Header graphic for print

Trading Secrets

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

Webinar Recap! Protecting Confidential Information and Client Relationships in the Financial Services Industry

Posted in Practice & Procedure, Trade Secrets

shutterstock_74943355We are pleased to announce the webinar “Protecting Confidential Information and Client Relationships in the Financial Services Industry” is now available as a podcast and webinar recording.

In Seyfarth’s second installment of its 2015 Trade Secrets Webinar series, Seyfarth attorneys will focus 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.

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

  • 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 restrictive covenants and the steps that you have taken to ensure that your confidential information remains confidential will allow you to successfully and swiftly evaluate your 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.

To accommodate our global audience, the third installment in the 2015 Trade Secrets Webinar Series will be available as an on-demand broadcast. Please register to receive access to the International Trade Secrets and Non-Compete Law Update broadcast here.

Many Courts Are Reluctant To Permit Parties To Redact Filed Documents, Or To File Them Under Seal, Even When They Contain Trade Secrets

Posted in Practice & Procedure, Trade Secrets

BicycleIn a patent infringement case pending in a California federal court, the defendant moved for summary judgment. The parties jointly requested leave to submit to the court under seal, or with redactions, documents containing trade secrets and other confidential information. The court granted the request only in part. Icon-IP Pty Ltd. v. Specialized Bicycle Components, Inc., Case No. 12-cv-03844 (N.D. Cal., Mar. 3, 2015) (Tigar, J.).

Status of the case. This hotly contested patent infringement lawsuit concerned bicycle seats. The defendant moved for summary judgment. By agreement of the parties, the defendant sought to support the motion with certain exhibits filed under seal, or redacted, and the plaintiff did likewise in opposition to the summary judgment motion. Sealing or redacting would have the effect of denying to the public access to all or parts of those documents. Judge Tigar granted leave to seal or redact some of the relevant documents, denied leave as to some, and as to the remainder he directed the parties to tailor more narrowly their sealing or redacting request.

Legal standards applicable to requests to seal or redact.   Judge Tigar indicated that there are guiding principles which relate to all such requests in civil cases and additional rules that vary depending on whether the court is considering a non-dispositive or a dispositive motion.

  1. General principles. The starting point, according to the court, is Fed.R.Civ.P. 26(c)(1)(G). In relevant part, it states that “The court may, for good cause, issue” a protective order “requiring that a trade secret or other confidential . . . commercial information not be revealed, or be revealed only in a specified way.” Next, Judge Tigar pointed to Northern District of California local rule 79-5 which provides that a party seeking to seal or redact must establish that the document contains matter protectable by law and that the request is “narrowly tailored.” An uncontested protective order (or stipulation) regarding confidentiality will not suffice, he said, because of the “strong presumption in favor of [public] access” to court documents. Other courts considering similar motions also have mentioned the burden that sealing and redacting places on judges and other court personnel as another relevant factor.
  2. Non-dispositive motions. According to Ninth Circuit case law cited by the judge, if the motion to which the request to seal or redact relates is not for summary judgment (or if the motion is for summary judgment but the documents in question “would not be effectively dispositive of” any issues raised in the motion), the party requesting a stay or redaction need make only “a particularized showing under the good cause standard” of Rule 26(c)(1)(G). The Icon-IP case concerned a dispositive motion, and so the court had no occasion to define the phrase “particularized showing.” Other judges have written that the it means proof of specific prejudice or harm that will result if the information is disclosed.
  3. Dispositive motions. Citing Ninth Circuit and California district court opinions, Judge Tigar stated that a party seeking to seal or redact a document submitted with respect to a dispositive summary judgment motion must overcome a “presumption of public access.” This means articulation of “compelling reasons, supported by specific factual findings that outweigh the general history of access and the public policies favoring disclosure, such as the public interest in understanding the judicial process.” In other words, courts should operate in the open and not behind a shroud of secrecy.

The court’s rulings.

  1. Judge Tigar permitted redacting a portion of the deposition of a non-party who had been questioned about “highly sensitive business information regarding” his own company. Sealing the entirety of certain of the non-party’s documents was denied, however, even though they contained confidential information which could be damaging to the non-party’s business interests if it became public. Referring to Local Rule 79-5(b), the judge said that redaction might be permitted if a request was “narrowly tailored to seek sealing of only sealable material.”
  2. The court denied, for failure to present compelling reasons, the request to seal all or portions of deposition transcripts containing confidential information concerning the defendant’s own research and development, budgets, marketing, sales, revenue, and consulting and licensing agreements. This denial may be without prejudice to a renewed request with more detail regarding the reasons for submitting it.
  3. Judge Tigar held that compelling reasons were provided for sealing documents where he was satisfied that public access “would result in an invasion of [a] third party’s privacy” and “would put Specialized at a disadvantage in future” licensing negotiations.
  4. The judge observed that the “compelling reasons” and “good cause” tests also apply to an uncontested request to seal or redact exhibits or deposition transcripts bearing on a Daubert motion to exclude certain expert testimony. If the testimony is “aimed squarely at” a party’s damages methodology, and exclusion “could cause a crippling blow to the sponsoring party’s ability” to support its position with regard to summary judgment, the “compelling reasons” standard should be used. He added that if the testimony would not be dispositive with respect to any “central” issue, “good cause” is the applicable principle.

Takeaways. At one time, courts entered a sealing or redacting order based solely on the parties’ stipulation, but no more. Today, in most courts, even an uncontested request to seal or redact confidential documents to be filed in connection with a non-dispositive pretrial motion requires a particularized showing of specific prejudice or harm. Such a request relating to a dispositive motion requires “compelling reasons” for overriding the public interest in the openness and transparency of court proceedings. Presumably, the “compelling reasons” test also is applicable even to uncontested requests to seal or redact exhibits (a) offered into evidence in a bench trial, or (b) to be submitted in a record on appeal. Contact your Seyfarth Shaw trade secrets attorney for advice regarding the complex rules relating to sealing or redacting confidential information in documents to be filed in court.

Upcoming On-Demand Webinar: International Trade Secrets and Non-Compete Law Update

Posted in International, Trade Secrets

WebinarTo accommodate our global audience, the third installment in the 2015 Trade Secrets Webinar Series will be available as an on-demand broadcast on Tuesday, April 14, 2015 at 9:00 a.m. Central.

Seyfarth attorneys Wan Li, Ming Henderson and Daniel Hart will focus on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involve a discussion of non-compete and trade secret issues in Europe and China compared to the United States. This webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Summary of Topics:

  • Overview of key rules for non-compete and non-disclosure agreements in Europe
  • Key principles of non-compete and non-disclosure agreements in the United Kingdom and France, including recent case developments
  • Latest developments in non-compete and trade secret law in China
  • The European Commission’s proposed directive on trade secrets protection throughout the European Union
  • Practical considerations under U.S. law for multinational employers to effectively protect their trade secrets and confidential information

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

*CLE: CLE Credit for this webinar has been awarded in the following states: CA, IL and NY. CLE Credit is pending for the following states: GA, NJ, 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.

Employer Can Be Found Liable For Misappropriating An Employee’s Trade Secrets

Posted in Trade Secrets

shutterstock_232865755A Chicago federal judge denied summary judgment to an employer alleged to have misappropriated and converted a subordinate’s trade secrets. Stevens v. Interactive Financial Advisors, Inc., Case No. 11 C 2223 (N.D. Ill., Feb. 24, 2015) (Kennelly, J.).

Summary of the case. After 20 years as a licensed insurance broker, Stevens wanted to provide investment advisory services as well. However, he was not a registered investment advisor, and so he affiliated with Interactive which was registered. Stevens uploaded his insurance client and investment customer information — which he considered to be his trade secrets — to the electronic database of Redtail, a technology company also used by Interactive. When Interactive subsequently terminated Stevens’ affiliation, it reassigned his customers to two other Interactive advisors and directed Redtail to block his access to his client and customer information. Stevens sued, charging Interactive and Redtail with trade secret misappropriation and conversion. The court granted the defendants’ summary judgment motion as to Stevens’ investment customers but denied it with regard to his insurance clients.

Stevens’ relationship with Redtail. Although Stevens apparently had no written agreement with Redtail, he considered their relationship to be contractual. He paid Redtail for its services relating to his client and customer information.

Termination of Stevens. In year six of Stevens’ association with Interactive, the firm accused him of involvement in a Ponzi scheme and terminated his affiliation. After he was terminated, he still could provide services to his insurance clients but not to his reassigned investment customers.

The litigation. Stevens’ federal court complaint was based on diversity jurisdiction. He alleged that both by blocking access to his data base and by granting such access to other advisors, Interactive and Redtail misappropriated his trade secrets in violation of the Illinois Trade Secrets Act, converted his property, and committed other torts.

The court’s decision on the defendants’ motions for summary judgment.

  1. Investment customers. Judge Kennelly observed that, as a result of the termination, Stevens no longer was affiliated with a registered securities advisor and, thus, could not legally service his investment customers. Interactive had to reassign them. Moreover, federal regulations and Interactive’s own policies provided that a terminated representative ceased to have a right of access to his investment customers’ non-public personal information. The defendants were entitled to summary judgment, the judge concluded, with regard to Stevens’ claims of misappropriation and conversion of his investment customers’ information because no material issues were in dispute.
  2. Insurance clients. Material facts were in dispute, according to Judge Kennelly, concerning Stevens’ allegations of misappropriation and conversion of information relating to his insurance clients, and a reasonable jury could agree with Stevens that he owned that information, that it constituted a trade secret, and that Interactive misappropriated and converted it.

Further, the court ruled that a reasonable jury could find that Redtail acted as Interactive’s agent by blocking Stevens’ access to the data base and granting access to others designated by Interactive. According to the judge, if Redtail assisted Interactive in committing torts, Redtail could be held jointly and severally liable with Interactive. In addition, there was a genuine dispute relating to the existence and terms of a contractual relationship Stevens contended that he had with Redtail, and as to the duties Redtail owed to him. For these reasons, Redtail’s motion for summary judgment as to Stevens’ claims of misappropriation and conversion of his insurance clients’ information was denied.

Takeaways. Several judicial opinions state in dicta that employers rarely are sued for conversion and trade secret misappropriation. The case of Stevens v. Interactive is one of those rare lawsuits. Judge Kennelly’s decision illustrates that — like anyone else — an employer who takes and uses someone else’s property without permission risks being sued for conversion. Further, if that property constitutes a trade secret, the employer also may be accused of misappropriation. To be sure, Stevens was an independent contractor, not an Interactive employee, but nothing in the court’s opinion suggests that the ruling turned on that distinction.

Beware of the Delaware Choice of Law in Non-Compete Agreements

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

shutterstock_6242524By Justin K. Beyer and Matthew I. Hafter

Delaware has long been one of the jurisdictions most friendly to the interests of corporations and is the state of incorporation for a significant majority of corporations. While that trend does not seem likely to change, a new Delaware Chancery Court decision should give pause to choice of law decisions of Delaware corporations with multi-jurisdictional work forces and operations in states other than Delaware.

Recent Ascension Case

In Ascension Ins. Holdings, LLC v. Underwood, C.A. No. 9897-VCG, 2015 Del. Ch. LEXIS 19 (Del Ch. Jan. 28, 2015) (unpublished), the Delaware Court of Chancery recently ruled that, despite a Delaware choice-of-law and venue provision contained in a non-compete agreement, California law applied to the agreement and under California law the agreement was void as a matter of law. In this case, the plaintiff (Ascension) sought an injunction against a former employee (Underwood) for violating a non-compete provision in an employment agreement entered into around the same time Ascension purchased Underwood’s business under an asset purchase agreement.

When Underwood terminated his employment relationship with Ascension, the five-year non-competition period under the asset purchase agreement lapsed. However, the separate non-compete provision of Underwood’s employment agreement provided a two-year tail at the end of the employment, which Ascension argued was specifically contemplated during the negotiations when acquiring Underwood’s business.

Ascension was incorporated in Delaware, but headquartered in California which is also where Underwood worked. In the employment agreement, parties selected Delaware law to govern. Delaware law generally enforces employee non-competition agreements if reasonable in scope and duration and if they advance a legitimate economic interest of the employer. California, in contrast, has a specific statute that renders a covenant not to compete unenforceable against an employee unless made in connection with his or her sale of substantially all of the assets and goodwill of a business non-competition agreements (Cal. Bus. & Prof. Code Sections 16600, 16601).

Choice of Law Analysis

The Chancery Court conducted a choice-of-law analysis to determine whether Delaware or California law would apply. The court found that the parties’ relationship was centered in California, the various contracts were negotiated and entered into there, and the territory in which the defendant employee would be restricted was located there. The court acknowledged that “[u]pholding freedom of contract is a fundamental policy of [Delaware]” but rejected the plaintiff employer’s argument that Delaware’s interest in that policy trumped California’s interest in not burdening its citizens with non-competition covenants. The Delaware court acknowledged that under the applicable California statute the non-compete in the asset purchase agreement would be enforceable to protect the acquired goodwill, but reasoned that the covenant in the employment agreement was directed to a different employer interest; concluding that the restriction in the employment agreement would be prohibited under California law. It held that “allowing parties to circumvent state policy-based contractual prohibitions through the promiscuous use of [choice-of-law] provisions would eliminate the right of the default state to have control over enforceability of contracts concerning its citizens.” On this basis, the Chancery Court denied the employer’s motion for preliminary injunction.

Practical Considerations

For Delaware corporations with employees in many states, this case presents a conundrum:

  • While there is clearly a value to having a single state law govern its relationship with employees in many states, and Delaware law is comparatively employer-friendly with respect to restrictive covenants, there is a risk that the law of each employee’s home state will control unless the corporation has a meaningful connection to Delaware.
  • Similarly, a Delaware corporation headquartered in a state with laws on restrictive covenants that are in the middle of the spectrum (enforceable but narrowly construed or with high proof thresholds) might opt for Delaware law because it is more favorable. But in that situation the employer should evaluate the risk that in reaching for the more friendly laws of Delaware it may lose the benefit of even the modestly friendly provisions of its home state and become subject to laws of each employee’s state which may render non-competition restrictions completely unenforceable or in other respects may be less favorable that those of the employer’s home state.
  • In mergers and acquisitions and similar transactions involving the sale of a business, acquirers commonly require restrictive covenants in both the sale agreement and in separate employment agreements. Acquirers should balance the risk that a court in any particular state may reject the choice-of-law provision that selects Delaware compared with the law of the state in which the acquirer has meaningful contacts.

Geographically Overbroad Non-Competes Held To Be Unenforceable

Posted in Non-Compete Enforceability, Practice & Procedure

shutterstock_230088844In unrelated decisions, two federal courts recently refused to enforce non-compete covenants in employment agreements that lack reasonable geographic limits.

Status of the cases. In one of the two lawsuits, the employment agreement included a Tennessee choice of law provision. Louisiana courts are more protective of employees than courts in Tennessee. Since the parties had contacts with both states, naturally the ex-employee contended that Louisiana law applied and the former employer disagreed. A Louisiana district court judge sided with the ex-employee, held that the non-compete violated Louisiana law, and granted summary judgment to the ex-employee. Bell v. L.P. Brown Co., Civ. Ac. No. 14-2772 (W.D. La., Feb. 2, 2015).

In the other case, an Arkansas district court judge ruled that the non-compete provision in the parties’ employment agreement violated Arkansas law. The former employer sued to enforce the non-compete, but the Eighth Circuit Court of Appeals affirmed the district court’s order dismissing the lawsuit. NanoMech, Inc. v. Suresh, No. 13-3671 (8th Cir. Feb. 6, 2015).

The covenants. Both companies’ covenants purported to be applicable during the employment period and for two years after termination. The temporal limits were not significant issues in either case.

  1. L.P. Brown Co.’s covenant. It prohibited, “within any U.S. cotton market,” (a) competing, directly or indirectly with the company (which was in the cotton and fiber industry), or (b) “becom[ing] employed by or perform[ing] services in any capacity for” any of its competitors.
  2. NanoMech’s covenant. This corporation “researches and develops nanotechnologies.” Its non-compete contained the employee’s commitment not to “be employed by, or consult in any business which competes with” NanoMech.

L.P. Brown Co.’s choice of law provision. Brown Co.’s principal place of business is in Memphis. Bell, a salesman, lives in Louisiana. He delivered the signed employment agreement to Brown Co. in Memphis, attended several sales meetings there, and picked up his company car and computer in Tennessee. His company-issued cell phone was shipped to him from Memphis. However, he worked out of his home, and his business cards showed his Louisiana address. He was Brown Co.’s only employee in Louisiana. His territory included parts of Louisiana, Tennessee, and two other states.

The court observed that Tennessee “generally upholds what it deems to be reasonable non-competition agreements, viewing [them] as promoting stable business and employment relationships.” By contrast, “Louisiana has long had a strong public policy in protecting its employees from restrictions on the common law right to work.” Analogizing to a Louisiana judicial ruling relating to a contractual forum selection clause in an employment agreement, the court in Brown Co. held that Tennessee law would apply to Bell only if, after the event giving rise to the litigation, he “expressly, knowingly, and voluntarily agreed to and ratified” the choice of law provision.

Contemporaneous with his delivery to Brown Co. of his resignation, Bell asked the company twice to release him from the non-compete (the company refused both requests). In addition, he executed an acknowledgement confirming that he had been reminded of the non-compete. The court held, however, that these acts failed to meet the Louisiana standard for application of Tennessee law because the parties did not discuss explicitly, and Bell did not unequivocally consent to, the choice of law provision.

Nano-Mech’s covenant. The Court of Appeals noted that under Arkansas law, which admittedly applied to the covenant, restraints in employment agreements are enforced only if they are “reasonably necessary to secure the interest of the” protected party and are “not so broad as to be injurious to the public interest.” NanoMech insisted that Suresh had had extensive access to the company’s trade secrets, that it competes with nanotechnology companies around the world, and that there was a risk she would disclose the confidential information if she worked for a NanoMech competitor. The appellate tribunal concluded, however, that an Arkansas court would not enforce a non-compete that contained neither a geographic nor a customer-specific restriction.

Takeaways. These opinions illustrate the importance of drafting employment agreement restrictive covenants that will be enforceable under whatever law is applicable. There is considerable variation among different states’ views regarding such provisions. So, a company with operations in a number of jurisdictions should tailor the wording to fit the locale. As these cases demonstrate, “one-size-fits-all” covenants may not be enforceable in every state where litigation concerning them might be filed. Seyfarth Shaw can provide state-by-state guidance regarding the language to use in employment agreements to maximize the likelihood that non-compete, non-solicitation and confidentiality provisions will be enforced.

Opposition Emerges to EU Trade Secrets Directive

Posted in Data Theft, International, Trade Secrets

shutterstock_102405310By any measure, the past few weeks have been eventful in Europe.  Given the number of challenges facing European lawmakers — from continued hostilities in Ukraine, to last-minute negotiations over Greek debt, to anti-terrorism measures — it’s unlikely that trade secrets protection is at the top of anyone’s agenda in Brussels or Strasbourg.  Still — as we have previously reported here — the European Commission’s proposed directive to protect trade secrets remains an important item on the European Parliament’s agenda for this year.  As we have argued, the proposed directive (if enacted) will substantially alter the legal landscape in Europe regarding trade secret protection and may enhance cross-border certainty within the EU by requiring all member states to provide certain minimum standards of protection for trade secrets.

Despite widespread support for the proposed directive, opposition to the proposal has now emerged.  Recently, the European Public Health Alliance (“EPHA”), a coalition of public health NGOs, patient groups, health professionals, and disease groups, voiced its opposition to the directive.  In a joint statement opposing the directive, EPHA argues that the current version of the proposed directive contains:

  • “An unreasonably broad definition of ’trade secrets’ that enables almost anything within a company to be deemed as such”;
  • “Overly-broad protection for companies, that could sue anyone who ‘unlawfully acquires, uses or discloses’ their so-called ‘trade secrets’”; and
  • “Inadequate safeguards that will not ensure that EU consumers, journalists, whistleblowers, researchers and workers have reliable access to important data that is in the public interest.”

The EPHA joint statement further argues that, under the proposed directive, (1) companies in the health, environment and food safety fields could refuse compliance with transparency policies even when the public interest is at stake; (2) the right to freedom of expression and information could be seriously harmed; and (3) the mobility of EU workers could be undermined.  Based on these concerns, the EPHA joint statement concludes that “this unbalanced piece of legislation would result in legal uncertainty” and that “unless radically amended by the Council and European Parliament, the proposed directive could endanger freedom of expression and information, corporate accountability, information sharing—possibly even innovation—in the EU.”  Accordingly, the EPHA urges the EU Council and the European Parliament to radically amend the directive by “limiting the definition of what constitutes a trade secret and strengthening safeguards and exceptions to ensure that data in the public interest cannot be protected as trade secrets.”

As we have previously noted in this blog, many features of the proposed directive, including its definition of “trade secrets,” are similar to provisions in the Uniform Trade Secrets Act, which the majority of U.S. jurisdictions have adopted.   Interestingly, in its joint statement, the EPHA observes that the text of the proposed directive “is strongly supported by multinational companies” and notes that industry coalitions in the EU and US have been lobbying for similar proposed trade secrets legislation in the U.S. Congress (which we have previously discussed in this blog).  Although the U.S. Congress did not enact neither of the trade secrets bills introduced last year, trade secrets protection also remains an important item on the agenda in Congress — though, as with the proposed EU directive, the proposed U.S. trade secrets legislation also has its opposition.

It is not yet clear how much support, or opposition, the proposed EU trade secrets directive has in the European Parliament.  We will continue to monitor progress of both the proposed EU directive and proposed legislation in the U.S. and will report on developments in this blog as they occur.

Non-Solicitation Covenant That Is Silent As To Its Scope May Be Unenforceable

Posted in Practice & Procedure, Restrictive Covenants

An employment agreement covenant prohibiting solicitation of co-employees, but not indicating what solicitations were prohibited, has been held to be invalid.

Status of the case.  A multi-count complaint filed in the D.C. District Court charged two former employees of the plaintiff with breaches of contract and tort violations.  The defendants moved to dismiss.   The court held that some of the eight counts stated causes of action, but one count the court did dismiss alleged that the defendants violated their covenant not to solicit the plaintiff’s employees.  The court held that the covenant was too vague to be enforceable because it did not specifically identify the solicitations that were impermissible.  Base One Technologies, Inc. v. Ali, Civ. Ac. No. 14-1520 (D.D.C., Jan. 20, 2015).

Base One’s business model.  Base One was in the business of recruiting and staffing telecommunications and financial information management personnel for clients.  The personnel that were recruited became employees of Base One.  Each was assigned to work at a particular Base One client according to the client’s needs and the employee’s skill set. 

Non-competition and non-solicitation covenant.  The two defendants were hired by Base One to work on an extensive computer-related project for a specific Base One client.  They both signed Base One’s employment agreements.  Those agreements stated that employees are likely to be “the principal intermediary and personal contact” between Base One and the client.  Further, recognizing that Base One’s employees frequently gain extensive knowledge of the client’s business and develop loyalties with the client, the agreements note that clients “might desire to place their IT business directly with” the employees — after the employees’ relationship with Base One has ended — rather than with Base One.  Accordingly, the agreements mandate that during and for one year after termination of the Base One employment relationship, employees shall not “market any [competitive] type services” to a Base One client the employee was serving, and shall not “solicit, contact, represent, or offer to represent” other Base One employees.

Alleged violation and lawsuit.  When the two defendants left the employ of Base One, they immediately went to work for the Base One client they had been serving.  Base One filed a complaint which included what the court described as “a veritable cornucopia of claims.”  Two counts alleged breach of contract.  One averred that the defendants violated the non-solicitation covenant by soliciting each other to work for the Base One competitor (the second breach of contract count alleged contravention of the non-compete provision).  The defendants’ motion to dismiss the former count was granted. 

The court’s reasons for dismissing the count regarding prohibited solicitation.  In the court’s view, the wording of the covenant “is so vague and ambiguous as to render it unenforceable.  . . . Although the Court can perhaps guess that [Base One] meant to prohibit solicitation or contact for the purpose of employment elsewhere, the provision does not so specify.”  Noting that the employment agreement contained a New York choice of law provision, and “Particularly in light of New York’s general hostility toward restrictive covenants in the context of employment, the Court will not redraft a poorly written, overbroad restraint in order to make it enforceable.”

Takeaways.  A motion to dismiss, or for summary judgment with respect to, allegations based on a “vague and ambiguous” contract provision might be denied on the ground that the parties’ intent regarding the meaning of the provision is an issue of fact to be resolved at trial.  See, e.g., Whelan Security Co. v. Kennebrew, 379 S.W.3d 835, 846 (Mo. Sup. Court 2012) (summary judgment inappropriate because “the lack of any language regarding the purpose of the employee non-solicitation clause prevents this Court from determining the purpose of the clause as a matter of law.  The intent of the parties must instead be determined by the use of parol evidence, creating a factual issue for the trier of fact”).  But the Base One court went a different route, granting the defendants’ Rule 12(b)(6) motion to dismiss the claim relating to a non-solicitation agreement which contained the identical ambiguity as in Whelan.  The moral of the story is that two courts sometimes issue diametrically opposite rulings when presented with the same question of law.


Upcoming Webinar: Protecting Confidential Information and Client Relationships in the Financial Services Industry

Posted in Restrictive Covenants, Trade Secrets

On Tuesday, March 10th at 12:00 p.m. central, in the second installment of our 2015 Trade Secret Webinars, Seyfarth attorneys Scott Humphrey, Jason Stiehl and James Yu will focus 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.  Topics will include:

  • Practical steps financial institutions can implement to protect trade secrets and client relationships.
  • What should you do if your trade secrets are improperly removed or disclosed, or if your former employee is violating his/her agreements.
  • How do you prosecute a case against a former employee who is a FINRA member.
  • The impact of the Protocol for Broker Recruiting on trade secrets and client relationships.

Our panel consists of attorneys with experience advising clients on restrictive covenant and trade secret issues.




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

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

*CLE: CLE Credit for this webinar has been awarded in the following states: CA, IL and NY. CLE Credit is pending for the following states: GA, NJ, 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.

How Far Does the “Internet of Things” Reach?

Posted in Cybersecurity, Privacy, Social Media

With the FTC’s 2015 report “Internet of Things: Privacy & Security in a Connected World” (“Report”) the idea that more than just computers and phones are able to connect to the Internet. In fact, the Report states that the “IoT explosion is already around us.” This is true, and the Report goes on to describe some of the more interesting things that can be connected to the Internet which most of us don’t think about (e.g. smart health trackers, smoke detectors, and light bulbs). However, how vast is the actual IoT? And what does that mean to businesses?

As security professionals will tell you, if it has an IP address, it is a potential access point to your network. As such, it is a potential place where a hacker can find a way into your network and then “elevate permissions” into more sensitive parts of a network. This seemed to the be way that several recent large hacks occurred. Thus, the internet of things represents a potential security hole if one doesn’t consider all the different devices which can be hacked.

So – what is out there which has the ability to acquire an IP address (and thus is a hacking risk)?

These we know about:

  • Desktop Computers
  • Laptops
  • Tablets
  • Smartphones

But what about:

  • Copy machines
  • Printers
  • Fax machines
  • VoIP enabled Phones
  • Televisions
  • Bluetooth headsets
  • cash registers (Point-of-Sale terminals generally)
  • Handheld barcode readers
  • Smart thermostats
  • Keycard readers (for doors)
  • Security cameras
  • Light bulbs
  • Environmental control panels
  • Lab equipment
  • Medical diagnostic equipment
  • Warehouse inventory scanners
  • The fridge in the break room
  • Personal fitness monitors
  • Wristwatches (iWatch)
  • Armbands 
  • Glasses

And maybe even…

Shirts and other clothes.

As each one of these neat bits of technology start to take hold companies which allow them into the physical range to connect with the corporate network will need to have a strategy to manage the security risks inherent in all of them.

It’s not going to get any easier…