Header graphic for print

Trading Secrets

A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Monitoring Employee Communications: A Brave New World

Posted in Practice & Procedure, Privacy, Social Media, Trade Secrets

shutterstock_328329848Over the last decade, communication via email and text has become a vital part of how many of us communicate in the workplace. In fact, most employees could not fathom the idea of performing their jobs without the use of email. For convenience, employees often use one device for both personal and work-related communications, whether that device is employee-owned or employer-provided. Some employees even combine their personal and work email accounts into one inbox (which sometimes results in work emails being accidentally sent from a personal account). This blurring of the lines between personal and work-related communications creates novel legal issues when it comes to determining whether an employer has the right to access and review all work-related communications made by its employees.

Employers have legitimate business reasons for monitoring employee communications. Take, for example, the scenario in which an employee leaves her employment, and the employer is concerned that she has taken proprietary information or solicited clients in violation of her duty of loyalty or a contractual agreement. Another common scenario that gives rise to the need for employers to review all of an employee’s work-related emails is when the employer is in litigation that requires production of employee communications.

Most employers are comfortable with the notion that, with a properly worded policy that provides notice to employees of the ability and intent to monitor email, an employer can access emails on an email server provided by the employer. However, what about cases in which the employer does not provide the email service? With employees using web-based emails, like Gmail and Hotmail, and texts to communicate in the workplace, the relevant communications may be elsewhere. In these situations, what are an employer’s rights to access and review such communications?

An employer’s ability to review electronic communications is governed by the Electronic Communication Privacy Act (ECPA) and the Stored Communications Act (SCA). The ECPA prohibits the interception of electronic communications, and the term “interception” as used in the ECPA has been interpreted so narrowly that this title of the ECPA rarely comes into play in cases involving an employer’s review of employee email or texts. The SCA makes it illegal to access without authorization a facility through which electronic communication service is provided and thereby obtain access to communications in electronic storage.

With regard to an employer’s review of employee emails sent through web-based email accounts like Gmail or Hotmail, the most frequent scenario confronted by courts is one in which a former employer accesses the web-based email of a former employee, looking for evidence of malfeasance. In these cases, the former employer is typically able to access the former employee’s web-based email account because the employee has saved her username and password on a device provided by the employer, which was returned at termination, or failed to delink an account from such a device. In these cases, courts have been reluctant to punish the former employee for failing to take appropriate steps to secure their own personal, and allegedly private, communications.

For example, a district court in New York considered an employee’s claim that his former employer’s review of emails in his Hotmail account after his termination violated the SCA because it was unauthorized. The defendant argued that its review of the emails did not violate the SCA because the employee had implicitly authorized its review of the emails on his Hotmail account because the employee had stored his username and password on the employer’s computer system or forgot to remove such an account from an employer-provided phone before returning it.

The court rejected this argument, holding that it was tantamount to arguing that, if the employee had left his house keys on the reception desk at the office, he would have been implicitly authorizing his employer to enter his home without his knowledge. The court also noted that the employer’s computer usage policy did not provide the necessary authorization because it only referred to communications sent over the employer’s systems.

Likewise, a district court in Ohio confronted with similar facts, refused to hold the plaintiff responsible for his own failure to safeguard his information. In this case, the employee had turned in a company-issued blackberry upon termination without first deleting the Gmail account he had added to the phone. The former employer reviewed the emails in the former employee’s Gmail account, and the former employee alleged that this violated the SCA. The former employer argued that the former employee had negligently or implicitly consented to their review of the emails in her Gmail account by returning the blackberry to the company without deleting the account. However, the court held that the employee’s “negligence” in leaving the Gmail account on her phone when she turned it in was not tantamount to her authorizing the defendant to review the emails on her Gmail account.

However, a federal district court in California reached a different result in a case involving text messages. In this case, a company had sued its former employee for misappropriating trade secrets when it discovered, upon his termination, a number of text messages on the former employee’s company-issued iPhone that documented his misappropriation. The former employee had forgotten to delink his Apple account from the company phone he returned, and thus, his text messages continued to go to the phone — and his former employer. The court granted the company’s motion to dismiss the former employee’s counter claim that the company’s review of his text messages violated the SCA. The court held that text messages stored on phones are not in “electronic storage” within the meaning of the SCA, citing a Fifth Circuit case that reached the same conclusion about text messages. Of course, a violation of the SCA is not the only issue in these cases.

For example, in this case, the employee also alleged that his employer had invaded his privacy. However, the court held that the employee had no reasonable expectation of privacy in a company-owned phone that was no longer in his possession. In contrast to the two cases above, the court found that the employee’s failure to undertake precautions to maintain the privacy of his text messages showed he had no right to exclude others from accessing them.

The main lesson from these cases is that, if an employer wants to have the ability to review all employee communications that take place in the workplace, the employer needs to have, at a minimum, a policy that specifically provides for the right to monitor and review, for legitimate business reasons, any work-related communications made by the employee on a device provided by the company or a personal device used for work purposes. (Although the SCA does not require any showing about the employer’s motives in accessing the emails, a traditional invasion of privacy analysis would take this into account.) As a practical matter, the employer may not have the ability to access such accounts, but where access is available, this policy language is critical.

U.S. Treasury Department Suggests That Non-Compete Reform is Necessary

Posted in Legislation, Non-Compete Enforceability, Practice & Procedure, Trade Secrets

shutterstock_369744050The U.S. Department of Treasury recently released a study on the effect of non-compete agreements, taking a hard line with respect to their social and economic benefits and purported harms.  Specifically, while the authors of the study acknowledge that in some cases non-compete agreements can promote innovation, they ultimately conclude that the potential harm of misuse by employers outweighs those benefits.

Recent Research 

According to the study’s authors, recent research suggests that about 18 percent of American employees, amounting to nearly 30 million people, are currently covered by non-compete agreements; and nearly 37 percent of workers report having worked under one at some point during their career.  Workers bound by non-compete agreements are not just limited to the highly educated or compensated.  In fact, 15 percent of workers without a four-year college degree and 14 percent of workers earning less than $40,000 per year are bound by them.

Purported Costs vs. Benefits of Non-Compete Agreements

Although the authors of the Treasury Department study acknowledge that non-compete agreements can have social benefits in some situations, such as  (1) protecting trade secrets, thereby promoting innovation; (2) reducing the probability of employees resigning, thereby increasing employers’ incentives to provide costly training; and (3) allowing employers with historically high turnover to use non-competes to match with workers who have a low desire to switch jobs in the future, they place greater emphasis on what they believe to be serious downsides to non-compete agreements as well.  Specifically, according to the authors, non-compete agreements can (1) result in lower wages after the agreement is signed; (2) discourage workers from re-entering their field in its entirety once they are terminated, thereby foregoing accumulated training and experience in certain fields; and (3) reduce job churn, which helps raise labor productivity by achieving a better matching of workers and employers.

The authors go on to express concern that a growing body of evidence suggests that employers are taking advantage of their employees’ incomplete understanding of such agreements, resulting in a purported lack of transparency and fairness.  For example, employers often require workers to sign non-compete agreements in states that refuse to enforce them, such as California.  Other employers fail to inform candidates about the existence of such agreements in their job offers.  Further, according to the authors of the study, only 10 percent of workers with non-compete agreements report bargaining over the terms of their non-compete agreements, with 38 percent of those not even realizing that they could have negotiated the agreement.

The authors of the Treasury Department study also suggest that while protection of trade secrets undoubtedly seems to be a legitimate justification for these agreements, about 18 percent of workers bound by non-compete agreements are in fields like personal services and installation and repair, in which such purportedly should not be a concern.  The authors of the study question the legitimate business purpose of imposing non-competes on employees such as fast food restaurant workers, as it is not likely that they will possess any trade secrets or proprietary training.  Along those lines, we recently reported on a case in which a trial court struck down a beauty salon’s non-compete agreement because it lacked a legitimate business purpose.

These characteristics, the authors of the study suggest, may have a negative impact on the national economy by reducing job mobility, and lowering wage growth and initial wages.  According to the authors, research has shown the stricter the non-compete enforcement to be in a particular state, the lower the wage growth and initial wages.  Given that job switching is generally associated with substantial wage increases, the resulting increased difficulty of switching jobs would purportedly reduce wage growth over time.

The Study’s Recommendations

Based on the foregoing, the authors of the Treasury Department study recommend that (1) policy makers should inject more transparency into the world of non-compete agreements; and (2) employers should only use enforceable non-competes, align them with legitimate social purposes like the protection of trade secrets, and require consideration for workers to be bound by such agreements, such as severance packages.  This would purportedly better protect the employer’s business interests, limit the harm to workers, but most important it would preserve the more socially valuable agreements and chip away the least valuable, as employers would be hesitant to incur costs on them.  Of course, other than the additional consideration piece (in many states continued employment is sufficient), these are all things that we recommend to our clients, and on which most non-compete agreements are generally based in any event (at least those that are enforceable in most states).

Takeaways

The study only addresses the effects of non-compete agreements, not other types of restrictive covenants, such as customer and employee non-solicitation or confidentiality agreements.   It is unclear what, if any, effect this Treasury Department study will have on policy makers, but we will certainly report on anything that comes of it.

What Does the Passage of the Defend Trade Secrets Act Mean for Your Business?

Posted in Legislation, Trade Secrets

Congress passed federal trade secrets legislation today. On April 4, 2016, the Senate passed S. 1890, the Defend Trade Secrets Act of 2016 (“DTSA”). Soon after, on April 20, 2016, the House Commshutterstock_267261659ittee approved S. 1890 by voice vote. Today, the House passed the DTSA. President Obama has voiced his support for the DTSA, which indicates that he will sign it.

What does the passage of the DTSA mean for your company? In a nutshell, it means your company can now pursue claims for trade secret misappropriation in federal court like other forms of intellectual property (i.e., patent, trademark, copyright) and seek remedies such as a seizure order to recover misappropriated trade secrets. It also serves a reminder that trade secrets can be highly valuable to your company and that you should ensure that your company has reasonable secrecy measures in place to protect them.

Below we outline a brief history of the DTSA, describe what legal structure and remedies the DTSA creates, and describe the unique provisions of the DTSA. We also provide tips and strategies in light of the passage of the DTSA.
Continue Reading

House Vote Live Tweet Update

Posted in Legislation, Trade Secrets

The House is set to vote on the Defend Trade Secrets Act of 2016 (“DTSA”) in a matter of hours. Per the House schedule today, the House will meet at 10:00 a.m. Eastern for morning hour and 12:00 p.m. Eastern for legislative business. First votes are expected around 2:30-3:30 p.m. Eastern and last votes expected are expected around 4:45-5:45 p.m. Stay tuned on our Twitter page @tradesecretlaws for updates.

 

Live Tweet of House Vote on the Defend Trade Secrets Act Tomorrow

Posted in Legislation, Trade Secrets

shutterstock_114231184On April 4, 2016, the Senate Judiciary Committee passed S. 1890, the Defend Trade Secrets Act of 2016 (“DTSA”).  On April 20, 2016, the House Judiciary Committee approved the Senate’s amended version of the bill, which will now be voted on the House floor tomorrow, April 27. The President has indicated that he will sign the DTSA.

We will be covering the House floor vote tomorrow via a Live Tweet at @tradesecretlaws and @tradesecretslaw.  However, there is no definitive time as to when the bill will be voted on.  Our sources indicate that the DTSA may be called to a vote as early as 10am Eastern and may begin as late as 4pm Eastern.  We will monitor the House floors actions and provide updates as they become available.

Upcoming Webinar: Restrictive Covenants and the NLRB: Can They Peacefully Coexist?

Posted in Restrictive Covenants, Trade Secrets

WebinarRecent National Labor Relations Board (NLRB) law in the area of employee handbooks and policies brings new challenges for employers as to how they can best protect their trade secrets and enforce restrictive covenants in their employment agreements without running afoul of the National Labor Relations Act.

On Tuesday, May 10 at 12:00 p.m. Central, Seyfarth attorneys Gary Glaser, James McNairy and Marc Jacobs will present the fifth installment of the 2016 Trade Secrets Webinar series. This program will focus on strategies and best practices to help in-house counsel and HR professionals ensure that your company and internal clients are protected.

The Seyfarth panel will specifically address the following topics:

  • Recent NLRB pronouncements on employer policies and agreements and their implications for protecting trade secrets and other business confidential information.
  • The background of Browning-Ferris and joint employer status.
  • Practical steps employers can implement to protect trade secrets and preserve their human capital without running afoul of the National Labor Relations Act.

If you have any questions, please contact events@seyfarth.com.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

Registration
There is no cost to attend this program, however, registration is required.

register

House Judiciary Committee Passes Senate’s Version of the Defend Trade Secrets Act

Posted in Legislation, Trade Secrets

shutterstock_45485410On April 4, 2016, the Senate Judiciary Committee passed S. 1890, the Defend Trade Secrets Act of 2016 (“DTSA”).  Soon after, House Judiciary Committee Chairman Bob Goodlatte (R-VA) released a statement in which he applauded the Senate’s passage of the bill, noting that “trade secrets are an increasingly important form of intellectual property that have become more vulnerable to theft as a result of our globalized economy.”  The Chairman also indicated his enthusiasm in “moving legislation to protect American trade secrets through the House Judiciary Committee in the coming weeks.”

Goodlatte was sure true to his word, as the House Committee approved S. 1890 by voice vote today.  Companion legislation was introduced as well by Representative Doug Collins (R-GA).  Supporters of the passage included Goodlatte, Collins, as well as Ranking Member John Conyers (D-MI), Courts, Intellectual Property, and the Internet Subcommittee Chairman Darrell Issa (R-CA), Courts, Intellectual Property, and the Internet Subcommittee Ranking Member Jerrold Nadler (D-NY), and Rep. Hakeem Jeffries (D-NY).  The supporters emphasized the importance of trade secrets as a form of intellectual property vulnerable to theft as a result of our ever-increasing globalized economy.  The supporters characterized S. 1890 as giving “American innovators a powerful new tool which will help them compete in an ever-evolving global market.” The bill will now likely go to the House for a vote.

California Court Gives Two Thumbs Down and Voids Non-Compete in Actor’s Agreement

Posted in Non-Compete Enforceability, Trade Secrets

iStock_000033294404_Large-234x300Seyfarth Synopsis: Limitation on an actor’s ability to work in certain films struck down as an unlawful restraint of trade. 

California, mecca of the film and media production industries in the U.S., is notorious for outlawing non-compete agreements. It is one of the few states that generally prohibits the unlawful restraint of one’s profession or business, with limited exceptions. (See Cal. Bus. & Prof. Code § 16600 et seq.). Last year’s decision in ITN Flix, LLC v. Hinojosa, 2015 WL 10376624 (C.D. Cal. May 13, 2015), illustrates that courts may strike down such unlawful non-competes, even outside the traditional employer-employee context.

What is this Case About? 

In 2004, film producer Gil Medina met actor Danny Trejo, who had worked on several successful films with director Robert Rodriguez (think Sin City and the Spy Kids franchise).  Medina approached Trejo with an opportunity to star in a multiple picture action feature film franchise built around a “vigilante character” to be portrayed by Trejo. The following fall, Medina and an independent production company, ITN Flix, LLC produced the film, entitled Vengeance.

Thereafter, Trejo and Medina/ITN Flix (who went on to become the Plaintiffs in the legal case) entered into a “Master License Agreement” (“MLA”) and an “Acting Agreement” (“AA”). The contracts purported to limit Trejo in playing vigilante characters in other films or appearing in films “similar” to Vengeance, and imposed a term of “at least” eight years on these (and other) contractual obligations. The contracts also (ambiguously) paved the way for Medina/ITN Flix to recover as commission part of the proceeds of the commercial exploitation of certain rights.

Vengeance was subsequently released, but only to a few small markets. By 2009, the film still had no significant release date. Even a 2012 collaboration with Steve Wozniak (the co-founder of Apple) and his wife, Janet, whereby the Wozniaks would appear in several new scenes that would be added to the film and also be included in a mobile application game entitled Vengeance: Woz with a Coz, failed to bring commercial success to the ill-fated Vengeance.

The legal trouble began in 2010, when director Rodriguez released a film called Machete, in which Trejo starred as—wait for it—a “vigilante character.” Unlike Vengeance, Machete garnered much acclaim and commercial success. Then, in 2013, director Rodriguez released a sequel to Machete entitled Machete Kills, which was not as successful, but still raked in millions of dollars.

In November 2014, viewing the success of the Machete films as their failure, the Plaintiffs (Medina and ITN Flix) sued Rodriguez, Gloria Hinojosa (talent agent who helped broker Trejo’s appearance in the Machete films) and their affiliated entities for, among other things, intentional interference with contract, violation of the Lanham Act, and unjust enrichment. Plaintiffs argued that Trejo’s appearance in the films without Rodriguez’s and his affiliates’ disclosure of Plaintiffs’ business relationship with Trejo constituted breach of contract, and further argued that Rodriguez and had a “legal and/or contractual duty” to disclose the business relationship between Plaintiffs and Trejo to third-party investors of Machete.

Hinojosa and entities related to her requested dismissal of the entire action in early 2015, followed by Rodriguez’s Motion to Strike Pursuant to California’s Anti-SLAPP statute and Motion to Dismiss the Lanham Act claim.

How California Law Made This Case More Peculiar Than It Already Was

The court first assessed the viability of the motion to dismiss, which alleged that the MLA and AA were so vague so as to be unenforceable, and constituted unlawful restraints of trade in violation of Section 16600 of the California Business and Professions Code. In response, the Plaintiffs argued that the contracts were not vague, and insisted that Utah law governed the contracts, so the “restraint” clause was enforceable. Even if California law applied, Plaintiffs argued that it was “widely recognized” that certain reasonable exclusivity agreements could be enforceable, especially as regards contracts in the entertainment industry. The court did not buy Plaintiffs’ argument in any way, shape, or form.

            First, Section 16600 maintains that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extend void.” The court harkened back to the California case Edwards v. Arthur Anderson LLP, which noted that California courts have “consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility,” because the statute is designed to protect “the important legal right of persons to engage in businesses and occupations of their choosing.”

            Second, the court highlighted California’s peculiar approach to restraint provisions in contrast to overarching Ninth Circuit law on the topic. California does not adopt the “narrow-restraint exception” to Section 16600, as other courts in the Circuit have adopted. California courts have emphasized the public policy behind disallowing such an exception, and have maintained that the “policy of the state… should not be diluted by judicial fiat.” Instead, the court pointed out, California courts have entirely relegated to the State Legislature the task of altering the reach of Section 16600.

            Third, the court analyzed whether the restraint provision would pass muster even in a Utah court. Usually, Utah courts may uphold a covenant not to compete so long as it is reasonable. For such a covenant to be valid and enforceable, it must be supported by consideration, completely free of bad faith dealing during negotiations, and must be necessary to protect the goodwill of the business. Notwithstanding such provisions, the court found that under both California and Utah law, the contracts were unenforceable, primarily because the restraints were not reasonable or narrow, and to the extent they were, any and all restraints are illegal under Section 16600. Further, the court found it “clearly unreasonable” for Plaintiffs to place an almost decade-long restraint on Trejo’s career.

The court also considered whether the provision regarding Plaintiffs’ ability to collect commissions on commercial exploitations of its “licensed rights” (i.e., a license to Trejo’s name and likeness in “vigilante character” films) constituted a restraint on Trejo’s career, and answered affirmatively. Trejo is a particular character actor, not cast in a wide variety of types of films and is “most recognizable for portraying, characters that operate outside the justice system and dispense justice or injustice.” Such an actor, the court concluded, is particularly vulnerable to the type of restraint present in the MLA and AA contracts. Further, the court rejected the assumption that charging a fee or commission is not a “restraint” and saw no reason Plaintiffs should be able to charge Trejo a fee for engaging in conduct (i.e., acting in a particular type of movie as a particular type of character) that they could not otherwise prohibit. As such, the court found the commission provision to be an unlawful restraint on trade under both California and Utah law.

What This Means in Terms of Employee Mobility in California

ITN Flix teaches the importance of taking care to draft contract provisions that limit or purport to limit an individual’s exercise of his business or trade, regardless of the individual’s industry. Such care is needed when drafting agreements with independent contractors as well as with employees at the beginning or end of employment.

ITN Flix also illustrates that California’s general public policy against non-competes is not limited to the traditional employer-employee scenario.  Indeed, a divided Ninth Circuit Court of Appeals panel in Golden v. California Emergency Physicians Medical Group recently held that a “no re-hire” provision in a settlement agreement could, under certain circumstances, constitute an unlawful restraint of trade under California law.

Without the backstop of non-compete agreements, California employers can nonetheless employ some best practices to ensure their employees do not share any valuable information with competitors.  Such best practices include:

  • Robust confidentiality and invention assignment agreements.
  • Effective entrance and exit interview protocols.
  • Employee education programs that create a culture of confidentiality whereby employees understand the value of protecting company data.
  • Effective trade secret protection measures that take into account new technologies and threats, including cyber threats and social media/cloud computer issues.

Please see our recorded webinar on Trade Secret Protection Best Practices: Hiring Competitors’ Employees and Protecting the Company When Competitors Hire Yours for more details.

Breaking News: European Parliament Approves Trade Secrets Directive

Posted in International, Legislation, Trade Secrets

shutterstock_384957430Earlier today (by a vote of 503 to 131 with 18 abstentions), the European Parliament approved the text of a proposed Directive for the protection of trade secrets in the European Union.  Once approved by the European Council (which is typically a formality), the Directive will be binding on all EU member states and will require member states to enact national legislation that meets certain minimum requirements for the protection of trade secrets.

Up to this point, no legal framework has existed for the protection of trade secrets throughout the EU.  In 2013, the European Commission commissioned a study on trade secrets protections in EU member states by comparison to legal protections for trade secrets in the United States, Switzerland, and Japan.  Following that study, which highlighted the lack of uniformity in the laws of EU member states, the European Commission proposed an initial draft of the directive to remedy perceived inadequacies in the existing legal framework.  With adoption of the new directive, EU member states now have a period of 24 months to adopt national legislation that meets certain minimum standards of protection for trade secrets.

Several key provisions of the Directive are notable.

First, the directive provides a uniform definition of a “trade secret” as “information which meets all the following requirements: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is a secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”  (Directive, Art. 2 ¶ 1.)

Second, the directive defines the following conduct as unlawful:

  • “Acquisition of a trade secret without the consent of the trade secret holder shall be considered unlawful, whenever carried out by . . . unauthorised access to, appropriation of, or copy of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced; [and] any other conduct which, under the circumstances, is considered contrary to honest commercial practices.” (Directive, Art. 3 ¶ 2.)
  • “The use or disclosure of a trade secret shall be considered unlawful whenever carried out, without the consent of the trade secret holder, by a person who is found to meet any of the following conditions: (a) have [sic] acquired the trade secret unlawfully; (b) be in breach of a legally valid confidentiality agreement or any other duty to maintain secrecy of the trade secret; [or] (c) be in breach of a legally valid contractual or any other duty to limit the use of the trade secret.”  (Directive, Art. 3 ¶3.)
  • “The acquisition, use or disclosure of a trade secret shall also be considered unlawful whenever a person, at the time of acquisition, use or disclosure, knew or should, under the circumstances, have known that the trade secret was obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully within the meaning of [Art. 3 ¶3].”  (Directive, Art. 3 ¶4.)
  • “The production, offering or placing on the market of infringing goods, or import, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret when the person carrying out such activities knew, or should, under the circumstances, have known that the trade secret was used unlawfully within the meaning of [Art. 3 ¶3].”  (Directive, Art. 3 ¶5.)

Third, the Directive establishes exceptions that essentially creates a whistleblower defense to trade secrets misappropriation claims, similar to language in the U.S. Senate’s version of the proposed Defend Trade Secrets Act pending in the U.S. Congress.  The relevant portion of the text provides as follows:

“Member States shall ensure that the application for the measures, procedures and remedies provided for in this Directive is dismissed when the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases: (a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media; (b) for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest; (c) the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise; (e) for the purpose of protecting a legitimate interest recognised by Union or national law.”

(Directive, Art. 4.)

Fourth, the Directive requires member states to establish limitations periods for trade secrets claims, as follows: “Member States shall, in accordance with this article, lay down rules on the limitation periods applicable to the substantive claims and actions for the application of the measures, procedures and remedies pursuant to this Directive. . . . The duration of this limitation period shall not exceed six years.”  (Directive, Art. 7.)

Fifth, the Directive requires member states to establish minimum rules for protection and preservation of trade secrets during litigation, including measures that “shall at least include the possibility (a) to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons; (b) to restrict access to hearings, when trade secrets or alleged trade secrets may be disclosed, and their corresponding records or transcript to a limited number of persons; (c) to make available to any person other than those comprised in the limited number of persons referred to in points (a) and (b) a non-confidential version of any judicial decision, in which the passages containing trade secrets have been removed or redacted.”

To take full advantage of the protections provided by the new Directive, as well as the protections that will be afforded by the Defend Trade Secrets Act in the U.S., employers on both sides of the Atlantic would be wise to review their existing practices and procedures to ensure that they are taking “reasonable steps under the circumstances” to protect their trade secrets, including:

  • Reviewing IT policies and procedures for protecting sensitive information;
  • Reviewing existing employment agreements, including restrictive covenant agreements in jurisdictions where they are permitted, to ensure that they provide appropriate levels of protection permitted under applicable law;
  • Reviewing existing employment policies regarding protection of confidential information and ensuring that employees are adequately trained on the policies; and
  • Reviewing employee exiting policies and procedures to ensure that sensitive information is returned upon the end of employment.

In addition, in light of the new whistleblower protections afforded by both the EU Directive and the Defend Trade Secrets Act, employers should ensure that their policies and practices are in compliance with all applicable anti-retaliation laws and that management employees are properly trained on best practices to reduce the risks of whistleblower retaliation claims.

For more on these practical tips and background to the Directive and the Defend Trade Secrets Act, please check out our recent webinar on these topics.

European Parliament Debates Proposed Trade Secrets Directive

Posted in International, Legislation, Trade Secrets

shutterstock_102405310As we have previously reported in this blog, this week marks a milestone in ongoing attempts in the European Union to overhaul the existing regulatory framework for the protection of trade secrets.  Earlier today, members of the European Parliament debated the compromise text of the proposed Directive to protect trade secrets.  A full recording of the debate can be found here.

Today’s debate came on the heels of a press conference earlier in the day by MEP Constance Le Grip (European People’s Party — France), the rapporteur who has shepherded the proposed directive in the European Parliament for the past 18 months.  For those who have been following the proposed Directive, Ms. Le Grip’s comments provide an interesting explanation of the varying political considerations that produced the compromise text, including balancing the concerns of businesses and the rights of workers.

Questions posed by journalists at the press conference are perhaps more interesting.  If the questions posed by journalists (as well as the comments by many MEPs during the debate) are any indication, considerable opposition exists to the proposed directive.  While business groups and many MEPs have largely welcomed the proposed directive, other MEPs and some interest groups have expressed concern that the proposed directive will be used by companies to stifle whistleblowers and journalists.  Notably, the compromise text already includes language that expressly guarantees protection of whistleblowers, freedom of the press, and other fundamental rights, as follows:

Member States shall ensure that the application for the measures, procedures and remedies provided for in this Directive is dismissed when the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases:

(a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media;

(b) for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;

(c) the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise;

(e) [sic] for the purpose of protecting a legitimate interest recognised by Union or national law.

See Proposed Directive [compromise text], Art. IV.   Yet despite this language, opponents of the proposed directive have argued that the directive does not go far enough in protecting whistleblowers.   Whether such concerns are wide enough to scuttle the proposed directive remains to be seen.      

A full vote on the proposed directive is scheduled for tomorrow.  For up-to-date coverage of the proposed directive, please look for an update in this blog following tomorrow’s vote.