Mass Lawyers Weekly Advisory Board Supports Noncompete Bill

November 28, 2011

Russell Beck Fair Competition News, Massachusetts Noncompete Bill, Restrictive Covenants , , , , , Leave a comment

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?

November 25, 2011

Russell Beck Computer Fraud and Abuse Act, Fair Competition News, Trade Secrets , , , Leave a comment

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

November 19, 2011

Russell Beck Fair Competition News, Noncompetes, Restrictive Covenants, Social Media, Trade Secrets , , , , , , , Leave a comment

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

November 13, 2011

Russell Beck Fair Competition News, Social Media, Trade Secrets , , 1 Comment

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?

Trade Secret and Noncompete Survey – National Case Graph

October 31, 2011

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About a year a a half ago, I was curious to see how many actual reported trade secret / noncompete decisions were issued each year. So, I did a “back of the envelope” calculation. The results are here (with more information here) and they show an upward trend in the number of cases involving trade secrets and/or noncompetes.

I tried again today (in preparation for my portion of a seminar I am chairing on intellectual property later this week). Other than noticing a slight drop in all of the numbers across the board (probably due to the way I ran the searches), I saw that the trend continued.

I also ran a similar search for those cases involving just trade secrets regardless of whether they also involved noncompetes (i.e., leaving out any cases that involved noncompete agreements protecting something other than trade secrets). The results showed an almost identical trend.

(You can click on the image of the chart above for a closer look at the numbers.)

Multijurisdictional Practice

October 30, 2011

Russell Beck Fair Competition News , Leave a comment

This post relates to the procedural practice of law (litigation, really). Although not specific to “Unfair Competition,” it is particularly relevant to these issues, given the frequent comparison of California’s restrictive covenant laws (and seemingly-resultant increase in trade secret litigation) to most of the rest of the country.

I received the email below. I think it’s an important and timely issue, and I tend to agree with their perspective. So, as they requested, I am sharing it.

Dear Russell Beck:

The National Association for the Advancement of Multijurisdiction Practice filed a Complaint in the Northern District of California NAAMJP v. California Supreme Court 11-5046 SBA petitioning to have the California experienced attorneys’ bar exam invalidated.  This Complaint alleges that five nationally respected testing experts have concluded the California bar exam for experienced sister-state attorneys is neither a valid or reliable test.  Testing experts and statisticians have developed what is termed a standard error of measurement. The Complaint alleges that standard error of measurement for the experienced attorneys’ exam is over 50%. The Complaint further requests the California Supreme Court to adopt the ABA 20/20 Commission’s recommendation that all attorneys with three years of experience be provided full admission on motion privileges without taking another bar exam.  In the Information Age requiring experienced attorneys to reinvent the wheel makes as much sense as licensing printing presses in the 16th Century.  A copy of the complaint can be found at http://www.mjplaw.org/pending_litigation.html.

The ABA 20/20 Commission concluded that 65,000 attorneys have been admitted to the bar of another State on motion in 39 States during the last ten years.  It further urged all States to adopt its recommendation.  It concluded that there is no reason to conclude that an attorney with three years of experience will be any less competent then a newly minted attorney.  The 20/20 Commission admission on motion link is available on our Blawg at mjplaw.org.

We at NAAMJP know that your blog reaches thousands of lawyers that are affected by the Multijurisdicitonal Practice Rules.  Therefore, we are asking for your help in spreading the word so we can advance MJP rules and help our fellow American Attorneys. Our web page is www.mjplaw.org , thank you for y our understanding and help, feel free to contact us for any further information at (310) 207-1776, or at alex@mjplaw.org.

Sincerely,

Joe Giannini
Director, NAAMJP

A Federal Trade Secret Act?

October 10, 2011

Russell Beck Fair Competition News, Trade Secrets , , , Leave a comment

Unlike patents, trademarks, and copyright, there is no federal trade secret statute. Instead, each of the 50 states has its own laws. And, although most of states have adopted some version of the Uniform Trade Secrets Act (only Massachusetts, New Jersey, New York, North Carolina, and Texas have not, although New Jersey seems to be close, and Massachusetts is perennially considering the issue), there is not a truly cohesive body of law. Some think that adoption of a federal statute will cure that.

One step in that direction is the Economic Espionage Act of 1996 (18 U.S.C. §§ 1831-1839), which criminalizes trade secret misappropriation on a federal level. However, there is no private right of action under that statute (meaning that companies whose trade secrets have been stolen can only bring a claim under state law).

Although earlier this year, there was movement to stiffen the criminal penalties (see Economic Espionage Act Update), no provision was made for a civil action. Recently, however, Senator Herb Kohl and Christopher Coons (Kohl was responsible for the original Act and both introduced the bill to stiffen the criminal penalties) introduced introduced a bill that would give companies a private right of action under the Economic Espionage Act. See here.

The bill would permit companies to bring a civil action if: (1) their trade secrets have been stolen (as set forth in 18 U.S.C. § 1832(a)); (2) they have taken reasonable measures to protect their trade secrets (which reasonable measures must be detailed in the complaint); and (3) they make a “sworn representation” that there is either a “substantial need for nationwide service of process” or there has been “misappropriation of trade secrets from the United States to another country.”

Should the bill be adopted as written, it is the third requirement (which is not an element of state law claims) that will severely limit the availability of a federal remedy. Specifically, absent international misappropriation or some serious deficiency in the relevant state’s service of process rules (neither of which is present in the vast majority of these cases), the statute will not apply. In short, while (in my opinion) it is a step in the right direction, there is a lot more to do before we will have a truly comprehensive federal trade secret law.

UPDATE: for additional discussion on this issue, see John Marsh‘s discussion, “Could a Federal Trade Secret Cause of Action Finally Be in the Works.”

Report on Massachusetts Legislature’s Hearing on Noncompete Bill

September 15, 2011

Russell Beck Fair Competition News, Massachusetts Noncompete Bill, Noncompetes, Restrictive Covenants, Trade Secrets , , , , , , Leave a comment

Earlier today (September 15), the Massachusetts legislature’s Joint Committee on Labor and Workforce Development took testimony on the pending bills to reform Massachusetts noncompete law:  two to ban employee noncompete agreements (House Bill 2296 and Senate Bill 932) and the other (House Bill 2293) to codify, clarify, and improve the existing complicated and unpredictable common law in this area. (In the interest of full disclosure, I am the principal drafter of the latter bill and am working closely with the bill’s principal sponsors, Representative Lori Ehrlich and Representative Will Brownsberger.)

In total, about 13 people (including me) provided testimony to the Committee. People spoke on both sides, for and against, with the majority in favor of the H.B. 2293.

While some opposition to reform has used scare tactics – such as incorrectly suggesting that noncompete reform will somehow prevent companies from protecting their trade secrets or that companies will suddenly be exposed to all sorts of corporate espionage – the testimony today did not take approach. Rather, of the people voicing opposition, most seemed to acknowledge that reform would be positive, but took issue with only (a) specific aspects of the bill (H.B. 2293) or (b) its timing, suggesting that making changes in the current economic climate would not be desirable.

In contrast, Secretary of Housing and Economic Development Greg Bialecki made it clear both that reform is necessary and that the Patrick Administration believes that now is the time. Accordingly, Secretary Bialecki urged people to get around a table and resolve the outstanding issues (lest the result may be the elimination of noncompetes altogether).

Throughout the process, the sponsors of the bill, in particular, Representative Lori Ehrlich (who co-chairs the committee) and Representative Will Brownsberger, have been endeavoring to do just that. In furtherance of those efforts, countless hours have been spent working with myriad individuals, companies, and associations toward a bill that strikes an appropriate balance between the legitimate business interests of employers and fairness to employees. It is for that very reason that the outstanding issues are relatively few.

At the moment, the main outstanding issues appear to be: (1) the provisions regarding attorneys’ fees; (2) the ability of the courts to consider equitable factors in deciding whether to enforce a noncompete agreement; and (3) certain requirements concerning paying employees for noncompete agreements when the agreement is imposed after the employee has already been working for the employer. (For more details on the bill, see here.) While the attorneys’ fees provisions are not currently part of Massachusetts law, the courts’ ability to take equitable factors into account most certainly is, and the concept of payment for the agreement is the subject of much debate among lawyers who regularly practice in this area.

I expect that these issues will continue to be the subject of much discussion. If you have input, we would be extremely interested in hearing from you.

IP Law in 60 Seconds

September 11, 2011

Russell Beck Copyright, FCL, Trade Secrets, Trademarks, Unfair Competition Basics , , , , Leave a comment

There are basically four types of intellectual property: patents, copyrights, trademarks, and trade secrets.

Here is a very brief summary of each:

A patent is the right “to exclude others from making, using, offering for sale, or selling the invention throughout the [particular country by which the patent is granted] or importing the invention into [that country]” for a limited time in exchange for public disclosure of the invention when the patent is granted. See United States Patent and Trademark Office. The purpose of this power is to promote the public disclosure of inventions, and consequently, the advancement of science. There are different types of patents, but most often people think of patents as protecting a physical invention, such as the motorized ice cream cone (in the above image).

A copyright is the right to prevent others for a limited time from reproducing, publicly performing, publicly displaying, distributing, and making “derivative works” (i.e., a work based on an existing work) of “original works of authorship fixed in a tangible medium of expression . . . including, literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.” See United States Copyright Office FAQs. Although copyrights exist from the moment the work is fixed in a tangible medium, registration provides additional protections, most notably, the possibility of “statutory damages” (a way to obtain damages without proof of actual loss) and attorneys’ fees. This blog post is an example of something that is copyrighted, as is the photograph above.

A trademark is any word, symbol, or combination of words and symbols used to identify the source of goods or products in commerce (read, “your brand”). See Mark My Words . . . Trademark Basics. Trademark law (the Lanham Act, as well as state laws) protects trademarks – whether they are registered or not (registration provides additional protections) – so that consumers are free from confusion about what they are buying. As a federal judge, quoting Neil Young’s “Hey, Hey, My, My” once described trademark law, “You pay for this but they give you that.” In short, trademark law prevents anyone from using any word, symbol, or combination of words and symbols, that is confusingly similar to someone else’s trademark. For that reason, trademarks can last forever. Example of trademarks are Ebay’s logo (above) and the Coca Cola logo (see the can below).

A trade secret is any information with commercial or economic value that is not widely known and is kept secret. It can be virtually any type of information, including customer lists, business strategies, technical data, computer programs, and other things, and can last forever. See Terms of Art . . . What is a Trade Secret? Given that trade secrets must be confidential, they are not registered anywhere. The classic example is the secret formula to Coca Cola.

Hearing on MA Noncompete Bill

September 3, 2011

Russell Beck Fair Competition News, Massachusetts Noncompete Bill, Noncompetes, Restrictive Covenants , , , , , , Leave a comment

The Joint Committee on Labor & Workforce Development has officially announced that it will be conducting a hearing on, among other things, the Massachusetts noncompete bill on September 15. The hearing starts at 10:30 in Room A-1.

The bill (i.e., the bill that Representatives Lori Ehrlich, Will Brownsberger, and Alice Peisch have sponsored, and of which I am the lead drafter) is currently scheduled 5th on the agenda. Details about the bill can be found here.

The hearing will also cover the bill filed by Representative Sheila Harrington to ban noncompetes, which is currently scheduled 7th on the agenda. (That bill is similar to California’s approach and differs from the other bill, which takes a more balanced approach.)

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