One of the Defend Trade Secrets Act’s (DTSA) most noteworthy features is its provision forbidding injunctions that would prevent a former employee from entering into another employment agreement. As explained below, this provision,18 U.S.C. §1836(b)(3)(A)(i)(I), was included to preserve employee mobility and assuage concerns that covenants not to compete, as well as what is known as the “inevitable disclosure” doctrine, might be enforced by federal courts in states that have rejected their enforceability. Today’s post looks at the legislative history of that provision and how courts have interpreted it. Continue Reading The Defend Trade Secrets Act After One Year: Injunctions Affecting New Employment
Yesterday, Uber released a letter that it had sent to Anthony Levandowski notifying him of its intention to terminate him as an employee because of his failure to cooperate with an Order issued on May 11, 2017 by U.S. District Court Judge William Alsup. While most of the media coverage of the case had previously focused on the portion of the Order effectively quarantining Levandowski from Uber’s development of its LiDAR technology, perhaps the most noteworthy portions of the Order proved to be Judge Alsup’s directives to Uber to get to the bottom of what Waymo trade secrets Levandowski might have shared with others at Uber. (A link to Judge Alsup’s Order can be found here). As I explain below, those two paragraphs of Judge Alsup’s Order inevitably set Uber against Levandowski and led to his termination.
Continue Reading Why Uber’s Firing of Anthony Levandowski Became Inevitable
As the first year anniversary of the Defend Trade Secrets Act (DTSA) has just passed, it is worth taking a step back and taking stock of how courts have treated key provisions. This will be the first of several posts covering developments under the DTSA and analyzing how it has been used since its enactment.
One of the most-discussed features of the DTSA was its creation of a “whistleblower” immunity that allows employees to share evidence of an employer’s alleged misconduct with government authorities or present that evidence in support of a retaliation claim under seal in court and avoid a claim that the employee misappropriated trade secrets when they disclosed that information. This provision, 18 U.S.C. §1833, is the only provision of the DTSA that preempts state law, so it affords protection to an employee against an employer’s claims under the Uniform Trade Secrets Act or common law as well.
As readers may recall, the DTSA requires employers who want to take advantage of the DTSA’s full protections to amend their contracts, employee agreements, and policies to provide notice of that whistleblower defense to its employees, which has been broadly defined to include independent contractors. If a company fails to include that notice in its agreements or policies, it is foreclosed from seeking claims for attorney’s fees and exemplary damages under the DTSA. The DTSA broadly defines an employee to include “any individual performing work as a contractor or consultant for an employer” so both 1099 and W-2 employees are covered under this provision.
Not surprisingly, when the DTSA was enacted, many employers were concerned about what, if any notice, needed to be supplied to its employees about this immunity and to what extent they needed to amend their employment agreements and policies. Section 1833(b)(3)(B) makes clear that an employer can comply with this notice provision if its employment agreement simply cross-references a policy document that more fully describes the employer’s reporting policy for a suspected violation of the law. However, the DTSA does not define what kind of notice or language must be provided, so it remains an open question of whether a specific citation to the DTSA would be sufficient or whether the relevant language of the DTSA’s whistleblower provision needs to be included.
To date, there is only one case involving the DTSA’s whistleblower provision. This should not come as too much of a surprise since the whistleblower provision’s primary consequences — a challenge to an award of attorneys’ fees or exemplary damages under the DTSA for failure to provide notice of that immunity or the viability of the immunity itself– will generally require that a case have been fully litigated, something that has not happened with many DTSA cases. Continue Reading The Defend Trade Secrets Act After One Year: The Whistleblower Provision
There have been two significant developments in the Waymo lawsuit against Uber, which is unquestionably the highest profile trade secrets case of the year. In the first ruling, U.S. District Court William Alsup referred the record of the case to the U.S. Attorney’s office for investigation of possible theft of trade secrets. In the second, Judge Alsup released a copy of his opinion yesterday explaining the injunction that he entered against Uber last week. Significantly, Judge Alsup declined Waymo’s primary request to shut down Uber’s driverless car business.
Instead, he ordered that Uber continue to quarantine former Waymo engineer Anthony Levandowski from its development of Uber’s Lidar technology, the technology that was the subject of the trade secrets he was alleged to have stolen. Judge Alsup declined to shutdown of Uber’s driverless program because Waymo could not establish that Uber had used the trade secrets that Levandowski allegedly took with him.
Referring the record for a pending civil case to the local federal prosecutor is highly unusual (in fact, I can’t remember it being done) and appears to be directed at Levandowski and his other former Waymo colleagues who joined him at Uber. However, the injunction looks like a victory for Uber, at least at this early stage in the proceeding. Continue Reading Waymo v. Uber: What Judge Alsup’s Injunction and Criminal Referral Mean for Uber
As readers of this blog know, I’ve been invited in the past to speak on trade secret issues for the Ohio State Bar Association. For those in Ohio who may be interested in attending, I will be providing an update on the Defend Trade Secrets Act this Friday, May 12, 2017 as part of the OSBA’s Business Law Conference. The Conference will be held in Columbus and broadcast live to locations in Akron, Cleveland, Dayton, Fairfield and Perrysburg, Ohio.
I will be covering a number of important issues involving the DTSA, including a brief backdrop that led to its enactment, the legislative history of the DTSA, the DTSA’s key provisions, and recent cases interpreting the standards for the DTSA’s ex parte seizure order, Whistleblower provision and other noteworthy issues. The Conference will also address issues such as Cybersecurity for Business Law Attorneys and Employment Law Issues under the Trump Administration.
Registration for the Business Law Conference can be found here. Hope you can join us for what should be a very interesting seminar.
When moving to enforce a non-compete, the last thing a litigator wants to do is to stumble out of the gates and struggle over a profound legal issue that could delay consideration of that normally urgent request. A new and little-talked-about section of the Defend Trade Secrets Act (DTSA), however, has the potential to trip up employers seeking to enforce non-competes if they are not prepared to address this new entanglement.
There has been a significant amount of commentary about the DTSA and its new amendments since President Obama signed the DTSA into law on May 11, 2016. The “whistle-blower” immunity and ex parte seizure order, for example, have generated the most discussion to this point. However, the section of the DTSA that may have the greatest future impact on litigation under the DTSA is 18 U.S.C. §1839(3)(A)(i)(1)(I), which prohibits injunctions that “prevent a person from entering into an employment relationship.”
That new provision, which I will refer to as the “No-Ban-on-Employment” provision, was intended to curb, if not eliminate, the use of the inevitable disclosure doctrine under the DTSA. However, it may have a significant unintended consequence–namely, it may complicate employers’ efforts to enforce non-competes through temporary restraining orders (TRO), the key legal mechanism for non-compete disputes. For the reasons below, employers may want to reconsider invoking the DTSA when they want to enforce their non-competes because of the potential complications of this section’s language and instead opt to file them in state court, at least in the short-term. As the DTSA is likely to overtake the Uniform Trade Secret Act (UTSA) as the dominant statutory regime for trade secret law, this DTSA provision may well set another blow in motion to the viability of the non-compete as an effective tool to protect trade secrets.
Continue Reading Does the Defend Trade Secrets Act Contain a Potential Roadblock for Non-Competes? Why the DTSA’s Limitations on the Inevitable Disclosure Doctrine May Complicate Enforcing Non-Competes
To the excitement of many in the trade secret law community, this past Thursday, May 11, 2016, President Obama signed a new federal trade secret act into law that will give employers and businesses a new federal right to file trade secret claims in federal court. That legislation, the Defend Trade Secrets Act (DTSA), moved swiftly through Congress as the Senate voted 87-0 in favor of the legislation on April 4, 2016 and the House of Representatives passed the bill by a 410 to 2 vote on April 30, 2016. A link to the new statute can be found here.
As readers of this blog know, I have supported a federal trade secret bill and worked with others to advance it’s passage. The DTSA has been recently described by The Wall Street Journal as “the most significant expansion” of federal intellectual property law in 70 years. I believe it will transform trade secrets law in the United States and worldwide, which will I detail in future posts. Today, I am going to provide a high level history and summary of this important new federal remedy.
What will the DTSA’s passage mean to employers and the business community in the short term? First, the DTSA will now provide them with the ability to present their trade secret claims in federal court in a new federal cause of action.
Second, the DTSA will provide a new and unique procedural remedy, the ex parte seizure order, that is designed to prevent the dissemination of trade secrets in extraordinary situations.
Third, the DTSA has created an immunity for whistleblowers that may require employers to amend their policies and agreements if they want to take full advantage of the DTSA.
Finally, for companies that believe that their trade secrets have been stolen overseas, the DTSA will provide a powerful federal remedy for them here in the U.S. Continue Reading The Defend Trade Secrets Act: A Primer on Its Key Provisions and Immediate Impact for U.S. Companies
Legislative efforts to ban non-competes in Massachusetts and Minnesota have garnered lots of media attention over the past year or so, and now, a Michigan legislator has introduced a bill seeking a similar ban for Michigan’s companies and residents. Michigan House Bill 4198, introduced just over two weeks ago by State Representative Peter Lucido (R – Washington Township) seeks to ban non-competes in all employment situations. (A shout-out to Bernie Fuhs of Buzel & Long for announcing the bill’s introduction.)
House Bill 4198 limits restrictive covenants to agreements for the sale of a business (the bill also outlines conditions for the enforceability of those covenants), and to make clear those are the only restrictive covenants that will survive, the bill expressly states that, “any term in an agreement an employer obtains from an employee, contract laborer, or other individual that prohibits or limits the individual from engaging in employment is void.”
The ban proposed by Representative Lucido’s bill is very broad; too broad, in my view. By carving out the existing Michigan statute providing for the enforceability of non-competes that protect a reasonable business interest (Section 4a of MCL 445.774a), and replacing it with the new language above, the new bill would also effectively ban narrowly-tailored non-solicitation clauses, and potentially even confidentiality agreements. Under the new bill, an employee could legitimately take the position that in abiding by a confidentiality agreement, he or she is limited from engaging in employment with a competitor and have the agreement declared void, freeing the employee from any restriction on using, disclosing or sharing a former employer’s trade secrets. Consequently, if enacted, the bill could be extraordinarily disruptive to efforts by employers to protect trade secrets in Michigan, in addition to banning outright all restrictive covenants in the employment context.
According to Butzel & Long, the bill has been referred to the Michigan House’s Commerce and Trade Committee. Representative Lucido apparently has indicated that he is interested in moving the bill through committee as soon as possible.
While I certainly think reform for some categories of non-competes is in order (a discussion for another day), banning all restrictive covenants is akin to burning down the house to make toast. By making the bill so broad, Representative Lucido is throwing down the gauntlet to Michigan’s business community. In fact, bills seeking non-compete bans introduced in other states have failed due to similar overreaches because they better enabled the business community to generate grass roots opposition, due to their breadth.
The Trade Secret Litigator will monitor the bill’s progress closely and keep you posted.
U.S. General Douglas MacArthur famously proclaimed “I shall return” when forced to leave the Philippines in 1942, and, sure enough, he returned in 1945 to great public adulation. Although the Trade Secret Litigator made no such bold promise, some of his readers did ask if he would ever return, and, like his swaggering idol, he is delighted to announce that he is back to once again share his opinions over the blawgosphere. (Whether the impact of his return rivals that of the General’s remains to be seen).
In all seriousness, I am delighted to announce that I am resuming my blog and partnering with LexBlog in this reboot. I wish I had as good of an excuse as MacArthur for my extended leave, but I was not off serving as Supreme Commander of the Southwest Pacific. Rather, my sabbatical over the past year was attributable to a host of more mundane reasons — a really busy year, too much travel, some technical issues that bedeviled our team here at Hahn Loeser, and finally, that old noonday devil, procrastination. But I really am excited about launching into this year with all of the developments that are now going on — a likely federal trade secret statute, states wrestling with limitations on non-competes, developments in cybersecurity, the apparent erosion of patent protection and ascendancy of trade secrets, and the many other issues about which to blog. While I was never awarded the Medal of Honor for my previous efforts, the positive feedback of my readers is just as valuable to me, and makes returning that much more exciting.
There will be a few changes. First, I won’t be able to keep up the torrid pace of 2 to 3 posts a week as before, and will instead aspire to putting up 1 to 2 posts a week. Second, rather than doing a “Weekly Wrap-Up,” I will be doing a more comprehensive “Monthly Wrap-Up,” hitting the high points of trade secret, non-compete and cybersecurity law for the preceding month. Third, while I will continue to cover key cases and legislation, I want to focus more on some of the developments and social undertows that are shaping the law in this area, as well as engage in more debate with commentators who may see things differently. As anyone reading this blog knows, this area of the law has grown exponentially over the past decade, and will continue to do so. The law has lagged, however, and so there may be opportunities to shape those forces that will, in turn, shape the law and policy in this area. I hope to be able to contribute here as well.
Glad to be back, and I hope you will continue to follow me in the coming year!
The Trade Secret Litigator
As employers continue to sort out the legal implications of social media in the context of restrictive covenants, a Massachusetts court has recently held that the mere posting of a former employee’s new position on a LinkedIn profile does not qualify as a solicitation under her agreement with her former employer. The former employer, KNF&T Staffing Resources, had complained that the change in her profile resulted in a solicitation that was sent to her more than 500 contacts, including customers. (A hat tip to Sheri Qualters who has a fine summary of the case for The National Law Journal).
In KNF&T Inc. v. Muller, KNF&T filed an action in Suffolk Superior Court against its former vice president Charlotte Muller and her new employer, claiming Muller violated her one-year non-compete agreement in various ways. On October 24, 2013, Associate Justice Thomas P. Billings denied KNF&T’s bid for a preliminary injunction, finding that she was not directly competing with her former employer in her new position and that evidence of any violation was “between weak and non-existent.”
As for KNF&T’s claim regarding the LinkedIn profile, Justice Billings found that Muller’s update about her new job was full of generic terms like “Staffing Services” and “Recruiting.” “So long as Muller has not and does not, prior to April 12, 2014, solicit or accept business in the Fields of Placement for herself or others (including her new employer), she will not have violated the covenant not to compete,” Billings wrote. (A PDF of the opinion can be found below).
The Takeaway: First, Justice Billings’ holding is consistent with other recent social media rulings that require some overt act that is directed or targeted to particular customers. A mere update in a profile that reflects a change in employment, with generic terms describing that employment, that is sent to all contacts in LinkedIn (which would likely include former classmates, competitors as well as customers) is simply not enough.
On the other hand, targeted communications or emails to particular customers through LinkedIn could qualify as a solicitation. Whether a communication qualifies as a solicitation generally depends on the context and circumstances of the communication, as Ken Vanko’s excellent discussion of the recent opinion out of the U.S. Court of Appeals Court of Appeals, Corporate Technologies v. Hartnett, illustrates.
Second, the opinion reinforces the importance of employment agreements that address the ownership of social media and profiles or contacts that might be found in LinkedIn. If these are indeed important to an employer, they should be addressed in the employment agreement.