Mass Lawyers Weekly Advisory Board Supports Noncompete Bill

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Massachusetts Lawyers Weekly‘s Editorial Advisory Board calls the noncompete bill pending in the MA legislature “a step in the right direction.” (As the lead drafter and advisor on the bill, I have covered it extensively throughout this blog and elsewhere; for a summary of the bill, see Massachusetts Noncompete Bill Refiled; for the latest update, see Report on Massachusetts Legislature’s Hearing on Noncompete Bill.)

The editorial noted that “[i]t is notoriously hard to advise both businesses and employees as to the likely enforceability of a non-compete agreement. The same non-compete may be viewed very differently by different judges.” Accordingly, in noting their support for the bill, the Editorial Advisory Board observed that “[a] bill that provides greater specificity on what elements a non-compete should include in order to be enforced helps everyone and could reduce the amount of litigation resulting from the agreements.”

The Editorial Advisory Board did identify “[o]ne aspect of the bill [that they find] troubling . . . .” Specifically, the Board is concerned about mandatory attorneys’ fees for a victorious employee; the editors would prefer to see discretion left to the judge. That very issue is still being considered by Representative Ehrlich and Representative Brownsberger.

To stay up on the latest or to provide your thoughts, please feel free to do any or all of the following:

More Federal Protections For Trade Secrets?

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About two years ago, my partner Steve Riden and I wrote a blog post on my old blog (the Trade Secrets / Noncompete Blog) entitled, Back to the Basics… The Computer Fraud and Abuse Act. The post was a brief summary of the Computer Fraud and Abuse Act (18 U.S.C.  § 1030), which was really designed to protect against computer hackers (a la War Games), but which has begun to be used with more frequency in trade secret cases.

About the same time, one of my former colleagues, Jeff Kopp, discussed a split among federal courts concerning the scope of the Computer Fraud and Abuse Act, specifically, whether it applies to employees who exceed the scope of their authorization to use their employer’s (or former employer’s) computers. See Federal Courts Split on Computer Fraud and Abuse Act. Others have raised concerns that the statute could make it illegal for someone surfing the Internet to exceed the terms of service of websites they visit.

Now, Congress is considering amending the bill. (This is separate from congressional efforts to expand the Economic Espionage Act. See Economic Espionage Act Update and A Federal Trade Secret Act?)

On September 15, 2011, the Senate Judiciary Committee considered a bill that would limit the scope of the Computer Fraud and Abuse Act so that it would not apply to exceeding the scope of website terms of service. See Bill Tweaked in Senate: Terms of Service no Longer Terms of Felony.

On November 15, 2011, Richard Downing, Deputy Chief of the Computer Crime and Intellectual Property Section, Criminal Division, provided testimony before the House Committee on Judiciary, Subcommittee on Crime, Terrorism, and National Security. His testimony is reflected in “Cybersecurity: Protecting America’s New Frontier” and advocates expanding (or at least not curtailing) the scope of the statute and is very similar to that provided by James A. Baker, Associate Deputy Attorney General, presented on September 7: here.

In short, Deputy Chief Downing suggested several specific ways to clarify to the statute (which, as noted in my prior blog post, is not the picture of clarity) and enhance the protections afforded by the statute. While his suggestions largely focused on the criminal side of the statute, he did also advocate for a broad civil interpretation of the bill, i.e., having it reach employees who exceed their authorized use of their employer’s computers and as well as Internet users who exceed the scope of the terms of service of websites they visit.

Time will tell whether, and if so how, the statute will be amended. I am predicting that it will be amended and that – at least on the criminal side – it will not be limited.

Trade Secret | Noncompete – Issues and Cases in the News

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This post provides a summary of noncompete and trade secret issues and cases that have arisen in the past month or so, but that I have not already addressed in recent posts. In addition to my summary, you will find links for more in-depth reading on each issue. (There’s a lot here, enjoy.)

UPDATED November 24; updates in bold.

UPDATED November 27; updates in bold/italic.

Trade Secret Cases and Issues in the News:

  • In an extremely significant decision, the United States Court of Appeals for the Federal Circuit affirmed a decision by the International Trade Commission blocking importation of products from China that were developed using trade secrets that were misappropriated overseas: Tianrui Group Co. v. International Trade Commission. (For a primer on China’s trade secret law, see here; for a brief summary of the focus on misappropriation of trade secrets to China, see here.)
  • The United States Court of Appeals for the Federal Circuit issued a decision relating to the intersection between trade secret law and patent law: Atlantic Research Marketing Systems, Inc. v. Troy. A similar issue arose in Texas, with the court reducing from $68 million to $18 million the exemplary damages portion (separate from the $26 million compensatory damages portion) of a trade secret verdict in favor of Wellogix against Accenture. Story here. (For a brief summary of the intersection of patents and trade secrets, see here.)
  • The Leahy-Smith America Invents Act became was passed on September 16, 2011, and, as part of a sweeping overhaul to US patent law, will expand trade secret defenses to patent infringement actions.  
  • Seagate won a $525,000 trade secret award in an arbitration against Western Digital, which Seagate accused of misappropriating trade secrets through a former Seagate employee. Story here.
  • Motorola Mobility was sued by Lemko for alleged misappropriation of trade secrets relating to the location of emergency callers on a cellular network. Story here and here. The case is related to the federal criminal charges brought against the employee, who was headed to China. Story here. (Note the China connection, and see below.)
  • A blogger accused of trade secret misappropriation can keep his or her identity secret. Story here.
  • Groupon sued employees who left for Google and who allegedly took Groupon’s trade secrets with them. Story here.
  • The Uniform Trade Secrets Act has been adopted in some form or another in all states but Massachusetts, New Jersey, New York, and Texas. Of these states, New Jersey is closest to adopting the UTSA. See New Jersey Poised to Adopt the Uniform Trade Secrets Act. The UTSA does leave open questions about the scope of other common law claims that are still permitted. For some discussion on that issue, see here.

Noncompete Cases and Issues in the News:

  • Two recent noncompete decisions from the 1st Circuit suggest the need for revisions to certain provisions in existing Massachusetts noncompete agreements and similar restrictive covenants.
  • The Eastern District of Pennsylvania finds that the automatic stay in bankruptcy does not apply to injunctive enforcement of a noncompete: In re Stone Resources.
  • H-P loses race to courthouse (Texas vs. California) and Cisco’s GC speaks out (loudly) about H-P’s efforts to enforce its noncompetes. Story here.
  • Illinois federal court analyzes how much consideration is sufficient for a noncompete: LKQ Corp. v. Thrasher.
  • Big things are brewing: Boston Beer (Sam Adams beer maker) sued Anchor Brewing (Anchor Steam beer maker). Story here and Boston.com editors’ reaction here.

Employers May Own Employee’s Social Media Accounts: Twitter, Facebook, LinkedIn, and YouTube

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Your employee markets your company through Twitter, Facebook, LinkedIn, and YouTube. The employee develops – as he or she is asked to do – a substantial network. Later, your employee leaves.

Who owns those accounts?

Two recent decisions discuss these very questions.

For the non-lawyer readers of this blog, here’s the point: (1) the accounts may belong to the employer and (2) most importantly, have a written policy.

Lawyers, read on.

The first case, Ardis Health, LLC v. Nankivell, in the Southern District of New York (decided October 19, 2011), involved an employee who was hired to maintain the plaintiffs’ (a family of companies) social media presence. When the defendant left plaintiffs’ employ, she refused to return (among other things) the passwords to the plaintiffs’ websites, blogs, and social media services (Twitter, etc.). The court granted an injunction requiring her to turn over the passwords and other account information to the plaintiff, finding that lack of access to and control of social media could constitute irreparable harm. Instructively, the court did this not on a trade secret theory, but based on conversion.

Most importantly, however, the takeaway from the case is that the plaintiffs had a social media policy stating that the social media belonged to the company. While it’s unclear how much the court relied on this fact, it did include it in its decision – and it’s in good company. See So, Can Your Employees Sext At Work?

The second, PhoneDog v. Kravitz in the Northern District of California (decided on November 8, 2011), involved an employee who continued using a Twitter account following his departure from the plaintiff company. Rather than “return” the account, the defendant merely changed the Twitter handle.

The case was in federal court on the basis of diversity of citizenship, which (for the non-lawyers who continued reading despite the warning) requires the dispute to involve at least $75,000. Plaintiff met this threshold by claiming that defendant misappropriated its 17,000 followers (on Twitter), each of which (according to industry standards) was worth $2.50, for a total value of $340,000 (17,000 x $2.50).

The two causes of action of consequence were the misappropriation of trade secrets claim and conversion claims.

With regard to the trade secret claim, the plaintiff asserted that both its password and its followers were trade secrets. As for the followers, the plaintiff argued “that the list of followers is akin to a business customer list, in which it has an intangible property interest.” The court ruled that at the early stage in the case (a motion to dismiss), it could not say that the password or followers were not trade secrets.

With regard to conversion, the main issues were right of ownership and intent to convert. The plaintiff company appears to not have had a policy. Accordingly, the company argued “that, even if [defendant] created the [account], he did so at PhoneDog’s request and for its benefit and in the course and scope of his employment with PhoneDog.” With regard to the intent, the plaintiff argued that it requested return of the account, and the defendant refused, instead, changing the Twitter handle. The court accepted these arguments, and refused to dismiss the conversion claim.

For a longer discussion of the PhoneDog case, see Who gets custody of Twitter when an employee quits?

While these two cases are the latest to raise ownership issues in the social media, given that they are both at the very early stages, they leave most of the questions unanswered. Nevertheless, as previously noted in a similar context, these are not really new issues, they’re just a new twists on old concepts. See Social Media, the New World?

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