shutterstock_529332652Seyfarth Synopsis: An environmental remediation technologies company is in the midst of litigation in Chinese courts over a $1.2 million contract to provide its technology to a Chinese company. According to the Chinese entity, the technology provider failed to deliver the unit in a “timeframe that was agreed.”

The West Mountain Environmental Corp. (WMT) had issued a press release in October 2016 that it had sold its first indirect thermal desorption technology (TPS) unit in China to Shanghai Hehui Environmental Technology, Co. Ltd. (Hehui). WMT valued the contract at approximately $1.2 million.

Historically, WMT had operated in China since 2012 and has treated, it claims, over 100,000 tons of contaminated soil and oil sludge using TPS technology. TPS’ patented indirect thermal desorption technology is “recognized in the industry as one of the most efficient and safest technologies for the removal of hazardous contaminants.” WMT asserts that TPS was one of the first western environmental remediation technologies successfully transferred to China which has been recognized as a top 100 environmental technology in the 3iPET Program supported by the Ministry of Environmental Protection.

This sale, WMT indicated, represented the first time that TPS technology had been used as part of a process to treat waste purified terephalic acid (PTA) sludge. “PTA is required for the manufacture of polyester fibre, polyethylene terephthalate (PET) bottle resin and polyester film and China is the largest producer of PTA at over 50 million tonnes per year.”

Now according to a recent WMT press release, it received notice that a lawsuit had been filed against it by Hehui, claiming that WMT failed to deliver the TPS unit in a “timeframe that was agreed.” As a consequence, a Chinese Court ordered that WMT’s bank accounts be frozen until a hearing is held on March 27, 2017 in Shanghai.

Subsequently WMT was informed by its Chinese legal counsel that its motion to remand its contract dispute with Hehui to arbitration in conformance with the terms of the contract between the parties was denied. The release indicated that Chinese Intermediate Court ruled that as the contract between the parties did not specify an arbitrator, so the Intermediate Court would hear the case. As a result of the ruling and based on the recommendation from Chinese legal counsel, WMT will file an objection of jurisdiction to the Intermediate Court on April 5, 2017, at which time an official hearing for the case will be set.

This case illustrates how very careful parties need to be in preparing contracts, especially in international cases. Deals in China may be especially complicated as the law varies in different provinces.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team, the Intellectual Property, or the Trade Secrets Teams

shutterstock_210713560Since July 1, 2001, Missouri law with respect to non-solicitation clauses has been fairly straightforward.  Specifically, § 431.202 of the Missouri Statutes states that a covenant not to solicit between an employer and an employee is presumed reasonable if it is no longer than one year in duration and designed to protect confidential information, customer relationships, and/or good will. Section 431.202 also states that the statute does not apply to covenants not to compete, thereby allowing the courts to decide the enforceability of a non-competition clause on a “case-by-case” basis.  (Id. § 3).

A Bill, however, currently pending in the Missouri House of Representatives seeks to abolish Missouri’s non-solicit statute and ban all restrictive covenants except for those restrictive covenants found in a “business to business” setting.  Specifically, House Bill 479, introduced by Representative Keith Frederick (R), seeks to eliminate all types of restrictive covenants (non-compete, non-solicit, and non-hire) except when the restrictive covenants involve the sale of a business or are between two corporations engaged in a joint venture. The Bill would go into effect August 28, 2017.  Thus, any restrictive covenant agreement between an employer and an employee that is a) controlled by Missouri law and b) entered into after August 28, 2017 would be unenforceable.

In addition to House Bill 479, a recent Federal Court decision in the Eastern District of Missouri also has the attention of non-compete lawyers. In Durrell v. Tech Electronics, Inc., plaintiff Robert Durrell brought suit against his former employer, Tech Electronics, Inc., alleging that he was wrongfully terminated and retaliated against for taking FMLA leave. Durrell’s Complaint further alleges that the restrictive covenants found in his Employment Agreement are unenforceable due to a lack of consideration. The Court denied Tech’s Motion to Dismiss Durrell’s restrictive covenant claims by ruling that at-will employment is “not a source of consideration under Missouri contract law.” Notably, the Court did not address § 431.202’s specific language that a non-solicitation clause is enforceable if it protects confidential information, customer relationships, and/or good will. In fact, the Court does not even mention § 431.202 in its opinion. (Probably because the Court was only asked to address whether “at-will employment” is sufficient consideration for enforcing a restrictive covenant).

We will continue to monitor House Bill 479 (the Bill is currently in “Executive Session”) as well as the Durrell case, and will provide all relevant updates on this blog.

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

shutterstock_481529074The San Antonio Court of Appeals recently held that an applicant for a temporary injunction in a trade-secret-misappropriation case under the Texas Uniform Trade Secrets Act is not required to show the defendant is actually using trade-secret information. Instead, the applicant need only show that the defendant possesses trade secrets and is in a position to use them.

Age Industries, Ltd. (“AI”) is a manufacturer of packaging materials for whom Christopher Michael Hughes worked for nearly 20 years as a general manager. In late June 2016, Hughes resigned his employment with AI. Hughes never signed an agreement restricting him from competing with AI. Prior to resigning, Hughes had discussed creating a business to compete with AI. In early June, Diamondback Corrugated Container, LLC (“Diamondback”) was created and, shortly after his resignation, Hughes was hired to be its operations manager.

Two months later, AI sued Hughes and Diamondback for, inter alia, misappropriation of trade secrets under the Texas Uniform Trade Secrets Act, and obtained a temporary restraining order. Following the hearing on AI’s application for a temporary injunction, the trial court granted a temporary injunction against Hughes that (1) required Hughes to account for all documents in his possession belonging to AI, and (2) enjoined Hughes from disclosing AI’s proprietary or trade-secret information, including AI’s sales journals, customer lists, or pricing information.

Hughes appealed the trial court’s temporary injunction against him, contending, among other things, that AI failed to produce sufficient evidence of a probable, imminent, and irreparable injury, because AI only established a fear of possible misappropriation of trade secrets. The court of appeals noted that “the very purpose of an injunction is to prevent disclosure of trade secrets pending trial, [so AI] is not required to show [Hughes] is actually using the information.” Relying on authority from the Dallas, Austin, and Fort Worth Courts of Appeals, the San Antonio Court of Appeals required AI to instead show only that Hughes possesses the trade secrets and is in a position to use them.

Drawing all legitimate inference in favor of the trial court’s order granting the temporary injunction, the court of appeals concluded that AI made the proper showing under this standard. AI presented evidence during the temporary-injunction hearing that shortly before he resigned, Hughes downloaded a large quantity of data from his AI computer onto a USB storage device. Additionally, AI offered evidence that certain financial information Hughes maintained while working for AI could not be located after his resignation, and that Hughes had some of AI’s confidential information on his home computer. Moreover, at the temporary-injunction hearing, Hughes could not testify that emails he sent to a co-worker at Diamondback did not contain AI’s proprietary information.

This evidence—combined with the fact that Hughes left AI to become the operations manager of a company that was formed to compete with AI—established that Hughes was in a position to use AI’s trade secrets to gain an unfair market advantage. Therefore, the appellate court held the trial court did not abuse its discretion in concluding that AI established a probable, imminent, irreparable injury.

This case demonstrates that it is not necessary to present evidence of trade-secret use; mere possession and an opportunity to use is sufficient at the temporary injunction stage.

Hughes v. Age Industries, Ltd., 04-16-00693-CV, 2017 WL 943423 (Tex. App.—San Antonio Mar. 8, 2017, no. pet. h.)

webinarOn Thursday, April 27, at 12:00 p.m. Central, Seyfarth attorneys will present Protecting Confidential Information and Client Relationships in the Financial Services Industry.

In Seyfarth’s second installment in its series of 2017 Trade Secret Webinars, Seyfarth attorneys Scott Humphrey, Robyn Marsh, and Dawn Mertineit will focus on trade secret and client relationship considerations in the banking and financial services industry, with a particular focus on a firm’s relationship with its FINRA members.

The panel will address the following topics:

  • Practical steps financial institutions can implement to protect trade secrets and client relationships
  • What to do if your trade secrets are improperly removed or disclosed or if a former employee is violating his/her restrictive covenant agreements
  • How to 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

Please join us for this informative webinar:

register

shutterstock_394770433On Wednesday, March 15, 2017, as part of Seyfarth Shaw’s Pharmaceutical and Biotechnology Roundtable at Seyfarth’s Boston office, Litigation Department Chair Katherine Perrelli and Partner Erik Weibust will be presenting with Carmine Nigro, the FBI’s Counterintelligence Strategic Partnership Coordinator in Boston, on civil vs. criminal trade secret protection, including a discussion of the Defend Trade Secrets Act of 2016.

The pharmaceutical and biotechnology industries face unique legal challenges and media misperceptions, and they continue to ride a wave of uncertainty as the Trump administration takes control.  In preparation of changes to come, Seyfarth attorneys have developed a comprehensive afternoon for in-house attorneys to get insight and get practical takeaways in this critical time of change.

For more information and registration, click here.

shutterstock_547628332In Spring 2011, the Georgia legislature passed a new restrictive covenant statute, which, for the first time, allowed Georgia courts in reviewing non-competition agreements between employer and employee to blue-pencil or “modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.” O.C.G.A. § 13-8-53(d). Since the new Georgia statute only applies to agreements executed after its enactment, there has been limited litigation concerning the meaning and scope of this provision.

Most of the litigation between 2011 and the present has involved requests by a party that the Court strike an offending provision in a non-compete agreement. Recently, the Northern District of Georgia was given the opportunity to determine whether Georgia’s blue-pencil provision also gives Georgia courts the authority to modify an unenforceable non-compete provision. In LifeBrite Labs., LLC v. Cooksey, No. 1:15-CV-4309-TWT, 2016 WL 7840217, at *1 (N.D. Ga. Dec. 9, 2016), the former employer, LifeBrite, sued its former employee, Cooksey, after she began working for a competitor company. Cooksey’s non-compete provision provided as follows:

7.2. Non-Competition. For as long as she is employed and for a period of one (1) year thereafter, employee shall not participate, directly or indirectly, as an owner, employee, consultant, office management position, in any proprietorship, corporation, partnership, limited liability company or other entity, engaged in any laboratory testing that is being sold by employee on behalf of company.

The Northern District of Georgia found that this provision was overbroad and unenforceable as it did not contain any geographic limitation. Consequently, the Court considered whether or not Georgia’s blue-pencil rules allowed it to modify the non-compete provision to insert a reasonable geographic limitation. In reasoning through the analysis, the Court referred to pre-2011 cases in which Georgia courts interpreted a similar non-compete provision in the context of sale of business agreements. In those cases, Georgia courts held that the blue-pencil marks but it does not write. Thus, the NDGA declined to enforce Cooksey’s non-compete and held that in applying Georgia’s blue-pencil statute, “courts may not completely reform and rewrite contracts by supplying new and material terms from whole cloth.”

The NDGA also noted that Georgia’s employers are “sophisticated entities” which “have the ability to research the law in order to write enforceable contracts; courts should not have to remake their contracts in order to correct their mistakes.” This case is simply further caution to Georgia employers to review their non-competition agreements for overbreadth, vagueness, and the absence of essential limiting terms. As always, the attorneys at Seyfarth Shaw LLP are available to assist in these endeavors.

The LifeBrite Laboratories, LLC v. Cooksey case was dismissed with prejudice on January 25, 2017.

We are pleased to announce the webinar “2016
National Year In Review:webinar What You Need to Know About the Recent Cases/Developments in Trade Secrets, Non-Compete, and Computer Fraud Law” is now available as a webinar recording.

In Seyfarth’s first installment of its 2017 Trade Secrets Webinar series, Seyfarth attorneys reviewed 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 provided their predictions for what to watch for in 2017.

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

  • The DTSA can be a powerful tool to protect intellectual capital. However, in order to take full advantage of the DTSA, businesses should carefully check their agreements with employees, handbooks and equity awards to make sure they contain language mandated by the Defend Trade Secrets Act.
  • 2016 was a record year for data and information security breaches. Organizations should alert and train employees on following company policies, 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.
  • Several states enacted laws to limit the scope and duration of non-competes in 2016. There were also some significant decisions limiting their scope and enforceability in 2016 as well. Companies should have their non-disclosure and non-compete agreements reviewed to ensure that they comply with the latest state and federal laws, including the new Defend Trade Secrets Act.

2016 TS YIR Cover

The 2016 Year in Review is a compilation of our significant blog posts from throughout last year and is categorized by specific topics such as: Trade Secrets, Computer Fraud and Abuse Act, Non-Compete & Restrictive Covenants, Legislation, International, and Social Media and Privacy. As demonstrated by our specific blog entries, including our Top Developments/Headlines, Trade Secrets Webinar Series – Year in Review and our dedicated page concerning federal trade secret legislation, our blog authors stay on top of the latest developments in this area of law and provide timely and entertaining posts on significant new cases, legal developments, and legislation.

The 2016 Review also includes links to the recordings of all webinars in the 2016 Trade Secrets Webinar Series. More information on our upcoming 2017 webinars is available in the program listing contained in this Review. Our highly successful blog and webinar series further demonstrate that Seyfarth Shaw’s national Trade Secret, Computer Fraud & Non-Competes Practice Group is one of the country’s preeminent groups dedicated to trade secrets, restrictive covenants, computer fraud, and unfair competition matters and is recognized as a Legal 500 leading firm.

Clients and friends of the firm can request a digital, CD, or printed copy of the 2016 Review below.

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