Defend Trade Secrets Act

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.

webinarOn Thursday, February 2, at 12:00 p.m. Central, Seyfarth attorneys Robert Milligan, Michael Wexler, and Daniel Joshua Salinas will present 2016 National Year In Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law.

In Seyfarth’s first installment of its 2017 Trade Secrets Webinar series, Seyfarth attorneys will review noteworthy cases and other legal developments from across the nation over the last year in the areas of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud. Plus, they will provide their predictions for what to watch for in 2017.

The Seyfarth panel will address the following topics:

  • Significant new federal and state court decisions and legislation on non-compete and other restrictive covenants that may impact their enforcement, including concerns regarding adequate consideration for agreements;
  • The Obama Administration’s 2016 report on noncompetes and efforts by government agencies and employees to challenge and narrow the use of noncompetes;
  • The recently enacted Defend Trade Secrets Act, its early cases, and tips for navigating the new law and updating trade secret protection agreements to comply with the statute;
  • Practical implications of new legislation limiting the use of forum selection and choice of law provisions in employment contracts;
  • Recent developments regarding the ITC’s extraterritorial authority for trade secret disputes; and
  • Noteworthy data breaches and criminal prosecutions and criminal sentences for trade secret misappropriation, data theft, and computer fraud and discussion of lessons learned.

Please join us for this informative webinar.

register

shutterstock_526419625Throughout 2016, Seyfarth Shaw’s dedicated Trade Secrets, Computer Fraud & Non-Competes Practice Group hosted a series of CLE webinars that addressed significant issues facing clients today in this important and ever-changing area of law. The series consisted of 11 webinars:

  1. 2015 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete and Computer Fraud Law
  2. Data Security and Trade Secret Protection for Lawyers
  3. New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive
  4. Protecting Confidential Information and Client Relationships in the Financial Services Industry
  5. Trade Secrets, Restrictive Covenants and the NLRB: Can They Peacefully Coexist?
  6. The Defend Trade Secrets Act: What Employers Should Know Now
  7. Enforcing Trade Secret and Non-Compete Provisions in Franchise Agreements
  8. International Non-Compete Law Update
  9. The Intersection of Trade Secrets Violations and the Criminal Law
  10. Trade Secret Audits: You Can’t Protect What You Don’t Know You Have
  11. Proving-Up Trade Secret Misappropriation: Best Practices and Tales from the Trenches

As a conclusion to this well-received 2016 webinar series, we compiled a list of key takeaway points for each program, which are listed below. For those clients who missed any of the programs in this year’s series, the webinars are available on CD upon request, or you may click on the title of each webinar for the online recording. Seyfarth Trade Secrets, Computer Fraud & Non-Compete attorneys are happy to discuss presenting similar presentations to your groups for CLE credit. Seyfarth will continue its trade secrets webinar programming in 2017, and we will release the 2017 trade secrets webinar series topics in the coming weeks.

2015 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete and Computer Fraud Law

The first webinar of the year, led by Robert Milligan, Jesse Coleman, and Joshua Salinas, reviewed noteworthy cases and other legal developments from across the nation in the areas of trade secret and data theft, non-compete enforceability, computer fraud, and the interplay between restrictive covenant agreements and social media activity, and provided predictions for what to watch for in 2016.

  • Data breach is a question of when and not if. Companies should ensure they have implemented sufficient information security policies and a data breach response plan. There are limitations in the law and challenges in international misappropriation cases. The best strategy is to try to prevent breach and misappropriation through effective policies, procedures, and agreements, employee training, technology solutions, and continual assessment and improvement.
  • Courts continue to struggle with issues regarding adequacy of consideration for restrictive covenants. Employers 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 under applicable law.
  • While the circuit court split continues to widen regarding the interpretation of unauthorized access under the Computer Fraud and Abuse Act, the recent decision in U.S. v. Christensen (9th Cir. 2015) may provide employers with a civil cause of action in California against employees who misuse company data without permission.

Data Security & Trade Secret Protection for Lawyers

In recent years, the prevalence of data and information security breaches at major corporations have become increasingly more commonplace. While general awareness may be increasing, many companies are still neglecting to address serious information security issues.

In the second installment, Seyfarth attorneys Richard D. Lutkus and James S. Yu were joined by Joseph Martinez, Chief Technology Officer and Vice President of Forensics at Innovative Discovery. This program covered considerations that attorneys should take into account when in possession of any client data. Coverage included both technical considerations, best practices and policies, as well as practical advice to steer clear of ethical violations.

  • Whether corporate or outside counsel, there are basic steps that can dramatically increase the security of your or your client’s data. Management of data will continue to be a necessity for any entity. Proper policies, protocols, and training should be developed and put into place to protect data in transit and at rest. Use of encryption and access control are both key to proper protection of data.
  • Social engineering is 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.
  • Lawyers have an ethical duty to ensure that reasonable steps are taken to protect their client’s and employer’s data. Significant statistics have shown that many law firms and practitioners are behind the curve in terms of information security preparedness. Hackers have recently focused their targets on the lax security practices of law firms to obtain client data or inside information.

New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive

In Seyfarth’s third installment of its 2016 Trade Secrets Webinar series, Seyfarth attorneys Robert Milligan, Justin Beyer, and Daniel Hart provided attendees with a thorough discussion of the fundamentals as well as updates of the Defend Trade Secrets Act (DTSA) and the proposed EU Trade Secrets Directive. The panel gave insight into the limitations and new benefits of the Act and the proposed Directive.

  • With the passage of the Defend Trade Secrets Act, there is now a federal cause of action for trade secrets disapproval. Some of the key provisions in the Act include a three year statue of limitations, the availability of attorneys’ fees, exemplary damages, as well as increased criminal penalties for a violation of the Economic Espionage Act. It also includes portions of the DTSA as predicate offenses for the RICO Act.
  • The Act also contains language requiring that an employer include information relating to whistleblower immunity for employers to obtain exemplary damages. This only underscores an important point to anyone maintaining employment agreements which contain restrictive covenants: it is imperative for employers to monitor applicable state and federal law to best preserve and maintain their rights and employment agreements.
  • The European Commission’s directive on trade secret protection will mark a sea-change in protection of trade secrets throughout the European Union. 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. Look for greater consistency in trade secrets protection throughout the European Union in the years ahead.

Protecting Confidential Information and Client Relationships in the Financial Services Industry

Seyfarth’s fourth installment, presented by Scott Humphrey, Marcus Mintz, and Kristine Argentine, focused on trade secret and client relationship considerations in the banking and finance industry, with a particular focus on a firm’s relationship with its FINRA members.

  • Enforcement of restrictive covenants and confidentiality obligations for FINRA and non-FINRA members are different. Although FINRA allows a former employer to initially file an injunction action before both the Court and FINRA, FINRA—not the Court—will ultimately decide whether to enter a permanent injunction and/or whether the former employer is entitled to damages as a result of the former employee’s illegal conduct.
  • Address restrictive covenant enforcement and trade secret protection before a crisis situation arises. An early understanding of the viability of your company’s restrictive covenants and the steps your company has taken to ensure that its confidential information remains confidential will allow your company to successfully and swiftly evaluate its legal options when a crisis arises.
  • Understand the Protocol for Broker Recruiting’s impact on your restrictive covenant and confidentially requirements. The Protocol significantly limits the use of restrictive covenants and allows departing brokers to take client and account information with them to their new firm.

Trade Secrets, Restrictive Covenants and the NLRB: Can They Peacefully Coexist?

Seyfarth’s fifth installment, attorneys Jim McNairy and Marc Jacobs conveyed strategies and best practices to help in-house counsel and HR professionals ensure that company and internal clients are protected.

  • The National Labor Relations Act applies to all private sector workplaces—not just unionized facilities. Among other things, the Act protects an employee’s right to engage in protected concerted activities, which in general are group action (usually by two or more employees) acting together in a lawful manner, for a common, legal, work-related purpose (e.g., wages, hours and other terms and conditions of employment). Limits on these rights and retaliation against an employee for engaging in protected concerted activity violates the Act. The National Labor Relations Board is aggressively protecting employees’ rights to engage in protected concerted activity. As part of this effort, the NLRB will find unlawful workplace rules, policies, practices and agreements that explicitly restrict Section 7 activities (such as a rule requiring employees to keep their wage rate confidential) or that employees would reasonably believe restricts their Section 7 rights (e.g., a confidentiality agreement or policy that generally includes in the definition of confidential information “personnel information”).
  • In the 2015 Browning-Ferris Industries decision, the NLRB substantially broadened the definition of “joint employer.” Under this new expanded definition, an entity can be found to be a joint employer if it has the authority, even if unexercised, to control essential terms and condition of employment. As a result, if one entity has agreements with other entities to provide labor or services, that entity may be a joint employer of the other entities’ employees based on the level of control it has over the terms and conditions of employment of the other entities/ employees. One indicia of that control would be requirements for hiring or employment, such as requirements to sign agreements or adopt policies for the protection of confidential information and similar restrictions.
  • As a result, and also because of the signing of the federal Defend Trade Secrets Act, now is a critical time for all employers to review their policies, practices, procedures and agreements (1) regarding the protection of confidential information; and (2) with third-party service and labor providers. In reviewing confidential information policies and agreements, the focus should be on narrow tailoring using specifics and examples to protect information that lawfully may be protected in a lawful manner. For agreements with parties, the review should include an analysis of the factors that may show joint employer status so that you can balance the risk of a joint employer finding with the needs to protect your organization.

The Defend Trade Secrets Act: What Employers Should Know Now

In Seyfarth’s sixth installment, attorneys Robert Milligan, Daniel Hart, and Amy Abeloff described the key features of the Defend Trade Secrets Act (“DTSA”) and compared its key provisions to the state Uniform Trade Secrets Act (“UTSA”) adopted in many states. They also provided practical tips and strategies concerning the pursuit and defense of trade secret cases in light of the DTSA, and provide some predictions concerning the future of trade secret litigation.

  • The DTSA was passed after many failed attempts at creating trade secret legislation allowing for a federal cause of action for misappropriation. The bill was passed with overwhelming bipartisan, bicameral support, as well as backing from many big name businesses. The DTSA now allows trade secret owners to sue in federal court for trade secret misappropriation, and seek remedies heretofore unavailable.
  • The DTSA contains an immunity provision that 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). The DTSA places an affirmative duty on employers 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,” and will only be in compliance with this requirement if the employer cross-references a policy given to relevant employees describing the reporting policy for suspected violations of law. Employers that do not comply with this requirement forfeit the ability to recoup exemplary damages or attorney fees in an action brought under the DTSA against an employee to whom no notice was ever provided.
  • Though the passage of the DTSA creates a new federal cause of action for trade secret misappropriation, the passage does not render state law and causes of action irrelevant or unimportant. The UTSA is still an available cause of action in 48 states, and state law on misappropriation still plays a vital role in drafting non-disclosure and non-competition agreements. Though the DTSA can place certain limitations on employees via employment agreements and employers may be able to seek injunctive relief against former employees in the event of misappropriation, such restrictions must comport with relevant state law.

Enforcing Trade Secret and Non-Compete Provisions in Franchise Agreements

In the seventh installment of Seyfarth’s webinar series, attorneys John Skelton, James Yu, and Dawn Mertineit focused on the importance of state-specific non-compete laws and legislation and recent Federal and State efforts to regulate the use of non-compete agreements; enforcement considerations for the Franchisee when on-boarding and terminating employees; and lessons learned from recent decision regarding enforcing non-compete provisions upon termination and non-renewal.

  • As reflected by the May 5, 2016, White House report (Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses), state and federal non-compete legislative proposals and recent enforcement action by the Illinois Attorney General challenging the use of non-compete agreements for lower level employees, Franchisors and Franchisees need to anticipate more regulation and scrutiny.
  • With respect to their own employees, Franchisors and Franchisees need to develop and implement on-Boarding, termination and other procedures designed to ensure that both departing and prospective employees understand their ongoing obligations with respect to the company’s confidential and proprietary information and trade secrets and that such information is protected throughout the employment relationship.
  • The enforceability of non-compete provisions are most often litigated in the context of a request for a preliminary injunction and several recent decisions confirm that to enforce a non-compete against a departing franchisee the franchisor (1) should be able to show harm to actual competition; (2) needs to act promptly and that enforcement delays likely means that any alleged harm is not irreparable; and (3) should develop and implement a post-termination plan beyond simply sending a notice of termination as the franchisor will need to present evidence of actual harm.

International Non-Compete Law Update

In this installment in Seyfarth’s 2016 Trade Secrets Webinar Series, International attorney Dominic Hodson focused on non-compete considerations from an international perspective. Dominic discussed general principals and recent international developments in non-compete issues around the globe. Companies who compete in the global economy should keep in mind these key points:

  • Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction. However, there are some common requirements and issues regarding enforceability based on the region, particularly in common law jurisdictions such as the UK, Canada (excluding Quebec), Australia/New Zealand, and Singapore/Hong Kong. A restrictive covenant is void unless it is reasonable to protect a legitimate interest of the employer; simply wanting to stop competition post-termination is not a legitimate interest.
  • Outside of common law countries, there is no uniformity in rules, and every country must be taken separately. There are often detailed statutory rules that the clause must fulfill, but nevertheless there are repeating themes: There must be reasonableness to the non-compete agreement, and you must require proportionality between the clause and the interest sought to be protected.
  • With respect to non-common law countries, liquidated damaged are often allowed. Civil law countries tend to be much more forgiving of liquidated damages and don’t have the same rules regarding “penalty clauses.”

The Intersection of Trade Secrets Violations and the Criminal Law

In this webinar, attorneys Andrew Boutros, Katherine Perrelli, and Michael Wexler focused on criminal liability for trade secret misappropriation. Trade secret misappropriation is increasingly garnering the attention of federal law enforcement authorities. This reality creates different dynamics and risks depending on whether the company at issue is being accused of wrongdoing or is the victim of such conduct.

  • The theft of trade secrets is not only a civil violation—it is also a criminal act subject to serious fines and imprisonment. In an ever-increasing technological age where a company’s crown jewels can be downloaded onto a thumb drive, victims and corporate violators must be mindful of the growing role that law enforcement plays in this active area. And, in doing so, working with experienced counsel is critical to interfacing with law enforcement (especially depending on which side of the “v.” you are on), while still maintaining control of the civil litigation.
  • With the advent of the Defend Trade Secrets Act (DTSA), intellectual capital owners have a powerful new tool to both protect assets with as well potentially defend against. As such, processes must be in place to carefully screen new employees as well as provide vigilance over exiting employees so that one can guard against theft and be prepared to address purported theft brought to ones doorstep with a new hire. Finally, it is important to review and update agreements with the latest in suggested and required language to maximize protections, which is best accomplished through annual reviews of local and federal statutes with one’s counsel.
  • “Protect your own home” by putting tools in place before a trade secret misappropriation occurs. This includes taking a look at your employment agreements to make sure they are updated to comply with the DTSA and that they have been signed. In addition, make sure you have agreements in place with third parties (e.g., clients, vendors, contractors, suppliers) to protect your proprietary information. Finally, secure your network and facilities by distributing materials on a need-to-know basis: Don’t let your entire workforce have access.

Trade Secret Audits: You Can’t Protect What You Don’t Know You Have

In Seyfarth’s tenth installment, attorneys Robert Milligan, Eric Barton, and Scott Atkinson focused on trade secret audits. It is not uncommon for companies to find themselves in situations where important assets are overlooked or taken for granted. Yet, those same assets can be lost or compromised in a moment through what is often benign neglect. Experience has shown that companies gain tremendous value by taking a proactive, systematic approach to assessing and protecting their trade secret portfolios through a trade secret audit.

  • As part of any trade secret audit, confidentiality agreements should be updated to include the new immunity language required by the Defend Trade Secrets Act (DTSA) to preserve the company’s right to exemplary damages and attorney’s fees under the DTSA.
  • A trade secret audit, and the resulting protection plan, should have three primary goals:
    (1) Ensure that a company’s trade secrets are adequately identified and protected from disclosure;
    (2) Ensure that a company has taken adequate steps to protect itself in litigation if a trade secret is misappropriated; and
    (3) Limit the risk of exposure to other companies’ claims of trade secret misappropriation.
  • As part of a trade secret audit, onboarding and off-boarding procedures are evaluated to ensure that the intellectual property rights of third parties and the company are respected.

Proving-Up Trade Secret Misappropriation: Best Practices and Tales from the Trenches

In Seyfarth’s final installment in the 2016 Trade Secrets Webinar Series, James McNairy and Justin Beyer, joined by computer forensics expert Jim Vaughn of iDiscovery Solutions, focused on best practices for assembling the evidence most often needed to prosecute a claim for misappropriation of trade secrets.

  • The first step in prosecuting trade secret misappropriation starts with identifying your trade secret information, maintaining its confidentiality, and putting in place safeguards such as robust confidentiality agreements, computer use and access policies, and exit interviews that are tailored to flag any exfiltration of data by high risk employees or business partners with whom your company is parting ways. Diligence on the front end will better alert your organization of potential data theft and enable it to secure the data, should it be misappropriated.
  • As part of your investigation of potential trade secret misappropriation, remember to conduct a complete audit of devices and sources of data storage and transmission to ensure nothing is overlooked. While doing so, it is critical to maintain the forensic integrity of the devices and data to allow the best chance of admitting the information into evidence in any litigation.
  • Efficiently organizing the right team to prosecute trade secret theft is critical. The “team” most often includes human resources professionals (to authenticate key agreements, policies, dates of employment etc.), a senior manager or executive (who can validate the existence of the trade secret, its value, the measures taken to maintain secrecy etc.), senior managers who worked with the suspected misappropriators (who can attest to access, use, and possession of the at issue information), in-house IT professionals (who can lay the foundation for devices, data, and access rights of the suspected misappropriators), and an independent computer forensics expert (who can objectively present the facts concerning data accessed, by whom, through what means, and explain any technical nuance to “connect the technical dots” of the bad actor(s) conduct).

2017 Trade Secret Webinar Series

Beginning in January 2017, we will begin another series of trade secret webinars. The first webinar of 2017 will be “2016 National Year in Review: What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law.” To receive an invitation to this webinar or any of our future webinars, please sign up for our Trade Secrets, Computer Fraud & Non-Competes mailing list by clicking here.

Seyfarth Trade Secrets, Computer Fraud & Non-Compete attorneys are happy to discuss presenting similar presentations to your groups for CLE credit.

shutterstock_532304278This past Spring, we reported on the recently enacted Defend Trade Secrets Act (“DTSA”), which provides a new federal civil cause of action to trade secret owners seeking to pursue claims of trade secret misappropriation.  Last week, the U.S. District Court in Massachusetts addressed the whistleblower immunity provision of the DTSA, which protects anyone who discloses a trade secret in confidence to a government official or an attorney “solely for the purpose of reporting or investigating a suspected violation of law.”  In denying an employee’s motion to dismiss his employer’s DTSA claim, the district court held that a defendant must present evidence to justify the immunity.  The case is Unum Group v. Loftus, No. 16-cv-40154-TSH (D. Mass. December 6, 2016). Continue Reading Federal Court Rejects Defend Trade Secrets Act Whistleblower Immunity Defense on a Motion to Dismiss and Orders Employee to Return Stolen Trade Secrets

shutterstock_413782369There were significant developments and a near miss in trade secret and restrictive covenant law both federally and in Massachusetts in 2016, including the passage of the federal Defend Trade Secrets Act and the failure again of the Massachusetts legislature to pass noncompete reform legislation.  In addition, the Obama White House issued a “Call to Action” with respect to noncompete agreements in its waning days.  Understanding the impact of these changes, and what to expect in 2017, will help your company safeguard its most valuable assets and maintain its advantage over competitors.

On Wednesday, December 14th at 8:00 a.m. Eastern, the Boston office is hosting a Breakfast Briefing entitled “Change is in the Air: 2016 Developments in Trade Secret and Restrictive Covenant Law in Massachusetts and Beyond, and What to Expect in 2017.” Attorneys Katherine Perrelli, Erik Weibust, and Dallin Wilson will discuss recent developments in restrictive covenant and trade secrets law, and what to expect in 2017.

The program will focus on practical responses to the following issues and questions:

  • What you need to know about the federal Defend Trade Secrets Act of 2016
  • What to expect with respect to noncompete reform in Massachusetts in 2017
  • What does the White House’s Call to Action mean for Massachusetts businesses, and will it stick with the new Administration?
  • Important decisions of 2016 in Massachusetts and beyond

register

There is no cost to attend but registration is required and seating is limited. Members of the general counsel’s office, HR professionals, corporate executives, risk managers, and directors are invited to attend. The breakfast briefing will take place from 8:00 a.m. to 10:00 a.m. Eastern at Seyfarth’s Boston office: Two Seaport Lane, Suite 300, Boston, MA 02210.

shutterstock_370595594We are pleased to announce the webinar “Trade Secret Audits: You Can’t Protect What You Don’t Know You Have” is now available as a webinar recording.

In Seyfarth’s ninth installment in the 2016 Trade Secrets Webinar Series, attorneys Robert Milligan, Eric Barton, and Scott Atkinson focused on trade secret audits. It is not uncommon for companies to find themselves in situations where important assets are overlooked or taken for granted. Yet, those same assets can be lost or compromised in a moment through what is often benign neglect. Experience has shown that companies gain tremendous value by taking a proactive, systematic approach to assessing and protecting their trade secret portfolios through a trade secret audit.

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

  • As part of any trade secret audit, confidentiality agreements should be updated to include the new immunity language required by the Defend Trade Secrets Act (DTSA) to preserve the company’s right to exemplary damages and attorney’s fees under the DTSA.
  • A trade secret audit, and the resulting protection plan, should have three primary goals:

(1)  Ensure that a company’s trade secrets are adequately identified and protected from disclosure;

(2)  Ensure that a company has taken adequate steps to protect itself in litigation if a trade secret is misappropriated; and

(3)  Limit the risk of exposure to other companies’ claims of trade secret misappropriation.

  • As part of a trade secret audit, onboarding and off-boarding procedures are evaluated to ensure that the intellectual property rights of third parties and the company are respected.

OverviewWe are pleased to announce the webinar “The Intersection of Trade Secrets Violations and the Criminal Law” is now available as a webinar recording.

In Seyfarth’s eighth installment in the 2016 Trade Secrets Webinar Series, attorneys Andrew Boutros, Katherine Perrelli and Michael Wexler focused on criminal liability for trade secret misappropriation. Trade secret misappropriation is increasingly garnering the attention of federal law enforcement authorities. This reality creates different dynamics and risks depending on whether the company at issue is being accused of wrongdoing or is the victim of such conduct.

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

  • The theft of trade secrets is not only a civil violation — it is also a criminal act subject to serious fines and imprisonment.  In an ever-increasing technological age where a company’s crown jewels can be downloaded onto a thumb drive, victims and corporate violators must be mindful of the growing role that law enforcement plays in this active area.  And, in doing so, working with experienced counsel is critical to interfacing with law enforcement (especially depending on which side of the “v.” you are on), while still maintaining control of the civil litigation.
  • With the advent of the Defend Trade Secrets Act, intellectual capital owners have a powerful new tool to both protect assets with as well potentially defend against.  As such, processes must be in place to carefully screen new employees as well as provide vigilance over exiting employees so that one can guard against theft and be prepared to address purported theft brought to ones doorstep with a new hire.  Finally, it is important to review and update agreements with the latest in suggested and required language to maximize protections which is best accomplished through annual reviews of local and federal statutes with one’s counsel.
  • “Protect your own home” by putting tools in place before a trade secret misappropriation occurs. This includes taking a look at your employment agreements to make sure they are updated to comply with the Defend Trade Secrets Act (DTSA) and that they have been signed. In addition, make sure you have agreements in place with third parties (e.g., clients, vendors, contractors, suppliers) to protect your proprietary information. Finally, secure your network and facilities by distributing materials on a need-to-know basis: Don’t let your entire workforce have access.

shutterstock_338783330Fresh off of signing the Defend Trade Secrets Act, the White House released a report yesterday entitled “Non-Compete Reform: A Policymaker’s Guide to State Policies,” which contains information on state policies related to the enforcement of non-compete agreements. Additionally, the White House issued a “Call to Action” that encourages state legislators to adopt policies to reduce the misuse of non-compete agreements and recommends certain reforms to state law books.

The “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,” suggests that non-compete clauses have recently become more widespread, impacting 18% of all workers and 15% of employees without a college degree. The report analyzes 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.

Continue Reading The White House’s Call to Action: A Step in the Right Direction or a Bridge Too Far?

Seyfarth Offers 2016-2017 Edition of 50 State Desktop Reference:
What Employers Need To Know About Non-Compete and Trade Secrets Law

2016 50 state desktop guideWith the passage of the Defend Trade Secrets Act (DTSA) in May 2016, there is now a federal cause of action for trade secrets misappropriation. In addition, some states have passed legislation this year further narrowing the use of non-compete agreements, and both federal and state regulators have increased their scrutiny of such agreements in certain contexts.

Seyfarth’s Trade Secrets, Computer Fraud and Non-Competes Practice Group is pleased to provide the 2016-2017 Edition of our one-stop 50 State Desktop Reference, which surveys the most-asked questions related to the use of non-competes, restrictive covenants, and trade secrets in all 50 states. For the company executive, in-house counsel, or HR professional, we hope this guide will provide a starting point to answer your questions about protecting your company’s most valuable and confidential assets.

BUTTON

 

DTSA Cover ImageOn May 11, 2016, President Barack Obama signed into law the Defend Trade Secrets Act of 2016 (“DTSA”), which Congress passed April 27, 2016. So, what does the passage of the DTSA mean for your company?

In a nutshell, the DTSA “federalizes” trade secret law by creating a federal claim for trade secret misappropriation and creates new remedies, including an ex parte seizure order to recover misappropriated trade secrets. It also serves as 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.

Nevertheless, the DTSA also imposes new obligations on employers. To take full advantage of the remedies provided under the DTSA, companies have an immediate obligation to provide certain disclosures in all non-disclosure agreements with employees, contractors, and consultants that are entered into or updated following the statute’s effective date.

Seyfarth’s DTSA Desktop Reference guide describes the DTSA’s unique legal structure and remedies. We also provide tips and strategies in light of the passage of the DTSA.

How to get your DTSA Desktop Reference guide:

This publication may be requested from your Seyfarth contact in hard copy or eBook format (compatible with PCs, Macs and most major mobile devices). The eBook is fully searchable and offers the ability to bookmark useful sections and make notations for easy future reference.

To request the DTSA Desktop Reference guide in eBook or hard copy, please click the button below:

BUTTON