Trade Secret | Noncompete – Issues and Cases in the News – February 2016 Update

extras_03There have been a few issues
and cases making trade secrets | noncompete news recently that are worth taking note of if you missed them. They are as follows…

Michigan: Republican (yes, Republican) State Representative Peter Lucio of Michigan has introduced a bill that would require that employers who have new employees sign noncompetes must provide advance notice of the terms of the noncompete to the prospective employee. It would also prohibit the use of noncompete for low-wage employees. Neither of these approaches is new; nor should they be particularly controversial (especially the notice requirement). For example, Oregon’s noncompete statute employs both of these concepts, New Hampshire’s 2012 noncompete statute requires advance notice, and some of the earlier Massachusetts noncompete law overall bills included these concepts.

Utah: One of the recent states to enter the ban-or-no-ban-of-noncompetes fray is Utah. Joining on the side of Massachusetts, Michigan, Pennsylvania, and Washington (although Michigan (as noted above) and Washington have other more limited bills pending), Utah has recently had some success in moving toward a ban. Specifically, on February 11, 2016, the Utah House of Representatives committee considering the bill unanimously approved it.

Although the most vocal side of the debate around noncompetes favors a ban (seee.g., here, herehere, and here), the opposition occasionally surfaces. That was apparently the case during the Utah noncompete bill debate. As the Salt Lake Tribune reported, businesses oppose the ban, arguing that they would be reluctant to invest money in training or innovation if they did not have noncompete agreements available to protect those investments. Taken one step further, the article reports that some companies say that they left California in favor of states permitting enforcement of noncompetes. (Although there are a handful of studies attempting to ascertain what impact, if any, noncompete agreements have on innovation (and that they are sometimes cited as conclusive authority), it does not appear that there is in fact agreement or even a generally-accepted conclusion at this point about the actual impact – pro or con – although there are significant attempts to understand those impacts. See, for example, here and here.)

Instructively, Wisconsin, which has historically been extremely hostile to noncompete agreements, has pending a bill that would make enforcement of noncompetes significantly easier, adding presumptions of reasonableness (and what is unreasonable) and bringing Wisconsin in line with the majority of states by permitting reformation (i.e., judicial modification) of overly broad noncompetes. (Indeed, if adopted, Wisconsin would seemly be joining Arkansas, Texas, and Florida in mandating judicial modification.)

Federal/DTSA update: If you have not been paying attention, the Defend Trade Secrets Act of 2015 (commonly referred to as the “DTSA”) was reported out of the Senate Judiciary Committee with a few amendments, including, in particular, in connection with the inevitable disclosure doctrine. Given that so much has been written on this, I will not repeat the details. However, Ben Fink recently summarized them well in Federal Trade Secrets Law Takes Another Step Toward Reality.

Federal/criminal: In yet one more headline-grabbing story about American companies’ secrets being sold to China, five people including two GlaxoSmithKline scientists were charged in January with conspiring to steal trade secrets for the manufacture of cancer medication. See 5 charged with theft of GSK cancer drug secrets.

Other noteworthy news…

  • Trade Secret Protection Plan: Pamela Passman, President and CEO of the Center for Responsible Enterprise And Trade (CREATe.org), posted a terrific (and brief) primer on securing trade secrets. Entitled, Eight steps to secure trade secrets, the primer is available on the World Intellectual Property Organization‘s WIPO Magazine.
  • Trade secret protection tools: Two recent blog posts (by Cathy Shyong of Orrick here and Dylan Carp of Jackson Lewis here) highlight tools available in California (and elsewhere) to assist companies in the protection of their trade secrets and other confidential business information. Those tools include (1) a cause of action for breach of the duty of loyalty where an employee takes information during the course of employment; and (2) a contractual requirement than an employee reimburse the costs of training upon resignation of employment (under certain circumstances).
  • Public records acts vs. Uber’s alleged trade secrets: Playing out in Broward County, Florida, is another dispute over a public records act and information claimed to be a trade secret. Specifically, the local Yellow Cab company is seeking to find out how much Uber pays the Fort Lauderdale-Hollywood International Airport in monthly fees in order to be permitted to pick up and drop off passengers at the airport. Uber claims that information is a trade secret and protected from disclosure under the trade secrets exception to Florida’s public records act. No surprise, Yellow Cab claims that that information is not a secret and must be shared – just as the county apparently did with similar information concerning Lyft’s payments. The issue will be decided by the court.
  • More Uber/Lyft: In May of 2014, Uber experienced a cybersecurity data breach. Uber traces the breach to an employee of Lyft. Given that, not surprisingly, Uber has subpoenaed voluminous amounts of information from Lyft. Lyft claims that Uber is simply after Lyft’s trade secrets and is seeking to quash the subpoena. See Lyft asks judge to stop Uber’s witch hunt for trade secrets.

 

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