Update on Massachusetts Noncompete and Trade Secrets Bills

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cropped-cimg27721.jpgProgress in the Massachusetts State House:

On Tuesday, July 1, the latest version of the Massachusetts Noncompete Bill (the latest version of the bill that I had drafted for Senator Will Brownsberger and Representative Lori Ehrlich) has passed the Massachusetts Senate by a vote of 32 to 7.

The bill codifies existing noncompete law with several significant changes:

(1) it bans the use of noncompetes for workers classified as nonexempt under the Fair Labor Standards Act;

(2) it requires advance notice of any required noncompete – as well as consideration (beyond continued employment) for any noncompete required after commencement of employment;

(3) it establishes presumptions of reasonableness with respect to duration (6 months), geographic scope, and scope of restricted activities; and

(4) it precludes the court from reforming (i.e., narrowing) overly broad noncompetes, unless the aspect to be revised fits within the reasonableness presumptions (or objectively reasonable efforts were made to fit within the relevant presumption).

Simultaneously with the Senate’s action, the Joint Committee on Economic Development and Emerging Technologies held a hearing on proposed changes (up to and including a ban on noncompetes) to Massachusetts noncompete law. Many people testified about their experiences, predominately individuals testifying about their experiences with noncompetes, though also testimony from business owners and some venture capitalists also favoring a ban. Of course, Matt Marx also testified about his research suggesting that noncompetes are bad for the economy. I testified as well, though, as in the past, not as an advocate of any position, but rather, to explain the rationale for and impact of the various proposed changes. My testimony covered the changes in the latest version of the noncompete bill as well as suggested changes to the draft UTSA.

The deadline for the resolution of this issue is July 31.

Stay tuned!

 

Hearing on Governor Patrick’s Economic Development Bill (including MA UTSA and Noncompete Ban)

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cropped-cimg27721.jpgTomorrow – Thursday, May 29 at 1:00 PM in room A-1 - the Joint Committee on Economic Development and Emerging Technologies will be holding a public hearing on Governor Patrick’s economic development bill (H.4045). For those of you following this, that is the bill that would adopt a version of the Uniform Trade Secrets Act and ban noncompetes in Massachusetts. See here.

I will be there to testify about, among other things, the language of the bill and its potential ramifications.

Hope to see you there. But, for those who don’t attend, I will be let you know what happens.

Massachusetts Noncompete Ban and Modified Version of the Uniform Trade Secrets Act Reported Out of Committee

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cropped-cimg27721.jpgOn April 29, the Massachusetts Legislature’s Joint Committee on Labor and Workforce Development favorably reported out a bill (available here) very close to Governor Patrick’s proposed adoption of a version of the Uniform Trade Secrets Act (“UTSA”) coupled with a ban on noncompetes in Massachusetts. Governor Patrick’s bill is available in whole here or relevant part here. (See What to do if noncompetes are eliminated in Massachusetts.)

Putting aside where you come out on the advisability of eliminating noncompetes (a political and economic decision that has staunch advocates on both sides), the proposed Massachusetts Trade Secrets Act (“MUTA”) is intended to enhance available trade secrets protections, given that they will be weakened by the elimination of noncompetes (one of the main tools currently used to protect them). (Note that it expressly leaves unaffected other restrictive covenants, including nonsolicitation agreements, no-raid/anti-piracy agreements, and nondisclosure agreements.)

The MTSA changes the UTSA in several respects, and, contrary to its intended purpose, may in fact create some additional hurdles to protecting trade secrets.

For example, the UTSA requires that reasonable measures to be taken to protect a trade secret; that makes sense given that the sine qua non of a trade secret is secrecy. However, as currently drafted, MTSA section 1(4)(ii) requires that reasonable measures be maintained even after the secret has been stolen. The result – in some cases – is that a person who steals a trade secret can potentially escape liability if the trade secret owner decides that it is no longer worth spending the money to protect a secret that the misappropriator has publicly disclosed (or even just stolen). In short, it potentially encourages very bad behavior and exposes trade secret owners to increased risk of harm.

Similarly, the same section (MTSA section 1(4)(ii)) permits only the “owners” of a trade secret to protect the secret. While that may seem innocuous, it’s not; it arguably means that licensees and other people who have purchased or otherwise acquired rights to use/protect the trade secrets would be left with nothing; it will kill the value of many trade secrets.

Section 5(b) requires that “averments of trade secrets and misappropriation thereof shall be stated with reasonable particularity in light of the circumstances of the case.” That language, like some other changes in the MTSA, is intended to address an issue that courts wrestle with (with increasing frequency) under the existing language of the UTSA, specifically, how clearly and how early someone claiming misappropriation must identify the trade secrets alleged to have been misappropriated. The problem with section 5(b) in particular is that it may be read to elevate the pleading standard to the point of making it impossible for some companies to protect their secrets.

With regard to the language of the noncompete ban (section 11), while section 2(a) (like the UTSA) permits injunctions, the bill leaves unaddressed whether it permits or precludes a court from issuing injunctive relief essentially in the nature of a noncompete as a remedy in the event of a breach of the other restrictive covenants. In other words, may a court issue an injunction prohibiting someone from continuing to work at a competitor when they have demonstrated themselves untrustworthy, by, for example, breaching a nonsolicitation covenant?

The Governor’s version of the bill is in a separate committee and it remains to be seen how that will be handled. Afterward, whatever bills survive will still need to pass the house and the senate before heading to the Governor.

The deadline is July 31. Stay tuned!

What to do if noncompetes are eliminated in Massachusetts

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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.

Trade Secrets and Noncompetes – Year in Review 2013

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Document8This past week, the Boston Bar Association held its 14th annual Intellectual Property Year in Review. I covered trade secrets (including related restrictive covenants). Below is a summary of those developments. (If you would like a complete copy of my materials, click here.)

Obama Administration Focuses on Trade Secrets

In February 2013, the Obama Administration issued “Administration Strategy on Mitigating the Theft of U.S. Trade Secrets.” Part of its strategy included the Administration’s solicitation of public comment.  Thirteen entities and individuals (including John Marsh (submission), Dean Pelletier (submission), Peter Toren (submission), and me (submission)) submitted comments.

At the rollout of the strategy, Attorney General Eric Holder warned,

[T]here are only ‘two categories’ of companies affected by trade secret theft –“[T]hose that know they’ve been compromised and those that don’t know yet.”

. . .  A hacker in China can acquire source code from a software company in Virginia without leaving his or her desk.  With a few keystrokes, a terminated or simply unhappy employee of a defense contractor can misappropriate designs, processes, and formulas worth billions of dollars.

Approximately four months later, on 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.”

The focus seems to be on pushing trading partners to increase their trade secrets enforcement efforts, working with the private sector for them to take the lead, and beefing up trade secrets-related legislation.

Economic Espionage Act Getting Beefed Up

The Economic Espionage Act of 1996 (the “EEA”), 18 U.S.C. §§ 1831-1839, was 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). 2013 saw a focus on the EEA.

On December 28, 2012 (so, technically 2012, not 2013), the Theft of Trade Secrets Clarification Act of 2012 amended the EEA in response to US v. Aleynikov, 676 F.3d 71 (2nd Cir. 2012). Specifically, it expanded the reach of the EEA by deleting the old language that cover 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.” (Of course, by deleting “included in,” the act may have created its own ambiguity as to its scope.)

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. 

Later in 2013, Representative Zoe Lufgren (D-CA) introduced an abbreviated bill known as the “Private Right of Action Against Theft of Trade Secrets Act of 2013.” That bill provides for the addition of the following language to be added to section 1832 of the EEA:

(c)  Any person who suffers injury by reason of a violation of this section may maintain a civil action against the violator to obtain appropriate compensatory damages and injunctive relief or other equitable relief. No action may be brought under this subsection unless such action is begun within 2 years of the date of the act complained of or the date of the discovery of the damage.

(d) For purposes of this section, the term without authorization shall not mean independent derivation or working backwards from a lawfully obtained known product or service to divine the process which aided its development or manufacture.

Computer Fraud and Abuse Act: The Saga Continues

The spotlight on the appropriate scope of the Computer Fraud and Abuse Act (the “CFAA”) continued this year. For example, in Facebook, Inc. v. Power Ventures, Inc., 2013 WL 5372341 (C.D. Calif., Sept. 25, 2013) (denying a motion to reconsider), a website that aggregated data from social media sites like Facebook was found to have violated the CFAA. Of particular note, in the summary judgment decision that was being reconsidered, the court had observed that while using a website such a Facebook.com in violation of its terms of use is not a violation of the CFAA, “access[ing] the network in a manner that circumvents technical or code-based barriers in place to restrict or bar a user’s access” can be a violation. 844 F.Supp.2d 1025, 1036, 1040 (N.D. Calif. Feb. 16, 2012) (noting that California’s penal code’s requirement of “permission” (which is what the court first interpreted) is the equivalent of the CFAA’s requirement of “authorization”). In a similar vein, the Northern District of California denied a motion to dismiss the CFFA claim where the defendant (a competitor of Craigslist) “scraped” the plaintiff’s website after its authorization to do so had been revoked. Craigslist, Inc. v. 3Taps, Inc., 2013 WL 1819999, *3 (N.D. Cal. April 30, 2013).

Closer to home (for me, at least), Massachusetts saw several cases struggle to discern the proper interpretation. In Advanced Micro Devices, Inc. v. Feldstein, 2013 WL 2666746, *3 (D. Mass. June 10, 2013), Judge Hillman, adopted the narrow interpretation, noting that the “narrow interpretation reflects a technological model of authorization, whereby the scope of authorized access is defined by the technologically implemented barriers that circumscribe that access,” and the “broader interpretation defines access in terms of agency or use.” In so doing, Judge Hillman disagreed with Judge Gorton’s interpretation of EF Cultural Travel BV v. Explorica, Inc., 274 F. 3d 577 (1st Cir. 2001), as favoring a broad interpretation. Most recently, in Enargy Power Co. Ltd v. Xiaolong Wang, 2013 WL 6234625 (D. Mass. Dec. 3, 2013), Judge Casper took a more nuanced approach, finding that Wang was not specifically provided access, and therefore defendants’ access exceeded what was authorized. (See also Moca Systems, Inc. v. Bernier, 2013 WL 6017295, *3 (D. Mass. Nov. 12, 2013), in which Chief Magistrate Judge Sorokin described the different interpretations, but noted that he did not need to reach a decision as to which was the proper interpretation). )

On the criminal side, not only was David Nosal (the subject of the 9th Circuit’s high-profile decision (U.S. v. Nosal, 676 F.3d 854 (9th Cir. 2012 (en banc)) narrowly interpreting the CFAA) convicted by a jury, but a firestorm was set off when activist Aaron Swartz, who was being prosecuted under the CFAA for accessing and downloading millions of documents from the online archive (JSTOR), committed suicide. Swartz’s suicide resulted in a bill (“Aaron’s Law Act of 2013”) introduced by Representatives Zoe Lofgren (D-CA), James Sensenbrenner (R-WI), Mike Doyle (D-PA), Yvette Clarke (D-NY), and Jared Polis (D-CO) to narrow the reach of the CFAA.

Aaron’s Law has received significant attention and if passed in one form or another, could have profound implications for the scope of the CFAA. 

State Legislative Developments Are Mixed

Effective September 1, 2013, Texas became the 48th state to adopt some version of the Uniform Trade Secrets Act, leaving Massachusetts and New York as the only two hold-outs. 

Massachusetts continued to pursue adoption of its own version of the Uniform Trade Secrets Act (H.27 and H. 1225) and continued considering changes to its noncompete laws. The two most significant were H.1225, which appended a California model (i.e., a ban on most employee noncompetes) endorsed by Governor Deval Patrick, and the Noncompete Agreement Duration Act” (H. 1715/S. 846), which was the culmination of earlier efforts of Representative Lori Ehrlich and Senator William Brownsberger to overhaul Massachusetts noncompete law and leaves most existing Massachusetts noncompete law in tact, and, as its name suggests, focuses on the duration of noncompetes (creating a presumption that noncompetes longer than 6 months are unreasonable and 6 months or less are reasonable).

Other states have similarly considered laws to modify their own noncompete laws. For example, Connecticut considered (but the Governor vetoed) a bill (Substitute H.B. No. 6658) that would have imposed certain requirements on the assignability of noncompete agreements in the context of mergers and acquisitions; Minnesota considered a bill (H.F. No. 506) to ban employee noncompetes; Illinois considered a bill (HB 2782) that, while stating it permits noncompetes, would permit only nonsnolicitation and no raid agreements (subject to various requirements) and imposing legal fees in favor of the prevailing party in any litigation; Maryland considered a bill (S.B. 51, which received an unfavorable report from the Finance Committee) to render noncompetes unenforceable against terminated employees who were eligible for unemployment benefits; and the New Jersey Assembly introduced a bill (A3970) that would render not just noncompetes unenforceable against terminated employees who were eligible for unemployment benefits, but agreements not to solicit and nondisclosure agreements.

Bad Faith Claims: A Matter of “Common Sense”

Section 4 of the Uniform Trade Secret Act provides that “[i]f . . . a claim of misappropriation is made in bad faith, . . . the court may award reasonable attorney’s fees to the prevailing party.” Each year, more and more are cases doing precisely that.

But what about whether Section 4 applies to a trade secret misappropriation claim maintained in bad faith? According to the Seventh Circuit, it is a matter of “common sense” – it does apply.

The case is Tradesman International, Inc. v. Black, 724 F.3d 1004 (7th Cir. 2013). There, following a favorable summary judgment decision, the defendants sought attorneys’ fees under Section 4 of Illinois’ version of the UTSA. Id. at 1016.  Recognizing that the absence of Illinois precedent on the issue of whether Section 4 applies to actions maintained in bad fait (as opposed to actions filed in bad faith), the Court of Appeals turned to California precedent. Id. Adopting California’s interpretation, the court held,

[W]e we conclude that “made in bad faith” is correctly interpreted as either bringing or maintaining a suit in bad faith.  In addition to the California case law, common sense supports such an interpretation. Regardless of her intentions at the time of filing, surely a plaintiff makes a claim in bad faith if she continues to pursue a lawsuit—even after it becomes clear that she has no chance to win the lawsuit—in order to cause harm to the defendant.

Consequently, we find that the district court erred in determining that a claim “made in bad faith” must be “initiated in bad faith.” A claim is made in bad faith when it is initiated in bad faith, maintained in bad faith, or both.

Id.

While neither Massachusetts nor New York has adopted the Uniform Trade Secrets Act, the Seventh Circuit’s decision will likely have broad persuasive authority in the rest of the country.

Personal Jurisdiction Expanded

Trade secrets litigation often involves interstate disputes. Sometimes there is an applicable contract that includes a forum selection clause and sometimes there is not. And, oftentimes, even when there is a contract with such a provision, there is a question about its enforceability. This year, there were two cases of particular note: An eye-opening decision from the United States District Court for the Southern District of California where there was no contract and a decision from the United States Supreme Court where there was a contract. Both, at least as a preliminary matter, found jurisdiction. 

In Integrated Practice Solutions, Inc. v. Wilson, 2013 WL 3946061 (S.D. Cal. July 31, 2013), the plaintiff, Integrated Practice Solutions, Inc. (“IPS”) provides practice management computer software for healthcare professionals. Id. at * 1. Defendant Wilson worked for IPS until August 20, 2012, as a sales representative and Vice President of Sales. Id. Later, he went to work for IPS competitor, Future Health Acquisition, Inc. (“Future Health”). IPS claimed that Wilson misappropriated its customer list and provided the information to Future Health. Id. 

The only contacts that Future Health, a South Dakota corporation, had with California were “a lone salesman . . . and the occasional trade show,” which the court held were insufficient to establish personal jurisdiction. Id. at *2. However, the court allowed discovery to proceed on the issue of specific jurisdiction, noting that, “that hinges on Future Health’s involvement, or lack thereof, with the alleged actions of Defendant Wilson in misappropriating IPS’s customer list.” Id

As the court explained, “Misappropriation of trade secrets is an intentional tort,” and, as such, “the defendant must be alleged to have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state. Id. (citing Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984)). Thus, the court reasoned, “if Defendant Wilson did misappropriate the customer list and Future Health did somehow take advantage of that, then Future Health would have purposely availed itself of doing activities in or directed towards California.” Id. at *3. Accordingly, the court retained jurisdiction over Future Health and permitted IPS to take discovery concerning facts relevant to jurisdiction – including, therefore, facts concerning Future Health’s involvement in the alleged misappropriation (which effectively opens the door to extensive discovery). 

Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, 134 S.Ct. 568 (2013), although a case involving a contractor’s alleged failure to pay its subcontractor may appear at first blush to be irrelevant to trade secrets litigation, it is in fact quite significant insofar as it makes forum selection clauses (which are or should be included in most restrictive covenants) much more enforceable. In particular, the Court stated the following:

 First, the plaintiff’s choice of forum merits no weight. . . .

* * *

Second, a court evaluating a defendant’s § 1404(a) motion to transfer based on a forum-selection clause should not consider arguments about the parties’ private interests. . . .

* * * 

Third, when a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a § 1404(a) transfer of venue will not carry with it the original venue’s choice-of-law rules—a factor that in some circumstances may affect public-interest considerations. 

The impact of the decision on cases involving the attempted enforcement of forum selection clauses in noncompetition agreements arising from an employer-employee relationship will likely be seen in the not-to-distant future.

Consideration for Employee Noncompetes: Not In Illinois

Noncompetition agreements, like all contracts, require consideration. It is generally accepted that when an employment agreement is signed in connection with the commencement of employment, the new job provides the consideration necessary to support the noncompete.

The Appellate Court of Illinois for the First District, First Division, has, however, challenged that view in a decision that the Illinois Supreme Court refused to accept on appeal:  Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct. 2013). Specifically, the court held that, if a new job (i.e., employment) is the purported consideration for a restrictive covenant, then the employment must last at least two years to suffice – even if the employee terminates the employment.

Accordingly, companies hiring in Illinois will, in light of this decision, be well-advised to consider providing additional consideration to employees upon their hiring. What additional consideration will suffice remains to be seen.

Nonsolicitation Does Not Always Require “Solicitation”

It is rare for restrictive covenant cases – especially nonsoliciation cases – to proceed beyond the preliminary injunction stage. And, it’s even more rare for them to make it to an appellate court – especially a federal court of appeals. But, that is precisely what happened in Corporate Technologies, Inc. v. Harnett, 731 F.3d 6 (1st Cir. 2013).

The case involved the question of what constitutes solicitation, an issue that has resulted in many varying decisions over the years.

The First Circuit began its opinion with the following paragraph:

 Businesses commonly try to protect their good will by asking key employees to sign agreements that prohibit them from soliciting existing customers for a reasonable period of time after joining a rival firm. When a valid non-solicitation covenant is in place and an employee departs for greener pastures, the employer ordinarily has the right to enforce the covenant according to its tenor. That right cannot be thwarted by easy evasions, such as piquing customers’ curiosity and inciting them to make the initial contact with the employee’s new firm.  As we shall explain, this is such a case.

Id. at 8.

As the court explained, “[t]he dispute . . . turns on the distinction between actively soliciting and merely accepting business—a distinction that the Massachusetts Appeals Court aptly termed ‘metaphysical.’ Alexander & Alexander, Inc. v. Danahy, 21 Mass.App.Ct. 488, 488 N.E.2d 22, 30 (1986).” Id. at 10. Rejecting the defendant’s argument that the solicitation can only happen if the restricted party initiates the initial contact with the customer, the court stated, “This argument is simply a linguistic trick: creative relabeling, without more, is insufficient to transform what is manifestly a question of fact into a question of law. See Fed. Refin. Co. v. Klock, 352 F.3d 16, 27 (1st Cir.2003).”

The First Circuit’s decision is a significant addition to the body of case law interpreting what constitutes solicitation in the context of nonsolicitation agreements.

What to Watch For in 2014

  • LightLab Imaging, Inc. v. Axsun Technologies, Inc., SJC-11374, is awaiting decision by the SJC. The key issue (disputed by the parties) is whether a court can permanently enjoin the use of trade secrets where the defendant has not used them (and is not likely to use them in future).
  • Hydraulic fracking has been unavoidable in the news.  From a trade secrets standpoint, the tension is the oil companies’ desire to keep their processes secret and conservation and environmental groups’ (among others’) desire to know what is being put into the water supply.  Litigation has recently started over whether the fracking fluids are trade secrets.
  • Continued evolution of the material change doctrine.  It has long been established that a change in position within a company may constitute “a new relationship” necessitating the renewal or replacement of any restrictive covenants entered into in connection with a prior position. The watershed case on this issue is F.A. Bartlett Tree Expert v. Barrington, 353 Mass. 585, 587 (1968).  However, there has been a recent spate of cases involving the doctrine reaching results that are sometimes hard to reconcile. See, e.g., A.R.S. Servs. v. Morse, 2013 WL 2152181 (Mass. Super. Ct. April 5, 2013) (Leibensperger, J.); AthenaHealth, Inc. v. Cady, 2013 WL 4008198 (Mass. Super. Ct. May 2, 2013); Intepros Inc. v. Athy, 2013 WL 2181650 (Mass. Super. Ct. May 5, 2013) (Curran, J.); Akibia, Inc. v. Hood, 2012 WL 10094508 (Mass. Super. Ct. Oct. 9, 2012) (Locke, J.). Perhaps most interesting among them is Interpros, which held that terminating an employee voided the noncompetition agreement (based on the material change doctrine).

Massachusetts Noncompete Bill – Hearing Date

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cropped-cimg27721.jpgLast night, we had our 5th Annual Symposium on Employee Non-Compete Agreements, Trade Secrets and Job Creation. Following that discussion, I spoke with Representative Lori Ehrlich about the status of the current version of her and Senator Will Brownsberger’s noncompete bill (described below). Representative Ehrlich told me that the Joint Committee on Labor & Workforce Development (of which Rep. Ehrlich is the co-chair) will be conducting the hearing on the noncomepte bill on September 10, 2013. (Given my involvement with the bill, I will be testifying at the hearing and will report the details afterward.)

In the meantime, to the extent that you would like a refresher on the details, the current version of the bill – called the “Noncompete Agreement Duration Act” – leaves most noncompete law in tact, and, as its name suggests, focuses on the duration of noncompetes (in the employer/employee context). As before, the bill does not affect the law of trade secrets, nondisclosure agreements, nonsolicitation agreements, no raid/no hire agreements, noncompetes in connection with the sale of business (if the restricted person owns at least a 10 percent interest and received substantial consideration) or outside the employment context, forfeiture agreements, or agreements not to reapply for a job.

The bill starts with, and is premised on, the following two findings:

  • “[T]he Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce” and
  • “[T]he Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy.”

The bill then creates a presumption that a noncompete that lasts up to six months is presumed reasonable in duration. The bill also creates the opposite presumption: a noncompete that lasts more than six months is presumed unreasonable in duration. The presumptions are not absolute; they can be overcome. If a court determines that the duration is unreasonable, however, the noncompete will be unenforceable in its entirety (i.e., the court will apply a “red pencil” approach).

There are three instances in which a noncompete that is unreasonable in duration can still be enforced (though the court will shorten the duration to the length of time determined to be appropriate). Those three instances are as follows:

  1. “the employee has breached his or her fiduciary duty to the employer”;
  2. “the employee unlawfully taken, physically or electronically, property belonging to the employer”; or
  3. “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.”
We are continuing to seek input and comment, and would be extremely interested in hearing from you.

Trade Secret | Noncompete – Issues and Cases in the News – April 2013 Update

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extras_03True to the unfortunate limit of 24 hours in a day, my posts continue to written during my vacations. This time, given the extended delay between vacations, and therefore posts on issues and cases making trade secrets | noncompete news, I am posting just some highlights of the past few months. Here we go…

Obama Administration: In February 2013, the Obama Administration issued Administration Strategy on Mitigating the Theft of U.S. Trade Secrets. In furtherance of that strategy, on March 19, 2013, the Administration solicited public comment on possible trade secrets “for an Administration legislative review related to economic espionage and trade secret theft.” The notice is available here. Comments are due by April 22, 2013. Peter Toren has commented already; his comments are here: Read My Federal Register Comments on Existing Laws Related to the Enforcement of Trade Secrets.

Second Circuit (personal jurisdiction): The Second Circuit, in a trade secrets misappropriation case, found personal jurisdiction over a former employee of a Connecticut company, who was a citizen of Canada, residing and working in Canada. The former employee was accused of misappropriating the company’s confidential information by emailing it to herself between the time she found out that she had been terminated and her last day of work. The employee’s contacts with Connecticut (and the United States) were extremely limited. However, the Court found significant that the employee’s employment agreement contained notice to the employee that the company’s email servers were located in Connecticut and that the employee could not transfer the company’s information to her personal email. The Court concluded that this language in the employment agreement put the employee on notice that any misconduct using the company’s email would be directed into Connecticut (a factor in the analysis of whether to exercise personal jurisdiction). See MacDermid, Inc. v. Deiter.

Sixth Circuit (BYOD risks): Eric Osteroff wrote a nice post on the Sixth Circuit’s decision in Kendall Holdings, Ltd. v. Eden Cryogenics, LLC concerning the perils of BYOD (bring your own device) policies. BYOD practices can have significant ramifications for trade secrets risks and need to be carefully considered in light of an overall trade secrets policy and approach. See Ken Vanko‘s post, The BYOD Thicket: Some Basic Steps to Take for BusinessesSee also My phone or yours? EEOC official provides best practices for “bring your own device” policies.

Ninth Circuit: The Mattel v. MGA saga continues, with the reversal of MGA’s $170,000,000 trade secret verdict. See Ninth Circuit Takes Away MGA’s $170 Million Trade Secret Award Against Mattel

District of Columbia: Most noncompete and trade secrets litigation starts with the sending of a “cease and desist” letter. One concern is that the sending of such a letter might, if the facts turn out to be wrong, give rise to a defamation counterclaim. However, on March 18, 2013, the United States District Court for the District of Washington rejected just such a claim. Specifically, the court held that the letter was protected by the litigation privilege, and therefore could not give rise to a defamation claim. For a discussion of the case, see Kara Maciel‘s (from my former firm, Epstein Becker & Green) post, Cease and Desist Letters Enjoy An Absolute Privilege From Libel ClaimsAs John Marsh of Hahn Loeser points out, however, the fact that a defamation claim doesn’t lie, does not equate to no risk of a tortious interference claim. Cease and Desist Letters: Defamation May Not Be An Issue But Watch Out for Tortious Interference.

Federal Circuit: The Federal Circuit in Phillip M. Adams & Assoc., LLC v. Dell Computer Corp applied the discovery rule to toll the statute of limitation in a trade secrets case. For more discussion, see Federal Circuit Addresses Uniform Trade Secrets Act Discovery Rule by Eric Ostroff.

Florida: Notwithstanding a confidentiality agreement and nonsolicitation agreement, the United States District Court for the Middle District of Florida (Tampa) permitted a former employee to use her former employer’s customer list to mass email an announcement (sometimes called a “wedding-style announcement”) to her former employer’s customers. See The Variable Annuity Life Insurance Company (VALIC) v. Laeng. For additional reading, see Mass-Mailing To Public Employees Did Not Violate Non-Solicitation Agreement by John Nefflen at Burr Forman.

In another interesting case, Florida’s Fifth District Court of Appeals affirmed an injunction where the employer offered testimony establishing that it secured the noncompete to protect its goodwill, that the defendant had been offering similar services for less money, and that the employer lost business. For more, see Fox Rothchild‘s Jason Cornell‘s post, United States: Enforcing a Non-Compete Agreement in Florida: What Evidence is Relevant?

New York (CFAA): The United State District Court for the Southern District of New York has opted for the more narrow interpretation of the Computer Fraud and Abuse Act in Advanced Aerofoil Technologies, AG v. Todaro. For more, see The Computer Fraud and Abuse Act, and Protecting Employer’s Electronic Data by Kristin Parsons of Burr & Forman and Another Court Construes the CFAA Narrowly and More of My Thoughts on the Statute by Ken Vanko.

New York (jurisdiction/venue): On January 10, 2013, the New York Appellate Division, First Department, in Aon Risk Services v. Cusack, rejected efforts to dismiss a noncompete case in favor of a prior filed action in California. For an in-depth discussion, see Battle Rages On In Epic Restrictive Covenant Dispute by David Clark of Epstein Becker & Green.

North Carolina: The North Carolina Court of Appeals held a noncompete in a staffing case – involving the sale of business – to be unenforceable. The agreement covers a number of legal points, any one of which would be sufficient to invalidate the agreement based on its language.  The court noted the plaintiff’s admission that there were no trade secrets or proprietary information at issue and that the employees were “general laborer[s].” The court then determined that the agreement was overly broad and really directed toward preventing ordinary competition, rather than the protection of goodwill. See Phelps Staffing, LLC v. C. T. Phelps, Inc. Most interesting about the case, however, is that the plaintiff purchased the staffing company from its then-owned, defendant Sheila Phelps. But, Ms. Phelps’s husband, who had been working with her, had started a competing venture shortly before the sale. He was present at the sale, presumably understood the terms, and received substantial benefit from it (the sale was $1.4 million). Oddly, he was not required to sign any documents – although one of the agreements required him not to interfere. Accordingly, even though he was a clear threat, neither the trial court nor the Court of Appeals was willing to restrain him even though he benefited substantially from the sale. Compare that with Zions First National Bank v. Macke, discussed by Amy Dehnel at Berman Fink Van Horn in Can an Employee Use a Spouse to Circumvent Restrictive Covenants? Georgia Court of Appeals Says “No.”

Wyoming: According to RT, “A district judge in Wyoming has shot down a group of environmentalists who tried to gather information about the long-term effects of fracking . . . .” See Fracking chemicals to stay ‘trade secrets.’

Legislation and Bills: A handful of states have recently proposed legislation relating to noncompetes and/or trade secrets. Ken VankoJohn Marsh, and I recorded a FairlyCompeting podcast discussing some of that proposed legislation.Here is some additional information:

Illinois: The Illinois House of Representatives has introduced a bill that, although saying it would allow “noncompetes,” would actually ban noncompetes, though allow  nonsolicitation agreements if they meet certain defined criteria. Although the bill is too long to post its contents, the full text can be found here. Ken Vanko has a nice discussion of the bill in A Brief Commentary on Illinois’ Proposed Noncompete Agreement Act.

Maryland: The Maryland Senate introduced a bill that would render noncompetes enforceable if the employee were terminated and therefore eligible for unemployment benefits. The operative text is as follows:

IF AN INDIVIDUAL WHO IS UNEMPLOYED HAS APPLIED FOR AND IS FOUND ELIGIBLE TO RECEIVE UNEMPLOYMENT INSURANCE BENEFITS AS PROVIDED IN TITLE 8 OF THIS ARTICLE, THE INDIVIDUAL MAY NOT BE BOUND BY A NONCOMPETITION COVENANT ENTERED INTO WITH THE INDIVIDUALS PRIOR EMPLOYER.

The bill would apply only prospectively to noncompetes entered into after October 1, 2013 (the putative effective date of the statute). The bill has, however, been reported unfavorably out of the Finance Committee.

Massachusetts: I previously discussed the proposed, scaled-down noncompete legislation in Massachusetts, limiting the duration of noncompetes, unless one of three exceptions exists. See New Massachusetts Noncompete Bill. The bill has been referred to the Committee on Labor and Workforce Development.

In addition, Massachusetts is again considering adopting the Uniform Trade Secrets Act (HB 27). This time, however, there is a competing UTSA bill (HB 1225) that combines the UTSA with an outright ban of employee noncompetes. The text relating to noncompetes provides:

Section 19 of Chapter 149 of the General Laws of Massachusetts is hereby amended by inserting at the end the following new paragraphs:

Any written or oral contract or agreement arising out of an employment 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 relationship has ended, shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement.

For the purposes of this section, chapter 149, section 148B shall control the definition of employment.

This section shall be construed liberally for the accomplishment of its purposes, and no other provision of the General Laws shall be construed in a manner that would limit its coverage. Nothing in this section shall preempt tort or contract claims, or other statutory claims, based upon an employer’s use, or attempted use of an unlawful contract or agreement to interfere with subsequent employment or contractor work.

This section shall apply to all contracts and agreements, including those executed before the effective date of this act.

Both UTSA bills were referred to the Judiciary Committee, and remain there.

Michigan: The Michigan Senate introduced SB 786, which, if passed would, like New Hampshire (see here), require advance notice of noncompetes. The text of the bill is as follows:

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 4a. (1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.
THIS SUBSECTION APPLIES to covenants and agreements entered into after March 29, 1985.
(2) AN EMPLOYER SHALL NOT REQUIRE AND A COURT SHALL NOT ENFORCE AN AGREEMENT OR COVENANT UNDER THIS SECTION AS A CONDITION OF EMPLOYMENT IF THE EMPLOYER DID NOT INFORM THE EMPLOYEE OF THE REQUIREMENT AT OR BEFORE THE TIME OF THE INITIAL OFFER OF EMPLOYMENT. THIS SUBSECTION APPLIES TO AN AGREEMENT OR COVENANT ENTERED INTO AFTER THE EFFECTIVE DATE OF THE AMENDATORY ACT THAT ADDED THIS SUBSECTION.
Ken Vanko has an interesting discussion of the bill here.

Minnesota: The Minnesota House of Representatives introduced H. F. No. 506, which contains the following text:

 A bill for an act relating to commerce; regulating employment agreements; voiding certain noncompete agreements; proposing coding for new law in Minnesota Statutes, chapter 325D.

 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

 Section 1. [325D.72] NONCOMPETE AGREEMENTS VOID.

 A contract that prohibits a party to that contract from exercising a lawful profession, trade, or business is void with the following exceptions:

(1) a seller of a business’ goodwill can agree to refrain from carrying on a similar business in a specified county, city, or part of one of them if the buyer carries on a like business in that area;

(2) partners dissolving a partnership can agree that one or more of them will not carry on a similar business in a specified county, city, or part of one of them where the partnership transacted business; and

(3) a member, when dissolving or terminating their interest in a limited liability company, can agree that the member will not carry on a similar business in a specified county, city, or part of one of them where the business has been transacted if another member or someone taking title to the business carries on a like business in that area.

 EFFECTIVE DATE. This section is effective the day following final enactment.

For additional reading, see Minnesota House Bill Threatens to Void Non-Compete Agreements by Faegre Baker Daniels.

New Jersey: The New Jersey Assembly introduced a bill A3970 much like the bill introduced by Maryland (see above). The text is as follows:

BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:

      1.    An unemployed individual found to be eligible to receive benefits pursuant to the “unemployment compensation law,” R.S.43:21-1 et seq., shall not be bound by any covenant, contract, or agreement, entered into with the individual’s most recent employer, not to compete, not to disclose, or not to solicit. This section shall not be construed to apply to any covenant, contract, or agreement in effect on or before the date of enactment of P.L.   , c.  (C.   )(pending before the Legislature as this bill).

      2.    This act shall take effect immediately.

Thank you to both Douglas Neu and Janette Levey Frisch for bringing this to my attention. For some additional reading, see Heated discussion as attorneys debate merits of noncompete bill and New Jersey Joins Wave Of States Considering Limitations on Noncompete Agreements. Thanks to Sue Reisinger for her article, Looking at the Future of Cybersecurity.

Texas: The Texas legislature is considering SB 953, which would effectively adopt the Uniform Trade Secrets Act, making Texas the 48th state to adopt some version, leaving just Massachusetts and New York as the last-remaining holdouts.

Related Items of Interest:

New Massachusetts Noncompete Bill

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cropped-cimg27721.jpgThere is a new noncompete bill in Massachusetts. (Jump to the end for the details.) It is not yet docketed, however, so I do not have an official version to post at this time.

Those following the Massachusetts legislature’s efforts to improve Massachusetts noncompete law will recall that in 2008, then-Representative, now Senator, Will Brownsberger and Representative Lori Erhlich each separately introduced their own noncompete bills. Brownsberger’s bill took the approach in California, Oklahoma, and North Dakota, banning noncompetes in the employee context. Ehrlich’s bill took a moderated approach, focusing on procedural and other limits.

In the spring of 2009, Rep. Brownsberger and Rep. Ehrlich decided to work together toward modifications acceptable to both. After extensive input from many different interests, they arrived at a “compromise bill” designed to codify, clarify, and modernize Massachusetts noncompete law. The compromise bill was revised over time and developed quite a bit of steam during the 2008–2009 legislative session, but ultimately died. Then, a revised version of the bill was introduced in 2010, though it too ultimately died.

This session, Senator Brownsberger and Representative Erhlich have tried an entirely new, streamlined approach. (As readers of this blog will know, I was involved with the bills from the very beginning, including this new bill, and have been the principal draftsperson; I view my role, however, as purely advisory and that of scrivener. I give my opinions on the pros and cons of the various possible approaches and language, but take no position on the policy.)

The new bill – called the “Noncompete Agreement Duration Act” – leaves most noncompete law in tact, and, as its name suggests, focuses on the duration of noncompetes (in the employer/employee context). As before, the bill does not affect the law of trade secrets, nondisclosure agreements, nonsolicitation agreements, no raid/no hire agreements, noncompetes in connection with the sale of business (if the restricted person owns at least a 10 percent interest and received substantial consideration) or outside the employment context, forfeiture agreements, or agreements not to reapply for a job.

The bill starts with, and is premised on, the following two findings:

  • “[T]he Commonwealth of Massachusetts has a significant interest in its economic competitiveness and the protection of its employers, and a strong public policy favoring the mobility of its workforce” and
  • “[T]he Commonwealth of Massachusetts has determined that an employee noncompetition agreement restricting an employee’s mobility for longer than six months is a restraint on trade and harms the economy.”

The bill then creates a presumption that a noncompete that lasts up to six months is presumed reasonable in duration. The bill also creates the opposite presumption: a noncompete that lasts more than six months is presumed unreasonable in duration. The presumptions are not absolute; they can be overcome. If a court determines that the duration is unreasonable, however, the noncompete will be unenforceable in its entirety.

There are three instances in which a noncompete that is unreasonable in duration can still be enforced (though the court will shorten the duration to the length of time determined to be appropriate). Those three instances are as follows:

  1. “the employee has breached his or her fiduciary duty to the employer”; 
  2. “the employee unlawfully taken, physically or electronically, property belonging to the employer”; or
  3. “the employee has, at any time, received annualized taxable compensation from the employer of $250,000 or more.”
I expect that the bill – as well as another bill taking the California approach – will continue to be the subject of much discussion. If you have input, we would be extremely interested in hearing from you.

Trade Secret | Noncompete – Issues and Cases in the News – March 2012

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It’s time for this month’s Trade Secret | Noncompete Issues and Cases in the News.

Trade Secrets on the Internet: In the most recent case to address the issue of the effect of trade secrets being available on the Internet, the United States District Court for the Western District of Ohio reasoned as follows:

Absent from the Complaint is any allegation that Plaintiff made efforts to guard the secrecy of the information about its products. Instead, it appears from the limited record before the Court that Plaintiff has published this information on the Internet. Under these circumstances, the Court finds that Plaintiff has little likelihood of success on the merits of its Ohio Trade Secrets Act claim.

Given the limitation inherent in the facts alleged in the complaint, the case, Allure Jewelers, Inc. v. Ulu, does not add much to the growing body of law on the issue. For others, see Trade Secrets on the Internet.

Connecticut: The Connecticut Supreme Court has determined that public entities can shield their confidential information from the reach of public records acts requests. See Conn. high court rules university can withhold trade secrets.

Idaho: A bill to amend the Idaho trade secrets act has been introduced before the Idaho state Senate. If adopted, the bill will clarify that physical retention of a trade secret can be misappropriation, while mere memorization cannot be. (Whether trade secrets can be misappropriated by memory is a thorny issue, about which there is much disagreement nationally – see It’s All in Your Head.) The bill also creates an entitlement to legal fees for the prevailing party, and makes persons acting in concert with a misappropriator  jointly and severally liable if they turn a blind eye to the misappropriation.

Massachusetts: Massachusetts Superior Court Judge Lauriat was the latest to find that a material change in the terms of employment (even changes that are beneficial for the employee) when “coupled with an employee’s refusal to sign a new covenant at employer’s request” will vitiate a preexisting noncompete agreement. The teaching of these cases? Noncompetes should be drafted to anticipate the possibility of change and expressly apply to any new position; and care should be taken when asking for a new agreement to make clear what is to happen with the old agreement if the new one is not accepted.

New Hampshire: The New Hampshire legislature is considering a bill (HB 1270) that would require employers to disclose the requirement of a noncompete or non-piracy agreement before hiring an employee or changing the employee’s job classification. See Seacoast Online’s, Bills ‘crossover’ in coming weeks. If passed, the bill would amend the law to provide as follows:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.

Texas: A Texas Court of Appeals, in Drennen v. Exxon Mobil Corporation, invalidated a forfeiture for competition agreement.

Utah: The Utah Court of Appeals issued a lengthy decision (CDC Restoration & Construction LC v. Tradesmen Contractors, LLC) covering two issues that occasionally arise in trade secret cases: (1) the circumstances under which a compilation of publicly available information will be deemed a trade secret; and (2) whether and which common law causes of action are preempted by the Uniform Trade Secrets Act.

With regard to when a compilation may qualify as a trade secret, the Court (quoting the Utah Supreme Court) held, “A compilation may qualify as a trade secret ‘if extensive effort is required to pierce its veil by assembling the literature concerning it and thereby uncover its parts’; on the other hand, ‘[i]f this can be readily done by one who is normally skilled in the field and has a reasonable familiarity with its trade literature, the secret may no longer be entitled to protection.’” It’s analysis of the particular facts in the case is worth a read.

Of particular note about the preemption issue is the Court’s observation in its conclusion, as follows:

With respect to its claim for misappropriation of pricing information, CDC finds itself boxed in by the UTSA. CDC lacks evidence hat the pricing information it claims [defendants] misappropriated qualifies as a trade secret under the UTSA. Yet that information is enough like a trade secret that CDC’s non-UTSA claims are preempted by the UTSA. The UTSA does not displace civil remedies not based upon misappropriation of trade secrets, nor does it displace contractual remedies, whether or not based upon misappropriation of trade secrets. However, CDC’s non-UTSA causes of action fit nether category. The are, accordingly, preempted.

The Court’s preemption analysis leading to this conclusion and observation about the effect of preemption, is far more involved and definitely worth a read.

Criminal Cases:

Related Items of Interest:

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:

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