Massachusetts Bills to Ban Noncompetes and Adopt UTSA in the New Legislative Session (2015-2016)

1 Comment

IMG_0017Several 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.

A new proposed trade secrets bill in Massachusetts

Leave a comment

cropped-cimg27721.jpgIt’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).

 

 

 

 

 

What to do if noncompetes are eliminated in Massachusetts

2 Comments

cropped-cimg27721.jpgAs you likely have seen (here for example), the Patrick Administration has spent a great deal of time putting together comprehensive proposed legislation designed to promote growth and opportunity in Massachusetts. Of particular note has been the Administration’s proposal of the adoption of a version of the Uniform Trade Secrets Act (the “UTSA”) coupled with a California-like ban of employee noncompetes.

A copy of the entire bill is available here. (Section 53, the relevant section, is here.)

If it passes, noncompetes will be banned in Massachusetts, while Massachusetts simultaneously becomes the 49th state to adopt some version of the Uniform Trade Secrets Act, leaving just New York as the last remaining holdout.

The upshot is that noncompetes will be banned, but other restrictive covenants – e.g., nonsolicitation agreements, nondisclosure agreements, no-raid/anti-piracy agreements, no hire agreements, and others – will remain intact. Also, while the change to the UTSA will have minimal practical implications, it will permit the recovery of attorneys’ fees, which current law does not (unless the claim falls within the Massachusetts unfair competition statute, G.L. c. 93A).

In the interest of full disclosure, I pause here to note that I have been working with, and continue to work with, the Administration (in particular, Jennifer Lawrence, in the Executive Office of Housing and Development, who is spearheading the Administration’s effort), on the language of Section 53. There are a number of differences between the Patrick Administration’s bill on the one hand and the UTSA and California’s statute on the other hand, but more on that in a later post.

As regular readers of this blog know, I view my role as only advisor on the drafting to accomplish the particular policy and the likely impact of the changes – not on what the policy should be. It is in that capacity that I have been advising not only the Patrick Administration, but key legislators (including Senator Will Brownsberger and Representative Lori Ehrlich) on each of the several other approaches under consideration at this time. This is a complex area of law, involving many competing policies and potential implications.

To be clear, while I take no position on whether the benefits of eliminating noncompetes outweigh the detriments, I do believe that it is important to be cognizant of the potential practical consequences (at least from a litigation standpoint).

Specifically, while the result will likely be less overall litigation and more employee mobility, the risk to trade secrets will increase and litigation that is commenced to protect them will tend to be more costly and last longer. Litigators will shift from a focus on noncompete enforcement to cases involving the enforcement of other restrictive covenants and the even-more-costly trade secrets litigation. Noncompete litigation generally involves a several-week process in which the parties spar over the appropriateness of an injunction to prevent the employee from working for a particular competitor. In contrast, trade secrets litigation generally involves a more involved, several-month discovery process on top of the injunction motions.

Given this, the obvious question is: What should companies do to protect their legitimate business interests if the bill becomes law (which can be anytime up to July 31 – mark your calendars)?

There are a number of steps that should be taken – many of which companies have been taking all along, though perhaps not as vigilantly as they will need to going forward. Here are the top five key steps.

First and foremost is to review all existing restrictive covenant, employee, and independent contractor agreements. If the bill is adopted in its current form, the language says that it will apply to existing agreements – and not just agreements with employees, but with independent contractors as well.

That means that existing agreements are not immune and may need to be changed. If they include well-drafted nonsoliciation (of customers), no-raid (of employees), and confidentiality provisions, it may be that they can be left in tact, recognizing that the noncompete provision will simply be unenforceable.

However, if those other protections are missing, too limited, or simply not well-drafted, they will need to be revised.

If they need to be revised, you will need to consider the best timing and method to go about doing so to avoid running afoul of arguments concerning notice, equity/fairness, and consideration (the exchange of something of value).

Second and equally important, proper safeguards must be in place to protect company trade secrets (which will include what we traditionally considered “confidential information” in Massachusetts, and can include anything from the secret formula to Coke to customer lists) from the risk of misappropriation in the first place.

Accordingly, a trade secrets protection plan (sometimes called a “trade secrets audit“) will be even more important now than ever before. Key elements are steps to lock down information and education of your employees and others with access to trade secrets.

This does not mean that your information will never be misappropriated or that you cannot still sue if it is. It will and you can. (75 percent of employees admit to taking company information. See also here (59 percent in 2009 Ponemon study).) But, a proper trade secrets protection plan should help to limit the number of times you need to resort to litigation, while simultaneously increasing your likelihood of obtaining injunctive relief through litigation.

Note that trade secrets litigation is more costly than noncompete litigation, because there is not a bright line to rely on for purposes of getting quick injunctive relief. With noncompete litigation (assuming the agreement is enforceable), you know whether the obligation has been breached or not – either the employee is at the competitor or he is not. With trade secrets litigation, the odds are much greater that you will need discovery to know whether your information is in fact being used and how.

Third, like the prophylactic protections for trade secrets, safeguards should also be put in place to protect your company’s customer goodwill from the risk of misappropriation. The most obvious is nonsolicitation agreements. But other steps should be taken as well. Those include (among other steps) having multiple points of contact with each customer when feasible, plans for securing the relationships upon an employee’s departure, and proper mechanisms for managing social media accounts and contacts.

Fourth, the protections available for retaining talent should not be forgotten. If you want to limit departing employees from poaching the remaining employees, you must have proper no-raid/anti-piracy (or no-hire) agreements (sometimes called nonsolicitation agreements or no-poach agreements) in place. In addition, you should take steps to give employees reason to stay – and, separately, not to leave. Forfeiture agreements (agreements that require the forfeiture of certain benefits or payments if the employee leaves) are one tool that should be considered in this regard.

Fifth, if litigation is necessary, move quickly. Delay can be the biggest problem for companies in these cases. And, without the protections of noncompete agreements, delay can create even greater risks of loss of trade secrets, relationships, or employees.

BRR’s 50 State Noncompete Chart UPDATED

Leave a comment

BRR 50 State Noncompete Chart 20130814The BRR 50 State Noncompete Chart has been updated to reflect various changes in statutory or case law, as well as clarifications of existing laws. Click here to get the latest version.

Obama Administration Issues New Strategic Plan for Intellectual Property Enforcement

Leave a comment

In February 2013, the Obama Administration issued Administration Strategy on Mitigating the Theft of U.S. Trade Secrets. Part of that plan included the Administration’s solicitation of public comment. I, like a handful of others (13 of us in total), submitted comments. My  summary comments are available here (the PDF at the bottom (and here) has my full submission); links to all 13 submissions are available here.

On Thursday (June 20, 2013), the Obama Administration issued its 2013 Strategic Plan for Intellectual Property Enforcement. As explained by U.S. Intellectual Property Enforcement Coordinator Victoria Espinel, the Strategic Plan “builds on our efforts to protect intellectual property to date, and provides a roadmap for our work over the next three years.”

Ms. Espinel described in her blog how the new Strategic Plan fits in with prior plans as follows:

Since the first Joint Strategic Plan was released in 2010, the Administration has made tremendous progress in intellectual property enforcement. Coordination and efficiency of the Federal agencies has improved; U.S law enforcement has increased significantly and we have successfully worked with Congress to improve our legislation. We have increased our focus on trade secret theft and economic espionage that give foreign governments and companies an unfair competitive advantage by stealing our technology. We have pressed our trading partners to do more to improve enforcement of all types of intellectual property. We have encouraged the private sector to do more on a voluntary basis to make online infringement less profitable as a business, consistent with due process, free speech, privacy interests of users, competition law and protecting legitimate uses of the Internet.

Of particular relevance to trade secrets lawyers, Ms. Espinel focused on legislation as follows: “We will review our domestic legislation to make sure it is effective and up-to-date.”

As many readers of this blog know, there has already been some activity on that front with respect to the Economic Espionage Act and the Computer Fraud and Abuse Act. See here.

Stay tuned for more.

Amazon.com v. Powers’s Lessons for Us All

Leave a comment

GoogleScreen Shot 2013-01-05 at 10.19.17 AMI have at least had a chance to read the December 27, 2012 decision of the United States District Court for the Western District of Washington in Amazon.com v. Powers, granting in part and denying in part Amazon’s request for a preliminary injunction against one of its former executives, Daniel Powers.

The case involves a high level former Amazon employee, Mr. Powers, subject to the typical restrictive covenants (nondisclosure, no-raid, nonsolicitation, noncompete, and invention assignment). Mr. Powers was responsible for sales of Amazon cloud computing services. Mr. Powers was terminated from Amazon and, importantly, took nothing. (This is always best practice for a departing employee.) Nor did he have plans to work elsewhere at the time that he was terminated.

Three months later, Mr. Powers joined Google. Google and Mr. Powers agreed that Mr. Powers would not: refer to cloud computing in his title until the end of 2012 (i.e., about 6 months after his termination); be involved with cloud computing for 6 months (i.e., for 9 months after his termination); use or disclose Amazon’s confidential information; work with Amazon’s customers for 6 months (i.e., for 9 months after his termination); and be involved with the hiring of Amazon’s employees for 12 months from his termination.

Google’s and Powers’ voluntary restrictions were insufficient for Amazon. Amazon sued in Washington state court. Mr. Powers removed the case to the Western District.

The case is interesting for many reasons, including those identified by Ken Vanko in his post on Legal Developments in Non-Competition Agreements. Here are five of the reasons:

First, the Court, somewhat surprisingly, denied Amazon’s request for a preliminary injunction to protect its confidential information.

The Court’s decision in this regard was based on the following factors: (1) Amazon was unable to definitively identify what specific knowledge is “still” in Mr. Power’s memory without discovery, which Amazon declined to do before the preliminary injunction hearing, and (2) Mr. Powers and his new employer (Google) agreed to “virtually every restriction Amazon seeks in its injunction . . . .” The defendants’ voluntary commitment to protect the information was seen by the Court as establishing that Amazon was unlikely to prove that Mr. Powers would use confidential information (even if Amazon had been able to prove that Mr. Powers still remembered confidential information). Factual scenarios like this are quite common and frequently come out the other way, with the Court granting an injunction protecting confidential information.

Second, the Court’s analysis of the lack of proof of trade secrets provides a cautionary tale. Specifically, with regard to the issue of the existence of protectable trade secrets, the Court stated as follows:

Amazon did not ask to file any evidence under seal, suggesting that it believes the court will divine what information is a trade secret from [a] public declaration [of one of its employees]. Having scoured that declaration, the court is unable to do so. The court acknowledges that it is likely that Mr. Powers learned information that would qualify as a trade secret while he was at Amazon. See RCW § 19.108.010(4) (defining trade secret as a information that derives “independent economic value” from being neither known nor readily ascertainable and that is subject to reasonable efforts to maintain its secrecy). But if there is trade secret information that Mr. Powers could still be expected to know, Amazon has not identified it.

The takeaway from that paragraph is to take heed of the seemingly increasing trend of courts (not just in the 9th Circuit) to require early particularization of trade secrets (and, of course, a corresponding willingness to accept the alleged secrets under seal).

Third, the Court deftly avoided deciding whether Washington has or has not recognized the inevitable disclosure doctrine – an area of the law receiving significant attention in many recent decisions. Despite the Court’s avoidance of the issue, it nevertheless made the following cautionary observation (for others to take note of in the future):

Were inevitable disclosure as easy to establish as Amazon suggests in its motion, then a nondisclosure agreement would become a noncompetition agreement of infinite duration. . . . Washington law does not permit that result.

Fourth, the Court’s analysis of the nonsolicitation (of customers) restriction was quite thorough and informative. Specifically, the Court first observed that Washington courts are more apt to enforce a nonsolicitation agreement than a noncompete agreement, because the nature of the restriction on the employee is less severe. However, in shorting to nine months the 18-month stated duration of the restriction, the Court’s analysis was as follows:

This is not a case where Mr. Powers seeks to leap from Amazon immediately to Google with his former customers in tow. He stopped working with Amazon customers more than six months ago. There is no evidence he has had contact with any of them since then. There is no direct evidence that he intends to pursue business with any of them. The only indirect evidence that he has interest in contacting his former customers is that he has chosen to fight Amazon’s efforts to enforce the Agreement. Although the personal aspects of his relationships with his former customers might be expected to endure for more than six months, they might just as well extend even beyond the 18-months that the Agreement provides. Amazon has not explained why it selected an 18-month period, nor has it disputed Mr. Powers’ suggestion that the Agreement he signed is a “form” agreement that Amazon requires virtually every employee to sign. Because Amazon makes no effort to tailor the duration of its competitive restrictions to individual employees, the court is not inclined to defer to its one-size-fits-all contractual choices. Amazon has not convinced the court that the aspects of Mr. Powers’ relationships with customers that depend on confidential Amazon information are still viable today.

The influence that each of those facts (the six month period before Mr. Powers joined Google; his lack of communication; the “evidence” of his interest in contacting the clients; the potential longevity of the client relationships; the “form” nature of the agreement; and the absence of confidential information) had on the Court’s decision should be instructive to those of us facing these issues in Washington (and elsewhere). Each raises all sorts of questions.

Focusing, for example, on the longevity of the relationship as compared with the duration of the restriction. That issue exists not just with customer relationships, but with confidential information and trade secrets protectable through noncompetes. In fact, one of the criticisms of noncompetes is that they are not coterminous with the life of the trade secrets. Good luck to Coca-Cola enforcing a noncompete until the secret formula to Coke is revealed. It won’t happen. Nor, I suspect, would a court refuse to enforce Coca-Cola’s secret formula based noncompete simply because the secret formula would outlive the restriction.

Well, then, why should a nonsolicitation agreement be circumscribed because the goodwill may extend longer than the restriction? While it’s easy to understand modifying (i.e., shortening) the duration when the restriction would outlive its utility, it’s hard to understand shortening it because the restriction isn’t long enough. Does this suggest that the Court would be receptive to a defense in the context of a noncompete on the ground that the trade secrets protected by the noncompete will outlast the restriction, so the restriction is unnecessary? Unclear.

And, fifth, similar to Ken’s point, the Court’s analysis of the noncompete is instructive. The Court reasoned as follows:

Its ban on working with former customers serves to protect the goodwill it has built up with specific businesses. A general ban on Mr. Powers’ competing against Amazon for other cloud computing customers is not a ban on unfair competition, it is a ban on competition generally. Amazon cannot eliminate skilled employees from future competition by the simple expedient of hiring them. To rule otherwise would give Amazon far greater power than necessary to protect its legitimate business interest. No Washington court has enforced a restriction that would effectively eliminate a former employee from a particular business sector. This court will not be the first, particularly where Amazon has not provided enough detail about the nature of AWS’s cloud computing business to convince it that an employee like Mr. Powers can only compete with AWS by competing unfairly.

The two aspects of the decision that seem atypical are that: (1) the Court used the nonsolicitation covenant to undermine the noncompete; and (2) the Court refused – under the particular facts presented – to bar Mr. Powers from a particular business sector. While both can be seen as a mere failing of the sufficiency of Amazon’s evidence, they seem to be more; they seem to suggest an overall reluctance by the Court to enforce noncompete agreements – especially where Washington is a reformation state (meaning that the courts can essentially rewrite a restriction to make it reasonable).

Stay tuned to see how the law develops in Washington (and elsewhere). It should be interesting!

Trade Secret | Noncompete – Issues and Cases in the News – October-November 2012

Leave a comment

Once again, this installment of “Trade Secret | Noncompete Issues and Cases in the News” is my vacation readings update. There is again a lot here! Enjoy…

Federal/Antitrust: In October 2009, Computerworld published an article of mine entitled, “No-poach agreements: A new generation of restriction.” The article discussed a no-poach agreement used by several large high tech companies (Adobe Systems, Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar) to refrain from soliciting the other’s employees. As I (here) and many others discussed at the time, this agreement led to an antitrust settlement with the DOJ in 2010. Now, as reported by CBS, the DOJ is at it again: “Justice Department sues eBay over non-compete agreement.” A copy of the DOJ complaint is here.

Federal/CFAA: As expected, there is finally a petition to the United States Supreme Court about the scope of the Computer Fraud and Abuse Act. Following the 4th Circuit’s decision in WEC Carolina Energy Solutions LLC v. Miller, two circuits (the 4th and 9th) have employed a narrow interpretation of the CFAA, while four other circuits (the 1st, 5th, 7th, and 11th) have taken a more broad approach.

Federal/ERISA: Occasionally, ERISA issues pop up in noncompete cases. That is exactly what happened in Pactiv Corp v. Rupert, in which the United States District Court for the Northern District of Illinois held that a noncompete agreement sought to be imposed to receive severance benefits was not required by the ERISA severance plan and therefore the former employee was entitled to the benefits. For more reading, see “ERISA Severance Plans and Non-Compete Agreements Must Work Together,” by Peter Land.

California:

Georgia: The Georgia Court of Appeals granted summary judgment in Contract Furniture Refinishing & Maintenance Corp. v. Remanufacturing & Design Group, LLC, reminding practitioners how difficult it can be to show actual proof of trade secret misappropriation. For more reading, see Burr & Forman’s post, “The Difficulty of Proving Trade Secret Violations.”

Illinois: How far can you go when investigating the conduct of a former employee suspected of breaching his noncompete? That answer just got a bit more complicated in Illinois, which, in Lawlor v. North American Corporation of Illinois (October 18, 2012), has now recognized a claim for intrusion upon seclusion (basically an invasion of privacy claim). Long-time noncompete blogger, Ken Vanko, discusses the case here: “Supreme Court of Illinois Recognizes Intrusion Upon Seclusion Tort in Non-Compete Investigation.”

Massachusetts:

  • About a year and a half ago, I posted about a hairstylist who was enjoined from competing with his former employer-hair salon, Zona Corp. (See “Hairdresser Takes a Haircut”.) Last month, however, a different Massachusetts judge went the other way in Invidia, LLC v. DiFonzo, raising the very question that I (and many others) were asking about the Zona Salon case: Who owns the goodwill in the context of a hairstylist? The Invidia Court determined that the employer failed to show that it was its goodwill. For more, see “Engaging Facebook Friends Doesn’t Violate Non-Solicitation Clause.”

Michigan: What happens when you have the following facts: A nondisclosure agreement; no noncompete; an employee who acts properly upon departure (returning all information, etc.); and a decrease in your business? Nothing.  Well, at least according to a recent decision by the Court of Appeals of Michigan in Michigan One Funding, LLC v. MacLean (September 20, 2012). For more reading, see “Preventing an Employee From Working for a Competitor Unravels without an Enforceable Noncompete Agreement.”

Minnesota: When enforcing restrictive covenants, the difficulty is often obtaining evidence of a true risk of harm before discovery has taken place. In Sempris, LLC. V. Watson (D. Minn. Oct. 22, 2012), the federal District Court denied a temporary restraining order based on the plaintiff’s failure to provide evidence of an imminent threat, as opposed to speculative or remote future harm. For more reading, see Paul Freehling’s post, “Speculative Fears Insufficient for Non-Compete Temporary Restraining Order Against Former Employee.”

Missouri: Choice of law provision selecting Missouri (where plaintiff was located) over Oklahoma (which like California and North Dakota, bars employee noncompetes and where defendants were located and where most of the conduct occurred) was enforced by the United States District Court for the Eastern District of Missouri in TLC Vision (USA) Corp. v. Freeman (E.D. Missouri Nov. 2, 2012). For more reading, see “Non-Compete Cases and Choice of Law: A Recent Case From Missouri,” by Jonathan Pollard.

New York: In perhaps the first 2nd Circuit decision to directly “address[] when enforcement of a covenant restricting competition may irreparably injure a former employee,” the Court held that “[d]ifficulty in obtaining a job is undoubtedly an injury, but it is not an irreparable one” when “monetary damages will compensate [the plaintiff] adequately . . . .”  Hyde v. KLS Professional Advisors Group, LLC (October 12, 2012). Given the 2nd Circuit’s pronouncement that “irreparable harm [is] the ‘single most important prerequisite for the issuance of a preliminary injunction,’” this decision should have significant implications for noncompete cases in the federal courts in New York, Connecticut, and Vermont.

Oklahoma: Rarely do restrictive covenant cases or trade secret cases proceed much beyond the injunction stage. When they do, the fight can be over permanent injunctive relief, damages, or both. Even then, damages are typically lost profits or disgorgement of profits. Sometimes, however, damages can be a reasonable royalty. That was the case in Skycam, LLC v. Bennett. There, the United States District Court for the Northern District of Oklahoma found injunctive relief to be against public policy, given limited competition, and instead ordered royalty payments – an initial payment of $1,000,000 plus $5,000 per use for the 3.5 years it would have taken the defendants to independently create the misappropriated information.

Ohio: As you may recall, in the September 2012 issue of “Trade Secret | Noncompete – Issues and Cases in the News,” I noted that, on July 25, the Ohio Supreme Court issued a decision agreeing to reconsider its May 24 Acordia of Ohio, L.L.C. v. Fishel decision, which took a dim view of assignment of noncompete clauses. Well, the Court did review its decision. And it reversed it! Here is the new (presumably final) view of the Ohio Supreme Court: Acordia II (October 11, 2012), courtesy of my friend and prolific blogger, John Marsh.

South Carolina: In another trade secret trial, judgment entered for over $4.6 million against a former employee who was found to have misappropriated trade secrets and breached his fiduciary duties. See, “Greenville Businessman Ordered to Pay $4.6 Million for Taking Trade Secrets, Breaching Fiduciary Duty.”

Virginia: As the United States District Court for the Eastern District of Virginia recently made clear in JTH Tax, Inc. v. Noor (September 26, 2012), failure to comply with an injunction requiring the return of trade secrets can have significant consequences, including an extension of the injunction. (Thank you to Jim Irving, who posted a link to the case in the LinkedIn Noncompete Lawyers group.)

Wisconsin: What happens to a plaintiff’s claim for misappropriation of trade secrets when the secret becomes publicly known? Nothing – at least according to a decision by the Eastern District of Wisconsin denying a motion to dismiss in Encap v. The Scotts Company. Well, to be clear, “nothing” in the sense that the claim survives a motion to dismiss when the information constituted a trade secret at the time of the misappropriation.  There’s no real surprise here; the cause of action is assessed as of the time the cause accrues; the fact that the circumstances later change does not affect the existence of the cause of action. (Damages may be another issue – assuming, of course, that the misappropriator was not the party that publicly disclosed the information.)

Criminal:

  • It’s always big news when employees of large companies are indicted for trade secret theft, especially when China is somehow involved. But, rarely do people report when those cases fail. So, kudos to The Trade Secrets Vault, Bloomberg, HudsonHubTimes, Alison Grant (writing for Cleveland.com here) and several others, all of whom reported that the former Bridgestone employee (Xiaorong Wang) accused of misappropriating Bridgestone’s secrets for the benefit of a Chinese company has been cleared.
  • John Marsh has an in-depth post on the latest in the Kolon/DuPont trade secrets dispute, the title of which begins, “The Kolonoscopy Continues . . . .” (The title is perfect, as is John’s discussion of the status.)

Related Items of Interest:

Older Entries

Follow

Get every new post delivered to your Inbox.

Join 671 other followers

%d bloggers like this: