Continuing our annual tradition, we have compiled our top developments and headlines for 2019 & 2020 in trade secret, non-compete, and computer fraud law. Here’s what you need to know to keep abreast of the ever-changing law in this area.

1. Another Year, Another Attempt in Congress to Ban Non-Competes Nationwide

Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) introduced legislation in 2019 entitled the Workforce Mobility Act (“WMA”). The WMA seeks to ban non-compete agreements outside of the sale of a business or dissolution of a partnership.

Not only would the WMA abolish covenants not to compete nationwide, outside of the extremely narrow exceptions highlighted above, but it would also provide the Department of Labor (DOL) and Federal Trade Commission (FTC) with broad enforcement power. If enacted, the legislation would empower the FTC and DOL to enforce the ban through fines on employers who either fail to notify employees that non-compete agreements are illegal or who require employees to sign covenants not to compete. Additionally, the WMA establishes a private right of action for all employees allegedly aggrieved by a violation of the WMA.

The WMA contains a carve out for parties to enter into an agreement to protect trade secrets. As currently drafted, the WMA does not abrogate the scope of protections provided by the Defend Trade Secrets Act.

Presently, there are no generally applicable federal restrictions on non-compete agreements, and enacting such a law would have to pass Constitutional muster. We expect to see continued activity at the federal legislative level to attempt to ban or limit the use of non-competes.

2. New State Legislation Regarding Restrictive Covenants

Continue Reading Top 10 Developments and Headlines in Trade Secret, Non-Compete, and Computer Fraud Law for 2019 & 2020

Several high profile ransomware attacks have recently rocked the franchise world fomenting uncertainty and anxiety about franchisors’ legal obligations and liability. Ransomware attacks essentially kidnap a company by shutting down its systems and holdings its data hostage until a ransom fee is paid. In addition to the quantifiable hard costs of paying ransom and hiring experts to mitigate damage and re/build cyber defenses, ransomware victims can be damaged by: (a) third-party liability to the customers and other original owners of compromised data; (b) interruption of business operations during the course of and recovery from an attack; and (c) injury to reputation value in the loss of consumer confidence, appearance of incompetence, and customer attrition. In today’s digital golden era, data is among the world’s most valuable assets, earning the tagline: “data is the new oil.” It therefore comes as no surprise that cybersecurity, which has been a hot topic for years, is garnering increased attention and resources from businesses of all sizes and stages. Yet with each new development in defensive cybersecurity, cybercriminals come up with just as many ways to get around those defenses. Continue Reading Franchisors: Are You Covering Your Digital Assets?

The American Intellectual Property Law Association (AIPLA) will host its annual Trade Secret Law Summit at The Orrick Building in San Francisco’s Financial District on March 16-17, 2020.

Seyfarth partner Scott Humphrey will be speaking on a panel entitled “Use of Litigation Funding in Trade Secret Cases” with representatives of two major litigation funders. Other Seyfarth attendees will include Erik Weibust (Vice Chair of AIPLA’s Trade Secret Law Committee), Marcus Mintz, and Dawn Mertineit. The Trade Secret Law Summit is one of the preeminent trade secret conferences in the country, and Seyfarth has been sending speakers, moderators, and participants to it for many years.

We hope you can join us there. For more information and to register, please click here.

Practicing Law Institute’s “Noncompetes and Restrictive Covenants 2020″ has been posted on-demand and is currently available for viewing until January 2021. Among many other panelists and speakers, Seyfarth partner Erik Weibust spoke on a panel entitled “Advanced Issues in Noncompete Matters.”  CLE credit is available.

On January 23, 2020, the Texas Fifth District Court of Appeals in Dallas retracted its previous ruling in the trade secrets dispute Goldberg, et al. v. EMR (USA Holdings) Inc., et al. and issued a new opinion upon rehearing. In doing so, the Court reversed course on its previous ruling that communications with customers and suppliers involved a matter of public concern and were an exercise of free speech.

The Court’s new ruling, which was decided under the pre-September 1, 2019, version of the Texas Citizens Participation Act (“TCPA”), makes clear that communications between a company and customers or suppliers that deal only with the sale of a commodity are not protected by the TCPA.[1]

The August 2019 Ruling Continue Reading The Dallas Court of Appeals Further Expands Goldberg and Holds that Communications Between a Competitor and Customers and Suppliers Do Not Involve Matters of Public Concern

For the first time in 15 years, the Supreme Judicial Court (“SJC”), Massachusetts’ highest court, issued a decision analyzing the enforceability of non-solicitation covenants, the distinction between such covenants in the context of the sale of a business versus employment, and equitable tolling of restrictive covenants. As set forth below, this decision serves as an important reminder to businesses who impose restrictive covenants governed by Massachusetts law.

Factual Background

While the factual background of the case is long and twisty, only a few key details are necessary to rehash here. The defendant Matthew McGovern (“McGovern”) entered into a restrictive covenants agreement with his former co-shareholders of the Prime Motor Group (“Prime”), in exchange for plaintiffs’ agreement to buy out McGovern’s minority share in Prime with no discount. The agreement, which was made a year after McGovern had been terminated as an employee and as part of a resolution of the parties’ dispute concerning McGovern’s alleged violation of an earlier restrictive covenants agreement, prohibited McGovern from hiring, soliciting, or encouraging Prime employees to leave Prime for 18 months. The agreement contained no tolling provision, but provided that plaintiffs would be entitled to injunctive relief if McGovern breached, without needing to prove irreparable harm.   Continue Reading Massachusetts’ High Court Pumps the Brakes on Equitable Tolling of Restrictive Covenant

Within the last five months, the two executive arms responsible for enforcing antitrust laws—the US Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”)—held public workshops to examine the effect of non-compete clauses in employment contracts on the labor market. The DOJ held its workshop on September 23, 2019, while the FTC recently held its own at the top of the year, on January 9, 2020. The purpose of the FTC workshop was “to examine whether there is a sufficient legal basis and empirical economic support to promulgate a Commission Rule that would restrict the use of non-compete clauses in employer-employee employment contracts.”

Why the FTC now wants to regulate in the employment space is not readily apparent apart from attempting to capitalize on a low-hanging fruit populist issue concerning the overreporting of some companies allegedly using non-competes with low-wage workers. Continue Reading A Solution in Search of a Problem? FTC Hosts Workshop to Consider Authority to Abolish Non-Competes

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd.

One of the key pieces of legislation related to trade secrets in Russia is the Federal Law of July 29, 2004 on Commercial Secrecy. This was passed by the State Duma on July 9, 2004, and endorsed by the Federation Council on July 15, 2004.

This piece of legislation consists of the following articles or sections …

  • Goals and scope of this federal law
  • Laws of the Russian Federation on commercial secrecy
  • Basic notions used in this federal law (including the definition of a trade secret as well as some details on the handling of trade secrets in agreements)
  • Right to classify information as information constituting a commercial secret and methods of obtaining that information
  • Data that may not constitute a commercial secret (i.e. what information may not be considered as a trade secret)
  • Supply of information constituting a commercial secret (i.e. under what circumstances may a trade secret owner have to divulge the information)
  • Protection of the confidentiality of information
  • Protection of the confidentiality of information within the framework of employee or labour relations
  •  Protection of the confidentiality of information as it is passed over to for example state authorities
  • Responsibility for violation of this Federal law (i.e. the various penalties for misappropriation)
  • Responsibility for non-provision of information constituting a commercial secret to the state power bodies, other state authorities, bodies of local self-government

Definition of a Trade Secret

Continue Reading Trade Secret Law in Russia

On Tuesday, January 28 at 12:00 p.m. Central, in the first installment of the 2020 Trade Secrets Webinar Series, Seyfarth attorneys will review 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, they will provide predictions for what to watch for in 2020 and provide an overview of the material law changes in Seyfarth’s 2019-2020 Non-Compete Desktop Reference.

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

  • Significant new federal and state court decisions and legislation on non-compete and other restrictive covenants that may impact their enforcement
  • Discussion of legislative and regulatory efforts to narrow use of non-competes and how companies should respond and the likelihood and impact of potential federal legislation
  • The Defend Trade Secrets Act and tips for navigating the law and an overview of what we know now that it’s been in effect for more than 3 years
  • Recent trade secret misappropriation decisions
  • Noteworthy data breaches and criminal prosecutions for trade secret misappropriation, data theft, and computer fraud matters and discussion of lessons learned
  • Best practices for updating agreements and policies to adequately protect company assets and trade secrets, including addressing the challenge for multi-state employers of an increasing divergence of state laws

REGISTER HERE

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

*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 attending this webinar, the registrant must be present for the entire session.

On January 31, 2020, Boston partner Erik Weibust will be speaking at the Practicing Law Institute’s program “Noncompetes and Restrictive Covenants 2020: What Every Lawyer, Human Resources Professional, and Key Strategic Decisionmaker Should Know” in San Francisco. Erik will be speaking a part of a roundtable discussion entitled “Advanced Issues in Noncompete Matters,” which will cover common difficult problems and cutting-edge topics, including:

  • Whether and how to best use early dispute resolution options.
    • How to negotiate consent injunctions, including as they relate to restrictions on the scope of activities, duration of the noncompete, clients covered and/or excluded, and preliminary versus permanent injunctions.
    • When mediation of covenant disputes should takes place, considerations for the selection of a mediator, and how mediation intersects with discovery.
  • The intricacies of expedited discovery, including obtaining leave of court, the scope of discovery to be expedited, and electronic discovery and forensics.
  • “Raiding” and team moves, including considerations involved in litigating multi-employee covenant matters collectively or separately and balancing between injunctive relief and damages.
  • The impact of legislative activities and changing public opinion, including the challenge for multi-state employers of an increasing divergence of state laws, the uncertainties created by Massachusetts-style “noncompete with pay” laws, the impact of low-wage worker bans (with diverging definitions of “low”), and the likelihood and impact of potential federal legislation.
  • Litigating cross-state issues, including legislative nullification of choice of law and venue clauses, “preemptive strike” declaratory judgment actions by employees, and enforcement strategies such as which forum to select for filing.

More information, including registration for the in-person program and live webcast, can be found here.