When the COVID-19 crisis hit the United States (indeed, before it was even considered a “crisis” here), we provided tips for protecting a company’s trade secrets in the event employees were permitted to work from home. In the ensuing three weeks, not only have employees been permitted to work from home, but many companies have required it. Indeed, an ever-growing list of states, including California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, and Pennsylvania have issued stay-at-home orders and shut down all non-essential businesses for the time being. As a result, there are now millions of employees working remotely who are accustomed to working in an office setting. Indeed, according to a March 12, 2020, flash survey of more than 550 employers conducted by Seyfarth, nearly 85% of responding companies were actively encouraging employees to work from home in some or all parts of the country, and more than 65% were taking steps to provide capability for employees to be able to work from home who do not normally do so. Those numbers are likely even higher now. Continue Reading Protecting Trade Secrets During a Pandemic: Think Twice Before Loosening Security Measures in the Name of Convenience and Efficiency
In the world of trade secret and restrictive covenant litigation, time is often of the essence. Clients need to take immediate steps to prevent the harm that flows from the misappropriation of confidential information. Lawyers need to move with alacrity, and case commencements are typically accompanied by “emergency” motions for injunctive relief and expedited discovery.
Now, as a result of the COVID-19 crisis, courts across the country are adjourning most appearances, including trials, and hearing only “emergency matters,” often by teleconference or other remote methods. This presents a new quandary for the trade secret and restrictive covenant lawyer. At a time when Courts are taking extraordinary measures to protect public health and safety, how far should counsel go to claim an “emergency” deserving of the Court’s immediate attention in these strange times? Should lawyers pursue temporary restraining orders, preliminary injunctions, and expedited discovery? If not, will a normal schedule provide a pathway to adequate relief? There are no easy answers, and certainly no one-size-fits all answers that will apply in every case. But, as one recent case illustrates, clients and their counsel should be very judicious in their claims of “emergency” at a time when Courts feel especially burdened by the external emergency now facing the country.
With that in mind, a recent trademark and copyright case involving unicorns provides a perfect example of what not to do. In Art Ask Agency v. The Individuals, Corporations, Limited Liability Companies, Partnerships, and Unincorporated Associations Identified on Schedule A hereto, C.A. No. 20-cv-1666 (March 9, 2020), the plaintiff, Art Ask Agency, a licensing company, filed a complaint in the U.S. District Court for the Northern District of Illinois, and requested a temporary restraining order preventing the defendants from misappropriating its unicorn designs. Approximately one week later, the Court issued an order placing all civil litigation on hold as a result of the COVID-19 crisis, so Judge Steven Seeger adjourned a previously-scheduled hearing until April 13. Art Ask Agency was not pleased. Nor, apparently, could it read the room. In response, it filed a motion for reconsideration and, two days later, an emergency motion that went to the Chief Judge of the Court seeking an earlier hearing. Judge Seeger was unhappy with this move and issued a scathing order, which included the following (internal record citations omitted):
This case involves counterfeit unicorn drawings. The complaint includes a few examples of products that allegedly infringe Plaintiff’s trademarks, which offer “striking designs and life-like portrayals of fantasy subjects.” One example is a puzzle of an elf-like creature embracing the head of a unicorn on a beach. Another is a hand purse with a large purple heart, filled with the interlocking heads of two amorous-looking unicorns. There are phone cases featuring elves and unicorns, and a unicorn running beneath a castle lit by a full moon.
Meanwhile, the world is in the midst of a global pandemic. The President has declared a national emergency. The Governor has issued a state-wide health emergency. As things stands, the government has forced all restaurants and bars in Chicago to shut their doors, and the schools are closed, too. The government has encouraged everyone to stay home, to keep infections to a minimum and help contain the fast-developing public health emergency.
. . . .
Last week, Plaintiff filed a motion for temporary restraining order against the Defendants (who are located abroad) and requested a hearing. This Court thought that it was a bad time to hold a hearing on the motion. So, this Court moved the hearing by a few weeks to protect the health and safety of our community, including counsel and this Court’s staff. Waiting a few weeks seemed prudent.
Plaintiff has not demonstrated that it will suffer an irreparable injury from waiting a few weeks. At worst, Defendants might sell a few more counterfeit products in the meantime. But Plaintiff makes no showing about the anticipated loss of sales. One wonders if the fake fantasy products are experiencing brisk sales at the moment.
On the flipside, a hearing — even a telephonic one — would take time and consume valuable court resources, especially given the girth of Plaintiff’s filings. . . .
. . . .
Meanwhile, the Clerk’s Office is operating with a “limited staff.” “[P]hone conferencing” is available “in emergency situations and where resources permit.” The Court can still hear emergency motions, but resources are stretched and tie is at a premium. If there’s ever a time when emergency motions should be limited to genuine emergencies, now’s the time.
Thirty minutes ago, this Court learned that Plaintiff filed yet another emergency motion. They teed it up in front of the designated emergency judge, and thus consumed the attention of the Chief Judge. The filing calls to mind the sage words of Elihu Root: About half of the practice of a decent lawyer is telling would-be clients that they are damned fools and should stop.” See Hill v. Norfolk and Western Ralway Co., 814 F.2d 1192, 1202 (7th Cir. 1987) (quoting 1 Jessup, Elihu Root 133 (1938)).
The world is facing a real emergency. Plaintiff is not. The motion to reconsider the scheduling order is denied.
That said, real emergencies continue to exist in civil litigation, in particular in the context of trade secret and restrictive covenant disputes. If a newly-remote employee takes the opportunity to download sensitive information and attempt to take it to a competitor, or use it to start a competing enterprise, that could be an example of a real emergency. The same could be true for a business partner who decides to take the current crisis as an opportunity to build a competing product using your company’s trade secrets.
Indeed, as our friend Russell Beck has pointed out, just a few days ago, on March 19, 2020, Office Depot obtained a broad preliminary injunction from the federal court in Florida against a former employee, a “Major Account Manager,” who allegedly had access to “among other things, sales information, sales and marketing strategy information, and the identity and lists of actual and potential customers” and “connected multiple external storage devices to [her] computer and accessed them.”
Situations that are normally considered emergencies, and often are treated as such by the courts, may not be during the current crisis. As such, prior to filing any request for emergency injunctive relief, companies should consider whether the issue actually is an emergency (and whether the court is likely to treat it as one); whether there are other measures that can be taken to protect information, such as filing a lawsuit without seeking immediate injunctive relief; and how the company would feel if their motion for “emergency” injunctive relief were to end up in the news or going viral on social media like the unicorn case. As Judge Elizabeth Stong of the federal Bankruptcy Court in the Eastern District of New York recently told Law360:
Truly urgent matters can and will be addressed. But you have to understand that not everything that feels urgent is. Pause before you file that letter or make that phone call. Be sure it’s urgent.
This is good advice for normal times, but it is particularly appropriate these days, which are far from normal.
On Friday, March 27 at 12 p.m. Central, Seyfarth attorneys Michael Wexler, Jesse Coleman, and Justin Beyer will present Coronavirus & Remote Work Force: Best Practices for Protecting Trade Secrets and Intellectual Capital, the next webinar is Seyfarth’s Responding to the COVID-19 Pandemic Webinar Series.
Enacting a remote work policy or expanding an existing policy to include remote work at all levels within an organization can have consequences for trade secrets and other confidential information. Learn best practices and steps companies can take to continue to protect intellectual capital during the coronavirus pandemic, including the policies, protections and agreements needed to protect information in this remote environment.
*CLE Credit for these webinars is approved in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Credit will be applied for, but cannot be guaranteed, in all other eligible jurisdictions. Please note that in order to receive full credit for attending each webinar, the registrant must be present for the entire session.
The Ninth Circuit has certified questions to the California Supreme Court in Ixchel Pharma v. Biogen seeking guidance as to: 1) whether section 16600 of the California Business and Professions Code extends to contracts between businesses; and 2) whether pleading an independent wrongful act is necessary to state a claim for intentional interference with a contract outside the at-will employment contract context. The California Supreme Court has agreed to accept the Ninth Circuit’s inquiry and the appellate briefing was recently completed. We expect the Supreme Court to have oral argument and likely rule in the summer or fall of 2020. The California Supreme Court’s disposition of the novel issues could have sweeping ramifications that ripple through commercial and business industries. Continue Reading Ninth Circuit Seeks Guidance From California Supreme Court on Business to Business Non-Competes
As we previously reported, on February 18, 2020, Medterra CBD (“Medterra”) filed a motion to dismiss a lawsuit alleging that it had misappropriated Healthcare Resources Management Group LLC’s (“Healthcare Resources”) proprietary formula for a CBD cream aimed at treating pain. In its motion, Medterra argued that Healthcare Resources failed to allege that it had provided or that Medterra had otherwise acquired any proprietary information. Additionally, Medterra claims that even if Healthcare Resources could establish that it had provided its propriety CBD cream formula to Medterra, Healthcare Resources did not take adequate steps to protect its trade secret by mandating Medterra sign a non-disclosure agreement. Continue Reading CBD Cream Manufacturer Responds to Motion to Dismiss in Trade Secret Litigation
On March 3, 2020, Massachusetts Premier Soccer LLC, doing business as Global Premier Soccer (“GPS”), filed a complaint in the US District Court for the District of Massachusetts, alleging that two of its former management-level employees engaged in a scheme to divert business away from GPS to a competitor, Surf Club. GPS asserts claims for false advertising and promotion under the Lanham Act, tortious interference with contractual relations and prospective economic advantage, breach of non-competition and non-solicitation agreements, civil conspiracy, unfair and deceptive practices under Massachusetts and South Carolina law, and common law unfair competition. Continue Reading Youth Soccer Company Cries Foul at Competitor and Former Employees
In 2012, Peloton rode into the home fitness scene with its now ubiquitous at-home exercise bike, which features a tablet that allows riders to stream both live and pre-recorded classes while competing against other riders on a virtual leaderboard. Peloton built the bike, including the associated technology and software, from scratch, and applied for and obtained a number of patents between 2015 and 2019 to protect its sizable investment of both time and money.
In 2017, Flywheel, a boutique exercise studio, pedaled into the home fitness scene as well with the FLY Anywhere bike. Like Peloton users, FLY Anywhere riders stream both live and pre-recorded classes while pedaling their way up the leaderboard. Continue Reading Peloton Surges to the Top of the Leaderboard in Competitor Spat
Fear of the coronavirus is causing many employers to permit—or in some cases mandate—employees to work remotely. While this measure is designed to minimize the risk of virus transmission, it presents an altogether different risk when it comes to protecting trade secrets, as employees have ripe opportunities to remove trade secrets and other sensitive information from company systems and databases. While remote access is ostensibly provided so that employees can perform their job functions from home, and may even be a necessity in that regard, some employees may take the opportunity to exploit the situation to more nefarious ends, and others may just be careless, which can lead to equally bad outcomes. In addition, employees’ external home networks may not have robust security on par with in-office network security. Continue Reading Love in the Time of Coronavirus: Protecting Trade Secrets During a Pandemic
In Seyfarth’s first installment in its 2020 Trade Secrets Webinar Series, Seyfarth attorneys Robert Milligan, Jesse Coleman, and Joshua Salinas reviewed the noteworthy legislation, cases, and other legal developments from across the nation over the last year in the area of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud—plus, predictions for what to watch for in 2020.
As a conclusion to this webinar, we compiled a summary of takeaways:
- While they appear on their surface to be typically straightforward affairs, trade secret and non-compete lawsuits can assume an infinite number of forms and fact patterns. It is only by keeping up with the newest laws and court pronouncements that litigants can hope to prevail in this ever-changing landscape.
- Legislation such as anti-SLAPP laws can have a dramatic impact on a litigant’s ability to bring or defend a claim. While at least one of these laws now expressly exempts most trade secret and non-compete lawsuits from its scope, there remains a backlog of cases filed before the new regime where the anti-SLAPP law stands as the primary hurdle before a case can even proceed to full discovery. It is important to understand what anti-SLAPP law applies in your jurisdiction and what jurisdictions your courts look to for interpretation of those laws.
- The FTC is exploring whether it has the authority to ban or limit the use of non-competes in the employment setting. It recently held a workshop where academics and regulators addressed the issue. At the workshop, legal scholars, economists, and policy experts reviewed the current state of the law and economic literature on non-compete clauses in contracts between employers and employees. Academic panels evaluated the effects of non-compete clauses on labor market participants and their efficiency rationales. The panels also will considered the potential harms to workers that may addressed through the FTC’s rulemaking, law enforcement, or advocacy authority. The FTC has invited public comment and the current deadline is March 11, 2020. We expect the FTC to continue to attempt to regulate non-competes in the employment context.
Employers should review their restrictive covenant agreements and consider whether they need to be amended for employees in jurisdictions with new restrictive covenant laws, especially new laws that now require income thresholds for the use of such agreements.
On February 25, 2020, Plaintiff Mustard Girl LLC (“Mustard Girl”), an award-winning mustard manufacturer, filed a lawsuit in the Circuit Court of Cook County for damages against its former co-packing partner, Olds Products Co. of Illinois, LLC (“Olds”), for misappropriation of trade secrets and other derivative claims. According to Mustard Girl, Olds engaged in a multi-year scheme to steal Mustard Girl’s recipes and then use those recipes to sell its own mustard products at lower cost to Mustard Girl’s largest accounts.
This mustard dispute presents a common trade secrets misappropriation scenario—the alleged misappropriator had lawful access to the trade secrets but then misused its access for an improper purpose. An additional wrinkle in this case is that Mustard Girl provided the mustard recipes to Olds under a confidentiality agreement, but admittedly lacks a counter-signed copy. Proving that reasonable measures were taken to keep trade secrets protected is necessary to prevail on a claim for misappropriation. If Mustard Girl is unable to prove that the recipes were provided to Olds under a confidentiality agreement, it may face a significant hurdle in proving that its recipes are, in fact, trade secrets. Continue Reading Pardon Me, Co-Packaging Partner Accused of Stealing Dijon Mustard Recipes