Trade Secret / Noncompete : Business, Employment, Intellectual Property, and Litigation Attorneys Focused on Trade Secret/Noncompete Issues

Cases and issues making the headlines*:

It's All Fun and Games Until... (April 1)
A man attending the Penny Arcade Expo (PAX) in Boston was reportedly arrested for allegedly stealing the code for a new game that has not yet released. The code is reported to be valued at $6,000,000. Story here.

China (April 1)
On January 23, we reported that employees of Australian company Rio Tinto Ltd had been arrested in China on charges of, among other things, trade secret misappropriation.  (Check the In the News... archives.) Rio Tinto has now reportedly hired Henry Kissenger to assist it following a conviction of one of those employees. Story here.

EMC Files Two Noncompete/Trade Secret Law Suits This Week (March 19)
Data storage giant EMC Corporation has filed two different law suits this week claiming, among other things, breach of noncompetition agreements, misappropriation of trade secrets, and violation of the Massachusetts unfair competition law (G.L. c. 93A). Story about one of the lawsuits here and here.

Trade Secret Thief Convicted (March 19)
A former DuPont Co. exmployee reportedly pled guilty to stealing DuPont's trade secrets and disclosing them to a competitor. The man, Michael Mitchell was reportedly sentenced by a federal judge in Virginia to 18 months. Story here (subscription service).

Nuclear Fusion Trade Secret Trial (updated March 16)
General Nanotechnology and certain related parties are reportedly going to trial tomorrow (March 15) in their lawsuit again Lawrence Livermore National Security, LLC and others in California. According to PR Newswire, the plaintiffs claim, among other things, that the defendants stole trade secrets and breached a nondisclosure agreement when they allegedly used the plaintiffs' nuclear fusion technology to develop their own product. Story here and here.

19 Indicted Over Computer Chip Technology Allegedly Taken to Korea (March 14)
Ten employees from Applied Materials, Inc., four from Samsung Electronics, and five from Hynix Semiconductor Inc. have reportedly been indicted in Korea for theft of computer chip technology. Story here.

Illinois Upholds Forfeiture Clause (March 14)
In a recent decision issued by the Northern District of Illinois (Viad Corp. v. Houghton), the court upheld a forfeiture clause without engaging in a traditional noncompete analysis. 

Wisconsin Continues New Approach to Noncompetes (March 14)
Following the Star Direct case (previously reported by us here), a Wisconsin Appellate Court reversed the trial court on the basis that a forfeiture provision requiring return of certain money expended for employee training could be recovered by the employer - notwithstanding that the noncompete provisions were unenforceable. Decision here. 

Astro-Med, Inc. Collects on Noncompete Case (March 14)
After a favorable jury verdict and then decision from the 1st Circuit last year, Astro-Med reportedly received $1,495,000 in its noncompete lawsuit against a former employee and his new employer. Story here and here.

Philadelphia School District Accused of Violating the CFAA, ECPA, SCA (March 14)
A Philadelphia school district allegedly provided students with laptops equipped with webcams that, unbeknownst to the students, were remotely controlled by the school district. The school district has reportedly been sued under the Computer Fraud & Abuse Act, the Electronic Communications Privacy Act, and the Stored Communications Act, among other things. Story here. 

When Noncompetes Expire... (March 14)
Noncompetition agreements are never unlimited. When they expire, the party who had been restricted is permitted to return to a competitive position. Unless there are additional restrictions (nonsolicitation agreements; no-raid/antipiracy/no-hire agreements; and/or nondisclosure agreements), the returning party is largely uninhibited in his competitive activities. Apparently, this is the plan of former advertising agency Cummins & Partner, whose noncompete will expire in early 2011. Story here.

Criminal Investigation Halts Trade Secret Lawsuit (March 14)
According to Blooberg.com (here), the Manhattan U.S. Attorney, Preet Bhara, asked the judge in the Starwood Hotels & Resorts Worldwide, Inc./Hilton Hotels Corp. trade secret case to halt the case while the U.S. Attorney investigates.

Attorney General Eric Holder Speaks About Trade Secrets (March 14)
PR Newswire reported that, on February 24, United States Attorney General Eric Holder spoke at the Rio De Janeiro Prosecutor General's Office about the need to protect intellectual property - including trade secrets. Story here.

Harvard Law Student Sues Google Buzz (March 14)
A law student has reportedly sued Google's new social networking service, Google Buzz, claiming violations of, among other things, the Computer Fraud and Abuse Act and the Stored Communications Act. Story here and here.

*For earlier stories, go to the In the News (archives) page.

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Given the public policy arguments that courts so frequently use when analyzing noncompetes, as well as the perceived unequal bargaining power between employers and employees, it might be surprising to note that some courts are willing to enforce forum selection clauses that choose a forum other than where the employee lives and works. For instance, in Georgia, a state which certainly has its own unique noncompete law (at least until this November's elections), it has been held that a forum selection clause in a noncompete case is enforceable even if such clause would be inconvenient to the employee. Iero v. Mohawk Finishing Products, Inc., 534 SE 2d 136 (Ga. Ct. App. 2000). But see Dentsply Intern., Inc. v. Benton, 965 F. Supp. 574 (M.D.Pa. 1997). But c.f., Hulcher Services v. RJ Corman R. Co., 543 SE 2d 461 (Ga. Ct. App. 2000).

A typical forum selection clause is as follows:

Employee agrees that any claim or action relating to or otherwise arising out of this Agreement shall be subject to the exclusive jurisdiction of the state courts of the [State/Commonwealth/District] of ________ or the federal district court for the ______ District of ________ and Employee hereby submits to the exclusive jurisdiction of those courts.

As with most noncompete issues, the law in this area can vary state by state.  Accordingly, it is important to never simply use a form.  You should always check applicable law in your state first.

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In response to the significant and growing interest in the Massachusetts noncompete reform bill, this post will aggregate links to articles and information about the bill.  It will be updated regularly, so please check back.

• Massachusetts Noncompete Bill is Reported Out of Committee
• Protecting Your Confidential Information While the Noncompete Debate Continues
• A small business perspective on non-compete agreements (text and audio)
• Mass. non-compete culture to change? (text and video)
• Marblehead rep files noncompete bill
• Marblehead rep co-sponsors overhaul of non-compete agreements
• Swampscott rep co-sponsors overhaul of non-compete agreements
• Legislators Hear Testimony on Non-Compete Restrictions
• Update on the Massachusetts Noncompete Hearings
• Massachusetts Noncompete Bill Set for Hearing
• House Bill 1799 An Act relative to Non-compete agreements

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Blogs like this (ones that are so focused on a specific area of law) may cause readers to wonder why the authors spend so much time writing about so many different aspects of the topic.  For the TSN blog, the reason is that we care.  (Nice, huh?)  Okay, but why do we care?  Simple:  the numbers. 

In doing some basic "back of the envelope" so-called "research" for a class I teach (Trade Secrets and Restrictive Covenants at Boston University School of Law), I searched Westlaw to see whether my (and others') suspicion that trade secret/noncompete litigation is on the rise is in fact true - or were we only so steeped in those types of cases that our perspective was too skewed to properly perceive reality.  The answer?  While our perspectives may indeed be skewed, the numbers confirm (in a very - and let me reemphasize - very unscientific way) that trade secret litigation is on the rise.  The chart to the right shows that from 2000 to 2009, the number of reported trade secret and/or noncompete cases more than doubled - from 1010 to 2366 - over the last decade. 

So, how does that relate to the TSN Blog?  The answer is that one of the goals of this blog has been to educate its readers about the issues and how to reverse this trend.  Indeed, that was the (I hope) plain goal of the post, "An Ounce of Prevention... ." 

All of that to say that the trend toward litigating trade secret/noncompete disputes is real and growing.  Accordingly, we urge all of you, our readers, to learn the necessary steps to insulate your trade secrets as much as reasonably possible within your corporate culture, to implement those steps, and to thereby prevent (or at least minimize the effects of) problems before they arise.  Will this eliminate all problems and all litigation?  No.  But, it will put you in the best position to avoid it and, when it can't be avoided, to respond to it quickly and effectively.

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It is official:  The Massachusetts noncompete bill (of which I am the principal draftsperson) has been reported out of committee.  A copy is available here or by clicking on the picture to the right.

Upon a quick read, it appears that garden leave clauses have been removed.  Otherwise, the bill remains largely the same as the September version of the so-called "compromise bill."  More to follow after a more thorough review.

Other changes are likely, particularly as we have received some outstanding input from many different people since the bill was initially submitted to committee.

For more information, please contact either of the two state representatives who have been leading the charge - Lori Ehrilich and Will Brownsberger - or me.  (Click on our names for our information.)

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Unless a business manufactures or sells truly unique items, chances are it will have competitors seeking to secure the same business opportunities.  Competitors often use all tools at their disposal to secure that business, including targeting and offering employment to key employees of competitors and seizing upon those relationships and networks that the employee developed while employed by his or her former employer.

Like other companies that have sued former employees and their new employer for engaging in this type of conduct, Aon Risk Services Northeast, Inc. recently commenced a lawsuit and seeks an injunction against three former Aon employees who went to work for Aon's competitor, Marsh & McLennan Companies, Inc.  The case is Aon Risk Services Northeast, Inc. v. Kornblau, Case No. 10-CV-2244 (March 15, 2010 U.S. District Court S.D. N.Y.)

Aon claims that the former employees, with Marsh's participation, collectively tried to steal Aon's trade secrets, poach Aon's clients, and rob Aon of its key employees so that Aon no longer had brokers with existing relationships with the targeted clients.  Significantly, the complaint alleges that within weeks of the departure of the former employees, Marsh obtained a significant amount of business from Aon clients that transferred their accounts to Marsh.  

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An employer's successful lawsuit to enjoin two former highly-skilled employees from operating a competing financial services company resulted in only a one-month-long preliminary injunction -- despite proof of the employees' violation of the agreement -- because the contract did not allow an extension of the term based upon the employees' violation during the restriction period.

In Citadel Investment Group, LLC  v. Teza Technologies, LLC, the Illinois Appellate Court recently affirmed the trial judge's entry of this short-term injunction, even though the two defendants had competed in violation of the contract and had separately violated a non-solicitation agreement during the nine-month period which began in mid-February 2009.  Under Citadel's agreement, Citadel paid the two former employees tens of thousands of dollars during the non-compete period.  Specifically defendant Mikhail Malyshev received $30,000 per month and defendant Jace Kohlmeier received $21,000 monthly.

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