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Trading Secrets

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

Webinar Recap! Enforcing Non-Compete Provisions in Franchise Agreements

Posted in Non-Compete Enforceability, Trade Secrets

vector-turkey-clipart-for-thanksgiving-dayHappy Thanksgiving. As a thank you to our valued readers, we are pleased to announce the webinar “Enforcing Non-Compete Provisions in Franchise Agreements” is now available as a podcast and webinar recording.

In Seyfarth’s ninth and final installment in its series of Trade Secrets Webinars,  Seyfarth attorneys John Skelton, Erik Weibust and Anne Dunne focused on how to implement and enforce covenants against competition in the franchise context. A franchisor’s trade secrets, confidential information, and goodwill are often among its core assets, and implementing and enforcing covenants against competition are a common, and effective, means of protecting such business interests.

As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.

  • For Franchisors, non-compete provisions, especially post-termination restrictive covenants, are an important part of the franchise relationship because franchisees are given access to a franchisor’s confidential information and trade secrets and upon the termination, expiration or non-renewal of the franchise agreements, franchisors have a vested interest in preventing the use of such information in a competitive business and in protecting the integrity of the franchise network and their goodwill.
  • The enforceability of non-compete provisions are most often litigated in the context of a request for a preliminary injunction and thus franchisors need to be able present evidence to establish (1) all of the necessary elements, especially that the franchisor will suffer irreparable harm to its legitimate business interests and good will if the franchisee violates the terms of the agreed upon non-compete, and (2) that the restrictions are reasonable in time and scope.
  • The enforceability of non-compete provisions varies significantly by state and thus national franchisors must ensure that restrictive covenants are drafted to comply with the various definitions of legitimate business interests and protected goodwill and the different Blue Pencil, Red Pencil and Reformation rules.


LexBlog Ranks Seyfarth Shaw’s Trading Secrets Blog

Posted in Trade Secrets

#15-3088 LexBlog Badge R1LexBlog recently published their 2015 edition of Am Law 200 Blog Benchmark Report and ranked Seyfarth Shaw’s Trading Secrets the #2 Intellectual Property Blog and Top 30 Am Law 200 Blog for the year.

LexBlog’s research team studied each Am Law 200 firm’s individual web presence and their 962 unique blogs. The blogs were cataloged into topic categories and carefully cross-referenced with their traffic rankings on Alexa.com. The team also examined the technology platforms supporting the blogs, including identifying which blogs were optimized for mobile or contained other enhancements for multi-device content consumption.

We would like to thank everyone for their continued support!

Pennsylvania Supreme Court Rules That Continued Employment Is Not Sufficient Consideration for Non-Competes Entered Into After the Employment Relationship Has Begun

Posted in Non-Compete Enforceability, Practice & Procedure, Restrictive Covenants

shutterstock_114348199In a landmark ruling of first impression, the Pennsylvania Supreme Court recently held that an employer’s non-competition covenant, which included the employee’s pledge not to challenge the covenant for inadequate consideration, is unenforceable unless it is accompanied by a change in job status or some other significant benefit.  Socko v. Mid-Atlantic Systems of CPA, Inc., Case No. 3-40-2015 (Nov. 18, 2015), aff’g 2014 Pa. Super. 103 (May 13, 2014), which affirmed 2012 WL 12248901 (Pa. Com. Pl., Oct. 17, 2012).

The non-competes.  Socko was a salesman for Mid-Atlantic, a basement waterproofing company.  In 2007 and 2009, he signed two-year employment agreements each of which contained a non-competition covenant for two years after termination.  In 2010, Mid-Atlantic required him to sign a third non-compete.  It was more restrictive, expressly superseded the other two, and prohibited competition for two years anywhere Mid-Atlantic did business.

The lawsuit.  Shortly after resigning in January 2012, Socko became employed by a competitor.  When Mid-Atlantic provided to the new employer a copy of his third non-compete covenant, Socko was discharged.  He sued Mid-Atlantic and sought, among other relief, a declaratory judgment that the covenant was unenforceable for lack of consideration.

Pennsylvania’s Uniform Written Obligations Act (“UWOA”).  Pennsylvania’s Uniform Written Obligations Act (“UWOA”) provides that an agreement in writing “shall not be invalid or unenforceable for lack of consideration if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.”  Significantly, Socko’s third non-compete contained the parties’ express commitment to be “legally bound.”

Lower courts’ rulings.  Relying on a 1991 Pennsylvania mid-level appellate decision which invalidated a restrictive covenant executed by an employee who received no benefit other than continuing employment, the trial court held that Socko’s covenant was invalid.  Mid-Atlantic appealed, but to no avail.  The appellate tribunal observed that a contract without benefit to one of the parties but signed under “seal” has been deemed to be invalid for lack of adequate consideration.  The court reasoned that an agreement’s inclusion of the intent “to be legally bound” language in the UWOA provided Socko with no benefit more valuable than a seal.  Therefore, the covenant was unenforceable for lack of consideration.  Mid-Atlantic appealed to the Supreme Court.

Arguments in the Supreme Court.  Mid-Atlantic stressed that, as a matter of law, the UWOA barred Socko from challenging the validity of the covenant for inadequate consideration.  Asserting that the statute is unambiguous and contains no exceptions, Mid-Atlantic insisted that the lower courts’ rulings in Socko’s favor effectively constituted amending the UWOA, thereby legislating under the guise of statutory interpretation.  Socko countered that Mid-Atlantic’s contentions ignored the public policy inherent in decisions invalidating restrictive covenants executed after the commencement of employment without substantial benefit to the employee.

The Supreme Court’s affirmance, with one Justice dissenting. 

Majority decision. The Court said that an exchange of consideration is crucial to the enforceability of all contracts.  Moreover, the analysis of non-compete covenants in the employer-employee context is unique and requires rigorous scrutiny.  Therefore, since the UWOA does not provide expressly that it applies to employment-related covenants, it cannot reasonably be interpreted as abrogating the need for benefits to a continuing employee executing a non-compete.  (This decision does not alter the pre-existing rule that new employment is adequate consideration for a non-compete.  See, e.g., II Malsberger, “Covenants Not to Compete” 4249-55 (10th ed. 2015) (citing Geisinger Clinic v. Di Cuccio, 606 A.2d 509, 513 (Pa. Super. Ct. 1992).)

Dissent. One justice, agreeing with Mid-Atlantic, emphasized that the statute is unambiguous, contains no exemptions, and clearly was made applicable to Socko’s employment agreement by inclusion of the “legally bound” phrase.  In the justice’s view, Socko forfeited his right to challenge the agreement for lack of consideration.


First, the decision reaffirms that Pennsylvania law mandates payment of significant consideration to a continuing employee who signs a non-compete.  Otherwise, the covenant is not enforceable.  Similarly, the Adequacy of the consideration for a non-competition promise recently has attracted some courts’ attention.  See, e.g., Fifield v. Premier Dealer Services, 993 N.E.2d 938 (Ill. App., 1st Dist., 2013), and its progeny.  

Second, the Pennsylvania Supreme Court seems to have emasculated the present version of the UWOA insofar as it pertains to restrictive covenants signed by employees who receive no benefits.  Perhaps the State’s legislature will try to overrule the Socko decision by amending the UWOA. The statute’s title, Uniform Written Obligations Act, appears to be a misnomer because it is the law only in Pennsylvania.

Third, Socko apparently was not a high level Mid-Atlantic employee who possessed the company’s trade secrets, or an employee who had been trained by the company at considerable expense.  Thus, by attempting to enforce the non-compete, Mid-Atlantic was likely seeking to avoid ordinary competition.  Perhaps different facts would have led to a different result.

Fourth, employers with employees in Pennsylvania who have asked existing employees to sign non-competes or are considering doing the same, should evaluate whether consideration was or will be provided for the non-compete to ensure enforcement.

Do Non-Competes Really Stifle Tech Innovation?

Posted in Non-Compete Enforceability, Trade Secrets

shutterstock_116443600As has been well-chronicled in this blog, Massachusetts and many other states (and even the federal government) have been grappling with proposed legislation that would ban or severely limit non-competes in employment contracts.  Proponents of bans on non-competes claim that they stifle innovation in the technology sector by preventing skilled employees from using their unique talents to start new businesses or helping young, developing companies introduce new products or technology to the market.  However, a debate continues to rage regarding whether there is any evidence that non-competes negatively impact technology innovation.

As we’ve discussed on this blog, Hawaii recently passed legislation that specifically prohibits non-competes “in any employment contract relating to an employee of a technology business.”  The Hawaii legislature stated that non-competes impose a “special hardship on employees of technology businesses” and “unduly restrict future employment opportunities for technology workers and have a chilling effect on the creation of new technology businesses within the State by innovative employees.”  In fact, the legislation specifically references “academic studies [that] have concluded that embracing employee mobility is a superior strategy for nurturing an innovation based economy.”

But do “academic studies” actually support such a position?  The results are mixed.  Some studies have found that high employee mobility and short job tenure is positive for productivity in firms that spend on R&D, based on a variety of factors (including the spread of knowledge by mobile employees, greater incentives to create knowledge, and more dynamic labor markets).  On the other hand, another study found that companies in non-compete jurisdictions that enforced non-competes enjoyed reduced research and development costs through knowledge retention and investment in human capital.  Similarly, another study found that banning non-competes in the biotechnology industry would actually harm research productivity.  In short, there is no consensus on the impact non-competes have on innovation and productivity.

Non-compete opponents also point to the decline in innovation within Massachusetts’ Route 128 area during the 1970s, while at the same time Silicon Valley was having relative success.  While one study concluded that California’s ban on non-competes was a factor in the success of Silicon Valley over Route 128, other commenters haven’t been quite as sure.  For example, Matthew Max, an MIT professor focused on tech innovation and entrepreneurship, thinks that it’s premature to conclude that the elimination of non-competes results in more innovation.  Similarly, in her book, “Regional Advantage,” AnnaLee Saxenian argues that Silicon Valley’s advantage was primarily caused by cultural and structural differences between the East Coast and West Coast, resulting in Silicon Valley developing a decentralized but cooperative industrial system, while Route 128 came to be dominated by independent, self-sufficient corporations.

Recent growth in the technology sectors of various cities and states also challenges the assertion that the presence of non-competes stifles innovation.  Some of the fastest growing tech sectors are in states that enforce non-competes, including Utah’s Wasatch Front; Austin, Texas; and the research triangle in North Carolina.  Commenters suggest that these locations have certain characteristics that make them more attractive than Silicon Valley to tech companies such as better infrastructure, more business-friendly state and local governments, and lower costs of doing business.

Although the Hawaii legislature was satisfied that non-competes limit mobility and stifle innovation, others have not been convinced, particularly those that do not share Hawaii’s unique geography, which makes it particularly difficult for employees on one particular island to find non-offending jobs without leaving the island completely.  As states continue to debate the impact of non-competes on tech innovation and the economy as a whole, perhaps more empirical studies will provide guidance one way or the other.  Until then, it seems that the debate will continue in statehouses throughout the country.

Trend In The Courts: It’s Getting Harder To Obtain Preliminary Injunctions In Restrictive Covenant Cases

Posted in Non-Compete Enforceability, Practice & Procedure

shutterstock_78698299In recent weeks, courts almost routinely have been denying preliminary injunctive relief in cases alleging violation of non-compete and similar employment agreements.  Three examples: Burleigh v. Center Point Contractors, 2015 Ark. App. 615 (Oct. 28, 2015); Evans v. Generic Solution Engineering, LLC, Case No. 5D15-578 (Fla. App., Oct. 30, 2015); and Great Lakes Home Health Services Inc. v. Crissman, No. 15-cv-11053 (E.D. Mich., Nov. 2, 2015).

Status of those cases.  In each of those cases, injunctions were denied or, if granted by a lower court, the order was reversed.

Burleigh.  When he was employed in 2012 by Center Point, a general commercial construction company, Burleigh had more than 10 years of experience in construction in northwest Arkansas.  His title was operations manager and estimator.  He signed non-compete (two years, within a radius of 50 miles from Bentonville, Arkansas), non-solicitation, and confidentiality covenants.  In 2014, he resigned and formed, with a friend, a competitor of Center Point.

Center Point sued Burleigh.  His motion to dismiss the complaint was denied, and Center Point sought a preliminary injunction.  The trial court granted the injunction including two additions to the non-compete agreement: (a) the court required Burleigh to give Center Point notice of and details concerning any prospective business activity that would compete with activities in which he was engaged on or before the date he resigned, and (b) Center Point was ordered to post a $50,000 bond.  He appealed.

The Arkansas Appellate Court reversed and remanded.  It held that Center Point failed to demonstrate a likelihood of success on the merits.  According to the court, there was no evidence that Center Point provided Burleigh with any “special training,” “proprietary formulas,” “trade secrets,” “confidential business information,” or “a secret customer list.”  Further, Center Point did not show that he learned anything at Center Point that would give him an unfair advantage in the bidding process.  Therefore, “Center Point did not have a legitimate interest to be protected by agreement, and the non-compete agreement only shielded Center Point from ordinary competition.”

Evans v. Generic.  In order for a former employer to prevail in a suit under Florida law based on a non-competition covenant, enforcement of the covenant must be shown to be necessary in order to protect the former employer’s “legitimate business interests.”  Reaching a decision similar to that in Center Point, the Florida Appellate Court held that the former employer failed to make the requisite showing.

The former employer, Tech Guys, builds online sales and marketing systems.  It does not have employees, preferring instead to retain independent contractors.  One of them was Chinn who had signed a restrictive covenant prohibiting, for two years after termination of his relationship with Tech Guys, work for current or former Tech Guys clients.  While working for Tech Guys, Chinn assisted one of its significant clients, RRI, which had a three-year non-exclusive contract for services.

When Chinn left Tech Guys, he and another ex-Tech Guys independent contractor — but one who had not signed restrictive agreements — formed a competitor.  After RRI’s contract with Tech Guys expired, RRI offered to continue to use Tech Guys (although not exclusively).  The offer was declined.  When RRI became a client of Chinn’s new company, Tech Guys sued Chinn and his company and obtained a preliminary injunction.

The defendants appealed, and the appellate court reversed.  According to the appellate tribunal, the “facts are insufficient to support the trial court’s finding of a substantial business relationship in need of protection.”

Great Lakes Home.  Great Lakes is a home-health and hospice provider.  Crissman was vice-president for operations and planning in Michigan.  At the time of her employment, she signed non-competition, non-solicitation, and confidentiality covenants.  Pursuant to the agreements, she promised that for two years after termination, she would not divert or attempt to divert from Great Lakes business opportunities in any county where Great Lakes was Medicare-certified on the date she was employed by Great Lakes.

Eighteen months after leaving Great Lakes, Crissman accepted a position with a competitor.  Her responsibilities included work in various states but not in any county where Great Lakes does business.  Great Lakes sued her and sought a preliminary injunction.  Judge Rosen authored a detailed must-read opinion, clearly laying out Michigan law on the subject and explaining in detail why injunctive relief was denied.

Confidentiality.  Great Lakes contended the court could presume that Crissman disclosed Great Lakes’ confidential information.  Crissman rebutted the presumption by submitting a signed and sworn denial that she had made any improper disclosures and describing in detail the firewall established with her new employer that precluded any disclosures.

Non-compete.  Great Lakes argued that Crissman was liable for non-compete covenant violations because of her employment by a competitor that was servicing areas where Great Lakes operated.  There was no allegation that Crissman, personally, violated the covenant.  The parties agreed that her new employer did provide services competitive to those offered by Great Lakes even though there was no evidence that she participated.  The court concluded that Great Lakes’ interpretation of the covenant would preclude her “from working in any capacity, in any location, with a competitor as defined in the Agreement” (emphasis in the original).  That interpretation was held to violate Michigan law which provides that “‘non-competition agreements must be tailored so that the scope of the agreement is no greater than is reasonably necessary to protect the employer’s legitimate business interests’” (quoting from an earlier Michigan district court case but adding the emphasis).

Extension of the non-compete agreement.  Judge Rosen observed that enforcement of the non-compete agreement would require extending its duration since, by its terms, it expired in August 2015.  Although conceding that Great Lakes had been diligent in seeking injunctive relief, he pointed to Michigan law restricting extension of such covenants to “the most extreme circumstances.”  Here, he held, there was “no clear ‘flouting’ of the Agreement or bad faith.”  Accordingly, Great Lakes had failed to demonstrate a likelihood of success on the merits.

Takeaways.  These cases, and other similar recent decisions, indicate that courts are reluctant to enter preliminary injunctions for alleged violations of employment agreements.  Even if the non-compete time period and geographic area are reasonable, a mere showing that the ex-employee went to work for a competitor during that period and within that area may no longer be sufficient.  Rather, the moving party seemingly will have to demonstrate clearly that the ex-employee him- or herself caused damages by poaching significant customers, hiring away invaluable workers, or disclosing highly confidential information.


Perspectives From the Bench: A Recap of the AIPLA Trade Secret Law Summit’s Judicial Panel

Posted in Trade Secrets

shutterstock_248648887Several members of Seyfarth’s Trade Secrets, Computer Fraud & Non-Competes Practice Group attended the AIPLA’s annual Trade Secret Law Summit on November 12-13, 2015.  Rick Lutkus spoke on a panel that was moderated by Erik Weibust entitled “The Ethics of Data Security and Trade Secret Protection for Lawyers,” which we will post about separately.

Another session, entitled “Perspectives From The Bench: How State and Federal Judges View the Growth and Scope of Trade Secret and Restrictive Covenant Disputes,” featured an impressive panel of the Honorable Mitchell H. Kaplan and the Honorable Janet L. Sanders, both of whom sit in the Business Litigation Session of the Suffolk Superior Court, and the Honorable F. Dennis Saylor, IV, a district court judge for the U.S. District Court for the District of Massachusetts.  These judges provided some very valuable insights with respect to seeking injunctive relief in a trade secret and/or restrictive covenant case.

Here are some key takeaways from the panel:

  • Equitable factors matter.  All three judges agreed that notwithstanding the terms of an employment agreement, they are far more sympathetic to young or low-level employees who might be prevented from earning a living due to the enforcement of a non-compete agreement, as opposed to a CEO or other high level executive, particularly where he or she was paid a handsome severance package.  Indeed, the panel agreed that the language of the agreement is “just the beginning” of the analysis, and that they will certainly consider other equitable factors such as this.
  • Ex parte motions are disfavored. The panel consistently agreed that they only grant ex parte orders sparingly, and instead will typically issue a short order of notice to allow defendants some time to respond to plaintiffs’ allegations.  Judge Sanders further noted that she is typically not swayed by plaintiffs’ counsel’s outraged protestations that they have not had an opportunity to review defendant’s opposition papers when the plaintiff has demanded an expedited hearing.  In other words, the plaintiff made its bed and now has to sleep in it.
  • Forensic discovery should not be a battleground. Judge Saylor noted that it is relatively easy for forensic experts to make mirror images of parties’ electronic devices, and accordingly he is generally receptive to requests to conduct forensic discovery to determine whether and to what extent confidential information or trade secrets has been misappropriated and/or misused.  He further noted that parties should not object to a neutral third party forensic expert, which should allay concerns that competitors will be rooting around in the company’s “crown jewels.”  Finally, he warned that to the extent employees put company documents on personal devices, they cannot then complain about the prospect of a forensic expert accessing those personal devices .On this same topic, Judge Sanders explained that parties should do their best to work cooperatively on forensic discovery, given that judges are frequently not as savvy regarding the technological details of forensic discovery.  That said, she did suggest that the party seeking forensic discovery should not seek broad forensic searches on a competitor’s entire network (which she deemed a “red flag” that the moving party is being unreasonable); instead, absent extreme circumstances, forensic discovery should be limited to the departing employees’ relevant devices.
  • The parties’ pre-litigation conduct matters. Judge Kaplan explained that the parties’ behavior leading up to litigation can be incredibly persuasive.  Obviously, “bad actors” will suffer grave consequences, and conversely, an employee who takes steps to ensure that his or her departure goes smoothly with sensitive materials promptly returned to the employer will have a much easier time convincing the court that an injunction is unnecessary.  Judge Sanders concurred, noting that she is more sympathetic to employees who are terminated without cause, although she admitted that her thinking may shift if the employer attempted to “do right” by the terminated employee by providing severance.   Judge Saylor agreed that an employee who ignores inquiries by her former employer regarding whether she retained trade secrets will have a much more difficult time arguing to the court that she didn’t know that she had done anything wrong.  Judge Kaplan concurred, contrasting that scenario by noting that a party who responds to a cease and desist letter representing that it will abide by contractual, common law, or statutory obligations to the extent reasonable will go a long way in convincing the court that an injunction is unnecessary.Both Judge Saylor and Judge Kaplan agreed that while pre-litigation correspondence between the parties can at times be useful, angry emails between attorneys that are clearly written for purposes of motions for injunctive relief are rarely compelling to the court.
  • Make life easy for your judge. In addition to cooperating with the opposing counsel on such matters as timing and scope of discovery, the panel stressed how useful it is for the parties (whether jointly or separately) to bring a reasonable, clear proposed order that the judge can simply sign, without significant (or any) edits.  This is particularly useful in cases where the judge may not have the same depth of understanding as the parties on highly technical terms.
  • Be wary of over-redacting. The panel discussed motions to impound or seal materials that parties deem confidential.  The panel’s consensus was that many litigants over-designate materials as confidential, and stressed that attorneys should discuss with clients how to limit redacted or sealed pleadings, notwithstanding that it is frequently a difficult conversation.  The judges emphasized that litigation happens in the public forum, and parties should take pains to limit their redactions to what is truly necessary to protect confidential information and trade secrets.
  • Finally – Be reasonable! While this should be obvious, it bears noting that all judges stressed the need to be reasonable in requests for injunctive relief (as well as in oppositions).  Judge Saylor specifically noted that while judges oftentimes want to find a middle ground, judges tend to migrate towards the party that is being more reasonable.  Pressing for the most draconian measures — or conversely, refusing to agree to “no-brainers” such as refraining from using obviously misappropriated information — is unreasonable and could backfire.

Of course, given the fact-intensive nature of non-compete and trade secret cases, and the broad latitude that judges are given to issue equitable relief, the facts of the case, the relief being requested, the economy, and even the proclivities of the judge can make or break a case.  Nevertheless the advice above should be considered in each case.

“Reasonable Suspicion” of Trade Secret Misappropriation Isn’t Always Enough

Posted in Practice & Procedure, Trade Secrets

Untitled-1Though an employer may be eager to bring a trade secret claim against former employees as soon as possible, filing suit before properly vetting the claim can lead to serious consequences: a malicious prosecution case against the lawyers who signed the pleadings.

A law firm is fighting such allegations in California after losing at bench trial on behalf of FLIR Systems, Inc. and Indigo Systems Corporation (collectively, “FLIR”), who brought suit against a group of former employees attempting to launch a competing business. Though the California Court of Appeal for the Second District affirmed a lower court’s ruling that the employee’s malicious prosecution suit could not proceed, Parrish v. Latham & Watkins, 238 Cal.App.4th 81 (2015), the California Supreme Court recently announced it will reconsider that decision.

The Underlying Dispute

FLIR developed and sold microbolometers, devices used to detect infrared radiation for infrared cameras, night vision, and thermal imaging. In 2004, while still working for FLIR, the group of employees presented FLIR with a business plan to outsource microbolometer manufacture. When the group left to form another business in 2006, FLIR believed their plan to launch a new business had to have incorporated intellectual property owned by FLIR.

The former employees had several meetings with FLIR to ensure the company that they had no intention of using its intellectual property. The business plan they were using had been created by one of the individuals prior to joining the company and involved licensing the necessary intellectual property from a third party.

FLIR was nonetheless convinced that the new business plan “necessarily presume[d]” use of its trade secrets and filed suit. In support of its position, FLIR presented two brief expert declarations stating that the experts were unaware of any third parties in the infrared market other than FLIR with the requisite intellectual property, and concluded that this meant FLIR’s ex-employees “could not pursue” their business plan without the use of FLIR’s trade secrets.

The trial court denied the employees’ motion for summary judgment, finding that although they “made a compelling argument” that they were entitled to summary judgment, the concepts involved in the litigation were “highly technical” and merited further review. However, the same judge who had denied summary judgment ruled in the employees’ favor after a bench trial, not only denying FLIR any relief but also finding that FLIR had brought and pursued the action in bad faith and should pay more than $1.6 million in attorney fees.

Trial Court Finds Bad Faith

The court pointed to the fact that California law does not recognize the “inevitable disclosure” theory, which permits a trade secret owner to prevent a former employee from working for a competitor despite the owner’s failure to prove the employee has taken or threatens to use trade secrets, as long as it can be demonstrated that the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets. While FLIR’s former employees had raised a “reasonable suspicion that they might misuse [FLIR’s] trade secrets,” the court concluded that “reasonable suspicion” is not an adequate basis for relief under the Uniform Trade Secrets Act.

The court noted that its earlier denial of the employees’ summary judgment motion did not preclude it from ruling that the action had been brought in bad faith, an issue that was not pertinent at that stage, as the court had not yet heard all the evidence or considered witness credibility. After the bench trial, it became clear to the court that FLIR had been “unwilling to take the risk that [the former employees] might be able successfully to complete without misuse of [FLIR’s] trade secrets.” The court made several findings consistent with objective and subjective bad faith, including that FLIR:

  • “unreasonably discounted ways in which [the former employees] could have proceeded with their new company lawfully;”
  • “downplayed” the former employees’ plans to license technology from a third party and to make sales to that third party; and
  • “failed to take reasonable measures to ally [its] fears by learning more about [the former employees’] plans.”

In fact, three of FLIR’s witnesses testified at trial that they did not know at the time the lawsuit was filed that the former employees planned to work with a third-party company, and that, “had they known such facts, their concerns regarding [the former employees] would have been allayed.”

Malicious Prosecution Case Pending

The trial court’s award was affirmed on appeal, and the employees brought an action against FLIR’s law firm for malicious prosecution. They asserted that the firm pursued the action even though they knew the legal basis for their theory, inevitable disclosure, was discredited in California, and even though they knew that FLIR had an anti-competitive purpose in suing them.

The California Court of Appeal has held that the malicious prosecution claim is barred by the “interim adverse judgment rule,” which holds that the denial of a dispositive motion on the merits in an underlying action precludes the maintenance of a subsequent malicious prosecution action. In other words, because the trial court had denied the former employees’ motion for summary judgment before granting judgment in their favor, there was probable cause for the underlying trade secret suit, and thus no basis for malicious prosecution.

However, the California Supreme Court’s decision to rehear the case means the firm is not yet off the hook. Hopefully, whatever the outcome, the Supreme Court’s opinion will provide guidance for trade secret litigators trying to zealously advocate for their client without putting both the client and themselves at risk.

Upcoming Webinar: Enforcing Non-Compete Provisions in Franchise Agreements

Posted in Non-Compete Enforceability, Trade Secrets

WebinarOn Thursday, November 19, 2015 at 12:00 p.m. Central, Seyfarth attorneys John Skelton, Erik Weibust and Anne Dunne will present the ninth and final installment of its 2015 Trade Secrets Webinar series, Seyfarth attorneys will focus on how to implement and enforce covenants against competition in the franchise context. A franchisor’s trade secrets, confidential information, and goodwill are often among its core assets, and implementing and enforcing covenants against competition are a common, and effective, means of protecting such business interests.  

The Seyfarth panel will specifically address the following topics:

  • The basic requirements of an enforceable covenant against competition.
  • The importance of covenants against competition are important in the franchise context.
  • What constitutes a protectable interest in the franchise context?
  • What is a reasonable restriction to place on franchisees, both in-term and post-term?
  • State specific nuances and particularities.

Our panel consists of attorneys with significant experience advising franchise, dealer, and distributor clients on protecting their brands, trade secrets, and other intellectual property, including litigating trade secret cases, drafting protection agreements, and conducting trade secret audits.

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



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.

Protecting Intellectual Property Throughout Its Lifecycle

Posted in Trade Secrets

IP LifecycleAs a special feature of our blog—special guest postings by experts, clients, and other professionals—please enjoy this blog entry from Stroz Friedberg, a global leader of cybersecurity, investigations and risk management. The firm recently launched Strategic Intellectual Property Protection Services (SIPPS), an offering Stroz Friedberg designed to help companies best handle intellectual property throughout its lifecycle.

-Robert Milligan, Editor of Trading Secrets

Across industries ranging from pharma to entertainment to electronics, the success of an organization is often directly tied to its intellectual property. However, many companies don’t effectively determine whether their products or internally developed solutions constitute protected intellectual property until there is a need for enforcement action.

It’s better (and easier) for a company to identify its intellectual property and trade secrets at the outset than it is for a company to retrofit its intellectual property and trade secrets to a bad event. Waiting until intellectual property is misappropriated delays enforcement, and is generally less successful overall than defining intellectual property early on. After identification, it is also important for an organization continually to evaluate how it safeguards its intellectual property. If a company proactively identifies and protects its trade secrets, enforcement efforts, if necessary, will prove much easier—even more so when a detailed response plan is already in place.

Stroz Friedberg has been called upon to help clients at distinct points in the IP lifecycle, and helps its clients and counsel think strategically and mitigate risks such as insiders, hackers and even simple negligence. This posting is designed to give the reader a quick overview of Strategic Intellectual Property Protection Services—from identification, to prevention, to enforcement. SIPPS is a complete misappropriation readiness solution.


If you are a regular reader of this blog, you know that a company’s intellectual property is vulnerable while it is still being developed: “The idea must be kept secret in order to enjoy the later protection,” writes Bartosz Sujecki in a previous Trading Secrets post about proposed new trade secrets in Europe, http://www.tradesecretslaw.com/2014/12/articles/trade-secrets/new-rules-on-trade-secrets-in-the-eu-the-european-commission-proposal-on-the-protection-of-know-how-in-the-eu. The relatively unstructured way in which some ideas come to life does not obviate the need to take reasonable steps proactively to identify and protect trade secrets. See, e.g., http://www.tradesecretslaw.com/2015/07/articles/trade-secrets/trade-secret-protection-what-are-reasonable-steps/. Without early and robust identification, trade secret enforcement down the road often proves far more difficult.

Understanding early on the way in which the law protects intellectual property is not always an easy task. The identification process should not be kept so secret that outside experts are not called in to help. Leveraging outside experts at the early stages—with the same physical and technical controls in place that safeguard early development intellectual property from insider and outsider threats alike—will best position the company to evaluate whether secrets should remain confidential, be prosecuted as patents, or otherwise be afforded  special protection. Meanwhile, critical development employees are left to focus on the creative production and refinement of the intellectual property itself.

When an organization can identify its trade secrets early, the organization will be better prepared to safeguard those secrets. Such early identification of trade secrets helps ensure that the company is taking reasonable steps to protect its intellectual property, which in turn demonstrates the history of diligence necessary to successfully pursue legal remedies down the road.


After the arduous process an organization undergoes to define its intellectual property, it needs to apply the same diligence and focus to protecting it. Protecting intellectual property involves a combination of people, process, and technology. How is it segregated within the company’s environment? Who has access to it? How are permissions and access controlled? What technologies exist within the environment to monitor unauthorized access? How well do the organization’s existing policies and procedures protect it?

This may also be the ideal time for a security risk assessment to ensure that no physical or technical vulnerabilities exist at the end user or enterprise level that would make data exfiltration possible. No one wants to see a competing product come to market two weeks after theirs—but it does happen.


Having a well-developed enforcement plan of action around identified and protected intellectual property before a misappropriation event occurs makes all the difference in the world. Seeking inchoate relief to immediately block a perpetrator from misusing valuable intellectual property involves stringent timing and other requirements. Organizations that have invested time and energy in working with experts to tailor a readiness position are better equipped to meet those requirements—especially when necessary business stakeholders, outside counsel, forensic experts, and even source code specialists are lined up and at the ready to react, engage, and pursue relief.

Assistance with Trade Secret Strategy throughout the IP Lifecycle

Intellectual property is always vulnerable to some degree, but the more proactive a company is, the better it can harness the value of its assets. With a thorough understanding of your intellectual property—where it is located, how it is protected both legally and digitally, and how you will respond in the event of theft—you will be best positioned for whatever challenges come your way. Leverage outside expertise throughout the process, and use the same experts who are familiar with your intellectual property lifecycle to help enforce your rights.

As experts who have helped organizations deal with the aftermath of data breaches and computer crimes, we have witnessed firsthand how crucial it is to be prepared—but even in the aftermath of a breach or theft, we focus on more than just dealing with the aftermath, and work on developing new solutions that could be used to help organizations in the future. For example, while helping a video game engine developer win a trade secret case (see: https://www.elys.com/case-studies/an-epic-battle-of-game-giants), we wrote proprietary software tools that could compare source code versions across repositories. We have developed a range of other preventative services, including Payment Card Industry assessment, data analytics and transaction monitoring, privacy audits, and incident response plans, to name a few. We know what makes a trade secret or other piece of intellectual property unique, and we can help you come up with a unique plan to protect it.

Protecting Trade Secrets in a World of Cybercrime

Posted in Trade Secrets

theifOn the evening of November 17th, Brooklyn Law School’s Trade Secrets Institute will be hosting its annual Symposium at the Law School. This year’s Symposium is titled “Protecting Trade Secrets in a World of Cybercrime” and will feature state and federal prosecutors, private practitioners as well as cybersecurity experts. The evening event will begin with a panel discussing the investigation and prosecution of digital trade secret theft and will be followed by a second panel discussing the representation of the targets of cybercrime. With the frequency of damaging cybercrime incidents on the rise, the panels will address current challenges and best practices for private companies and government alike. For those interested, please RSVP here.