As readers of this blog well know, there is a growing trend of state legislatures seeking to limit or outright ban non-competes. (See here, here, and here as just a few examples of state efforts to curb non-competes—not to mention the proposed federal legislation and international efforts—in the last six months.) Last week, the Washington Senate jumped on the bandwagon by passing a bill with a 30–18 vote that would severely limit the enforceability non-competes. (Similar efforts failed last year, as we reported here.) Some of the key features of this year’s bill are as follows: Continue Reading Washington State Lawmakers Seek to Partially Ban Non-Competes
After being slapped with a post-trial judgment last April totaling $2.2 million for misappropriation of confidential and proprietary information, two Wyoming bank executives were named in an unprecedented “Notice of Intent to Prohibit” filed in December by the Federal Reserve Board. If these executives thought that more than two million dollars in civil liability was harsh, they were mistaken, as they now face a much harsher consequence: a ban from the banking business altogether.
In its Notice, the Federal Reserve Board alleges that two executives, Frank Smith and Mark Kiolbasa, conspired to misappropriate the confidential and proprietary business information of their employer, Central Bank & Trust in Wyoming, and to give it to Central’s competitor, Farmers State Bank, in exchange for employment and an ownership interest in Farmers. The Notice contends that the bankers engaged in unsafe and unsound banking practices in breach of their fiduciary duties to Central Bank and seeks a hearing to determine whether they should be permanently barred from participating in the banking industry “in any manner.”
It is unclear whether this action stands on its own or is part of larger movement by the Federal Reserve to crack down on confidential and trade secret misappropriation. Regardless, it is an issue we will closely monitor given its sizeable consequences. The risk of a Federal Reserve action for a permanent ban on participation in the banking business adds greater protection to banks, but creates new risks at the same time. The same bank who threatens to report one of its executives to Feds could also hire a new executive who brings the same baggage with them. With the Federal Reserve Board’s recent Notice, we are continuing to notice a trend of the governments’ involvement in the confidential and trade secret misappropriation world.
As noted in our February 20th blog post, Robert O’Rourke, a 30 year salesman for cast iron products manufacturer Dura Bar, went on trial in Chicago (Northern District of Illinois) for allegedly stealing Dura trade secrets before leaving to work for a Chinese competitor. According to the government, O’Rourke downloaded 1,900 files (in 20 minutes) that contained Dura trade secrets and then attempted to board a flight to China with the trade secrets in hand. The FBI stopped O’Rourke at the gate and subsequently charged O’Rourke with 13 counts of trade secret theft.
At trial, O’Rourke’s defense team acknowledged that O’Rourke downloaded the 1,900 files and was in possession of the files at the time of his arrest, but maintained that the files were not trade secrets because Dura did not take “reasonable measures” to keep the information confidential. Unfortunately for O’Rourke, the jury disagreed and convicted O’Rourke on seven counts of trade secret theft. In reaching its decision, the jury found that Dura took reasonable steps to keep its information confidential. O’Rourke’s texts to his ex-wife about the “damage he could do” to Dura” by giving the 1,900 files to a Dura competitor probably did not help O’Rourke either.
Each count carries a maximum 10 year prison sentence but a sentencing date has not been set because O’Rourke’s attorneys have indicated that they will be filing a motion asking to set aside the jury verdict and/or for a new trial. We will keep monitoring the case so please check back here for updates.
On March 7, 2019, a group of six United States senators from both sides of the aisle submitted a letter to the Government Accountability Office (GAO) requesting a federal investigation into the use of non-compete agreements on the basis that their widening use in recent years raises concerns about their negative impact on both workers and the national economy. Specifically, the letter asks the GAO to assess the following three questions:
- What is known about the prevalence of non-compete agreements in particular fields, including low-wage occupations?
- What is known about the effects of non-compete agreements on the workforce and the economy, including employment, wages and benefits, innovation, and entrepreneurship?
- What steps have selected states taken to limit the use of these agreements, and what is known about the effect these actions have had on employees and employers?
Seyfarth has released the results of its fourth annual Real Estate Market Sentiment Survey, which polled commercial real estate executives around the country from all sectors. Of interest to our readers, this year’s survey revealed that 69% of respondents are concerned about a cyberattack hitting their business in 2019, a significant increase compared to last year (46%).
Cybersecurity isn’t just for technology companies anymore. More and more, we are seeing other critical infrastructure participants becoming targets of cybersecurity attacks. Transportation, construction, and other real property-heavy industries are starting to catch the eye of sophisticated hacking teams – both criminal as well as nation-state sponsored groups.
There are two different threat models in the real estate market: the builder and the manager. Continue Reading Cyberattacks a Growing Concern for Commercial Real Estate Executives
As we’ve previously written about on this blog, last summer the Massachusetts legislature passed a non-compete reform bill which went into effect on October 1, 2018. Readers of this blog will recall our concerns that the new law is in many ways confusing and may lead to unpredictable results. Now, nearly five months after its effective date, Magistrate Judge Dein of the United States District Court for the District of Massachusetts has issued the first published decision citing the new Massachusetts Noncompetition Agreement Act, Mass. Gen. Laws ch. 149, § 24L—unfortunately, this decision does not analyze an agreement that is subject to the Act, but it does confirm our suspicions that creative practitioners will try to use the new law to attack the enforceability of agreements entered into before the effective date. Continue Reading For the First Time, a Massachusetts Court Weighs in on the New Noncompetition Agreement Act – Well, Sort Of
On February 21, 2019, the New Hampshire Senate, in a bipartisan voice vote and without debate, passed Senate Bill 197, which would prohibit employers from requiring low-wage workers to enter into non-compete agreements, and makes such agreements void and unenforceable.
The Bill applies to “Low-wage employees,” which is defined to include (i) employees who make less than or equal to twice the federal minimum wage, i.e., $14.50 per hour based on the current federal minimum wage of $7.25 per hour; and (ii) “tipped employees” under New Hampshire Revised Statute § 279:21, who make less than or equal to twice the tipped minimum wage (statutorily set at 45 percent of the federal minimum wage), i.e., $6.54 per hour. Continue Reading New Hampshire Senate Seeks to Ban Non-Competes for Low-Wage Workers
Please join us for a one-hour CLE webinar on Wednesday, March 20, 2019, at 1:00 p.m. Eastern / 12:00 p.m. Central / 10:00 a.m. Pacific.
On March 20, 2019, at 12:00 p.m. Central Time, in Seyfarth’s second installment of its 2019 Trade Secrets Webinar Series, Seyfarth attorneys will focus on trade secret and client relationship considerations in the banking and financial services industry.
Seyfarth attorneys J. Scott Humphrey and Marcus Mintz 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
*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for this webinar, the registrant must be present for the entire session.
In a case highly watched by trade secret lawyers and others, Robert O’Rourke, a 30-year salesman for cast iron products manufacturer Dura Bar, went on trial last week in Chicago (Northern District of Illinois) for allegedly stealing Dura trade secrets before leaving to work for a Chinese competitor. According to the government, O’Rourke was a highly respected salesman at Dura until he became disgruntled with Dura management and decided to leave Dura for a Chinese competitor. Over a two year period, O’Rourke met with the Chinese competitor (the identity of the Chinese company has not been disclosed) and eventually accepted employment with the competitor. Before resigning from Dura, O’Rourke downloaded 1,900 files that contained Dura trade secrets and subsequently attempted to board a flight to China with the trade secrets in hand. O’Rourke was stopped at the gate by the FBI and subsequently charged with 13 counts of trade secret theft.
O’Rourke’s defense team acknowledged in opening statements that O’Rourke downloaded the 1,900 files and was in possession of the files at the time of his arrest. The 1,900 files, according to O’Rourke’s attorney, however, were not trade secrets because Dura did not take “reasonable measures” to keep the information confidential. Thus, it appears that this case will be determined by whether Dura took reasonable steps to protect its trade secrets/confidential information. The trial is expected to last about three weeks—we will continue to monitor the trial, so please check back for updates.
The American Intellectual Property Law Association (AIPLA) will host its annual Trade Secret Law Summit at the American Express Company in New York City’s Financial District on March 21-22, 2019.
Seyfarth is a proud sponsor of the Summit, at which partners Erik Weibust (Vice Chair of AIPLA’s Trade Secret Law Committee) will be speaking on Protection of Trade Secrets in the Social Media Era, and moderating a panel on Trade Secrets and Restrictive Covenants in the Financial Services Industry, on which Scott Humphrey will be speaking. Other Seyfarth attendees will include James Yu, Jeremy Cohen, and Dawn Mertineit.
We hope you can join us there. For more information and to register, please click here.