Defend Trade Secrets Act

shutterstock_494317324On May 19, 2017, Texas Governor Greg Abbott signed into law several amendments to the Texas Uniform Trade Secrets Act (“TUTSA”), located in Chapter 134A of the Texas Civil Practice & Remedies Code. The amendments go into effect on September 1, 2017.  In doing so, Texas has aligned its statute more closely with federal law and codified recent judicial interpretations of the law.

Two events precipitated the amendments, one legislative, one judicial.  In the first, Congress passed the Defend Trade Secrets Act (“DTSA”) in May 2017, which provides a federal cause of action for trade-secret misappropriation. In the second, the Texas Supreme Court announced in In re M-I L.L.C., 505 S.W.3d 569 (Tex. 2016) that a presumption exists that a party is authorized to participate and assist in the defense of a trade-secret misappropriation claim under TUTSA, which presumption cannot be surmounted unless the trial court considers a seven-factor balancing test.  These events resulted in the following key changes to the TUTSA: Continue Reading Texas Legislature Clarifies and Expands the Texas Uniform Trade Secrets Act

shutterstock_526002034This blog originally appeared in ALM Intellectual Property Strategist.

One year after its enactment, the Defend Trade Secrets Act (DTSA) continues to be one of the most significant and closely followed developments in trade secret law. The statute provides for a federal civil cause of action for trade secret theft, protections for whistleblowers, and new remedies (e.g., ex parte seizure of property), that were not previously available under state trade secret laws. The less than 70 reported DTSA cases to date provide an early glimpse into how courts may interpret the statute going forward and what early concerns about the statute may have been exaggerated.

Overstated Ex Parte Seizure Concerns

The ex parte seizure provision of the DTSA was one of the most controversial provisions of the statute during its drafting. The provision allows a trade secret holder to request, without notice to the alleged wrongdoer, that a district judge order federal law enforcement officials to seize property to prevent the propagation or dissemination of trade secrets. Opponents of the DTSA argued that the ex parte seizure provision would open the door to abuse by purported “trade secret litigation trolls” and increase litigation costs. The cases to date involving the seizure provision suggest that those early concerns may not materialize. Continue Reading Emerging Issues In the Defend Trade Secrets Act’s Second Year

shutterstock_486112282In a series of breakfast briefings, Seyfarth attorneys Robert Milligan, Joshua Salinas, and Scott Atkinson, joined by Jim Vaughn, one of California’s leading computer forensic experts, discussed how to navigate the tricky waters and provided best practices for trade secret protection. The briefings covered how to best identify and protect trade secrets, what employers need to know about the DTSA, the impact of new California Labor Code Section 925, how to catch a trade secret thief, and more. Click here to see the slides from the briefings.

As a conclusion to this well-received Breakfast Briefing Series, we compiled a summary of three takeaways that were discussed during the briefings:

  • Employers should continue to use caution when using non-California forum selection clauses and choice of law provisions in agreements that are “conditions of employment” with California employees. Attempting to enforce such provisions may not only result in litigation, but may also result in the employer being on the hook for the employee’s attorney’s fees under California Labor Code section 925.
  • Employers should update nondisclosure agreements and company policies to include language reference to the Defend Trade Secrets Act whistleblower provisions.
  • Employers should remember that mobile devices can be configured differently, and depending on how they allowed them to be configured, can be problematic post departure of the employee. Corporate partitions, company iTunes accounts, and mobile device management systems are all options to consider.

shutterstock_534162337A Northern District of California court recently held a plaintiff could amend its complaint to add a Defend Trade Secrets Act (“DTSA”) claim when discovery showed continued misappropriation after the enactment of the DTSA on May 11, 2016.

In VIA Technologies, Inc. v. ASUS Computer International, No. 14-CV-03586-BLF, 2017 WL 491172 (N.D. Cal. Feb. 7, 2017), VIA filed suit against ASUS, alleging infringement of VIA’s patent and trade secret misappropriation of VIA’s intellectual property related to its USB technology. VIA’s second amended complaint was filed in July 2015 prior to the enactment of the DTSA on May 11, 2016.

During discovery, ASUS produced data related to sales of products that allegedly incorporated VIA’s trade secrets. This data was produced in supplemental productions on November 16, 2016, and on December 22, 2016. VIA claims this data supports the alleged continuation of trade secret misappropriation after the enactment of the DTSA, and therefore, requests to add the claim. VIA claims it also inadvertently overlooked the sales data believing the November 16, 2016, production was merely a “re-production.” VIA filed the instant motion on January 4, 2017, after ASUS refused to stipulate to an amendment to add a claim under DTSA. Continue Reading Court Allows Plaintiff to Amend Complaint to Add Defend Trade Secrets Act Claim After Discovery Reveals Alleged Continued Misappropriation

shutterstock_393956815The Ninth Circuit recently held in United States v. Liew that it was not plain error for the district court not to instruct the jury that disclosure “‘to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy’ destroys trade secret protection.” As a result, the Ninth Circuit upheld criminal convictions under the (pre-Defend Trade Secrets Act) Economic Espionage Act (“EEA”) for trade secret misappropriation despite a third-party competitor (who was not bound by any confidentiality obligations) acquiring the trade secret.

The trade secret at issue in United States v. Liew concerned methods of producing titanium dioxide (TiO2), a white pigment found in anything from paint to Oreo creme, which makes its manufacture a (surprisingly) competitive industry. DuPont has been a leader in TiO2 production since the 1940s, when it became more efficient to produce TiO2 through a chloride-based process. DuPont opened chloride plants around the US, including one in Antioch, California and one in Ashtabula, Ohio. The Ashtabula plant was built for Sherwin-Williams, subject to a fifteen-year confidentiality agreement effective through the plant’s sale in the 1970s. The plant was sold multiple times thereafter and was ultimately acquired by a competitor of DuPont who was not bound by any nondisclosure or confidentiality obligations to the company.  Continue Reading Trade Secrets May Retain Protections Despite Disclosure to Single Competitor

shutterstock_584007385New Location Added – Westside/Silicon Beach!

Trade secret identification and protection is more critical than ever for employers in California. Technology is consuming the way we do business, and new laws concerning trade secrets and the content of employment agreements with California employees makes trade secret identification and protection more critical than ever.

We invite you to join our Seyfarth attorneys Scott Atkinson, Jim McNairy, and Robert Milligan, along with James Vaughn, one of California’s leading computer forensics experts, in an interactive briefing designed to help California employers navigate these tricky waters and provide best practices for trade secret protection.

Topics slated to cover include:

  • How to best identify and protect trade secrets
  • What employers need to know about the DTSA
  • The impact of new California Labor Code Section 925
  • Effective use of restrictive covenants in employment agreements
  • How to catch a trade secret thief
  • Responses to potential trade secret theft
  • Choosing the right court to protect trade secrets
  • Considerations for suing under the DTSA vs California law (or both)

 

May 10, 2017
8:00-10:00 a.m.
Seyfarth Shaw LLP
Los Angeles – Downtown
333 South Hope Street
Suite 3900
Los Angeles, CA 90071
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May 17, 2017
8:00-10:00 a.m
Seyfarth Shaw LLP
San Francisco
JPMorgan Chase Building
560 Mission Street, 20th Floor
San Francisco, CA 94105

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May 24, 2017
8:00-10:00 a.m.

Westside/Silicon Beach
DoubleTree Hotel
6161 West Centinela Avenue
Culver City, CA 90230

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shutterstock_330853187It is well known that 18 U.S.C. § 1836, et seq. (the Defend Trade Secrets Act or “DTSA”) finally provides a mechanism for pursing trade secret claims in federal court. A recent decision, however, serves as an excellent reminder that failure to establish personal jurisdiction over a defendant will nevertheless result in dismissal of your DTSA claim—and potentially your entire case. So, before you rush off and file that DTSA claim in your local federal court, carefully consider if it’s really the right court after all.

In Gold Medal Products Co. v. Bell Flavors and Fragrances, Inc., 1:16-CV-00365, 2017 WL 1365798 (S.D. Ohio Apr. 14, 2017), the plaintiff filed suit in the U.S.D.C. for Southern District of Ohio against its former employee, William Sunderhaus, and his new employer, Bell Flavors, alleging misappropriation of trade secrets and confidential information. As part of its lawsuit, Plaintiff asserted a DTSA claim, which Defendants moved to dismiss for lack of personal jurisdiction. Continue Reading Don’t Forget to Establish Personal Jurisdiction in Defend Trade Secrets Act Cases

shutterstock_287601008A California federal district court has recently given employers a small victory against former employees who misappropriate trade secrets and assert whistleblower immunity or the litigation privilege as after-the-fact defenses. The federal district court for the Eastern District of California recently rejected, for a second time, a defendant’s anti-SLAPP motion to strike a trade secret lawsuit brought against him by his former employer. Notably, the court rejected the defendant former employee’s whistleblower and litigation privilege defenses as inapplicable, thereby allowing the beer company’s trade secret action to proceed.

On March 1, 2013, the beer company sued the former employee for, among other things, trade secret misappropriation and breach of nondisclosure agreements. The former employee subsequently filed a motion to dismiss and strike the Complaint under California’s anti-SLAPP statute. Specifically, the former employee argued that the Complaint was an attempt to punish him for purportedly exercising his constitutional rights of petition and free speech in connection with a consumer class action litigation that he filed against the company exactly one week before.

The federal district court denied the former employee’s anti-SLAPP motion and concluded that the company’s claims did not arise out of the former employees protected litigation activity. The former employee appealed.

The Court of Appeals for the Ninth Circuit reversed the district court and remanded back so the district court could consider the next prong of the anti-SLAPP analysis, the plaintiff’s probability of prevailing on its claims.

Upon its second review of the former employee’s anti-SLAPP motion, the federal district court concluded that the company had demonstrated a likelihood of prevailing on its trade secret misappropriation and breach of contract claims. The court then turned to and rejected the former employee’s substantive legal defenses of public policy, whistleblower immunity, and the litigation privilege.

First, the court rejected the former employee’s argument that confidentiality agreements are unenforceable as a matter of public policy. The court refused to adopt such a sweeping rule that would render confidentiality agreements unenforceable that would allow former employees to disclose trade secret or confidential information.

Second, the court acknowledged that California provides protection to whistleblowers but only when the employee discloses reasonably based suspicious of illegal activity to a governmental agency. The court concluded that such protections did not apply to employees who disclose information to their attorneys in order to further a class action against an employer.

Lastly, the court rejected the former employee’s argument that the misappropriation of documents in furtherance of anticipated litigation was protected under the litigation privilege. The court reasoned that the litigation privilege does not protect against illegal activity that causes damage and to protect such threats is inconsistent with the purposes of the anti-SLAPP statute.

It would be interesting to see the court’s analysis and decision, however, had the alleged misappropriation occurred after the enactment of the new Defendant Trade Secrets Act (“DTSA”), which appears to provide broader whistleblower protections. The court in this case highlighted that California’s whistleblower statute protected only disclosures to government agencies and not a defendant’s attorneys. The DTSA, however, protects individuals from criminal and civil liability under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. (For additional information on the DTSA and its implications regarding whistleblowers, please see our DTSA Guide.)

Nonetheless, this case confirms that employees do not have an unfettered right to surreptitiously take documents from the workplace for their own use in litigation or otherwise. Indeed, the Ninth Circuit has rejected the concept of “blanket” protection for whistleblowers for violation of confidentiality agreements and misappropriation of confidential documents. See Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047 (9th Cir. 2011).

With the likely broader whistleblower protections under the recently enacted DTSA, however, employers that utilize agreements and policies to protect trade secrets and other confidential information should ensure such documents have been updated to comply with the DTSA and its important employee and whistleblower notification provisions

 

shutterstock_465124364Seyfarth continues to be at the forefront of issues involving the Defend Trade Secrets Act (“DTSA”). On March 17, 2017, two Seyfarth attorneys, Andrew Boutros and Alex Meier, published the first-ever in-depth analysis of the intersection between the DTSA and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) in Bloomberg’s White Collar Crime Report.

The article, “An Endangered Claim Reemerges: The Defend Trade Secrets Act Breathes New Life Into Trade-Secrets-Based RICO Claims,” examines how the DTSA, in certain circumstances, may create liability under RICO for the misappropriation of trade secrets. Pre-DTSA, courts were hesitant to impose RICO liability based on trade-secrets misappropriation, because even fraudulent acts with the end goal of misappropriating trade secrets did not present a threat of ongoing criminal activity (“continuity,” in RICO parlance). With the DTSA’s passage, however, the misappropriation, copying, disclosure, and use of trade secrets constitute “predicate acts” that may satisfy RICO’s continuity requirement. The article analyzes two scenarios that may create civil RICO liability: First, a coordinated departure involving multiple employees defecting to join the same competitor; and, second, when a company repeatedly hires key employees in an attempt to acquire its competitors trade secrets.

An Endangered Claim Reemerges: The Defend Trade Secrets Act Breathes New Life Into Trade-Secrets-Based RICO Claims” is reproduced with permission from White Collar Crime Report, 12 WCR 243, 03/17/2017. Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

shutterstock_533123590Continuing our annual tradition, we present the top developments/headlines for 2016 in trade secret, computer fraud, and non-compete law. Please join us for our first webinar of the New Year on February 2, 2017, at 12:00 p.m. Central, where we will discuss these new developments, their potential implications, and our predictions for 2017.

1. Defend Trade Secrets Act

One of the most significant developments of 2016 that will likely have a profound impact on trade secret cases in the coming years was the enactment of the Defend Trade Secrets Act (“DTSA”). The DTSA creates a new federal cause of action for trade secret misappropriation, albeit it does not render state law causes of action irrelevant or unimportant. The DTSA was passed after several years and many failed attempts. The bill was passed with overwhelming bipartisan, bicameral support, as well as backing from the business community.

The DTSA now allows trade secret owners to sue in federal court for trade secret misappropriation, and seek remedies previously unavailable. Employers should be aware that the DTSA contains a whistleblower immunity provision, which protects individuals from criminal or civil liability for disclosing a trade secret if such disclosure is made in confidence to a government official or attorney, indirectly or directly. The provision applies to those reporting violations of law or who file lawsuits alleging employer retaliation for reporting a suspected violation of law, subject to certain specifications (i.e., trade secret information to be used in a retaliation case must be filed under seal). This is significant for employers because it places an affirmative duty on them to give employees notice of this provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Employers who do not comply with this requirement forfeit the ability to recoup exemplary damages or attorneys’ fees under the DTSA in an action against an employee to whom no notice was ever provided.

At least one federal district court has rejected an employee’s attempts to assert whistleblower immunity under the DTSA. In Unum Group v. Loftus, No. 4:16-CV-40154-TSH, 2016 WL 7115967 (D. Mass. Dec. 6, 2016), the federal district court for the district of Massachusetts denied a defendant employee’s motion to dismiss and held that a defendant must present evidence to justify the whistleblower immunity.

We anticipate cases asserting claims under the DTSA will be a hot trend and closely followed in 2017. For further information about the DTSA, please see our webinar “New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive.”

2. EU Trade Secrets Directive

On May 27, 2016, the European Council unanimously approved its Trade Secrets Directive, which marks a sea-change in protection of trade secrets throughout the European Union (“EU”). Each of the EU’s 28 member states will have a period of 24 months to enact national laws that provide at least the minimum levels of protections afforded to trade secrets by the directive. Similar to the DTSA, the purpose of the EU’s Trade Secrets Directive was to provide greater consistency in trade secrets protection throughout the EU. For further information about the EU’s Trade Secrets Directive, please see our webinar “New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive.”

3. Government Agencies Continue to Scrutinize the Scope of Non-Disclosure and Restrictive Covenant Agreements

Fresh off of signing the DTSA, the Obama White House released a report entitled “Non-Compete Reform: A Policymaker’s Guide to State Policies,” which relied heavily on Seyfarth Shaw’s “50 State Desktop Reference: What Employers Need to Know About Non-Compete and Trade Secrets Law” and contained information on state policies related to the enforcement of non-compete agreements. Additionally, the White House issued a “Call to Action” that encouraged state legislators to adopt policies to reduce the misuse of non-compete agreements and recommended certain reforms to state law books. The Non-Compete Reform report analyzed the various states that have enacted statutes governing the enforcement of non-compete agreements and the ways in which those statutes address aspects of non-compete enforceability, including durational limitations; occupation-specific exemptions; wage thresholds; “garden leave;” enforcement doctrines; and prior notice requirements.

With those issues in mind, the Call to Action encourages state policymakers to pursue three “best-practice policy objectives”: (1) ban non-competes for categories of workers, including workers under a certain wage threshold; workers in occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or workers who may suffer adverse impacts from non-competes, such as workers terminated without cause; (2) improve transparency and fairness of non-competes by, for example, disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted; providing consideration over and above continued employment; 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; and (3) incentivize employers to write enforceable contracts and encourage the elimination of unenforceable provisions by, for example, promotion of the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.

While some large employers have embraced the Call to Action, even reform-minded employers are likely to be wary of some of these proposals. Moreover, this initiative may die or be limited with the new Trump administration.

On October 20, 2016, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) jointly issued their “Antitrust Guidance for Human Resource Professionals.” The Guidance explains how antitrust law applies to employee hiring and compensation practices. The agencies also issued a “quick reference card” that lists a number of “antitrust red flags for employment practices.” In a nutshell, agreements (whether formal or informal) among employers to limit or fix the compensation paid to employees or to refrain from soliciting or hiring each other’s employees are per se violations of the antitrust laws. Also, even if competitors don’t explicitly agree to limit or suppress compensation, the mere exchange of compensation information among employers may violate the antitrust laws if it has the effect of suppressing compensation.

In recent years, the National Labor Relations Board (“NLRB”) has issued numerous decisions in which workplace rules were found to unlawfully restrict employees’ Section 7 rights. Last year, the U.S. Court of Appeals for the D.C. Circuit denied Quicken Loans, Inc.’s petition for review of an NLRB decision finding that confidentiality and non-disparagement provisions in the company’s Mortgage Banker Employment Agreement unreasonably burdened employees’ rights under Section 7 of the NLRA.

4. New State Legislation Regarding Restrictive Covenants

Oregon has limited the duration of employee non-competes to two years effective January 1, 2016. Utah has enacted the Post-Employment Restrictions Amendments, which limits restrictive covenants to a one-year time period from termination. Any restrictive covenant that is entered into on or after May 10, 2016, for more than one year will be void. Notably, Utah’s new law does not provide for a court to blue pencil an agreement (i.e., revise/modify to the extent it becomes enforceable), rather the agreement as a whole will be deemed void if it is determined to be unreasonable.

In what appears to have become an annual tradition, Massachusetts legislators have attempted to pass legislation regarding non-competes, to no avail. Two other states in New England, however, are able to claim accomplishments in that regard. Specifically, Connecticut and Rhode Island each enacted statutes last summer imposing significant restrictions on the use of non-compete provisions in any agreement that establishes employment or any other form of professional relationship with physicians. While Connecticut’s law limits only the duration and geographic scope of physician non-competes, Rhode Island completely banned such provisions in almost all agreements entered into with physicians.

5. Noteworthy Trade Secret, Computer Fraud, and Non-Compete Cases

In Golden Road Motor Inn, Inc. v. Islam, 132 Nev. Adv. Op. 49 (2016), the Supreme Court of Nevada refused to adopt the “blue pencil” doctrine when it ruled that an unreasonable provision in a non-compete agreement rendered the entire agreement unenforceable. Accordingly, this means that employers conducting business in Nevada should ensure that non-compete agreements with their employees are reasonably necessary to protect the employers’ interests. Specifically, the scope of activities prohibited, the time limits, and geographic limitations contained in the non-compete agreements should all be reasonable. If an agreement contains even one overbroad or unreasonable provision, the employer risks having the entire agreement invalidated and being left without any recourse against an employee who violates the agreement.

The Louisiana Court of Appeal affirmed a $600,000 judgment, plus attorneys’ fees and costs, against an ex-employee who violated his non-compete when he assisted his son’s start-up company compete with the ex-employee’s former employer. See Pattridge v. Starks, No. 50,351-CA (Louisiana Court of Appeal, Feb. 24, 2016) (Endurall III).

A Massachusetts Superior Court judge struck down a skin care salon’s attempt to make its non-compete agreement seem prettier than it actually was. In denying the plaintiff’s motion for a preliminary injunction, the court stressed that employees’ conventional job knowledge and skills, without more, would not constitute a legitimate business interest worth safeguarding. See Elizabeth Grady Face First, Inc. v. Garabedian et al., No. 16-799-D (Mass. Super. Ct. March 25, 2016).

In a case involving alleged violations of the Kansas Uniform Trade Secrets Act (“KUTSA”) and the Computer Fraud and Abuse Act (“CFAA”), a Kansas federal district court granted a defendant’s motion for summary judgment, holding that (a) payments to forensic experts did not satisfy the KUTSA requirement of showing an “actual loss caused by misappropriation” (K.S.A. 60-3322(a)), and (b) defendant was authorized to access the company’s shared files and, therefore, he did not violate the CFAA. See Tank Connection, LLC v. Haight, No. 6:13-cv-01392-JTM (D. Kan., Feb. 5, 2016) (Marten, C.J.).

The Tennessee Court of Appeals held that the employee’s restrictive covenants were unenforceable when the employer had not provided the employee with any confidential information or specialized training. See Davis v. Johnstone Group, Inc., No. W2015-01884-COA-R3-CV (Mar. 9, 2016).

Reversing a 2-1 decision of the North Carolina Court of Appeals, the state’s Supreme Court held unanimously that an assets purchase-and-sale contract containing an unreasonable territorial non-competition restriction is unenforceable Further, a court in that state must strike, and may not modify, the unreasonable provision. See Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC, No. 316A14 (N.C. Sup. Court, Mar. 18, 2016).

The Ohio Court of Appeal upheld a non-compete giving the former employer discretion to determine whether an ex-employee was working for a competitor. See Saunier v. Stark Truss Co., Case No. 2015CA00202 (Ohio App., May 23, 2016).

In a clash between two major oil companies, the Texas Supreme Court ruled on May 20, 2016, that the recently enacted Texas Uniform Trade Secrets Act (“TUTSA”) allows the trial court discretion to exclude a company representative from portions of a temporary injunction hearing involving trade secret information. The Court further held a party has no absolute constitutional due-process right to have a designated representative present at the hearing.

A Texas Court of Appeals held on August 22, 2016, that a former employer was entitled to $2.8 million in attorneys’ fees against a former employee who used the employer’s information to compete against it. The Court reached this ruling despite the fact that the jury found no evidence that the employer sustained any damages or that the employee misappropriated trade secrets.

In Fidlar Technologies v. LPS Real Estate Data Solutions, Inc., Case No. 4:13-CV-4021 (7th Cir., Jan. 21, 2016), the Seventh Circuit Court of Appeals affirmed a district court’s conclusion that a plaintiff had produced no evidence refuting the defendant’s contention that it honestly believed it was engaging in lawful business practices rather than intentionally deceiving or defrauding the plaintiff. Even though the plaintiff’s technology did not expressly permit third parties to access the digitized records and use the information without printing copies, thereby avoiding payment of fees to plaintiff, such access and use were not prohibited.

A divided Ninth Circuit panel affirmed the conviction of a former employee under the CFAA, holding that “[u]nequivocal revocation of computer access closes both the front door and the back door” to protected computers, and that using a password shared by an authorized system user to circumvent the revocation of the former employee’s access is a crime. See United States v. Nosal, (“Nosal II”) Nos. 14-10037, 14-10275 (9th Cir. July 5, 2016).

The Ninth Circuit in Facebook v. Power Ventures, Case No. 13-17154 (9th Cir. Jul. 12, 2016), held that defendant Power Ventures did not violate the CFAA when it made copies and extracted data from the social media website despite receiving a cease and desist letter. The court noted that Power’s users “arguably gave Power permission to use Facebook’s computers to disseminate messages” (further stating that “Power reasonably could have thought that consent from Facebook users to share the [Power promotion] was permission for Power to access Facebook’s computers”) (emphasis in original). Importantly, the court found that “[b]ecause Power had at least arguable permission to access Facebook’s computers, it did not initially access Facebook’s computers ‘without authorization’ within the meaning of the CFAA.”

6. Forum Selection Clauses

California enacted a new law (Labor Code § 925) that restrains the ability of employers to require employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where the employee was individually represented by a lawyer in negotiating an employment contract. For companies with headquarters outside of California and employees who work and reside in California, this assault on the freedom of contract is not welcome news.

We also continued to see federal district courts enforcing forum selection clauses in restrictive covenant agreements. For example, a Massachusetts federal district court last fall transferred an employee’s declaratory judgment action to the Eastern District of Michigan pursuant to a forum-selection clause in a non-compete agreement over the employee’s argument that he had signed the agreement under duress because he was not told he would need to sign it until he had already spent the money and traveled all the way from India to the United States.

7. Security Breaches and Data Theft Remain Prevalent

2016 was a record year for data and information security breaches, one of the most notably being WikiLeaks’ release of emails purportedly taken from the Democratic National Committee’s email server. According to a report from the Identity Theft Resource Center, U.S. companies and government agencies saw a 40% increase in data breaches from 2015 and suffered over a thousand data breaches. Social engineering has become the number one cause of data breaches, leaks, and information theft. Organizations should alert and train employees on following policy, spotting potential social engineering attacks, and having a clear method to escalate potential security risks. Employee awareness, coupled with technological changes towards better security will reduce risk and exposure to liability. For technical considerations and best practices and policies of attorneys when in the possession of client data, please view our webinar, “A Big Target—Cybersecurity for Attorneys and Law Firms.”

8. The ITC’s Extraterritorial Authority in Trade Secret Disputes

In a case involving the misappropriation of U.S. trade secrets in China, the U.S. Supreme Court was asked to decide whether Section 337 of the Tariff Act does, in fact, authorize the U.S. International Trade Commission (“ITC”) to investigate misappropriation that occurred entirely outside the United States. See Sino Legend (Zhangjiangang) Chemical Co. Ltd. v. ITC. The crux of Sino Legend’s argument was that for a statute to apply abroad, there must be express congressional intent. Not surprisingly, Sino Legend argued that such intent was missing from Section 337 of the Tariff Act. In Tianrui Group Co. Ltd. v. ITC, 661 F.3d 1322 (Fed. Cir. 2011), the Federal Circuit held that such intent was manifest in the express inclusion of “the importation of articles … into the United States” which evidenced that Congress had more than domestic concerns in mind. On January 9, 2017, the Supreme Court denied Sino Legend’s petition for certiorari, thereby keeping the ITC’s doors open to trade secret holders seeking to remedy misappropriation occurring abroad. For valuable insight on protecting trade secrets and confidential information in China and other Asian countries, including the effective use of non-compete and non-disclosure agreements, please check out our recent webinar titled, “Trade Secret and Non-Compete Considerations in Asia.”

We thank everyone who followed us this year and we really appreciate all of your support. We will continue to provide up-to-the-minute information on the latest legal trends and cases in the U.S. and across the world, as well as important thought leadership and resource links and materials.