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In the second installment of the 2023 Trade Secrets Webinar Series, Seyfarth attorneys reviewed noteworthy legislation, cases, and 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 predictions for what to expect in 2023.

As a conclusion to this webinar, we compiled a summary of takeaways:

  • The FTC’s attempted regulation of employment non-competes as part of its rulemaking powers is unprecedent in the 109 years since its creation in 1914. The FTC bases its rulemaking authority on Section 5 of the Federal Trade Commission Act, which provides: “The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations … from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 15 USC § 45(2).
  • The proposed rule impacts not just typical employee non-compete agreements but also non-compete agreements that are made in connection with the sale of business entities. While there is an exception for a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause defined as an owner, member, or partner holding at least a 25 percent ownership interest in a business entity, the 25% interest threshold is arbitrary and ignores the business realities, complexity and individuality of such transactions. Moreover, it applies retroactively to such transactions so parties to the transaction may not get the benefit of their bargain.
  • The proposed rule is only a proposal at this point, as the FTC has solicited public comment on the proposed rule before it issues a final rule. The deadline to submit comments is March 20, 2023, and we encourage all affected employers to submit comments.
  • It’s unclear whether the final rule will be as sweeping as the current proposal. Regardless of the final form of the rule, we expect legal challenges to the FTC’s rulemaking, including significant constitutional challenges to whether the FTC has power to issue rules at all on worker non-competes.
  • In the interim, employers should take a close look at their restrictive covenant agreements to ensure that they are reasonable and compliant with ever-evolving state law.
  • There were several significant trade secret jury awards in 2022 in Virginia ($2 billion), Ohio ($65 million), and Michigan ($105 million). We expect to see even more large jury results in 2023. Courts continue to recognize combination trade secrets where a plaintiff can demonstrate a unique combination of processes and information that aid company processes, including research and development. Courts also continue to allow creative damage theories based upon avoided development costs or unjust enrichment even where there may only be disclosure rather than use or no competing market product embodying the misappropriated secrets.
  • The Protecting American Intellectual Property Act signed on January 5, 2023 is designed to help American businesses from trade secret by foreign actors. The President is required to report annually to Congress foreign entities and individuals who engaged in trade theft that possess a threat to the country and sanction such entities and individuals.
  • We saw some notable non-compete court decisions coming from Hawaii (must have legitimate business interest for employee non-compete, including protection of trade secrets), Wyoming (blue penciling overly broad employee non-competes not permitted), California (upholding customer non-solicit covenant in employment agreement that was part of business transaction accomplished to further joint venture), Delaware (Chancery court refuses to blue pencil overly broad non-compete in business transaction), and Louisiana (court refuses to enforce non-compete where individual executes non-compete merely as an applicant rather than employee).
  • We saw Colorado, District of Columbia, Illinois, and Oregon enact new state laws governing restrictive covenants, and New Jersey, Connecticut, and New York introduced their own respective bills on employee mobility.
  • California and Washington have new laws prohibiting employers from using employee agreements that prohibit the disclosure of certain conduct the employee believes is unlawful, such as illegal harassment or discrimination.
  • The DOJ has revised its policy for charging CFAA cases after the Supreme Court Van Buren’s ruling that adopted a narrowed interpretation of the statute’s “exceeding authorized access” in Van Buren. And we expect combating ransomware to remain a top priority for the DOJ in 2023.

You can view a recording of the webinar and all other webinars in our Trade Secrets & Non-Competes Webinar Series here.

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This post was originally published as a Seyfarth Legal Update.

In a January 11, 2023 op-ed published in the Wall Street Journal, President Joe Biden urged “Democrats and Republicans to come together to pass strong bipartisan legislation to hold Big Tech accountable.” He warned that the “risks Big Tech poses for ordinary Americans are clear. Big Tech companies collect huge amounts of data” about technology users, including “the places we go,” and argued that “we need serious federal protections for Americans’ privacy. That means clear limits on how companies can collect, use and share highly personal data,” including location data.

Continue Reading Buckle Up: How Privacy Policy And Antitrust Enforcement Could Affect Automakers In 2023
trade secrets litigation

Safeguarding trade secrets is typically Rule No. 1 for many companies—particularly technology companies. Therefore, when a company needs to share its highly-guarded trade secrets with a subcontractor in order to complete a project together, most companies understandably require the subcontractor to enter into a confidentiality agreement that includes a non-disclosure provision. Many of those confidentiality agreements also include a liquidated damages provision that is triggered by the subcontractor’s breach.

Continue Reading 11th Circuit Upholds Trial Court’s Rejection of Liquidated Damages in Trade Secret Case
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The FTC’s proposed rule banning non-competes with employees and workers has now been published in the Federal Register.

The rule would provide that noncompete clauses are an unfair method of competition and as a result, the rule would ban employers from entering noncompete clauses with their employees and workers (defined by the FTC to include independent contractors and others). The rule would require employers to rescind existing noncompete clauses with workers and actively inform their employees that the contracts are no longer in effect. The rule would include a limited exception for non-compete clauses between the seller and buyer of a business. This exception would only be available where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25% ownership interest in a business entity.

Continue Reading Comments on FTC’s Proposed Rule Banning Non-Competes With Employees and Workers Now Due March 20th 
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This post was originally published on Seyfarth’s Gadgets, Gigabytes & Goodwill blog.

Ransomware attacks have become one of the most common and pervasive cybercrimes perpetrated against US companies. A bad actor, often from overseas, will gain access to upload malware onto a company’s network storage or application platforms that encrypts all files it can access. A message or text file is usually left with instructions on how to contact the attacker to pay a ransom for the decryption key. In the worst case, a ransomware attack can freeze the business operations by effectively removing access to the company’s critical systems and rendering them useless. Aside from the business impact, what legal implications are created by a ransomware attack?

Continue Reading Ransomware Attacks: Harmless Annoyances or Catastrophic Events?
dawn mertineit named vice chair

Seyfarth partner Dawn Mertineit was recently named Vice Chair of the Trade Secrets Committee for the Intellectual Property Owners Association (IPO).

The Trade Secrets Committee focuses on providing practical education to IPO membership and the public on the topic of trade secrets, including presentations, white papers, and form documents. Find more information about the IPO Trade Secret Committee on the IPO website.

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On January 4, 2023, the Dallas Court of Appeals in Texas affirmed a summary judgment in a trade secrets physician staffing case that stands as a warning to practitioners regarding (1) what constitutes sufficient damages evidence to survive summary judgment, and (2) whether something can be considered on appeal that has been sealed or subject to a confidentiality agreement.

Continue Reading Texas Court of Appeals Affirms Summary Judgment in Physician Staffing Case Citing Lack of Damages Evidence
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On Thursday, January 19 at 10 a.m. Eastern, Boston partner Dawn Mertineit is presenting a webinar for the Federal Bar Association and myLawCLE. The “Drafting and Enforcing Restrictive Covenants in Multiple Jurisdictions” webinar covers best practices and key tips for businesses with employees in multiple jurisdictions, from drafting restrictive covenants agreements, implementing a plan to roll those agreements out, and enforcing those agreements should an employee breach them.

Key topics include:

  • Whether to use a single agreement for various jurisdictions, or multiple different agreements
  • Which states have choice of law or forum provisions to be aware of
  • Which states impose strict penalties for failure to comply with restrictive covenants statutes
  • Legislative and regulatory update, including the FTC’s recent proposed rule that would ban almost all non-competes

For more information and to register, visit the Federal Bar Association website or the myLawCLE website.

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In the first installment of our 2023 Trade Secrets & Non-Competes Webinar Series, Seyfarth partners Kate Perrelli, Michael Wexler, Robert Milligan, Dan Hart, and Dawn Mertineit discussed the new Federal Trade Commission’s (“FTC”) proposed rule banning the use of non-competes with employees and workers. The expert panel addressed what the proposed rule would do and what employers need to know to respond.

As a conclusion to this webinar, we compiled a summary of takeaways:

  • The FTC’s attempted regulation of employment non-competes as part of its rulemaking powers is unprecedent in the 109 years since its creation in 1914. The FTC bases its rulemaking authority on Section 5 of the Federal Trade Commission Act, which provides: “The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations . .. from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 15 USC § 45(2).
  • On November 10, 2022, the majority on the FTC issued a new policy statement that outlined an expansive definition of “unfair methods of competition” and indicated that it would engage in aggressive enforcement of actions that it regards as “unfair methods of competition,” even if those actions do not constitute violations of federal antitrust law.  The proposed Rule is the FTC’s first test of the broader powers that it claimed in its November statement, and the proposed Rule is much broader than anything that the Biden Administration had previously hinted at, including in then-candidate Biden’s platform campaign statement or in the 2021 executive order. A day before the FTC issued its proposed rulemaking, FTC that issued a press release that it had sued, and reach a settlement with, three employers in the security and manufacturing sector that the FTC alleged had “illegally imposed noncompete restrictions on workers.” Thus, the FTC apparently is not waiting for a final rule before flexing its muscle and employers should examine their existing non-competes to determine whether they are overly broad and may invite FTC scrutiny.
  • The proposed rule impacts not just typical employee non-compete agreements but also non-compete agreements that are made in connection with the sale of business entities. While there is an exception for a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause defined as an owner, member, or partner holding at least a 25 percent ownership interest in a business entity, the 25% interest threshold is arbitrary and ignores the business realities, complexity and individuality of such transactions. Moreover, it applies retroactively to such transactions so parties to the transaction may not get the benefit of their bargain.
  • The proposed rule is only a proposal at this point, as the FTC has solicited public comment on the proposed rule before it issues a final rule.  The deadline to submit comments is March 20, 2023, and we encourage all affected employers to submit comments.
  • It’s unclear whether the final rule will be as sweeping as the current proposal.  Regardless of the final form of the rule, we expect legal challenges to the FTC’s rulemaking, including significant constitutional challenges to whether the FTC has power to issue rules at all on worker non-competes.
  • In the interim, employers should take a close look at their restrictive covenant agreements to ensure that they are reasonable and compliant with ever-evolving state law.

You can view a recording of the webinar and all other webinars in our Trade Secrets & Non-Competes Webinar Series here.

Trade Secrets Year in Review Webinar

Tuesday, January 24, 2023
1:00 p.m. to 2:00 p.m. Eastern
12:00 p.m. to 1:00 p.m. Central
11:00 a.m. to 12:00 p.m. Mountain
10:00 a.m. to 11:00 a.m. Pacific

REGISTER HERE

In the second installment of the 2023 Trade Secrets Webinar Series, Seyfarth attorneys will review the noteworthy legislation, cases, and 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 predictions for what to expect in 2023.

Seyfarth attorneys, Michael Wexler, Robert Milligan, and Joshua Salinas will address the following topics: 

  • Significant new legislation for non-competes and other restrictive covenants and related court decisions that may affect their enforcement
  • Discussion of legislative and regulatory efforts to narrow use on non-competes and restrictive covenants at the federal level, specifically the new FTC proposed rule banning the use of non-competes with workers.
  • The Defend Trade Secrets Act and tips for navigating the law
  • Recent significant trade secret misappropriation decisions concerning damages, fees, and pleading
  • The viability of computer fraud claims in light of recent Supreme Court decisions
  • Best practices for updating and structuring agreements and policies to adequately protect company assets and trade secrets, including addressing the challenges for multistate employers and the challenges for a remote or hybrid workforce

In addition to this webinar, we invite you to download a copy of the most recent edition of our 50 State Non-Compete Desktop Reference.

Speakers
Michael Wexler, Partner, Seyfarth Shaw LLP
Robert Milligan, Partner, Seyfarth Shaw LLP
Joshua Salinas, Associate, Seyfarth Shaw LLP

REGISTER HERE

If you have any questions, please contact Colleen Vest at cvest@seyfarth.com and reference this event. 

This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC and VA. The following jurisdictions may accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, NH. The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD. For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. Please note that attendance must be submitted within 10 business days of the program taking place. If you have questions about jurisdictions, please email CLE@seyfarth.com. CLE credit for this recording expires on January 23, 2024.