Category Archives: Noncompetes

Trade Secrets Laws and the UTSA – A 50 State and Federal Law Survey Chart (revised)

World MapEvery state but Massachusetts and New York has adopted the Uniform Trade Secrets Act (the UTSA) in one form or another – though some may quibble with whether Alabama or North Carolina actually adopted it. (The Uniform Law Commissioners say that Alabama has adopted it, while North Carolina has not; I view the results as largely the opposite.)

For several years, I had been planning to run a redline comparison of each state’s trade secrets laws against the Uniform Trade Secrets Act to see the full scope of the variation. The task was quite substantial, however, and I never quite felt that it would be worth the time.

In the past, there had been plenty of articles discussing the variations in UTSA formulations among the state laws purporting to adopt the Act, including Linda B. Samuels and Bryan K. Johnson‘s, The Uniform Trade Secrets Act: The States’ Response, 24 Creighton Law Rev. 49 (1990), and  Christopher Rebel J. Pace‘s, A Case for a Federal Trade Secrets Act, 8 Harvard Journal of Law & Technology 427 (1995), but no one had done an actual side-by-side comparison of how each state’s law compared to the UTSA.

More recently, Sid Leach wrote another terrific article summarizing the significant variations among state “uniform” trade secrets laws. Sid’s article highlighted for me the need to have – and the continuing interest of others in having – a comparison. It convinced me that it was time for such a chart.

So, I made it. It took well over a hundred hours of combined effort, starting with the yeoman’s work my firm’s then-summer intern, David Haber, and dozens of hours of my time organizing, revising, and problem-solving with David and with with my paralegal, Erika Hahn, who separately spent many hours working on the chart. The chart could not have been completed without their extraordinary contributions.

It is a state-by-state comparison (as close to a redline comparison as made sense) of every state’s trade secrets laws (and the Economic Espionage Act, as amended by the Defend Trade Secrets Act of 2016) to the 1985 version (i.e., the most recent version) of the Uniform Trade Secrets Act.

The chart is viewable here. (It was originally prepared on August 14, 2016, and has been updated; it is current as of today, February 4, 2017.)

It is intended both as a stand-alone resource and a companion to our 50 state survey chart of noncompete laws, which I first prepared almost seven years ago (in the summer of 2010), though I regularly update it to reflect the changing noncompete laws around the country. (It is also current as of today, February 4, 2017.)

In addition, for a comprehensive summary of recent trade secrets and noncompete legislative reforms and efforts at reform around the country, please see the page Changing Trade Secrets | Noncompete Laws. Be sure to check back from time to time, as I regularly update it to reflect new developments.

BRR 50-State Noncompete Chart (Updated Today)

World MapThe BRR 50 State Noncompete Chart has been updated to reflect a few developments and to make a few tweaks since the last draft.

Most significantly, Georgia surprised many (me included) with its decision that the 2011 statuary amendment – which required a constitutional amendment to become effective – did not permit reformation of overly-broad noncompetes.

Rather, the United States District Court for the Northern District of Georgia held that the 2011 statute permits only blue penciling. Unlike reformation, which permits a court to rewrite the agreement to make it reasonable, the blue pencil, as the Georgia courts have explained, “marks but does not write.”

Click here to get the latest version of the 50 State Noncompete Chart.

Thanks to Jeffrey Mokotoff at FordHarrison for identifying the case – LifeBrite Laboratories, LLC v. Cooksey, 2016 WL 7840217 (N.D. Ga. Dec. 9, 2016).

Please note that the chart has been revised through today, February 4, 2017.

Trade Secret and Noncompete Survey – National Case Graph 2017

noncompete-and-trade-secret-cases-survey-graph-20170111As regular readers of this blog know, several years ago, I became curious to see how many reported trade secret / noncompete decisions were issued each year in all federal and state courts around the country. So, I did a “back of the envelope” calculation. I have performed similar calculations every year since.

The graph shows three things: (1) the blue bars show all reported noncompete decisions; (2) the red bars show all reported trade secrets decisions; and (3) the yellow bars show all decisions involving noncompetes or trade secrets or both.

I should note that  each time I’ve run the queries, the results for each year have varied slightly (inching up over time), which I attribute to Westlaw’s addition of cases over time. Consistent with that, the older the data, the less it moves. Indeed, the oldest data didn’t change at all.

The other thing worth noting is that every time I’ve run this inquiry at the beginning of the year (as is the case this time), the most recent year has been way underreported. I suspect that it has something to do with how Westlaw updates its database. I will very likely run my search again later in the year, and, if history is any predictor, the 2015 and 2016 numbers will be significantly higher. We will see!

Perhaps most telling is that while noncompete litigation has been relatively static, trade secrets litigation has increased every year, with the sole exception of (preliminarily) 2015 and 2016 – though that result will likely turn out to be an artifact of the Westlaw database issue. In fact, last year, there was a slight dip in the number of cases in 2012; however, after updating the numbers this year, the dip disappeared.

If you’d like to take a closer look at the numbers, you can click the image above or here.

Upcoming Trade Secrets Seminars

Hello all, just a quick note, depending upon where you are located, there are a few upcoming trade secret related presentations that are worth attending. (In the interest of full disclosure: I am involved in all of them – but despite that, the other speakers are all terrific and the content should be great.)

The presentations are:

17th Annual Intellectual Property Year in Review – The Changing IP Landscape, Boston Bar Association in Boston, Massachusetts, on January 26.

The Defend Trade Secrets Act: Following the White House’s Call to Action, CLE International in Denver, Colorado, on February 24.

AIPLA 2017 Trade Secret Law Summit: Emerging Standards During Tumultuous Times, American Intellectual Property Law Association, in Atlanta, Georgia, on March 2-3.

Join us!


BRR 50-State Noncompete Chart (Updated 11/11/2016)

World MapThe BRR 50 State Noncompete Chart has been updated to reflect several recent state law developments (in particular, limits on physician noncompetes in Connecticut, New Hampshire, and Rhode Island).

Click here to get the latest version.

Please note that the chart has been revised through today, November 11, 2016.

Also, if you are looking for our 50 State Trade Secrets Comparison Chart, it is updated and available here.

Trade Secret | Noncompete Issues and Cases in the News (Through November 6)

extras_03Below are the latest issues and cases making trade secrets | noncompete news since our last update. There’s a lot to catch up on (sorry!) …

Remember that the Changing Trade Secrets | Noncompete Laws is updated regularly to reflect (in as close to real time as possible) the changes and proposed changes to trade secrets laws and noncompete laws around the country. 

Also remember that, if you want to see the differences among how each of the 50 states handle noncompetes and trade secrets, charts for those comparisons are available here (noncompetes) and here (trade secrets). Note that these charts are updated as new developments arise.

Federal:  The White House has been busy this year trying to find the appropriate balance between protecting trade secrets (see Defend Trade Secrets Act versus the UTSA) and limiting the abuse of overreaching noncompetes (see White House Releases Noncompete Call to Action).

I was honored to be invited by the White House to be a part of its working group discussions. What I can say is that, despite the vocal criticism from both sides (from the White House went too far to it didn’t go far enough), the White House considered substantial amounts of information from myriad sources and made great efforts to find a compromise. If nothing else, the fact that the White House has brought the question of the appropriate balance to an open discussion is unquestionably a good first step.

And, of course, a lot of work still needs to be done. There is a small but growing body of research on the impacts of noncompetes. All but the irrational “true believers” would agree that much more work needs to be done to have a proper understanding of how the use of noncompetes – broadly to narrowly to not at all – relates to innovation, employee training and wages, and myriad other potential impacts on the success of corporate growth and the economy. As that work moves forward, it will be interesting to see whether the opinions expressed by Jonathan Macey (Sam Harris Professor of Corporate Law, Securities Law and Corporate Finance at Yale Law School and a professor in the Yale School of Management) in Obama’s Pitch to Ban Non-Compete Agreements Would Make the Rich Richer are ultimately supported by empirical data.

As a separate but related observation, it is interesting to see that tech companies are moving to Boston (not Silicon Valley – the location often held up to show the alleged benefits that resulted from California’s general refusal (at least since Edwards vs. Arthur Andersen) to enforce noncompetes). See Why these tech execs moved their companies to Boston and Here Are Some of the Boston Tech Cos. Supporting the Campaign Against Noncompete Reform and Here Are the Most Innovative States in America. (See also a July 12, 2016, letter issued by the Massachusetts High Technology Counsel in opposition to some of the proposed Massachusetts legislation.) 

The bottom line is that most people who dig into the issue recognize that there is simply not enough information or research to make definitive conclusions on the overall relative benefits and detriments of noncompetes. Accordingly, at this point, decisions will have to be made based on whether people believe corporate interests or employee mobility should prevail and visceral reactions (pro or con) to the use of noncompetes. 

Federal:  On the theme of cracking down on noncompetes and related employment issues, the Department of Justice Antitrust Division and the Federal Trade Commission together issued “Antitrust Guidance for Human Resource Professionals,” taking aim at, among other things, inter-company no-poach agreements.

Federal:  On September 2, a complaint was filed with the NLRB challenging Trump’s requirement that all vendors – and their employees – agree to (among other restrictions) the following noncompete (exhibit A to the complaint):

Until the [November 8, 2016 or (if applicable) the date Trump withdraws his candidacy] you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for President of the United States other than Mr. Trump and to prevent your employees from doing so.

While noncompetes are not unusual in these contexts, the challenge stems primarily from the fact that the restriction applies not just to the vendors, but to their employees. See Trump campaign contract has unusually broad non-compete clause.

Federal (4th Circuit):  Although nothing particularly new, the 4th Circuit (in RLM Communications, Inc. v. Tuschen) weighed in on noncompetes in North Carolina, observing that the prohibition on engaging in a competitive business meant not only that the former employee could not engage in a truly competitive role risking harming the former employer’s legitimate business interests, but the employee “may also not mow their lawns, cater their lunch businesses, [or] serve as their realtor.” Like the (like the so-called “janitor rule,” the court found that this was too much – and because North Carolina follows the blue-pencil the noncompete could not be narrowed in a way that would render it enforceable. For more, see Fourth Circuit’s RLM Communications, LLC v. Tuschen Tackles Noncompetition and Trade Secret Misappropriation Issues.

Federal (5th Circuit):  The 5th Circuit issued a decision on September 7, again finding that the Copyright Act does not preempt trade secrets protection for software. GlobeRanger Corp. v. Software AG.

Federal (9th Circuit):  Adoption of the Uniform Trade Secrets Act is, as  Sid Leach observed (in a terrific article), anything but uniform. See also my state-by-state comparison of the UTSA. However, the one thing that is uniform is that the trade secret owner must take reasonable measures to protect its purported trade secrets. The area of some controversy is what constitutes reasonable measures.

Well, the 9th Circuit recently took a very liberal view in its September 6 decision in Direct Technologies, LLC v. Electronic Arts, Inc. (Hat tip to  and  for identifying the case.)

In that case, although the plaintiff did basically nothing, the court observed that the plaintiff might have satisfied its reasonable measures requirement by relying on its “implicit business expectations that [the defendant] would keep the [information] secret . . . .” Basically, the court’s decision is that the reasonable measures requirement may be satisfied by simply relying on the assumed confidential nature of a relationship.

Am I the only one who immediately thought of this clip?

Federal (Massachusetts):  On September 19, 2016, the District of Massachusetts issued a decision in Kurra v. Synergy Computer Solutions, Inc. sending the case to Michigan, in yet one more case following Atlantic Marine, and enforcing a forum selection clause in a noncompete agreement.

Federal (Missouri):  Unlike the Jimmy John’s sandwich makers, executives at Panera can be (and one recently was) enjoined from joining Papa Johns. Such was the August 3, 2016 decision in Panera, LLC v. Nettles.

Federal (Virginia):  The question of whether ownership of stock can violate a noncompete should not really be an issue, but yet, it does occasionally surface. On August 31, the District of Virginia issued a decision in Hair Club for Men, LLC v. Ehson, that did not apply Virginia’s red pencil doctrine to invalidate an agreement that would have prohibited the holding of stock in a competitor. See Noncompete Restriction Against Owning Stock Not Necessarily Unenforceable.

Federal (ITC):  Trade secrets litigation at the ITC is in vogue these days since Dean Pelletier‘s team’s victory in the TianRui case. That case stands for the proposition (among others) that misappropriation of trade secrets occurring outside of the United States can serve as the basis to justify seizure of products containing the trade secret imported into the United States. Well, a recent case is now challenging that rule, petitioning the United States Supreme Court for certiorari. For more, see Sino Legend v. ITC – Update: Certiorari Petition Seeks to Preclude ITC Actions Based on Foreign Theft of Trade Secrets

Federal (ITC):  The ITC recently issued a decision affirming the award of terminating sanctions for the spoliation of evidence. This is quite significant, as terminating sanctions is the harshest sanction available. See Stainless steel products: commission affirms default finding based on bad-faith spoliation.

Federal (Chamber of Commerce):  In the midst of the ongoing debate over the interplay between protection from employee theft of trade secrets and the overuse of noncompetes, enter the United States Chamber of Commerce and fears of risk of loss of trade secrets (and other intellectual property) by means of insufficient cybersecurity. See more in a nice summary of the issue by Kate M. Growley of Crowell & Moring:  U.S. Chamber of Commerce Calls for Greater Trade Secrets Protection.

California:  California is at it again. On September 25, 2016, California adopted a new law (effective January 1, 2017) making forum selection clauses in noncompetes unenforceable (putting the employer at risk of paying attorneys’ fees for trying). As a practical matter, that issue is not so different from Louisiana’s forum selection law, which precludes enforcement of agreement on forum selection unless the choice is made after a dispute has arisen. How that this prohibition will work in federal courts, given Atlantic Marine, remains to be seen.

California:  On October 18, the California Court of Appeal for the First Appellate Division issued an order in Robinson v. U-Haul Company of California permanently enjoining U-Haul from enforcing against one of its former location operators a noncompete in the parties’ dealer contract.  For a discussion of the case, see California Appeals Court Affirms Permanent Injunction Against Use of Noncompete in California Contracts.

Delaware:  Like the Atlantic Marine cases in the federal courts, state courts routinely honor forum selection clauses. Such was the case recently in the Delaware Chancery Court, which enjoined the employee from prosecuting his case in Massachusetts. See Delaware Chancery Court Blocks Former Exec’s Effort to Invalidate Noncompete in a Massachusetts Court

Illinois:  On June 27, in Airgas USA, LLC v. Adams, the United States District Court for Northern District of Illinois issued yet another decision rejecting the requirement established in Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct. 2013), that absent other consideration, an employee noncompete must be supported by at least two years of employment. As the court explained,

While Fifield, McInnis v. OAG Motorcycle Ventures, Inc., 35 N.E.3d 1076 (Ill. App. 2015), and Prairie Rheumatology Assoc., S.C. v. Francis, 24 N.E.3d 58 (Ill. App. 2014) have applied a bright-line test requiring at least two years of continued employment for the continued employment to be considered adequate consideration, the Illinois Supreme Court holds that the validity of a noncompetition agreement depends “on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case.” Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 403 (Ill. 2011). A “totality of the facts and circumstances” test conflicts with the “bright-line” rule utilized by the Illinois Appellate Court in the cases noted above. Accordingly, the court rejects the two-year bright-line rule. In doing so, the court joins the other federal courts in this district that have determined that “[i]t is probable, that if confronted with the question of the adequacy of consideration, the [Illinois Supreme Court] would likewise avoid the appellate courts’ bright-line test in favor of a more flexible case-by-case determination, considering the totality of the circumstances.” Allied Waste Servs.of North America v. Tibble, No. 16 C 1660, 2016 WL 1441449, *4 (N.D. Ill. Apr. 7, 2016) (Leinenweber, J.); see also, R.J. O’brien & Assoc., LLC v. Williamson, No. 14 C 2715, 2016 WL 930628 (N.D. Ill. Mar. 3, 2016) (Gettleman, J.); Montel Aetnastak, Inc. v. Miessen, 998 F. Supp.2d 694 (N.D. Ill. 2014) (Castillo, C.J.); but see, Instant Technology, LLC v. DeFazio, 40 F.Supp. 3d 989 (Holderman, J.).

Illinois:  Hat tip to Doug Albritton for identifying the unpublished decision, Mohanty v. St. John Heart Clinic, upholding a physician noncompete (including the enforcement of a fee-shifting provision in the agreement). See Doctor Covenants Upheld, Large Attorney Fee Award Upheld for Small Damages

Illinois:  As noted in August, following on the Jimmy John’s settlement and the White House’s efforts at suggested noncompete reform, Illinois passed a law banning noncompetes for low wager earners. See Illinois Bans Noncompetes for Low Wage Earners.

Illinois:  On September 30, the Illinois Appellate Court for the Fifth Division issued a decision in Reed v. Getco, LLC in which the court prevented the employer from waiving the noncompete, where the employer had agreed to pay the employee $1 million for the restriction.

Massachusetts:  Because so many trade secrets and noncompete cases arise out of the employment relationship (if for no other reason than that there are more employer/employee relationships than any other type of business arrangement), these cases are often coupled with breach of fiduciary claims against the employee. An October 24 decision from the Massachusetts Appeals Court (Beninati v. Borghi) focuses on the availability of Massachusetts’ unfair competition statute (G.L. c. 93A) – which provides for multiple damages and attorneys fees, but is not available against employees – against consultants who advised an employee. See Consultant can face 93A liability for aiding, abetting fiduciary violation (paid service).

Michigan:  On July 14, 2016, the Supreme Court of Michigan issued a decision in Innovation Ventures, LLC v. Liquid Manufacturing, LLC, holding that inter-company noncompetes are governed by a rule of reason under antitrust law. See Michigan Supreme Court Holds That the Federal “Rule of Reason” Applies in Evaluating the Enforceability of Noncompete Agreements Between Businesses.

Nevada:  On July 21, 2016, the Nevada Supreme Court issued a decision in Golden Road Motor Inn, Inc. v. Islam, dispelling the generally-accepted view that Nevada courts reform overly broad noncompete agreements.

New Hampshire:  On August 5, 2016, Senate Bill 417 became effective and now prohibits physician noncompetes in New Hampshire.

North Carolina:  One issue that arises often in states (like North Carolina, see here) is, if continued employment alone is not sufficient consideration to support a noncompete, what is? Well, a recent North Carolina Court of Appeals decision, Employment Staffing Group v. Little, provides some guidance:  $100.  (Hat tip to my former partner, Peter Steinmeyer and his associate, Scarlett L. Freeman, for passing along that decision in a recent post.)

Pennsylvania:  In vogue these days is the enforcement of no-raid agreements. No wonder. A Pennsylvania court recently awarded $4.5 million in punitive damages in B.G. Balmer & Co. Inc. v. Frank Crystal & Co., Inc., for the violation of some no-raid agreements (as well as violations of other restrictions, of course). For more, see 4.5 Million Reasons to Abide by a Non-Solicitation Agreement.

Rhode Island:  Effective July 12, 2016, Rhode Island passed a law (R.I. Gen. Laws § 5-37-33) invalidating physician noncompetes, except (as are commonly permitted) for those agreements arising from the sale of a practice (provided that they are no longer than five years).

Virginia:  A recent letter opinion by a judge of the Fairfax Circuit Court identifies misclassification (as an independent contractor as opposed to as an employee) as a defense to the enforcement of a noncompete. See Virginia Non-Competes – Another One Bites The Dust.


Other Noteworthy News…

White House Releases Noncompete Call to Action

whitehouse_historypgEarlier today (October 25, 2016), the White House announced a new initiative to spur competition in the labor market.

As part of its new initiative, the White House issued a report entitled, “Non-Compete Reform: A Policymaker’s Guide to State Policies,” together with a Call to Action on noncompetes.

First the background. Earlier this year, the White House and Treasury Department each released reports (Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses and Non-compete Contracts: Economic Effects and Policy Implications, respectively) finding both overuse and misuse of noncompete agreements.

Both studies relied in part on my 50 State Noncompete Laws chart and survey of the growth of noncompete and trade secrets cases, as well as the work of Evan StarrNorman BisharaJJ PrescottMatt MarxDeborah Strumsky, and Lee Fleming.

Following that report, I was invited to participate in the working group discussions mentioned in the White House’s report. (I was the only private practice attorney to participate.) The result was the Call to Action announced today.

The Call to Action makes the following three suggestions:

  1. Ban non-compete clauses for categories of workers, such as workers under a certain wage threshold; workers in certain occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or those who may suffer undue adverse impacts from non-competes, such as workers laid off or terminated without cause.
  2. Improve transparency and fairness of non-compete agreements by, for example, disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted (because an applicant who has accepted an offer and declined other positions may have less bargaining power); providing consideration over and above continued employment for workers who sign non-compete agreements; or encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work.
  3. Incentivize employers to write enforceable contracts, and encourage the elimination of unenforceable provisions by, for example, promoting the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.

As explained by the White House in its fact sheet,

“To contextualize these best practices, the White House is releasing a state-by-state report on key dimensions of current state non-compete policy. Finally, we are announcing commitments to undertake the largest data collection of its kind to better measure non-compete usage by firms and individuals, alike.”

This state-by-state report relies in part on my 50 State Noncompete Survey – first of its kind and updated regularly since 2010 to reflect ongoing developments in the laws around the country – as well as a similar one (that was later prepared by Seyfarth Shaw).

Whether you agree with all of the White House’s suggestions or not, the Call to Action represents a considered balance of myriad competing interests. It is no easy task to satisfy everyone, and no doubt states will vary on which of these recommendations they choose.

For example, states may wish to use a softer version of the red pencil rule. A rule that at the Massachusetts legislature has come to be known as the “Purple Pencil” rule. Like the red pencil rule, the purple pencil rule requires the entire noncompete to be stricken if any portion of it is overly broad. However, unlike the red pencil rule, under the purple pencil rule, if a company made an objectively good faith effort to draft the particular noncompete narrowly, the court can remedy any over breadth by reforming (i.e., rewriting) the offending portions of the agreement. This purple pencil rule has not yet been adopted in any state, though I had developed it for the Massachusetts legislature (and it had been included in some of the bills) as a means to encourage narrow drafting on noncompetes, while not creating a “gotcha” trap for companies that try to comply with the law.

Similarly, states may wish to permit (or encourage) the use of “springing noncompetes,” i.e., the imposition of a noncompete as a remedy for a former employee’s breach of other, less onerous, restrictions (such as nonsolicitation agreements and nondisclosure agreements). This is a concept that I had developed for a few clients that preferred to use nonsolicitation, nondisclosure, and no-raid agreements rather than noncompetes, but still wanted the protections offered by noncompetes for any employee who turned out to not be trustworthy, as exemplified by the employee’s breach of one of the other restrictive covenants. The concept of the springing noncompete has been included in some of the proposed legislation in Massachusetts.

Regardless of whether states adopt all, some, or none of the White House’s suggestions, the Call to Action represents an important step forward in the national dialogue on how to curb overuse and abuse of noncompetes and limit their use to the protection of legitimate business interests for which they were designed.