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

A recent case filed in federal district court highlights a common issue employers face when enforcing their confidentiality and non-compete agreements against former employees. In its complaint, the employer claims that the employee agreed to return company documents if he quit or was fired. What constitutes confidential documents and information? Was the employee required to return only confidential and proprietary documents that contained the company's trade secrets, or was he required to return any document he received during his employment?

• e-Mail
• Print
• Comments
• Trackbacks
• Share

When four employees left a Connecticut investment advisory firm to start a competing business, they made the “mistake” of downloading client information from their old employer’s customer contact data base, transferring it to a home computer, and then sending it to a brokerage firm engaged as an asset custodian for their new firm. That mistake proved to be costly when the old employer sued for violations of the Connecticut trade secrets act and the federal Computer Fraud and Abuse Act, and discovered the data transfer.

As often happens, the old employer found the misuse of its computer data only by obtaining discovery from a third party – the firm serving as asset custodian for the new investment business. Responding to a subpoena, the third-party produced communications with the defendants that the defendants themselves had failed to produce in response to direct discovery requests in the litigation. Those communications showed the transfer of the employer’s data. Compounding their error, the employees had refused the old employer’s demand that they voluntarily preserve image copies of their computer hard drives, and had actually discarded one computer that had been used in transferring data.

Upon learning of these facts on a motion to compel discovery, a federal judge in Connecticut ruled that the defendant employees and their new firm had to deliver all of their office and home computers and personal digital devices to a court-appointed computer forensic expert for imaging and data recovery. The court ordered the defendants to pay 80 percent of the cost of the expert’s work, and finding that the defendants’ resistance to the discovery motion had been unjustified, also ordered the defendants to pay the attorneys fees incurred by their former employer in bringing the motion. Genworth Financial Wealth Management Inc. v. McMullan, D. Conn., No. 3:09-cv-1521 (VLB) (order entered June 1, 2010). 

In a subsequent ruling on the old employer’s motion for a preliminary injunction, the court ordered the defendants to refrain from communicating with any current client or known prospect of the former employer except to the extent that the client had already become a client of the new firm or the defendants could show that the client’s information was not included in the data downloaded from the old employer. Id. (order entered June 10, 2010).

The case provides a useful analysis of when imaging of whole computer drives may be an appropriate discovery technique, and illustrates how “sticky fingers” can saddle departing employees with costly litigation and legal restraints on their ability to compete.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

As Marshall McLuhan once observed famously, "the medium is the message."  Of course, he was a media theorist, not a law professor, so it comes as no surprise that his aphorism is flat wrong when applied to trade secrets, as a recent opinion by the U.S. Court of Appeals for the Second Circuit reminds us.  (Nationwide Mutual Ins. Co. v. Mortenson, 2d Cir. , No. 08-5214-cv, 5/11/10)  This case arose when a group of agents left the plaintiff insurance company, Nationwide, and began selling policies for a competitor.  Nationwide filed suit, alleging among other things that the agents violated the Connecticut Uniform Trade Secrets Act by showing the competitor printouts of policyholder information from Nationwide's secure database.

The district court granted judgment for the agents and against Nationwide, finding that the policyholder information did not qualify as trade secrets or confidential information of Nationwide.  (Indeed, that appears to have been the conclusion of several other trial courts in similar cases involving Nationwide.) Although the Second Circuit is not clear about the basis of the district court's ruling, it appears that one grounds was that the policyholder information was in physical files that were "readily available." 

On appeal, Nationwide tried to overcome that hurdle by focusing on the printouts from its database, which was password-protected.  The problem with this approach, as the Second Circuit pointed out, was that the information in the database was the same as the information in the physical files.  Indeed, information was loaded into the database directly from the physical files.  At most, the database--and hence the printout--organized the same information in a slightly different format.

The Second Circuit quickly dispatched this attempt to raise form over substance.  Noting that the UTSA withholds trade secret status from information that is readily ascertainable to the outside world by proper means, the Second Circuit held that the information on the printouts could not be proprietary to Nationwide because it was available in an unprotected format in the physical files.  Echoing McLuhan's famous aphorism, the Second Circuit concluded that "[i]t is not the medium that matters here, but whether the information itself was adequately protected--and it was not."

• e-Mail
• Print
• Comments
• Trackbacks
• Share

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.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

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.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

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.)

• e-Mail
• Print
• Comments
• Trackbacks (1)
• Share

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.  

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Cases and issues making the headlines*:

More Noncompetes and Celebrities (January 25)
CBS’s radio morning personality in DC, Donnie Simpson, is reportedly leaving CBS. According to the story in the Washington Post (here), Simpson will be prevented from joining a competitive station for 13 and ½ months as a result of a noncompete agreement with CBS.

Fashion and the Computer Fraud & Abuse Act (January 25)
Magazine publisher Conde Nast is reportedly pursuing information from third-party providers about unknown individuals who have allegedly improperly used other people’s usernames and passwords to access and obtain files from Conde Nast’s computers. Story here.

China Prosecuting Alleged Trade Secret Theft (January 23)
Chinese police have reportedly arrested four employees of Australian company Rio Tinto Ltd on charges of, among other things, trade secret infringement. Story here.

Cloud Computing and the CFAA – a Call to Arms (January 23)
As more people are cloud computing, Microsoft has reportedly called on the federal government to “modernize the laws” (including the Computer Fraud and Abuse Act) to ensure greater security. Stories here, here, and here.

Trade Secret Settlement (January 23)
The trade secret lawsuit between semiconductor competitors, Applied Materials Inc. and Advanced Micro-Fabrication Equipment Inc. (founded by former Apple employees), has reportedly been settled. Story here (paid subscription).

MA Noncompete Bill (January 23)
The Massachusetts Bar Association will be holding a roundtable on the proposed MA Noncompete legislation. Speakers are the bill’s sponsors, State Representative Lori Ehrlich and State Representative Will Brownsberger; lawyer and lead author/advisor on the bill, Russell Beck, and lawyer Andrea Kramer. Information here.

Conan O’Brien’s Noncompete Resolved (January 23)
Almost as quickly as it started, Conan O’Brien is reportedly leaving The Tonight Show and, as a result of a noncompete agreement, off the air until September 2010. Of course, he did reportedly receive $45 million for the trouble – of which he is said to be giving $12 million to his staff. Stories here, here, and here. 

The Muffin Man (or Woman) and Trade Secrets (January 23)
Bimbo Bakeries USA Inc. has reportedly sued a former executive who left for competitor Hostess Brands Inc. The case was brought in Pennsylvania and seems to rely on the inevitable disclosure doctrine as the basis for a request to enjoin the former executive – who is supposedly one of the few people in the world who knows the recipe for Thomas’ English Muffins. Story here (paid subscription).

No Heart When it Comes to Trade Secrets (January 23)
Berkeley Heartlab Inc. has reportedly filed a lawsuit alleging trade secret misappropriation (among other things) by its former employees and their new employer. Story here (paid subscription).

Motorola Sues Former Exec (January 23)
Motorola has reportedly sued a former executive who left to join Nokia. The reported basis for the lawsuit is the protection of Motorola’s trade secrets. Story here.

Foley’s 5 Part Trade Secret Series (January 23)
Foley & Lardner’s Trade Secret / Noncompete Practice just completed a 5-part web conference series on trade secret protection. The series will be available here. Each part is a “stand alone” topic, but all 5 combine together for a comprehensive overview of trade secret / noncompete issues. Enjoy!

Noncompetes and Newscasters (January 3)
In a recent example of noncompetes applied in the broadcast industry, former ABC News correspondent Jan Crawford was reportedly prevented, until now, from joining “Face the Nation with Bob Schieffer.” Story here and Ms. Crawfod’s initial blog post for CBS News here.

Communion and Trade Secrets (January 3)
A manufacturer of a “‘rapidly reloading’ communion host dispenser” is reported to have sued a former employee, claiming that the employee is unlawfully using the company’s trade secrets to make a competitive communion host dispenser. Story here and here.

Trade Secret Misappropriation without the Trade Secrets (January 3)
The Court of Appeals of California, reversing a decision by a trial court, permitted a party who no longer possessed a trade secret to continue its lawsuit against the party who had allegedly misappropriated the trade secret. Court of Appeals decision here.

35 Years of Trade Secret Theft (January 3)
A former plan manager of a manufacturing company was reportedly accused of having stolen trade secrets from his former employer over the course of 35 years and providing the stolen trade secrets to a company in India.

CFAA Used for Original Purpose (January 3)
The Computer Fraud and Abuse Act, which was originally designed to target computer hackers, was subsequently amended to reach well beyond its original purpose. Recently, however, a publisher reportedly sued unknown hackers for allegedly hacking into the publisher’s computers and posting articles online before the publisher published them. Story here and here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

A great deal of discussion has taken place in the legal press recently about the use of the Computer Fraud and Abuse Act as a cause of action against those who take with them information from their former employers for use in subsequent competitive activities.  And rightly so, given the explosion in the number of civil claims brought pursuant to the statute in recent months.  Much less discussion has been heard, however, about a long-recognized cause of action - breach of the duty of loyalty - that can be a crucial component of a well-thought-out attack against the misuse of confidential information by a former employee and his/her new employer.  The importance of this cause of action was highlighted in a recent decision of the Wisconsin Court of Appeals, InfoCorp, LLC v. Hunt, Case No. 2007AP2887, 2009 WL 4800140 (Wis. Ct. App. Dec. 8, 2009).

InfoCorp, LLC (d/b/a "InfoCor") is a reseller of so-called "SMART Boards," interactive whiteboards that combine the functions of an overhead projector, computer projector and a chalkboard.  Hunt started work at InfoCor in 2005.  Before that, he worked for 2 InfoCor competitors selling the same product and had developed a particularly strong relationship with a customer ("CESA 2") that, among other things had a cooperative purchasing program representing a number of Wisconsin school districts.  Hunt was employed by InfoCor for a year.  During that time, CESA 2 entered into an agreement with the manufacturer of the SMART Boards to purchase its products at reduced prices and InfoCor was the only reseller authorized by CESA 2 to provide those products to its member school districts.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

The Toxic Substances Control Act (TSCA) was enacted by Congress and signed into law by President Gerald Ford in 1976, in response to concerns that there was no comprehensive framework for the prevention of risks that might be posed by the approximately 60,000 chemical substances in commercial use at that time. 

The TSCA addressed three policy goals: (1) the manufacturers of chemicals should develop data about the effect of those chemicals on health and the environment, (2) the government should have authority to regulate chemicals to prevent "an unreasonable risk of injury to health or the environment" and (3) the government's authority should be exercised in a way that does not "unduly impede or create unnecessary economic barriers to technological innovation."  The EPA was given the power to track, test and regulate chemicals used in the U.S.

Under the TSCA, manufacturers are required to file a report with the federal government disclosing the new chemicals they intend to market.  The report is called a pre-manufacture notice.  The form on which the notice is submitted contains a box that can be checked to claim competitive business information.  The ability to claim that the notice contains confidential business information was intended to balance the goal of preventing unreasonable risk of injury to health or the environment with the goal of not impeding or creating unnecessary economic barriers to technological innovation.  The TSCA prohibits the EPA from sharing confidential business information with states or other governmental entities, including state health regulators, environmental regulators, emergency responders and foreign governments.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

As we wind down the holiday season and prepare for next year, it's time to look forward with an eye on the past.  2009 has seen a remarkable number of decisions that chipped away at the enforceability of a company's noncompete agreements with its employees. Noncompete agreements are no longer reliable or effective measures against the loss of valuable innovations, products and services. In 2010, a company's need to protect its valuable information ("trade secrets" = formulas, devices, methods, techniques, or processes) requires a different approach. What steps are available to your company to shore up its ability to keep valuable secrets from your competitors?

An essential New Year's resolution is development and implementation of a Trade Secret Protection Program, tailored to your company's products and services. This year start a company-wide initiative that focuses on identification and protection of valuable and secret information and keep the basics in place. 

1. Review standard form agreements and policies.  Employee policy manuals regarding noncompete, non-disclosure, confidentiality, invention assignment and ownership, nonsolicitation, antiraiding, privacy, computer use provisions, and, most importantly, departing employee procedures and policies will require updates.  Are these provisions consistent?  Are they easy to understand by the employee?  Are the provisions reasonable in scope? 
2. Review existing agreements with current employees.  Do you have signatures of your key inventors, innovators and technical employees on the agreements?  Signed acknowledgments of the policy statements?  Again, updates are most likely needed, especially for long-term employees.
3. Identify each Trade Secret and its value. Make a list if you don't already have one. What are the inventions and innovations that create value for your company? What innovations are in the pipeline on the way to commercial use? Why do these innovations have value? What is the cost of development? What revenues, present or future, are derived from the innovation? What is the value to the marketplace? What about value to your competitors?
4. Confidentiality. Is each invention or innovation a secret from the marketplace? Who has access to information about the development? Is the company taking 'reasonable' steps to keep information secret? Are there multiple levels of security to limit access on a need to know basis? Are you able to document the security measures taken to protect information?
5. Record Keeping.  Where is the "vault" that tracks the trade secrets?  What information is kept in the "vault" and who has access?  How is the information identified, tracked, and updated?  How often?

Development and implementation of a Trade Secret Protection Program is a cross-disciplinary activity that involves legal, IT, HR, finance, and key technical personnel. There are good resources available to develop a trade secret protection program for your company. One such resource is the ISO/IEC 27001, an Information Security Management System with standardized protocols for information security management.

Trade secrets are often the life blood of a company and protectable with reasonable protocols and resolve.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Cases and issues making the headlines*:

Trade Secret Verdict (December 22)
We previously reported on the Nova Biomedical Corporation trade secret litigation in “In the News…“.  The case has now gone to trial, with Nova Biomedical reportedly obtaining a verdict in its favor. Story here.

Inevitable Disclosure Doctrine (December 22)
A former Alltel Corp. employee hired by Allied Wireless Communication Corp. as its new CIO, was reportedly sued by Verizon (which had acquired Alltel) under the Arkansas Trade Secret Act.  Verizon reportedly asserts that the former employee will inevitably use and disclose confidential information and trade secrets in his new position. Story here.

Pleading Your Case (December 22)
In Bank of America N.A. v. UMB Financial Services Inc., 4:09-cv-00574 (W.D. MO), the United States District Court Judge reviewed under the new Iqbal  and Twombly standards – and found satisfactory – a complaint for, among other things, violation of a non-solicitation agreement. Story here (paid subscription).

Crimes and Punishment (December 20)
Protection of trade secrets through the criminal justice system comes to the attention of the media every now and again.  Here are some recent ones:

• A 35 year old web developer was charged with theft of trade secrets (and wire fraud) relating to how to make his former employer’s web site operate quickly and effectively.  If convicted, he will face 20 years in prison.  Story here and here.
• A former executive pleaded guilty to selling The Home Depot Inc.’s trade secrets to a vendor to give the vendor a competitive advantage over other vendors.  Story here and here. 
• A former Intel Corp. engineer, working for Advanced Micro Devices Inc., was charged with stealing trade secrets valued at $1 billion.  Story here.

Faceoff (December 20)
Facebook continues its quest against improper use of its network, including a recently-filed action against certain alleged high profile hijackers and spammers.  Story here, here, and here.

Employee Hacking (December 20)
Advertising startup Yodle, Inc. accuses former employees, now at alleged competitor, WebVisible, of stealing trade secrets through use of old usernames and passwords.  Story here.

Public Records or Trade Secrets? (December 20)
An appeals court in Iowa affirmed an order that the state’s Department of Transportation release – in response to a public records act request – documents claimed by the filer to be trade secrets. The order requires that the documents be provided to the filer’s competitor. Story here. 

Physician Noncomeptes (December 20)
In some states, physician noncompetes are unenforceable.  In other states, they are as permissible as any other noncompete. The Montana Supreme Court has recently ruled that the enforceability of physician noncompetes depend on whether a jury finds them to be fair. Story here. 

Equitable Tolling Rejected In Utah (December 20)
In some states, the term of a noncompete may be extended to offset the time that the former employee has violated the agreement. In Utah, however, that principle has just been rejected. Story here.

Trade Secrets in Construction (December 20)
Construction information provider, Reed Construction Data, reportedly amended a lawsuit against McGraw-hill Construction Dodge to allege misappropriation of trade secrets through, among other things, the use of companies to pose as fake customers to thereby obtain confidential information.  Story here.

“Instant-On” Case is On (December 20)
Phoenix Technologies Ltd. has reportedly been permitted to continue its trade secrets lawsuit against DeviceVM over alleged misappropriation of “instant-on” software. Story here and here.

Is Justice Delayed Justice Denied? (December 20)
After more than a decade of legal wrangling, a plaintiff in a trade secret dispute has reportedly been awarded almost $300,000. Story here.

Where to Shop? (December 20)
eBay and Craigslist square off over claims of trade secret misappropriation. Story here, here, and here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Gene Codes Corporation, an international software firm specializing in bioinformatics software for DNA sequence analysis, filed suit on December 1 against its former Global Manager: Customer Care and Training.  The complaint includes allegations of breach of contract and misappropriation of trade secrets under MUTSA (Michigan Uniform Trade Secret Act, MCL s. 445.1901 et seq.), and requests entry of a temporary restraining order, preliminary and permanent injunction, and attorneys fees.  Among other things, MUTSA provides for injunctive relief to prevent threatened misappropriation of trade secrets.  See, MCL s. 445.1903.

According to the complaint, the manager was one of four Gene Codes employees who had access to both of two highly sensitive databases: the database of bugs, bug fixes and feature proposals, and the customer, sales and lead tracking database.  The manager submitted her resignation to Gene Codes on November 12, 2009, and indicated that she would begin a new job with CLC bio on December 1.  CLC bio is also an international company that, among other things, provides bioinformatics software for DNA sequence analysis.

The manager is alleged to have signed an employment agreement while at Gene Codes.  That agreement, attached to the complaint, prohibits solicitation of Gene Codes clients as well as competition with Gene Codes for a period of two years.  In Michigan, the validity of a noncompete agreement is governed by section 4a of the Michigan Antitrust Reform Act, and related cases.  Reasonable noncompete agreements will be enforced, and the specific facts of the case, such as the duration and geographical scope of the restriction, and the type of employment or line of business, will be analyzed to assist in the determination of reasonableness.  See MCL s. 445.774a. 

The manager has not yet filed an answer to the complaint.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

By John Zabriskie and Benno Weisberg 

Imagine the following scenario: After a bidding contest against all of its major competitors, Company X wins a contract with a small city in downstate Illinois to fill the city's need for widgets over the next 3 years. The city's RFP called for detailed information about the bidders' operations. Before the ink has dried on the contract, the city receives two Illinois Freedom of Information Act ("FOIA") requests for copies of Company X's winning bid. One is from Company Y--a losing bidder and a fierce competitor of Company X. The other is from a reporter for the local newspaper who is writing an investigative report about possible corruption in the city's procurement practices. What can Company X do to prevent release of the detailed information about its operations (which Company X considers trade secret) to Company Y and the reporter?

The answer is likely to change as of January 1, 2010, when a substantially revised version of Illinois' FOIA will take effect. FOIA will still contain an exemption for trade secrets. However, Company X's ability to claim the exemption, and the time frame in which it must do so, may be different.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Technophiles (and their loved ones) can breathe a little easier, as Judge Ware of the Southern District of California won't be playing the part of the Grinch this year.

As we've discussed in prior posts (here, here, and in our "In the News..." posts), Barnes & Noble's hot new Nook e-reader, which has pretty much become the must-have gadget of the season (Barnes & Noble sold out their original inventory by late October, and has announced that it will be moving more product into "select stores" early next week), had also landed the bookseller in some legal hot water.  On November 2, Spring Designs, a California technology company, sued Barnes & Noble.  Spring Designs claimed that the Nook was developed from trade secrets relating to Spring's own "Alex" e-reader, which it had disclosed to Barnes & Noble under an NDA, and, not surprisingly, moved for a preliminary injunction.

Just yesterday, Judge Ware issued his order (which you can read in full by clicking on the link) on the motion.  Judge Ware ruled that, based on the evidence before him, there was "a genuine dispute over whether the nook(TM) was derived from information disclosed by Plaintiff to Defendant or was the product of earlier independent development by Defendant."  On that basis, he found that Spring Designs had not established a likelihood of success on the merits.  He also noted that, because the motion was heard while Barnes & Noble's product had already been launched while Spring Designs had not yet released its own e-reader, the requested injunction would "alter the status quo, not preserve it."

As such, he denied the injunction.  Which is good news since, if anyone was wondering, I'd love a Nook for Chanukah.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Cases and issues making the headlines*:

Trade Secret Misappropriation Enjoined in California (November 20)
A former high-level engineer at Pacestter in California left to form a rival company, Nervicon, in China, which ordered a 24 MHz surface mount crystal oscillator from one of Pacesetter’s suppliers. The supplier allegedly recognized the order as using Pacesetter’s information and contacted Pacesetter, which sued for, among other things, misappropriation of trade secrets, unfair competition, and breach of fiduciary duty. Pacesetter sought and received a preliminary injunction. The case is Pacesetter Inc. v. Nervicon Co. Ltd., BC424443, California Superior Court, LA County. Story here (paid service).

New Less Onerous Noncompete Valid (November 20)
An Oregon court upheld a noncompete entered, effectively (although not technically), mid-employment. Although such agreements are ordinarily not enforced, the court found that the agreement was less onerous than the pre-existing noncompete, and therefore the protections afforded by Oregon’s noncompete statute were satisfied. The case is Epiq Class Action and Claims Solution Inc. v. James R. Prutsman and Rust Consulting Inc., case number 09-1185, in the U.S. District Court for the District of Oregon.  Story here (paid service).

Idaho Trade Secret/Raiding Case Seeks $10,000,000 (November 19)
Idaho health and home products company Melaleuca Inc. has reportedly sued Utah company, Max International, of corporate raiding, trade secret misappropriation, and unfair competition, seeking not only injunctive relief, but $10,000,000 in damages.  Story here. 

Trade Secret Lawsuit Not An Abuse of Process (November 19)
Restaurant supplier Lasco Foods Inc.’s trade secret action overcame a challenge that it was brought in bad faith (as an abuse of the legal process).  That claim, and the claims under the Computer Fraud and Abuse Act and the Stored Wire and Electronic Communications Act among others, will reportedly proceed against startup,  Hall & Shaw Sales, Marketing & Consulting LLC.  Story here (paid service).

From Patents to Trade Secrets (November 14, 2009)
On November 9, the United States Supreme Court heard arguments in the Bilski case, which concerns the use of “business-methods patents” (i.e., patents to protect methods of performing certain activities).  Story here.  Based on the Court’s reaction, it seems likely that these patents will no longer be generally available, leaving the secret business methods to secure their protection through trade secret laws. 

There’s an App for That? (November 14, 2009)
A computer game developer has been sued for violation of the Computer Fraud and Abuse Act by allegedly collecting personal data through an iPhone app.  Story here and here.

Music to No One’s Ears (November 14, 2009)
Musicians in the Sarasota Orchestra were allegedly prohibited from performing at a concert because of a noncompete clause in a collective bargaining agreement.  Story here and here. 

Recent Articles and News From the Authors (November 14, 2009)
In case you missed them, we will now be linking to recent published articles written by Foley & Lardner’s trade secret / noncompete lawyers and other stories quoting our authors.  Here are the latest:  No-poach agreements: A new generation of restrictions (Computerworld); A practical approach to protecting trade secrets (CIO.com and Macworld); Protecting Your Confidential Business Information While the Noncompete Debate Continues (Foley Newsletter); Mass. non-compete culture to change? (NECN); Marblehead rep co-sponsors overhaul of non-compete agreements (Marblehead Report/Wickedlocal.com); @russellbesq at 22 Tweets (Twitter).

Really? (November 14, 2009)
A recently-filed lawsuit accuses actress Sara Jessica Parker of stealing trade secrets and selling them to Apple’s Steve Jobs, ultimately leading to the development of the iPod.  Story here and here. 

Read On… (November 14, 2009)
Spring Design sued Barnes & Noble, claiming that Barnes & Noble copied its design for a two-screen e-book reader.  Story here. 

Secret Product Placement (November 14, 2009)
Not quite subliminal advertising, but Denizen LLC has reportedly sued MindShare Entertainment for stealing its product placement ideas involving the integration of product placements in television shows.  Story here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

The Georgia Supreme Court recently narrowed the scope of a noncompete injunction prohibiting a former employee of a retina surgery practice from marketing certain software in competition with his ex-employer.  Coleman et al. v. Retina Consultants PC et al. (GA S. Ct.).

Prior to his employment by The Retina Eye Center ("TREC"), Coleman -- a software engineer -- wrote and marketed a medical billing program called Clinex. While at TREC, he tailored the program to suit that company's business and developed a separate retinal practice application, Clinex-RE.  As the lower court found, it is undisputed that Coleman incorporated TREC's proprietary information and trade secrets in developing Clinex-RE, and that Clinex-RE only operates in conjunction with Clinex. The parties allocated the rights to Clinex and Clinex-RE in a software agreement that also restricted Coleman's ability to distribute the Clinex software or any applications competitive with Clinex-RE to ophthalmologists or optometrists without TREC's consent.

Following his resignation from TREC, Coleman attempted to distribute or license the Clinex and Clinex-RE software to other ophthalmologists; he refused to disclose to TREC necessary passwords to read and revise copies of the software; and  he used or attempted to use TREC's proprietary information and trade secrets to compete with a company owned by Coleman and TREC that was formed to market Clinex and Cline-RE.

TREC brought suit for breach of contract and moved for an injunction to enforce the software agreement's noncompete provision, and to enjoin Coleman from retaining and using access codes, source codes, other information, and passwords required to read and revise copies of Clinex and Clinex-RE.

Finding the lower court improperly enforced the noncompete clause at issue as it is unenforceable as a matter of law because of the failure to specify a time limitation, the Supreme Court nonetheless held that the former employee could be prohibited from marketing Clinex and Clinex-RE together because -- as the trial court determined -- Clinex-RE includes proprietary information and trade secrets.  Coleman would not, however, be restricted from using and marketing his own version of Clinex as that software is his own property.

Further, the Supreme Court ruled that the injunction preventing Coleman from retaining any and all information and documentation related to Clinex was too broad and went beyond the scope required by the software agreement as it would foreclose him from access to information related to his own software to which he is entitled.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

By Russell Beck and Stephen Riden

The Computer Fraud and Abuse Act (the "CFAA"), 18 U.S.C. § 1030, has recently come into vogue as the tool of choice among trade secret (and noncompete) litigators. Why? Because it provides a relatively easy to prove claim. In very (and I do mean very) simplistic terms, the statute (which is, in reality, a criminal statute, although it gives private individuals and companies the right to sue too) requires a showing of only: intentional access to a protected computer without authorization or beyond authorization causing damage. If you can prove those five elements, you have made out your case. The significance? No need to prove that a trade secret was taken.

So, what do those words mean? Well, the statute provides some guidance, but leaves many issues unanswered - and the courts are now starting to fill in the balance, as these cases become more prevalent. Suffice it to say, if you login to a computer, you have probably just satisfied the first two elements (intentional and access). If the computer is used in interstate commerce, you have satisfied the second element (a protected computer). What is interstate commerce? Well, in today's world, it's almost a theoretical question, as any computer connected to the internet will likely qualify.

That leaves two issues (authorization and damages). First the hard one: authorization. The statute applies equally to someone who never had authorization and to someone who had authorization, but exceeded the scope of that authorization. The issue making headlines (well, legal headlines anyway) is whether the following qualifies: an employee who obtains access within the bounds of what he is permitted to do, but accesses the computer for his own gain - not for the benefit of the employer. In some federal circuits (think states), the answer is that it does qualify. In others, it does not.

So, all of that must cause damage, right? Seems easy enough. Well, the question is what qualifies under the CFAA? The value of any misappropriated property - perhaps surprisingly - does not qualify. But, the cost of the forensic investigation to assess the harm, probably does. Go figure.

That's it, in a nutshell. Like everything else, however, a little knowledge can be dangerous - so, be careful. The CFAA is far more complicated than this post makes it seem - and it should be carefully evaluated before its power is indiscriminately wielded, lest, for example, you find yourself in federal court, when you wanted to remain in state court.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

The stakes in trade secrets litigation are frequently very high.  The dispute between Semiconductor Manufacturing International ("SMIC") and rival Taiwan Semiconductor Manufacturing ("TSMC") is but one very recent example.  In a that case, brought in the Superior Court of Alameda County, California, TSMC claimed more than $1 billion in damages based on allegations that SMIC stole its trade secrets.  The parties settled the case, with SMIC paying TSMC a reported $200-plus million, including $40 million that SMIC owed TSMC from a previous trade secret and patent infringement case.  SMIC is also giving up a nearly 7.5% in SMIC over to TSMC.  Additionally, the litigation brought about the abrupt resignation of SMIC's chief executive, which analysts speculate was forced and related to the dispute.  Read more about that here.

The risks arising from allegations of trade secrets theft can involve more than simple claims of money damages.  In Spring Design, Inc. v. Barnesandnoble.com LLC, pending in the United States District Court for the Northern District of California, Plaintiff Spring Design is seeking an injunction prohibiting Barnes & Noble from, among other things, the sale of its Nook electronic book reader.  If Spring Design succeeds, Barnes & Noble may be forced to delay the release of the Nook until sometime after the typically lucrative holiday season.  Click here to read more about this case and to review a copy of the complaint.

The threats in trade secret cases run the gamut from sublime to the bizarre.  A case in point is the recent decision by a Wisconsin judge to award two individual plaintiffs $1.26 billion dollars against PepsiCo and two of its Wisconsin distributors.  The plaintiffs allege that PepsiCo - which sells the ubiquitous Aquafina brand bottled water - stole their trade secrets and idea to sell bottled water.  When PepsiCo did not respond to the suit and failed to appear in court, the Jefferson County, Wisconsin Circuit Court sided with the plaintiffs and entered a default judgment.  That order was overturned a month later when PepsiCo appeared and argued that it had not responded to suit because of a "human error" caused by one of its secretaries.  PepsiCo also cited the fact that it had been served in its incorporation state of North Carolina instead of its headquarters in New York.  

Finally, last week, Plaintiff Franz Wakefield sued Apple Inc., Steve Jobs, and Sarah Jessica Parker (yes, THAT Sarah Jessica Parker of Square Pegs and Sex and the City fame) in the United States District Court for the Central District of California for, among other things, misappropriation of trade secrets.  Wakefield alleges that, in 1983, he and Parker had a friendship which resulted in Wakefield and Parker agreeing to a trade secret deal where Parker would commercialize various iterations of the iPod and the iPhone, and Wakefield would receive 2% of gross revenues of any license of the technology to an appropriate technology company.  The then 18-year-old Parker allegedly betrayed Wakefield by going to Steve Jobs, who sat on the technology for two decades.  Similar to Spring Design, Wakefield seeks to halt the sale of iPods and iPhones.  Wakefield also seeks to enforce his agreement for 2% of gross revenues on sales of the devices.

Read more from Marty Bishop at www.cfslitigation.com.

• e-Mail
• Print
• Comments (2)
• Trackbacks (1)
• Share

Hot off the presses. Spring Design, Inc. has filed an action against Barnesandnoble.com LLC, in the Northern District of California, alleging that Barnes and Noble breached a non-disclosure Agreement with Spring Design and misappropriated trade secrets related to Barnes & Noble's development of an electronic book reader device.

Click here for a copy of the Complaint that was filed on Nov. 2, 2009: Spring Design, Inc. v. Barnesandnoble.com LLC Complaint.

• e-Mail
• Print
• Comments
• Trackbacks (2)
• Share

Simply combining two obvious public domain concepts does not result in a protectable trade secret, even if the resulting idea has not yet been exploited in the marketplace.  In a recent decision, Take It Away, Inc. v. The Home Depot, Inc., 2009 U.S. Dist. LEXIS 14279, the U.S. District Court for the District of Massachusetts granted summary judgment to The Home Depot on all claims because the business idea that the plaintiff alleged was misappropriated did not constitute a valid trade secret. 

Take It Away, a waste removal services firm, and its principals approached The Home Depot on multiple occasions from 1996 through 2002 with a dumpster rental proposal.  Under the proposal, Home Depot would rent dumpsters to its customers, while Take It Away would provide the product, services, and customer support.  Additionally, Take It Away would remove the waste generated by the program for a separate fee.  In connection with these meetings, Take It Away would sometimes ask The Home Depot to consent to a non-disclosure or confidentiality agreement.  On one occasion, a confidentiality agreement was signed, but usually it was refused or not signed by representatives of The Home Depot, and sometimes it was not requested by Take It Away at all.  Although The Home Depot requested that Take It Away submit an alternative proposal to lease space to conduct its own on-site dumpster rentals, such a proposal was never made, and no contract was ever executed.

• e-Mail
• Print
• Comments (2)
• Trackbacks
• Share

Cases and issues making the headlines*:

Cool Beans (October 24)
As is frequently the case in noncompete disputes, Starbucks has resolved its dispute with its executive, who left to join Dunkin’ Donuts allegedly in violation of his noncompete agreement.  Story here.

2^nd Circuit Affirms Unenforceability of Noncompete Signed in Wrong Place (October 24)
Several months ago, an IBM senior executive, David Johnson, left to go to Dell.  IBM sued, claiming Johnson violated his noncompete agreement. Johnson defended, in part, by pointing out that the agreement was not properly executed.  He won.  After more wrangling in the district court, IBM appealed.  The 2nd Circuit, however, affirmed the district court’s decision.  Story here.

Trade Secret Theft Results in Criminal Charges (October 16)
A former Ford product engineer was reportedly indicted for theft of trade secrets, attempted theft of trade secrets and unauthorized access to a protected computer.  Story here.

Time to Smell the Coffee (October 12)
The battle between Starbucks and Dunkin’ Donuts has expanded from personal taste to the courtroom.  Starbucks has reportedly sued a former executive for joining Dunkin’ Donuts allegedly in violation of his noncompete agreement.  Stories here and here.

Computer Fraud and Abuse Act Used to Attack Spam (October 12)
Craigslist has reportedly filed suit against alleged spammers, relying on the Computer Fraud and Abuse Act. Story here.

Yogurt Trade Secret Case Going to Trial in NH (October 10)
According to reports, Agro-Farma Inc. sued Stonyfield Farm Inc. for, among other things, misappropriation of trade secrets, specifically, aspects of the manufacturing process for a certain type of yogurt. While manufacturing processes fall squarely within the definition of a trade secret, it is rare for such cases to make it all the way to trial.  Nevertheless, the case has been scheduled for trial on the trade secret claim (as well as other claims and counterclaims). Story here.

Continued Hearings in Citadel/Teza Case (October 10)
As covered several months ago in In the News…, hedge fund manager Citadel Investment Group LLC sued a competing hedge fund company and its founder, alleging, among other things, a violation of the founder’s noncompete agreement. The lawsuit was filed on the heels of reports that one of Teza’s employees had been arrested for allegedly stealing secret trading software from Goldman Sachs. The lawsuit now continues with hearings on the alleged destruction of evidence.  See Former Citadel Executive Denies Deliberately Erasing Evidence (on Bloomberg.com) and Citadel Calls Former Head of HFT Trading’s Current Venture, “A Veritable Pirate Ship of Illegal Activity.”

NECN Story on MA Noncompete Bill (October 9)
NECN reporter Peter Howe reported on the noncompete debate in Massachuestts.  Story, including video, here.

Balancing Trade Secrets and Discovery (October 2)
The Texas Supreme Court holds that it was an abuse of the trial court’s discretion to order the disclosure of trade secrets (rates charged for certain hazardous materials and the methods for their calculation) when the plaintiff could not prove why it needed the information.  Story here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Sometimes a new trade secrets decision teaches best practices that clients should follow.  Other decisions demonstrate that when the defendant's behavior is blatant enough, a trade secret plaintiff can prevail despite ignoring common best practices.  A recent case, Miracorp, Inc. v. Big Rig Down, LLC, Johnson County, Kansas District Court, No. 08 CV 9528 (October 2, 2009), definitely falls into the latter category.

The case involved a company, Miracorp, which had put together over time and with much effort a database of service vendors (towing, tire repair, etc.) that truck drivers might need as they hauled their loads across the United States and Canada.  Miracorp not only compiled the vendor names, but also vetted the vendors for quality.  Miracorp made this annotated database available over a free Internet site and through sales of a CD containing the database, and Miracorp's intent was that users of both its website and CD be able to make only specific searches of the database, as opposed to being able to access the entire database.  Apparently, Miracorp's website had no terms of service prohibiting accessing or copying for commercial purposes, nor did Miracorp attempt to impose any limits on what people could do with the CD after purchasing it.  Defendants legitimately obtained a copy of the CD and--as they freely admitted--copied its entire contents, which defendants then used as the basis of their own competing site.

• e-Mail
• Print
• Comments (3)
• Trackbacks
• Share

Cases and issues making the headlines*:

Mass Defections Frowned Upon (September 30)
It’s no surprise that courts frown upon coordinated mass resignations, timed to enable the group of departing employees to take the maximum advantage of the disruption caused by their departure.  And, yet, people still do it.  The latest here (paid service).

Be Careful Who You Get Into Bed With(September 30)
Companies share trade secrets in a variety of contexts: joint ventures, mergers, acquisitions, consulting relationships, and others.  Sometimes, however, after obtaining access, one party decides to use the secrets for its own purposes, often times competitive with the other party.  Law360 has reported on a recently-filed case alleging just that.  Story here (paid service).

When Noncompetes Expire… (September 22)
While most companies view noncompetition agreements as preventing their former employees from working for competitors, the risk – especially with well-heeled executives who have sold their business – is not so limited.  According to the Miami Herald, after selling his prior HMO, entrepreneur Mike Fernandez is planning to start another HMO at the expiration of his 5 year noncompete.  Story here.

CEOs and Trade Secrets (September 19)
The former chairman and CEO of Joost was sued for allegedly using trade secrets obtained by him while CEO and which enabled him to participate in acquisition of Skype.  Story here and here.

Malvertising and the Computer Fraud and Abuse Act (September 19)
Microsoft has filed a lawsuit alleging that certain companies hid malicious code in what appeared to be harmless online advertisements.  Microsoft claims that this and related conduct constitutes, among other things, a violation of the Computer Fraud and Abuse Act.  Story here and on Microsoft’s blog as “Bad Ad: Going After The Malvertising Threat.”

More Allegations of Chinese Nationals’ Theft of Trade Secrets (September 19)
DuPont reportedly sued a Chinese research scientist for misappropriating trade secrets for use in developing competitive products in China.  Story here.

More on California Court’s Take on the Computer Fraud and Abuse Act (September 19)
Below (“Employee Access to Computers and the Computer Fraud and Abuse Act”), we noted the recent 9^th Circuit’s recent ruling on whether employee’s “disloyal” access to his employer’s computer can violate the Computer Abuse and Abuse Act.  Here are more stories:  On Wired.com: “Court: Disloyal Computing Is Not Illegal” and on ars technical: “Disloyal employees are not hackers, says court.”

Trade Secrets Meet Public Records Act (September 17)
The Ohio Supreme Court has ruled that standardized tests are trade secrets, and therefore exempt from disclosure under the public records act.  Story here.

Noncompetes in the Financial Services Industry Are Alive and Well (September 17)
Lest you hear that noncompetes are no longer used in the financial services industry, don’t believe it.  Here’s the latest case to roll through the system:here.

Computer Fraud and Abuse Act Used Against Labor Union (September 17)
After allegedly being inundated with emails and telephone calls, a company has sued the labor union it claims orchestrated the infiltration of emails and calls, claiming that the conduct violates, among other things, the Computer Fraud and Abuse Act.  Story here and here.

Employee Access to Computers and the Computer Fraud and Abuse Act (September 17)
In the continuing development of the law governing whether an employee’s access of his employer’s computer for improper purposes is “unauthorized access” to the computer prohibited by the Computer Fraud and Abuse Act, the 9^th Circuit holds that it is not.  Story here.

Customer-Based Restrictions Substitute for Geographic Limit (September 17)
A Texas court was persuaded that restrictions in a noncompete agreement on which customers a former employee may solicit was a sufficient substitute for otherwise-required geographic limitations.  Story here.

It’s All Fun and Games Until… (September 17)
Two game development companies are in a dispute concerning whether one company’s employees defected to the other with trade secrets.  Story here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

On October 7, the Massachusetts legislature's Joint Committee on Labor and Workforce Development will conduct a hearing on the two noncompete bills sponsored, respectively, by Representatives Lori Ehrlich and Will Brownsberger. While those two bills are technically before the Committee, there is a third bill that reflects a joint effort by the two legislators, which is likely to be the focus of the hearing. The representatives initially made a draft available for public comment in July. Since then, there have been many meetings, emails, and other communications providing input on the draft. We have made an effort to consider them all in drafting the revisions to the July version. We also made an effort to structure the bill in as straightforward a manner as possible, given the complicated nature of the issues and the many interests to be balanced. As before, we have striven to achieve an appropriate balance of protections and incentives to both employers and employees, and make it easier for both sides to predict the outcome of any potential dispute, thereby reducing the need to resort to the courts for resolution of such disputes. The current draft (including changes through September 28) is available here.

• e-Mail
• Print
• Comments (17)
• Trackbacks (1)
• Share

While state laws vary with regard to what will constitute a trade secret, most states have adopted the Uniform Trade Secret Act (UTSA), which provides the following definition:

"'Trade secret' means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

Those states that have not adopted the UTSA generally apply a similar concept. In sum, a trade secret has three essential components: (1) information; (2) value; and (3) secrecy.

While this sounds simple enough, the difficulty arises when trying to apply the definition. Let's take an example. Is a customer list a trade secret? Some say yes. Some say no. Both may be right.

Certainly, a customer list is information. Indeed, it fits squarely within one of the enumerated types: a compilation.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

When an employment relationship terminates -- regardless of who instigated the termination -- both employer and employee should consider the potential issues that could arise if the employee goes into competition with the employer.  The employer needs to minimize the risk that the departing employee will take its customers or trade secrets, while the employee needs to minimize the risk that her old employer will attempt to block her new employment.  The following are steps that each party should consider.

Employees.  To protect her future employment, a departing employee should not take any company information or property -- regardless of how insignificant it may seem.   Nor should she do anything that makes it look like she took something.  Downloading a bunch of material from the company's computer and then deleting it is one sure way to raise suspicion -- even if it was as innocent as transferring personal photos and contact information.  It looks even worse if the material so taken is work-related.  The employee may have simply wanted a keepsake of that project he spent so much time on, but from the employer's perspective it looks like theft.  Employees need to remember that the work they did belongs to the employer, and to leave it all behind.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Certain recognized voices in the venture capital (VC) community have become increasingly vocal in their call for the abandonment of noncompete agreements in Massachusetts. Noncompetes are agreements that impose post-employment restrictions on a former employee's ability to compete with its prior employer. These VCs believe that noncompete agreements stifle an employee's mobility and innovation and, therefore, VC interest and investment. In support of their position, they point to the relative success of Silicon Valley's tech industry as compared with Boston's 128 high-tech corridor. They believe that Silicon Valley's comparative success is directly related to the fact that California prohibits noncompete agreements, while Massachusetts permits them. They contend, therefore, that by banning noncompetes, Massachusetts could reinvigorate VC investment and resultant innovation.Right or wrong, the VCs were able to garner support in a variety of sectors, including within the Massachusetts Legislature. In the past few months, however, the legislative approach has shifted direction. A new bill, which we at Foley were asked to write, would make the following changes to the law:

• Noncompete agreements would be required to be in writing and provided to the employee two weeks in advance (if possible) of employment or its effective date. 
• A noncompete entered into during the term of employment would require reasonably adequate consideration (value) beyond simply being permitted to continue to work for the company.
• Noncompete agreements would be limited to a term of one year, except for garden leave clauses (i.e., noncompete agreements for which the employer pays the employee during the post-employment restricted period), which can last for up to two years.
• Presumptions of reasonableness and enforceability arise for noncompete agreements that are limited in certain specified respects such as durations of no more than six months.
• Employees earning less than $50,000 would be exempt from noncompetes. Employees earning between $50,000 and $100,000 would be exempt, unless the noncompete is designed to protect trade secrets and/or confidential information.
• Employees would be entitled to their legal fees in certain instances.

• e-Mail
• Print
• Comments (1)
• Trackbacks
• Share

We are pleased to announce a free five part web series entitled, "Trade Secrets and Noncompete Agreements: What You Need to Know."  The series covers the topics below.  For more information please click here or visit Foley.com.  To register, click here. 
 

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Cases and issues making the headlines*:

Computer Fraud and Abuse Act Not Violated by Exceeding Access of Terms of Use (August 30)
The United States District Court for the Middle District of Californiarejected application of the Computer and Abuse Act  in the so-called "cyberbullying case."  The court held that exceeding a website's terms of use does not constitute exceeding authority for purposes of a criminal cause of action under the statute.  Story (with a link to the court's decision) here.

Noncompetes Beverly Hills Style (August 23)
Internet advertising company Hydra LLC of Beverly Hills is reportedly in the middle of an internal rift that has divided the company.  Reports indicate that claims of breach of noncompete obligations have been met with claims of corporate waste, which have in turn been met with claims of defamation.  Story at Los Angeles Business Journal, Internet Execs Failed to Click.

Competitor's Alleged Use of False Emails Leads to Lawsuit (August 22)
Affiliated Computer Services, Inc. (AFC) brought a federal lawsuit against competitor Duncan Solutions, Inc., alleging that Duncan Solutions created dozens of false email accounts by which it was able to access AFC's computers, divert emails intended for other people, and misappropriate trade secrets and other confidential business information.  The lawsuit makes claims under the Computer Fraud and Abuse Act (18 U.S.C. § 1030), the Stored Wire and Electronic Communications and Transactional Records Access Act (18 U.S.C. § 2701), and the Federal Wiretapping Act (18 U.S.C. § 2511).  Story here.

The First Amendment vs. Trade Secret Protection (August 21)
The Pittsburgh Post-Gazette was sued in West Virginia by generic drugmaker Mylan Inc.  The suit claims (among other things) that the newspaper misappropriated trade secrets concerning manufacturing and quality control processes.  Although not discussed in the story (here), the case will likely turn on the relationship between the First Amendment rights held by the newspaper and the law of trade secret protection.

Public Information and Customer Lists Can Be Trade Secrets (updated August 21)
The 10th Circuit (analyzing Colorado law, which is similar in relevant part to the majority of states) held that a compilation of information, each, component part of which is publically available, can be a trade secret.  The court also held that customer lists can be trade secrets.  The case is Hertz v. Luzenac Group, and is discussed here (paid service) and here.  The California Court of Appeal explains (also consistent with the prevailing view) that courts are reluctant to protect "naked" customer lists (i.e., those lists that contain merely names and addresses) as opposed to those that contain the particular needs and characteristics of the customer.  The case is The Retirement Group v. Galante.

No Noncompete, No Problem (Updated August 20)
While noncompete agreements are verboten in California, some companies have reportedly managed to find a way to obtain some of the benefits of such agreements:  an unspoken agreement to not poach each other's employees.  Story here, here, and here (new).

The Value of Trade Secrets (August 17)
Cumberland Pharmaceuticals Inc., which had its IPO last week, relies on trade secrets (rather than patents) to protect its technology.  Story here.

Social Network Site Tagged with Lawsuit (updated August 15)
The social network site Tagged.com was sued in California.  The case asserts that Tagged harvested emails in violation of, among other things, the Computer Fraud and Abuse Act.  Story here, here, and here.

Massachusetts Noncompete Debate - Scott Kirsner's Latest (August 14)
People fall on all sides of the current debate about whether and, if so, how to change Massachusetts's noncompete laws.  Boston Globe columnist and blogger, Scott Kirsner, strongly supports Massachusetts following the California model of prohibiting employee noncompete agreements.  Mr. Kirsner's latest posting is here.

Twitter’s Tweets Silenced  (August 6)
For those who may have been wondering what was happening with Twitter today, the answer is that it was allegedly shut down this morning by a DDoS hacker attack.  (Story here and here.)  Computer Fraud and Abuse Act lawsuit next?

Huron Consulting’s Battle with Sonnenschein, Nath & Rosenthal (August 4)
In June, Huron Consulting sued several former employees for (among other things) allegedly breaching their noncompete and non-solicitation agreements and law firm, Sonnenschein, Nath & Rosenthal, for allegedly tortiously interfering with those contracts.  The battle has heated up this month with assertions by the defendants of wrongdoing by Huron and arguments that the agreements are unenforceable under Illinios law.  Story here.

Big Brother vs. the Computer Fraud and Abuse Act (updated August 3)
A putative class action lawsuit has been filed by two named plaintiffs against Amazon.com alleging that Amazon wrongfully deleted (remotely) from the plaintiffs’ Kindles (e-book readers) copies of books that Amazon had sold to them.  Filed in the United States District Court for the Western District of Washington at Seattle, the case is Gawronski v. Amazon.com, Inc. According to the complaint, Amazon deleted the books because, after selling them, it discovered that it did not have the proper authorization from the copyright owner.  The complaint alleges that Amazon’s remote access into the plaintiffs’ Kindles was unauthorized, and as such, violates (among other things) the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.  The complaint (paragraph 4) provides the following colorful analogy:

And consider noted New York Times technology writer, David Pogue’s description of Amazon’s conduct: “[I]t’s like Barnes & Noble sneaking into our homes in the middle of the night, taking some books that we’ve been reading off our nightstands, and leaving us a check on the coffee table.”

Although things like this have allegedly happened before, the irony here is that one of the books is George Orwell’s 1984.

Additional information (including a discussion of impact on one of the plaintiffs, who had made notations (now allegedly useless) throughout the book for purposes of a student thesis) is available at My Amazon Kindle Ate My Homework; WSJ Blog post, Lawsuit: Amazon Ate My Homework; and the L.A. Times Business Technology story, Highlights from the ‘1984′ lawsuit against Amazon.  PC Magazine has also posted a story (which includes Amazon’s response): Kindle Users Sue Amazon Over Deleted Orwell Book.

The Intersection of Trade Secrets and Freedom of Information (August 1)
Requests to the federal government for “public records” are made through a request under the Freedom of Information Act.  Requests to state governments are typically made through state analogues.  There is little dispute that trade secrets are exempt from disclosure under these acts.  Rather, the dispute generally concerns whether the particular information (typically required to be filed with the government) qualifies as a trade secret.  See for example Fox’s efforts to obtain bail-out documents here.

Trade Secret Theft: Rising Risks (August 1)
USA Today report on the rise and risks of trade secret theft here.

BoA Sues Departing Employees (Missouri) (August 1)
Bank of America reportedly sued five former employees for breaching their noncompete agreements by joining competitior UMB Financial Corp. and soliciting their former clients.  Story here.

Smith & Nephew Sues Competitor (Tennessee) (August 1)
Smith & Nephew, Inc. has reportedly sued a former sales person and his new employer, Osteologic, Inc., for violating the employee’s noncompete agreement.  Story here.

More Noncompetes Expiring… (August 1)
With his noncompete having recently expired, the founder of Hotels.com has launched GetARoom.com.  The method used by the new website for getting a good rate on a hotel: a phone call!  What’s the world coming to?!  Story here.

Cybercrime Prosecutions (August 1)
NPR’s take on cybercrime prosecution after the first cybercrime indictment, twenty years ago, here.

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

To be enforceable, noncompete agreements must, among other things, serve a "legitimate business interest."  What is a legitimate business interest?  Most states recognize trade secrets, other confidential business information, and customer goodwill as legitimate business interests that may properly be protected.  (See Back to the Basics... Terms of Art.)  This is not to say there is not overlap, however, and that's the key:  There is overlap.  

So, what does that mean and why is it significant?  The California Court of Appeal recently issued a decision The Retirement Group v. Galante that explains it.  But first some background...

Two things are important to know about California.  First, California does not permit employee noncompete agreements except (possibly) to protect trade secrets - although the California Court of Appeal had something to say about that too.  (More on that another time.)  Second, California (which is not unique in this regard) treats nonsolicitation agreements as noncompete agreements.  Therefore, in California, they generally will not be enforced, while in other states, they will be analyzed in the same fashion as traditional noncompete agreements are analyzed.  (The scrutiny applied, however, is typically a bit lower, as nonsolicitation agreements do not impede individual choice of employment to the same extent as the outright ban of a noncompete agreement.)

• e-Mail
• Print
• Comments
• Trackbacks
• Share

In trade secret disputes, a company seeking to prevent a former employee from going to work for a competitor (or creating a new company that will be a competitor) often invokes the so-called doctrine of "inevitable disclosure."  In essence, an inevitable disclosure claim rests on the premise that because of the nature of the industry, the competitive positions of the former and current employers, the similarity of the employee's position with the former and current employers, and various other factors, it is inevitable that the employee will use the trade secrets of the former employer in his/her new position "unless [he] possesse[s] an uncanny ability to compartmentalize information."  PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995).  

Inevitable disclosure claims are not new.  Reported cases go back at least to the mid-1960s.  See, e.g., Allis-Chalmers Mfg. Co. v. Cont'l Aviation & Eng'g Corp., 255 F. Supp. 645, 654 (E.D. Mich. 1966) (finding an "inevitable and imminent danger" that engineer would disclose pump design to competitor, and "virtual impossibility" that he could work for competitor without disclosing trade secrets, as sufficient to justify injunction against working on pump product line for competitor).  

The doctrine gained new momentum, however, under the Uniform Trade Secrets Act ("UTSA"), which expressly protects against "threatened" as well as actual misappropriation.  The leading case applying the inevitable disclosure doctrine under the UTSA is PepsiCo.  In that case, PepsiCo and Quaker (Snapple) were competitors in the "New Age" drink business, and the defendant, Redmond, was a high-ranking marketing executive with PepsiCo who left to take a similar position with Quaker.  The lower court found, and it was not challenged on appeal, that strategic plans, pricing architecture, and marketing agreements with retailers were "trade secrets."  The court concluded that where the executive would be making strategic decisions for a direct competitor, it is inevitable that his decisions would be informed by his prior employer's trade secrets of this nature.  Based on that reasoning, the court enjoined the executive from accepting a position with the competitor for six months.   

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Sometimes as a discussion progresses, the details become obscured or lost altogether.  The discussions about noncompete agreements are no exception.  So, below are some definitions with which people should be familiar:

Common Types of Agreements:

• Restrictive covenant:  An agreement that limits a party's ability to perform similar work.  Generally, people think of the limits as applying after the parties' relationship ends, but typically the restrictions apply during the term of the contract as well.  (The reason for the post-contract focus is that the parties' interests are more likely to diverge at that point.)
• Noncompete agreement (also known as "noncompetition agreements"):  A type of restrictive covenant in which the applicable limitation precludes a party from providing services to a competitor of the other party.  These agreements can arise in many contexts (sale of a business, independent contractor agreements, partnerships, etc.), but most often arise in the employment context.  (Those that arise in the employment context are commonly referred to as "employee noncompete agreements.")
• Garden leave clause:  a type of employee noncompete agreement for which the employer compensates the employee while the employee is restricted from competitive activities.  There are two types: one in which employment continues during the restricted period (essentially the employee is required to provide a minimum amount of notice of resignation); one in which the employment terminates and the restrictive period begins.  For more on the garden leave clause, see Christi Adams' post, Garden Leaves.
• Forfeiture-for-competition agreement:  a form of employee noncompete agreement by which an employee forfeits certain benefits if he engages in activities that are competitive with his former employer.
• Compensation-for-competition agreement:  a form of employee noncompete agreement by which an employee pays his former employer (sometimes a percentage of the revenues from the competitive activities) if he engages in activities that are competitive with his former employer.  (This agreement can be viewed as a form of forfeiture-for-competition agreement, insofar as the employee forfeits some of the compensation for competitive activities.)
• Forfeiture agreement:  an agreement by which an employee forfeits benefits when his employment terminates - regardless of whether he engages in competitive activities.
• Nondisclosure/confidentiality agreement:  an agreement by which an employee agrees not to use or disclose an employer's confidential information.
• Nonsolicitation agreement:  an greement by which an employee agrees not to solicit - and, if well drafted, not to accept - business from the employer's customers.
• Antipiracy agreement:  an agreement by which an employee agrees not to solicit - and, if well drafted, not to hire - the employer's employees.
• No-hire agreement:  a type of antipiracy agreement by which a party agrees not to hire the other party's employees.
• Invention assignment agreement:  an agreement by which an employee assigns to the employer any potential inventions conceived of during employment.  (Typically, the inventions are only those that somehow relate to the work of the employer.)

For more information on these agreements, see, Beyond the noncompete. 

• e-Mail
• Print
• Comments
• Trackbacks (2)
• Share

Cases and issues making the headlines*:

People Weigh In on Mass Noncompete Bill (July 26)
Just a brief note on the latest about the Massachusetts Ehrlich/Brownsberger noncompete bill.  (The current draft of the bill is available here.)  As you may recall, as the principal author of the bill, I had been asked to speak on a Boston Bar Association panel on July 22.  (If you don’t recall, see Freedom to Compete? A Symposium on Bills Affecting Non-Compete Agreements, Massachusetts Noncompete Debate Continues in In the News, and New Proposed Noncompete Legislation in Massachusetts….)

The symposium was attended by a sizeable audience, estimated at about 100 people, comprised primarily, but by no means exclusively, of lawyers.  After each of the panel members had an opportunity to speak, the questions and comments began.  (Symposium discussed in more detail here and here.)

The next step is to take the input into account, make any changes that may be warranted, and then off to committee, which is expected to be in the fall.

Check back for more updates as they’re posted.

California Trade Secret Litigation Forces Virginia Company Into Bankruptcy (July 26)
After a $36 million adverse verdict by a jury in a California trade secret trial, Virginia-based “new-generation” healthcare and telecommunications products manufacturer, Luna Innovations Inc., filed for bankruptcy.   (Story here.)

More on Goldman … and UBS (July 26)
The story about Goldman’s former executive brought up on charges of alleged theft of source code has been in the headlines quite a bit (see International Intrigue in the In the News archives).  For some further interesting reading, see Goldman’s Billions (explaining the significance of the software) and Reuters’ commentary (comparing the civil lawsuit brought by UBS brought to the criminal charges against the former Goldman employee).

The Computer Fraud and Abuse Act:  It Isn’t Just For Civil Claims Anymore (July 26)
Delaware blogger discusses the use of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, by the Department of Justice to address wrongs done in the workplace.  (Story here.)

Celebrities Claiming Trade Secrets (July 26)
Magician allegedly claims entitlement to royalties from levitation act containing trade secrets.  (Story here.)  Brad Pitt reported to have said that how he and Angelina Jolie “make time for [them]selves” is a “trade secret.”  (Story here.)

Microsoft Sues Under the Computer Fraud and Abuse Act (new July 19)
Microsoft sued Funmobile Ltd. and others claiming, among other things, that certain alleged spamming activities violated the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.  (Story here.)  Microsoft’s associate general counsel for Internet Safety Enforcement, Tim Cranton, discusses the case and issues at Saying No to “Spim”.

IBM/Dell/Johnson – Trade Secrets (updated July 19)
The United States Court of Appeals for the 2^nd Circuit allows a former IBM executive to work for Dell pending expedited appeal.  (Story here.)  For an interesting discussion of the case, see Mr. Johnson’s Gambit.

Risks and Ethics:  The Dissemination of Proprietary Information (updated July 19)
Interesting posts on the debate over the ethics of spreading other people’s trade secrets and confidential information: Our Reaction To Your Reactions To the Twitter Confidential Documents Post; What TechCrunch’s Publication of Twitter Memos Means for Journalists.

Company President Goes To Competitor (new July 19)
West Virginia company, Gatewood Transportation, reportedly sued its former president (Glenn Hanson) and his new employer (Mystic Hills), asserting claims for breach of a noncompete agreement, misappropriation of trade secrets, and tortious interference with contract.  (Story here.)

Massachusetts Noncompete Debate Continues (new July 18)
Things have been moving quickly.  On July 2, we posted a story about an upcoming symposium on the state and fate of noncompetes in Massachusetts (see Freedom To Compete? A Symposium on Bills Affecting Employee Non-Compete Agreements).  On July 12, we posted a story about how Representatives Lori Ehrlich and Will Brownsberger, each the lead sponsor of their own noncompete bill, have been working together on a new bill (see Massachusetts Noncompete Debate Heats Up…, below in this In the News post). Yesterday, July 17, we posted a story about the combined Ehrlich/Brownsberger bill. Today, we provide links to posts concerning the recent debate: Preliminary comments on proposed draft of compromise non-compete bill; Latest on the Non-Compete Bill in Massachusetts; Non-competition agreements should be banned.

EMC/Donatelli/HP (new July 17)
For those who were watching and remember the legal wrangling on both coasts (in Massachusetts and California), you will recall that in May, EMC Corporation obtained an injunction against its former data storage executive David Donatelli, preventing him from working in certain capacities for Hewlett-Packard (HP).  (Story here and here.)  The injunction, however, does not seem to have prevented it from moving forward with efforts to expand its data storage business.  (Story here.)

First Economic Espionage Act Trial (new July 16)
Chinese-born engineer found guilty of economic espionage.  (Story here.)

Misappropriation of Computer Code (new July 16)
Goldman Sachs is not the only company from which proprietary computer trading code is alleged to have been recently misappropriated.  Apparently UBS sued three ex-employees, claiming that a similar thing has happened there.  (Story here.)

Another International Trade Secret Case (new July 16)
A federal court in California refused to discmiss claims of trade secret theft, intentional interference with business, and unfair competition against T-Systems Enterprise Services GmbH, an affiliate of Deutsche Telekom.  (Story here.)

International Intrigue (updated July 16)
Reports (e.g., here, here, and here) of the alleged theft of computer source code from Goldman Sachs.

When Noncompetes Expire… (updated July 16)
Trade secret litigation among Invista, DuPont, and others (here).  Litigation, however, is not the only impact of an expiring noncompete agreement.  See 3Com’s experience.  See also how people come back after a noncompete (here and here).

Another Criminal Trade Secret Case! (new July 14)
Two indicted on charges of, among other things, stealing trade secrets related to video games.   (Story here.)

Financial Services Noncompete (new July 14)
Financial advisors in Virginia, subject to FINRA and bound by non-solicitation agreements, were not enjoined.  (Case here.)

Ask A Court To Say You’re Not Bound By a Noncompete?  (new July 14)
A federal case in Illinois asking the court to say that the noncompete was unenforceable was dismissed as not “ripe” for adjudication.   (Story here.)

Physician Noncompete Agreements (updated July 14)
Physician noncompete agreements (unenforceable in many states) have been making headlines recently.  See, for example, here and here.

Massachusetts Noncompete Debate Heats Up… (new July 12)
Two noncompete bills are currently pending before the Massachusetts legislature.  (See below, Freedom To Compete? A Symposium on Bills Affecting Employee Non-Compete Agreements.)  One is sponsored by State Representative William Brownsberger, and would abolish noncompetes all together.  The other is sponsored by State Representative Lori Ehrlich (and drafted by me), and recognizes the need for reasonable noncompete agreements.  Accordingly, the Ehrlich bill seeks to follow on the efforts of the judges in the Massachusetts courts (including, in particular, those in the Business Litigation Session of the Superior Court) to provide a measure of clarity, predictability, and protection to both employers and employees.  Proponents and advisors on both bills have begun combining their efforts behind a refined version of the latter bill.  (See Boston Globe editorial, Clause for concern.)

The Plot Thickens… (new July 10)
More fallout following the Goldman Sachs reports (see International Intrigue):  Citadel Investment Group LLC/Teza Technologies LLC.

Trade Secrets/Employee Raiding
The Hartford Financial Services Group, Inc. sues, claiming employee raiding, misappropriation of trade secrets, unfair competition (here).

Inevitable Disclosure Doctrine Unavailing
Senior sales employee from American Airlines permitted to work for Delta Airlines (here).

Noncompetes in Franchise Agreements
Georgia Supreme Court restricts “in-term” noncompete’s application (here).

Trade Secret Verdict/Appeal
ClearOne Communications Inc. received a $10.5 million verdict (reduced by the court to about $9.7 million) in connection with employees found to have misappropriated trade secrets.  The verdict and the reduction are on appeal.   See Law360 (subscription service).

Noncompete from Sale of Business Gone Bad
Reed Elsevier/Hank Asher litigation over noncompete arising from the sale of a business (here).

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

• e-Mail
• Print
• Comments
• Trackbacks
• Share

On July 23, the Massachusetts Appeals Court issued a decision (Synergistics Technology, Inc. v. Putnam Investments, LLC) involving a defendant who, aware of the plaintiff's noncompete agreement with its former employee, hired the employee.  The plaintiff had not "induced" the employee to breach his contract, but did "facilitate" the employee's breach of his agreement.  As a result, after a trial, the jury found in favor of the defendant on a claim of tortious interference (i.e., a claim that the defendant had induced a breach of contract through improper motive or improper means).  Nevertheless, the jury found that the defendant had violated Massachusetts' unfair competition statute (G.L. c. 93A).  The trial court, accepting the jury's finding, awarded double damages and attorneys' fees.

The Appeals Court reversed.  The Court reasoned that facilitating the breach of a contract (at least under the circumstances of that case) was simply not "unfair or deceptive" - a required element of a claim for unfair competition under G.L. c. 93A.

• e-Mail
• Print
• Comments
• Trackbacks
• Share

For anyone following the twists and turns in the Massachusetts noncompete discussion (see Freedom To Compete? A Symposium on Bills Affecting Employee Non-Compete Agreements below), you will be interested to know that the two legislators, Representatives Lori Ehrlich and Will Brownsberger, leading the charge have combined their efforts to arrive at a new proposed bill.  This new proposed legislation (which I have been fortunate to have had opportunity to take the lead in drafting and, with others, including Rob Mantell, Caroline Huang, and Phil Gordon, to advise on) is available here, and is designed to provide a measure of clarity, predictability, and protection to both employers and employees. 

Before identifying the primary elements of the bill, it is important to know that it applies to noncompete agreements arising in an employment context - not to those arising in other contexts (such as the sale of a business).  Also, the legislation would not affect the use of other agreements, such as nondisclosure/confidentiality agreements, non-solicitation agreements, anti-piracy agreements, invention assignment agreements, or the like.  (For a discussion of those other agreements, see Beyond the noncompete.)

• e-Mail
• Print
• Comments
• Trackbacks
• Share

Reports (e.g., here and here) indicate that trade secret and noncompete litigation is on the rise.  The spate of recent cases in the headlines confirms this.  (See, for example, U.S. v. Lee , Abbott Labs v. Mancheski, IBM v. Dell, EMC v. Donatelli).  Other blogs have recently commented on this trend as well.  (See "Eight ways to lose a noncompete case" and Litigation Over Non-Compete Agreements on the Rise).  

This increase in litigation may be the natural result of a corresponding increase in mobility in the workforce.  Some, however, may be better explained by the increased ease with which trade secrets can be misappropriated.  Indeed, this confluence of events seems to support a study finding that "nearly 60 percent of employees who quit a job or are asked to leave are stealing company data . . . ."  With the recent contraction in the previously-expanding workforce, more people changing jobs, and the high percentage of reported employee data misappropriation, it's no wonder that there would be a concomitant increase in trade secret and noncompete litigation. 

Whatever the cause, however, an ounce of prevention is still worth a pound of cure, and companies are well-advised to ensure that they have taken adequate measures to protect their trade secrets, confidential business information, and goodwill. 

• e-Mail
• Print
• Comments
• Trackbacks (1)
• Share