 100) so those in the trade secret community should take what he says seriously. According to the post “China Corporate Espionage: The Real Problem and the Real Solution,” Dan acknowledges that “[t]heft of trade secrets is common and is encouraged by government policy.” However, “the actual thefts are done the old-school way: copying done by corporate insiders and trusted employees. Even worse, much of the theft is done based on gifts from the owner of the trade secrets.”  As a result, according to Dan, technical efforts to safeguard the trade secrets are doomed to fail and the best solution is a solid written agreement that will be enforced in China.
  • Should you make sure that your covenant not to compete includes a provision explicitly tolling the covenant for the period in which it is violated?  Epstein Becker’s Trade Secrets & Noncompete Blog says you should in New York and reports on a recent case, Delta Enterprise Corp. v. Cohen, that enforced such a tolling agreement.
  • Non-Solicitation Agreements in California remain viable, according to Littler’s Unfair Competition & Trade Secrets Counsel Blog. The post describes the Eastern District of California’s recent decision in Pyro Spectaculars North v. Souza that rejected arguments that would have gutted the enforceability of non-solicitation agreements under California Professions and Business Code 16600.
  • Estoppel and claims of moral turpitude were not enough to derail a non-compete in A.R.S. Services v. Baker, as Foley Hoag’s Massachusetts Noncompete Law Blog reports.  The employee claimed that the company had engaged in an unsavory business practice but the Superior Court of Middlesex disagreed, characterizing the employee’s claim as simply a business disagreement.
Cybersecurity:
  • In the post “Cybersecurity Researchers Team Up to Combat Online Crime,” The New York Times Bits Blog is reporting that a sort of “Justice League for Nerds” has been created to combat cybercrime.
  • However, they have their work cut out for them, as the FBI’s top cyber cop, Shawn Henry, has testified that the “U.S. [is] Outgunned in Hacker Wars.”  According to the Wall Street Journal, Henry says “[t]oo many companies, from major multinationals to small start-ups, fail to recognize the financial and legal risks they are taking—or the costs they may have already suffered unknowingly—by operating vulnerable networks.” 
  • “Here’s How Law Enforcement Cracks Your iPhone’s Security Code (Video)” demonstrates Forbes’ Andy Greenberg.  Required reading for the parent of every teenager with an iPhone.
News You Can Use:
  • Caveat Hoarders! “The Dangers Of A Messy Desk” by Jenna Goudreau of Forbes has instilled in me a resolution to start cleaning my office next week, or perhaps the week after.

The uproar over the recent op-ed piece by former Goldman Sachs derivatives trader Greg Smith in The New York Times has drawn attention to the special challenges of dealing with current or former employees who believe that they are whistleblowers.  I have written before about the unique risks presented by whistleblowers like WikiLeaks, anonymous bloggers who post confidential information over the Internet, and former employees like Bruce Gabbard, who accused Wal-Mart of spying on media and other critics.  A situation, however, that I have not covered yet is the one where an employee gathers trade secrets or confidential information in support of claims that he or she may have against his or her employer, individually or as a part of a class action. 

In these settings, an employer’s efforts to restrict dissemination may backfire in the form of bad publicity, a claim of retaliation, or reinforce the employee’s bona fides as a whistleblower in the eyes of the workforce, a court or the media following the dispute.  Not surprisingly, there are federal and state statutes that protect employees from retaliation for opposing unlawful practices or participating in litigation over those unlawful practices. 

A company should not underestimate the powerful tradition romanticizing whistleblowers in our history — think Ida Tarbell and Standard Oil, Upton Sinclair and the meat packing industry, Ralph Nader and the Chevrolet Corvair, and Daniel Ellsberg and the Pentagon Papers.  Whistleblower cases, therefore, are by far the most difficult cases to manage because the company is invariably going to qualify as the villain in this narrative and efforts to set the record straight may be perceived as retaliatory smears.  Alternatively, in some situations, communicating with the media may lead to the “Barbara Streisand Effect” — namely, drawing more attention to the situation and pouring kerosene on what was previously only a smoldering fire.

As we can see, this situation can turn into a real mess.  To the extent that a current (or more likely former) employee is about to publicly divulge important trade secrets or confidential information, an injunction may be the only means of preventing disclosure of the information.  In this litigation, an employee will likely invoke the First Amendment and the public interest (especially if the information in question implicates a matter of public debate or safety).  Federal courts are particularly sensitive (arguably overly so) to these arguments, so you need to select your battle and forum wisely and be prepared to fend off these issues with a strong showing of trade secrecy.
 
Another common whistleblower situation may arise in existing litigation, where an employee is already in a full-blown dispute with his or her employer (frequently a discrimination case) and decides to copy, misappropriate or steal documents to support his or her claims.  A frequent question is to what extent an employer can discipline or terminate the employee for violating its rules and what are the consequences within that litigation. 

As one might suspect, there is no bright-line rule.  Fortuntely, several federal courts have been reluctant to endorse this behavior and have looked at many factors to determine whether retaliation has in fact taken place.  These courts have focused on the circumstances of the copying (did the employee rifle through a supervisor’s desk or was it left on a copier?), what the employee did with the documents (simply share it with his/her lawyer or give it to other employees or to the media?), the safeguards that the employer undertook (are there policies and agreements that prohibited the copying and disclosure?), the relevance of the information to the employee’s claims, and the interests of the employer (how sensitive is the information? Does it include trade secrets? How disruptive is its disclosure to the employer’s business?).  

If there are genuine trade secrets and an employer has taken the right steps to protect them (clear policies, written agreements), the employer should be in a better position to defend any discipline or termination decision that follows the improper copying and use of that information.  Of course, any legal analysis involving this many factors hardly provides the certainty most employers would like in these situations. 

For those looking for more detail, please check out the excellent article written by Kevin O’Connor of Pecker & Abramson for the American Bar Association’s Litigation Section; it provides a good summary of the law in this area. Also, Seyfarth Shaw’s Trade Secrets Group is providing a webinar tomorrow on this topic for this interested in learning more (I hope to participate, schedule permitting).

What can an employer do?  Tread carefully.  If you are not in litigation yet but you feel your trade secrets are genuinely at risk, be prepared to preempt any disclosure and file first to frame the issue and prevent disclosure.  If you are already in litigation, monitor the employee appropriately, ensure that your policies and agreements are in place, and be prepared to face a bruising battle if the employee decides to start gathering and using confidential documents against you.

03242012Given the tough legal market and the resulting fragmentation within the legal community, it was inevitable that lawyers would find themselves battling over trade secrets as law firms splinter and partners attempt to take their books of business else where.  When it comes to lawyers and law firms, nothing is ever simple, and there are a number of nuances to these disputes that make them especially challenging.

Let’s talk about the recent cases.  The Wall Street Journal is reporting that Joseph C. Maher II, a former attorney from the renowned plaintiffs’ law firm, Weitz & Luxenberg PC, has filed a lawsuit against his old firm accusing it of “possessing a cache of confidential files from a competitor that allegedly could be used to earn millions of dollars.”  Maher, who was also the head of Weitz & Luxenberg’s Los Angeles office, claims the firm had a massive database on its internal network of confidential client and legal files that it allegedly purloined from one of its leading competitors, the Texas-based law firm, Waters & Kraus LLP.  The two law firms have offices across the country and compete for similar clients who may have asbestos-related claims.

This is not the only high profile case involving a dispute over lawyers and trade secrets.  Last month, SNR Denton’s lawsuit with Huron Consulting over the hiring of a team of consultants was back in the news.  Huron sued SNR Denton after the law firm hired health care partner Lisa Murtha, a former Huron consultant, whom Huron claims breached her noncompete agreements by recruiting other Huron employees to join her in jumping to the firm.  Also last month, Elliott Greenleaf & Siedzikowski sued a former partner and his new firm for allegedly installing software on Elliott Greenleaf’s computers that allowed him to have continued access to the firm’s files through the “cloud.”

These trade secret disputes between lawyers raise a number of tricky issues.  The most obvious are:

No. 1:  Can lawyers or law firms impose agreements on their associates or partners restricting them from taking clients?   As I wrote last month in my post about the GPC v. Wi-LAN case over the hiring of a former General Counsel, the answer is generally “no.”  Most states have adopted Ethical Canon 5.6 or its counterpart DR 2-108 that forbid restrictive covenants limiting lawyers because they interfere with a client’s ability to choose his or her own lawyer (the apparent exceptions being Arizona and California, which I am told have rejected the categorical rule).  That being said, there are occasional outlier decisions that may fail to apply this majority rule, as this post from Fisher & Phillips’ Non-Compete and Trade Secrets Blog demonstrates.

For those attorneys interested in finding out more about these issues or what their states may have to say, check out Russell Beck’s article for New England In-House,  Marshall H. Tanick and Phillip J. Trobaugh’s article on Minnesota law (“Non-Competes for Professionals: It is Not for Amateurs”), and this thorough discussion going on within Linked In’s Noncompete Lawyers Group.

No. 2:  Are lawyers subject to trade secret laws?  Absolutely.  So long as they abide by the ethical canons, lawyers should be able to protect their own confidential information and trade secrets.  Last month, Todd Sullivan’s Trade Secrets Blog wrote a post about a Texas case where a court granted a TRO to prevent a law firm’s former office manager from “teaching” a competitor how to do asbestos litigation in return for an agreement to split the proceeds 50-50.  According to Todd, the trade secrets addressed the firm’s “strategy and method of prosecuting asbestos cases and other mass toxic tort cases.”

No. 3:  What can lawyers and law firms do to protect themselves?  Practice what we preach.  In my experience, lawyers are extraordinarily careful about protecting their clients’ confidences.  However, when it comes to their own potential trade secrets, I suspect most lawyers are more concerned about practicing law, protecting their clients, and bringing in more clients than they are about protecting themselves (a not uncommon trait among professionals; doctors, for example, are notorious for ignoring the business aspects of their practices so they can focus on practicing medicine).  As I wrote last month, the consequences of this inattention can manifest themselves in dangerous ways, as lawyers are now perceived as soft on security, at least by cyberthieves and hackers. 

Similarly, if you and a partner or law firm are going to part ways (or looking to bring a new partner aboard), make sure that you first consult the ethical guidelines in your state about how to handle these situations (when and how to approach clients, etc.).  Then make sure that you conduct yourself in the same manner that you would recommend to a client. 

The takeaway?  It is a rough and tumble world, so govern yourselves accordingly!

Perhaps the busiest week in recent memory, so let’s get to the highlights: Trade Secret and Non-Compete cases:
    • Parker Poe’s Trade Secret & Unfair Competition Reporter asks whether “Trade Secrets Misappropriation Claims [are] under Attack in North Carolina?”  The post discusses a recent case, AECOM Technology Corp. v. Keating, in which North Carolina’s Business Court dismissed a claim because the alleged trade secrets — customer lists, customer contract information, pricing information and product information – were pled too generally to state a claim for misappropriation.  The post’s author expresses concern that a trade secret plaintiff in North Carolina will now face the Hobson’s choice of disclosing its trade secrets to survive a motion to dismiss.
    • If you are a dog-lover, you will enjoy Kenneth Vanko’s Legal Developments in Non-Competition Agreements post that describes a non-compete case, Western Indus. v. Lessard, out of Pennsylvania that imposed a mandatory injunction requiring the return of a bedbug-detecting beagle that a former employee was trying to sell on eBay.
    • Trade secrets and the Internet are back in the news: Russell Beck’s Fair Competition Blog writes about a recent opinion by the Southern District of Ohio, Allure Jewelers, Inc. v. Ulu, that denied a TRO because the plaintiff disclosed its alleged trade secrets on the Internet.  For more on protecting trade secrets over the Internet, check out my post last August on the Syncsort v. Innovative Routine decision, as well as the Trading Secrets Blog’s post on the Allure Jewelers case earlier this week.
    • Foley & Hoag’s Security Privacy and the Law Blog highlights the emerging split between courts under the Computer Fraud and Abuse Act (CFAA) over the scope of the phrase “exceeds authorized access,” a key element for a claim under the CFAA.
    • Seyfarth Shaw’s Trading Secrets Blog also has fine post on one of the CFAA decisions discussed in the post above, Walsh Bishop & Assoc. v. O’Brien.  In that case, the Minnesota District Court dismissed the employer’s claim because it found that the employees had authorized access to the information they allegedly stole.
  • One more CFAA post to check out, this one noting that “Merger Sabotage [is] Not a Damage Element under Computer Fraud Law.”  In that article reprinted in Corporate Counsel, Saranac Hale Spencer details the ruling in Sealord Holdings v. Radler by the Eastern District of Pennsylvania finding that the plaintiff failed to adequately aver specific damages to satisfy the standards under Twombly and Iqbal.
  • Whether non-competes can be enforced against lawyers remains a hot topic.  For those practicing in Minnesota, check out Marshall H. Tanick and Phillip J. Trobaugh’s article entitled “Non-Competes for Professionals:  It is Not for Amateurs” which also addresses Minnesota’s law for non-competes against accountants and doctors.
  • The Virginia Non-Compete Blog, whose focus is on the protection of employees, details a recent decision, United Marketing Solutions v. Goldberg, refusing to enforce a non-compete provision against a franchisee because it was overly broad.
  • For those in the financial community, Fisher & Phillips’ Non-Compete and Trade Secrets Blog offers “Protocol for Broker Recruiting:  5 Things to Consider.”  For the uninitiated, the Protocol is a voluntary agreement between financial firms designed to manage the transition of brokers and clients between those firms.
  • “Europe Inconsistently Protects Trade Secrets,” according to a survey cited by The Chemical Processing website.  According to Sarah Turner, counsel at Hogan Lovells and co-author of that survey, “[t]he differences in protection across the EU mean that businesses trading in some parts of Europe are in danger of losing significant revenue to their competitors” because investors may be “more willing to invest in countries where they believe that their secrets are adequately protected from misuse or misappropriation.”
  • “Without Chemical Trade Secrets, Innovation in America Could Become a Spy Game” notes the blog American Chemistry Matters.  The post also decries a proposed rule by the EPA that would require chemical manufacturers to disclose confidential chemical identities in health and safety studies.
Cybersecurity:
  • “Survey Says Canada Tops Mobile Data Loss, 58 Percent of Organizations Lose Data Through Insecure Mobile Devices” says Websense.
  • Social hacktivists have got the media’s attention.  Holman Jenkins of The Wall Street Journal says “Worry About the Hackers You Don’t See” because social hacktivists’ own tactics have been used against them; meanwhile, The New York Times peers into “The Soul of the New Hacktivist.”
  • Has the era of “Bypassing the Password” arrived?  According to The New York Times, the Defense Department will be funding a program to develop software that determines, just by the way you type, that you are indeed the person you say you are. 
News You Can Use:
    • Forbes warns not to ignore that file cabinet in a guest post by Mark Emery entitled “Paper Chase: The Huge Security Risks in Your File Room.”
    • “Cisco to Secure Employees’ Devices” according to The New York Times.  Seeking to capitalize on the growing “Bring Your Own Device” (BYOD) to work movement, Cisco will offer a service to interested customers to preserve their security and still allow employees to utilize their own smartphones and other devices.