Trade Secret | Noncompete – Issues and Cases in the News – January/early-February 2012

I am a bit behind on the January round-up, so, I’ve included some recent events through today. As with the other roundups, in addition to the brief summaries, you will find links for more in-depth reading on each issue. (These posts cover quite a bit of news, enjoy.) [Updated on February 6, 2012. (Updates are in bold.)]

FINRA: SWBC Investment Services was awarded damages, attorneys’ fees, an injunction requiring destruction and nonuse of SWBC’s information, and an order requiring that respondents retain an outside company to ensure destruction of certain files allegedly taken by a former employee broker. See In the Matter of the FINRA Arbitration Between SWBC Investment Services, LLC, Claimant/Counter-Respondent, vs. Titleist Asset Management, Ltd, Respondent and Greg Thompson, Respondent/Counter-Claimant(FINRA Arbitration 11-02350, January 10, 2012), reported by Forbes in FINRA Arbitrators Enjoin Brokerage Raid And Enforce Non-Compete.

Apple: So much has been written already about Apple’s failed efforts to seal documents in its case against Psystar (maker of unauthorized-Apple clones) that I will simply point you to a recent article, in case you missed all the press. Apple fails to keep “trade secrets” from public in Psystar case.

California: An issue that often arises in litigation is finding the right expert witness. The Southern District of California addressed this issue in Pellerin v. Honeywell International Inc., 2012 WL 112539 (S.D. Ca. Jan. 12, 2012), rejecting a former employee as an expert. It’s worth a read to understand the analysis that the court went through.

California/Pennsylvania: Another recent California decision (Aerotek v. The Johnson Group Staffing Co.) is noteworthy for its award of attorneys’ fees to a defendant in a trade secrets case. (The Trade Secrets & Employee Raiding Blog provides a very good and detailed discussion of the case.) And, the Western District of Pennsylvania – following a California decision – reached a similar decision in Hill v. Best Medical International (consolidated with other cases).

Michigan: The Michigan Court of Appeals, in an unreported decision (Actuator Specialities, Inc. v. Chinavare), relying on Michigan’s version of the Uniform Trade Secrets Act (there was no noncompete) affirmed a three year injunction preventing a former employee from competing based on the threat of misappropriation. For a nice summary, see New Weapon for Michigan Employers Protecting Against Unfair Competition and Trade Secret Theft. And, note below the different result reached in Ohio (partially because of the threshold issue that the information was not a trade secret, but it is still worth a comparison).

Missouri: Noncompetes find their ways to all industries, some more so than others. But, you don’t usually see them used by farmers’ markets. Now, the Greater Springfield Farmers’ Market (of Missouri) implemented a 5 mile noncompete. And, in an interesting twist, it seems that the restriction was implemented through a policy of the market that was to be voted on voted on by the market’s members, but, according to an email we received, was apparently voted on only by the board. See ‘No-compete’ clause rare among farmers markets; Farmers’ Market Non-Compete Angers Some Local Growers. Oddly, that is not the only unusual noncompete news in Missouri this month. Apparently the Missouri School of Journalism imposed a noncompete on student journalists (and, it seems, the factuality supervisors) prohibiting them from working for other publications. Story here.

New York: A question that often arises is the standard applicable to no-raid agreements (sometimes called “nonsolicitation agreements,” though if that term is used, it should be clear that it’s nonsolicitation of employees, rather than a typical nonsolicitation agreement, which prohibits solicitation of customers or clients). That issue was most recently addressed by the Western District of New York (a federal district court) in Renaissance Nutrition, Inc. v. Jarrett,  2012 WL 42171 (January 9, 2012). [Thank you Ken Vanko for pointing out that case; as readers of this blog know, Ken administers an excellent blog on noncompetes called Legal Developments in Non-Competition Agreements.]

Ohio: I give Ken Vanko (see just above) credit for finding this one too: He came across a case in Ohio, Columbus Bookkeeping & Bus. Svcs., Inc. v. Ohio State Bookkeeping, LLC, 2011 WL 6938340 (Ohio Ct. App. December 30, 2011), in which the Ohio Court of Appeals overturned an injunction that was based, essentially, on the lower court’s misapplication of trade secret law. The case is interesting for its analysis of client lists protections in the absence of a noncompete or nondisclosure agreement. The lower court had issued an injunction prohibiting former employees from serving the plaintiff’s customers for about a year. The Court of Appeals overturned the injunction based on its conclusion that the customer list did not qualify as a trade secret. In further analyzing the lower court’s decision, however, the Court of Appeals also observed that limiting the duration of the injunction indicated that the lower court treated the case like a noncompete case with a noncompete remedy, rather than a trade secret case with a trade secret misappropriation remedy (which should last as long as the trade secret remains secret). And, note above the different reached in Michigan (where such an injunction was affirmed on appeal).

Oklahoma: [UPDATE] On February 6, I came across a Q&A on Oklahoma noncompete law, which provides a nice summary for anyone interested. Here is the link.

Virginia: Many states have, in the past few years, been reexamining their noncompete laws (some making it harder to enforce noncompetes, and some making it easier). Virginia is the latest to enter the fray. The legislature has proposed what amounts to a ban on employee noncompetes, which, if passed, would put Virginia in the company of California, Oklahoma (see above), and North Dakota. A draft of the legislation is available here. As summarized in the bill tracking website: “[The bill] [m]akes unlawful any contract that serves to restrict an employee or former employee from engaging in a lawful profession, trade, or business of any kind. Exceptions are created for persons selling a business, former partners in a partnership, and former members in a limited liability company, who agree to refrain from carrying on a similar business within a specified geographic area in which the original entity carries on business.”

Virginia: In what would seem contrary to the legislative initiative, the Supreme Court of Virginia held in Colello v. Graphic Services, Inc. (January 13, 2012) that a plaintiff need not prove competition in order to protect its trade secrets.

Arbitration and Damages: Last November, Seagate obtained a $630 million arbitration award of sanctions (one of the largest such awards ever) against Western Digital. Western Digital is now challenging that award. See here. Stay tuned. And, for other large recent trade secret damage awards read ALM reporter, Jan Wolfe’s post, Rounding Up the 10 Biggest IP Litigation Wins of 2011, and Bloomberg’s article, DuPont Trade-Secret Award Helps Drive 2011 Record Verdict Growth.

Trade Secrets at the Intersection with Public Records: An issue that occasionally comes up is the public’s right of access (under FOIA and state public records acts) to filings that might contain confidential information that businesses were required to file with the government. These issues are not limited to filings in the United States. Case in point: Canada’s Supreme Court has just provided additional clarity around the relationship between right of access to government records and trade secrets filed with the Canadian government. See Top court rules against Merk in trade secrets case.

Trade Secrets on the Internet: As I am behind in writing about the Eagle v. Morgan, Case No. 11-4303 (E.D. Pa., Dec. 22, 2011) case (the latest case to address trade secrets on the Internet), I am referring you to John Marsh’s excellent coverage of the case (in context with the other cases that preceded it): LinkedIn and Twitter: Who Owns the Account, the Employer or Employee?

Criminal Cases:

Related Items of Interest:
  • For those inclined to the more academic side of things, a recent article by Villanova University School of Law Associate Professor Michael Risch, An Empirical Look at Trade Secrets Law’s Shift from Common to Statutory Law, discusses the evolution and status of courts’ reliance on the Restatement of Torts, the Restatement (Third) of Unfair Competition, and the Uniform Trade Secrets Act in deciding trade secrets cases.
  • On the lighter side: Womble Carlyle’s Trade Secret Blog argues that MTV has – well, had – a trade secret in New Jersey Shore actor Nicole “Snooki” Polizzi’s appearance without all the makeup, likening it to when KISS revealed their unmade-up faces. See here.
  • Please note that I occasionally add (and remove) links to on the right side. The links are to blogs and other websites that I think might be of interest to my readers. In that vein, I just added a link to Brooklyn Law School’s Trade Secrets Institute, which I think is outstanding. It’s worth a look for anyone interested in the law of trade secrets.
  • And, if all of this was not enough for you, you can find some additional reading in John Marsh’s excellent “Thursday Wrap-Up” from this past week.