February 22, 2015
More and more studies are being conducted about the impact of noncompetes on the economy, including in particular on startups, employee mobility, and innovation.
Two relatively recent studies, suggest some (perhaps) surprising results.
The first, Training the Enemy? Firm-Sponsored Training and the Enforcement of Covenants Not to Compete (January 25, 2015), by University of Illinois professor, Evan Starr, suggests that companies in states that permit stronger enforcement of noncompete agreements tend to provide more training to their employees.
The second, Enforcing Covenants Not to Compete: The Life-Cycle Impact on New Firms (June 15, 2014), by University of Illinois professor, Evan Starr, Whitman School of Management (Syracuse University) professor, Natarajan Balasubramanian, and UCLA Anderson School of Management professor, Mariko Sakakibara, suggests that states that permit stronger enforcement of noncompete agreements tend to have fewer – but better (higher-quality ideas and more likely to survive) – startups.
Tip of the hat to the Washington Post for its story today, The rise of the non-compete agreement, from tech workers to sandwich makers, which included a discussion about a working paper, Noncompetes in the U.S. Labor Force (as of February 18, 2015), from Professor Starr, University of Michigan’s Ross School of Business professor, Norman Bishara, and University of Michigan Law School professor, James J. (“JJ”) Prescott.
January 19, 2015
In anticpation of speaking at the Boston Bar Association’s 15th Annual Intellectual Property Year in Review earlier this month, I prepared a paper discussing a number of the developments in trade secrets law and noncompete law around the country in 2014. Ultimately, I was unable to make it to speak at the event, but my partner, Steve Riden, covered for me – for which I am grateful!
The topics covered in the paper are as follows:
- Congressional efforts to amend the Economic Espionage Act, most recently through the Trade Secrets Protection Act of 2014.
- The Wyoming Supreme Court’s decision in Powder River Basin Resource Council v. Wyoming Oil and Gas Conservation Commission, 320 P.3d 222 (2014), detemining that information claimed to be a trade secret would be evaluated under the comparatively-narrow definition of trade secrets provided by FOIA, not by the broader definition under state trade secrets laws.
- The Supreme Judicial Court’s much-anticipated decision in LightLab Imaging, Inc. v. Axsun Technologies, Inc., 469 Mass. 181 (2014), opening the door for trade secrets misappropriation plaintiffs to develop new damages theories (beyond the traditional misappropriation theories of lost profits, unjust enrichment, and royalties) in Massachusetts.
- The continuing saga of mixed interpretations of the scope of the Computer Fraud and Abuse Act, focusing (for the paper) on Verdrager v. Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C., 32 Mass.L.Rptr. 27 (Mass. Sup. Ct. Dec. 17, 2013) (Lauriat, J.), taking a narrow interpretation of the Act in what appears to be the first reported Massachusetts state court decision interpreting the CFAA; and Pine Environmental Services, LLC v. Carson, __ F. Supp.2d __, 2014 WL 4185502 (Aug. 20, 2014) (Talwani, J.), focusing on the use to which the computer had been put at the time of the allegedly wrongful access, and its impact on whether the computer fell within the scope of the CFAA.
- The European Commission’s efforts to develop a unified approach to trade secrets law in Europe.
- The benefits of including “teeth” in a nondisclosure agreement, as demonstrated by Gulliver Schools, Inc. v. Snay, 137 So.3d 1045 (Ct. App. Fla. 2014) (the so-called “Suck It!” case).
- Recent cases applying Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, 134 S.Ct. 568 (2013), to the enforcement of forum selection clauses in noncompete cases – including California decisions transferring noncompete cases out of California.
- Continued Massachsuetts legislative efforts to ban or modify Massachusetts noncompete law and to adopt the Uniform Trade Secrets Act in Massachusetts. (For the latest update on Massachusetts noncompete and trade secrets bills, see Massachusetts Bills to Ban Noncompetes and Adopt UTSA in the New Legislative Session (2015-2016), which discusses the bills that were all just filed.)
- The Arizona’s Supreme Court’s decision in Orca Communications Unlimited, LLC v. Noder, 337 P.3d 545 (2014), adding to the body of cases considering the scope of preemption under the UTSA and taking a narrow approach to what the UTSA preempts.
- The United States District Court for the Central District of California’s decision in Cellular Accessories For Less, Inc. v. Trinitas LLC, 2014 WL 4627090 (C.D. Cal. Sept. 16, 2014), denying summary judgment on the issue of whether and under what circumstances LinkedIn contacts can be considered trade secrets.
- The North Carolina Court of Appeals’ decision in Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC, 762 S.E.2d 316 (N.C. Ct. App. 2014), holding that it was error to refuse to reform an overly-broad noncompete that arose in the context of a sale of a business and contained a provision permitting judicial modification of the contract.
The paper is available here.
January 18, 2015
Fair Competition News, Massachusetts Noncompete Bill, Noncompetes, Restrictive Covenants, Trade Secrets
Brownsberger, California noncompete, confidential information, Ehrlich, litigation, Massachusetts, noncompete, noncompete bill, nonsolicitation, Representative Lori Ehrlich, restrictive covenants, Senator Will Brownsberger, trade secret
Several bills concerning trade secrets and noncompetes were filed this week in the Massachusetts legislature.
On trade secrets side, the following bills were filed: H.2569 by Representatives Bradley Jones and Elizabeth Poirier; H.2157 by Representative Garrett Bradley; and S.334 by Senator Jason Lewis.
The following bills were filed on the noncompete side: H.2332 by Representative Lori Ehrlich and an identical bill in the senate (S.809) by Senator Will Brownsberger; H.730 by Representative Angelo Puppolo; H.2157 by Representative Garrett Bradley; H.709 by Representative Sheila Harrington; and S.334 by Senator Jason Lewis.
The bills (all of which are available through the above links) are summarized as follows:
The various trade secrets bills filed by Senator Jason Lewis and Representatives Brad Jones, Elizabeth Poirer, and Garrett Bradley are all essentially last session’s version of the bill to adopt the Uniform Trade Secrets Act with some very minor (nonsubstantive) changes. As I explained here, this version the UTSA would substantially weaken Massachusetts trade secrets law. However, Steve Chow‘s version, which I worked on with Steve to address these concerns, was filed by Steve Chow as a Uniform Law Commissioner in the fall and remains up for consideration.
The noncompete bills all seek to ban noncompetes, albeit using different language. Representatives Harrington and Puppolo bills track California’s Business and Professions Code sections 16600 to 16602.5 (with a little restructuring). It is important to note that while they specifically exempt nondisclosure agreements, they could have the effect of banning nonsolicitation agreements. (That’s how the same language has been interpreted in California.)
The other approaches to banning noncompetes use similar language to that proposed last year by Governor Patrick (which I had helped to draft). The full language, which is set out in Senator Brownsberger’s and Representative Ehrlich’s bill, is reproduced below.
However, several aspects of this version are important to note. First, if passed, this bill would not apply to other types of restrictive covenants, such as nondisclosure agreements, nonsolicitation agreements, or no raid agreements. Nor does the bill apply retroactively; it prohibits only agreements entered into after the bill and passed and the law becomes effective. (Senator Jason Lew’s bill, while nearly identical, would apply retroactively, i.e., to existing agreements. Similarly, Representative Bradley’s bill, which uses some but not all of the same language, also applies retroactively; however, Representative Bradley’s bill could also be interpreted to ban all other restrictive covenants – not just noncompetes.)
As a side note, last legislative session, there was a fair amount of discussion about including language expressly permitting what has become referred to as a “springing noncompete.” The concept was that while noncompete agreements would be banned, a court may nevertheless prohibit the former employee from working for the new employer as a remedy for a breach of another restrictive covenant (e.g., a nondisclosure agreement or nonsolicitation agreement). Although not expressly provided for in the current bills, that relief may still be available, as the bill would ban only “agreements” and leaves unaffected a court’s broad equitable powers.
Given the completeness of the Brownsberger/Ehrlich bill (and my involvement with its drafting), I have provided its full text here.
An Act relative to the judicial enforcement of noncompetition agreements.
Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:
Chapter 149 of the General Laws of Massachusetts shall be amended by inserting the following as Section 19D:
Section 19D. Noncompetition Agreements
Any written or oral agreement arising out of an employment or independent contractor relationship that prohibits, impairs, restrains, restricts, or places any condition on a person’s ability to seek, engage in, or accept any type of employment or independent contractor work, for any period of time after an employment or independent contractor relationship has ended, shall, to that extent, be void and unenforceable. This section does not render void or unenforceable the remainder of the agreement containing the unenforceable noncompetition agreement, nor does it preclude the imposition by a court, through a temporary restraining order, preliminary injunction, permanent injunction, or otherwise, of a noncompetition restriction as a provisional or permanent remedy for a breach of another contractual obligation or violation of a statutory or common law duty. Nor shall this section affect (i) covenants not to solicit or hire employees or independent contractors of the employer; (ii) covenants not to solicit or transact business with customers, clients, or vendors of the employer; (iii) nondisclosure agreements; (iv) noncompetition agreements made in connection with the sale of a business or partnership or substantially all of the assets of a business, when the party restricted by the noncompetition agreement is an owner of, or partner with, at least a ten percent interest of the business who received significant consideration for the sale; (v) noncompetition agreements outside of an employment or independent contractor relationship; (vi) forfeiture agreements; or (vii) agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.
This section shall apply to all contracts and agreements executed after the effective date of this act.
January 17, 2015
Noncompetes, Trade Secrets
50 state survey, noncompete, trade secret
As regular readers of this blog know, several years ago, I became curious to see how many reported trade secret / noncompete decisions were issued each year in all federal and state courts around the country. So, I did a “back of the envelope” calculation. I have performed similar calculations every year since.
The graph shows three things: (1) the blue bars show all reported noncompete decisions; (2) the red bars show all reported trade secrets decisions; and (3) the yellow bars show all decisions involving noncompetes or trade secrets or both.
I should note that each time I’ve run the queries, the results for each year have varied slightly (inching up over time), which I attribute to Westlaw’s addition of cases over time. Consistent with that, the older the data, the less it moves. Indeed, the oldest data didn’t change at all.
The other thing worth noting is that every time I’ve run this inquiry at the beginning of the year (as is the case this time), the most recent year has been way underreported. I suspect that it has something to do with how Westlaw updates its database. I will very likely run my search again later in the year, and, if history is any predictor, the 2014 numbers will be significantly higher. We will see!
Perhaps most telling is that while noncompete litigation has been relatively static, trade secrets litigation has increased every year, with the sole exception of a slight dip in 2012.
If you’d like to take a closer look at the numbers, you can click the image above.
December 13, 2014
Fair Competition News, Trade Secrets
Economic Espionage Act, trade secret, unfair competition
During the past few years, there have been several bipartisan efforts to amend the Economic Espionage Act of 1996 (the “EEA”), 18 U.S.C. §§ 1831-1839.
The most recent action by Congress occurred on December 11.
The EEA had been enacted in 1996 to criminalize the misappropriation of trade secrets. It has two operative parts: Section 1831(a) covering “economic espionage” (i.e., theft of trade to benefit a foreign power) and section 1832(a), covering “theft of trade secrets” (i.e., the theft of trade secrets to benefit someone other than the owner of the secrets).
In 2012 and 2013, the EEA was amended twice – both times to strengthen the protections afforded under the EEA.
On December 28, 2012, the Theft of Trade Secrets Clarification Act of 2012 (the “TTSCA”) expanded the scope of the EEA in response to US v. Aleynikov, 676 F.3d 71 (2nd Cir. 2012), by deleting the old language that covers only trade secrets “related to or included in a product that is produced for or placed in interstate or foreign commerce” and replacing it with language covering trade secrets “related to a product or serviced used in or intended for use in interstate or foreign commerce.”
On January 14, 2013, President Obama signed the Foreign and Economic Espionage Penalty Enhancement Act of 2012. In addition to requiring a review of sentencing guidelines, the Act increased fines for foreign espionage under section 1831.
Following those two amendments, there have been several bipartisan efforts to further amend the EEA to add a private right of action. (The EEA is predominantly a criminal statute, although the Act does permit the Attorney General to bring a civil cause of action.)
On September 17, a bill known as the Trade Secrets Protection Act of 2014 (the “TSPA”), was reported out of committee with several amendments from the version that was submitted to committee. The committee made amendments, which were just released on December 11. A highlighted version of the bill showing the additions is available here. (The original language of section f was deleted and is not reflected.)
If enacted, the TSPA would create a private right of action (very similar to that provided by the Uniform Trade Secrets Act (“UTSA”)); permit the civil ex parte seizure of relevant evidence and of the trade secrets, to prevent their further use or disclosure; permit such actions to be brought under a five-year statute of limitations; and requiring the Attorney General to issue an annual report on the international threat of trade secrets misappropriation. There is apparently a 57% chance of the TSPA being enacted.
Next step, House vote. Stay tuned.
November 11, 2014
The AIPLA Trade Secret Summit is scheduled for Thursday, December 4, and Friday, December 5, at Intel’s headquarters in Santa Clara. You can register here.
There will be a great group of speakers covering some of the most important/current topics in trade secret law:
- Emerging Best Practices for Protecting Trade Secrets in Employment and Business-to-Business Relationships;
- A Judicial Panel Providing “Insights from the Bench” on Trade Secret and Non-Compete Disputes;
- Ethics Presentations on Data Protection for Lawyers and Lawyer Mobility (In-House and Outside Counsel);
- Debates on the Future of Non-Competes and Pending Federal Legislation;
- Pros and Cons of Trade Secrets vs. Patents; and
- The Latest on Developing Cybersecurity Standards
CLE will be available: 12 hours total, with 2 hours of Ethics.
Hope to see you there!
November 8, 2014
Fair Competition News, Inevitable Disclosure Doctrine, Massachusetts Noncompete Bill, Trade Secrets
confidential information, inevitable disclosure, Massachusetts, trade secret, UTSA
It’s that time of year again. With the elections behind us and the next legislative session coming soon, a new version of a proposed Uniform Trade Secrets Act has been filed in Massachusetts. (This version, filed on November 5, 2014, is available here.)
This one, like the earlier versions, was filed by Stephen Chow on behalf of the Massachusetts Board of Commissioners on Uniform State Laws. (Steve has worked tirelessly on this project for many years.)
In my opinion, if adopted, this version would strengthen Massachusetts trade secrets law.
By way of background, in the last legislative session, I was asked by Senator Will Brownsberger, Representative Lori Ehrlich, and Jennifer Lawrence (not that one! – the Jennifer Lawrence who was spearheading Governor Patrick’s noncompete/trade secrets reform efforts) to review and comment on the then-pending bill. In the course of doing so, I identified and raised three primary concerns:
- It protected only trade secret owners (not others with rights in the secrets such as licensees).
- It required the trade secret owner to continue to protect the secrecy of the information even after the secret was stolen and regardless of whether the person/company that stole it had publicly disclosed it.
- It potentially raised the pleading standards for filing a trade secrets claim.
(Additional explanations of these concerns are here.)
I expressed those same concerns during my testimony at the May 9, 2014 hearing before the Joint Committee on Economic Development and Emerging Technologies.
Following that hearing and in anticipation of filing the current bill, Stephen Chow approached me to discuss my concerns (those above, as well as several other less-important “tweaks”). After numerous discussions and drafts, we agreed on the language that Steve filed on November 5.
I am now quite comfortable that Steve’s current version will improve Massachusetts trade secrets law. Among other things, if adopted, it would allow treble damages and attorneys’ fees without the need to resort to G.L. c. 93A; it would expand the definition of what constitutes a trade secret under Massachusetts law; and it would reach an appropriate balance between the need to identify the purported trade secrets sought to be protected and the need to act quickly and limit disclosure (both in terms of what must be disclosed and the timing of that disclosure).