Throughout 2010, Seyfarth Shaw LLP’s dedicated Trade Secrets, Computer Fraud & Non-Competes practice group hosted a series of webinars that addressed key issues facing clients today in this important and ever changing area of law. The series consisted of five webinars: The Computer Fraud and Abuse Act: What You Need to Know, Protecting the Secrets in Your Employees’ Heads, Trade Secret Litigation and Protection in California, Franchise and Dealer Relations: Protecting Your Trade Secrets and Brand, and Protecting Your Trade Secrets in the Global Economy: Non-Compete and Trade Secret Considerations In Europe and Asia. As a conclusion to this well-received 2010 webinar series, we have compiled a list of key takeaway points for each of the webinars. If you were not able to attend the webinars, we invite you to request the archived recordings of the webinars by contacting your Seyfarth Shaw LLP attorney. We are also pleased to announce that Seyfarth Shaw LLP will continue its webinar programming in 2011 and has several exciting topics lined up.
The Computer Fraud and Abuse Act
Our first webinar this year, led by Seyfarth attorneys James Yu, Michael Elkon, and Carolyn Sieve, was entitled The Computer Fraud and Abuse Act: What You Need to Know. The Computer Fraud and Abuse Act (CFAA) is a federal statute that has been used for almost a decade to obtain injunctive relief against, and impose liability on, employees and hackers who steal or interfere with a company’s electronic information. This webinar covered the essential points that employers need to know about the CFAA and its potential uses in protecting electronic assets.
· CFAA claims often turn on what an employee was authorized to do on an employer’s computer system. Therefore, handbooks, IT policies, sign-in screens, and other materials that cover IT authorization should address what an employee is (and is not) allowed to do on the system.
· The CFAA is not limited to employees. An employer should consider what authorization instructions it provides to clients, vendors, potential business partners, and contractors. It should also carefully monitor the security protections for its website and internal servers as hackers remain a continuous threat.
· There is a split among federal courts regarding whether the CFAA applies to employees who are initially provided access to company data but then either exceed that authorization or otherwise act in a manner that revokes the initial authorization. Some courts have limited the use of the CFAA to unauthorized users such as hackers. Therefore, the location of a possible violation of the CFAA is important.
Inevitable Disclosure
The second webinar of the 2010 series, led by Erik von Zeipel, Jason Stiehl, and David Countiss, focused on Inevitable Disclosure, an evolving doctrine recognized in a large number of jurisdictions that may prevent an employee from accepting employment when the employee’s duties cannot be performed without the disclosure of a former employer’s trade secrets. This discussion covered what employers need to know about the Inevitable Disclosure Doctrine, including jurisdictions which have adopted the doctrine and its application to both exiting and incoming employees. The panel also discussed best practices for handling the hiring and termination of employees in such jurisdictions.
· Understand the state of the law regarding inevitable disclosure in your jurisdiction. Injunctive relief may be easier to obtain if your jurisdiction has adopted the doctrine.
· Require new employees to sign agreements acknowledging their obligation to protect company’s trade secrets, as well as acknowledging that they understand that they need to respect their prior employer’s trade secrets and any related agreements. Be prepared to marshall any breaches of these agreements if litigation ensues.
· When an employee departs, sequester technology assets, conduct exit interviews and have the employee acknowledge agreements and covenants protecting trade secrets.
California Trade Secrets Law
This third webinar, conducted by Robert Milligan, Robert Niemann, and Jim McNairy, focused on how California trade secret law is similar and diverse from other jurisdictions, including a discussion of the California Uniform Trade Secrets Act, trade secret identification requirements, remedies, and the interplay between trade secret law and Business and Professions Code Section 16600, which codifies California’s general prohibition of employee non-compete agreements. The webinar also covered effective California trade secret protection policies and practices.
· Aside from a few narrow exceptions, non-competition agreements are presumed void under California law in the typical employment context and recent cases hold that most non-solicitation of customer clauses are synonymous with non-compete agreements and are therefore also unlawful. It remains to be seen whether the so-called “trade secret exception” will be a viable exception to California’s general prohibition against non-competition agreements. Employers should keep these developments in mind when assessing such agreements and make sure that their agreements comport with the recent developments in the law. Failure to do so places employers at risk for unlawful business practice suits.
· Because non-compete agreements are typically unenforceable in California, employers typically pursue trade secret misappropriation claims against former employees who steal proprietary company information. In such suits, the employer has the burden of showing that the information is a trade secret, including showing that reasonable secrecy measures were in place to protect the information. Accordingly, prudent companies should consider investing the time and money to conduct a trade secret audit. A trade secret audit generally assesses what company information may be protectable as a trade secret and the security measures the company has in place to protect such information. The results of a successful audit are clearly identified trade secrets with adequate protection measures (including updated trade secret protection agreements) in place: the existence of which are essential to success in trade secret litigation, as well as to ensure that key company assets are adequately protected.
· Conduct a thorough investigation prior to filing a trade secret misappropriation suit to ensure that the claim can be supported from all lines of attack to enable the court to issue appropriate injunctive relief and award damages. This includes obtaining evidence of the trade secret’s existence and the efforts used to protect it. Employers will need to dedicate the time and resources to arm their counsel with this essential information before and during the litigation. Trade secret plaintiffs are also required to identify their trade secrets with particularity before discovery commences in the case, so be prepared to have a trade secret identification statement prepared in advance of serving your discovery.
Trade Secrets and Franchise Law
The fourth webinar of the 2010 series, led by Andrea Okun, Jim McNairy, and Marcus Mintz, discussed how to protect trade secrets, trademarks, trade dress, and goodwill while maintaining and enhancing successful franchises and dealerships. These are often the core assets of a franchise or dealership, and this webinar presented an overview of what assets are protectable, how those assets can be protected, what state and federal laws can be used to protect these assets, and what can be done if these assets are threatened.
· One of the best ways to protect trade secrets, trademarks, trade dress and goodwill is by entering into clear, enforceable agreements at the outset of the business relationship. These agreements should clearly identify the assets (such as confidential information and intellectual property) that are being shared/licensed and expressly state the receiving party’s agreement to (a) not make unauthorized use or disclosure of those assets, (b) return all assets at the termination of the relationship, and (c) the need for injunctive relief should the receiving party breach the agreement.
· In addition to the federal Lanham Act, know the law of your jurisdiction(s). 46 out of 50 states plus the District of Columbia have adopted some variation of the Uniform Trade Secrets Act protecting highly confidential information. Of the remaining 4 states, Massachusetts, New Jersey, and New York have introduced their own versions of the Uniform Trade Secrets Act (only Texas has no trade secret act in place or pending). The franchise acts in Illinois, Indiana, Iowa, Louisiana, Michigan and Minnesota make mention of the enforceability of non-competes. Further, Alabama, California, Colorado, Florida, Georgia, Hawaii, Michigan, Montana, New York, South Dakota, and Texas all have statutes specifically dealing with non-competes.
· When drafting restrictive covenants and seeking injunctive relief, do not overreach. Drafting overly broad agreements or seeking injunctive relief beyond the scope of legitimate business needs may result in invalidation of the agreements at issue and denial of any form of injunctive relief. Be careful not to assume that every jurisdiction will blue pencil or re-write your restrictive covenants to make them enforceable. Many will not.
International Trade Secrets and Non-Compete Law
The final webinar of the 2010 series, led by Marjorie Culver, Dominic Hodson, and Robert Milligan, focused on non-compete and trade secret considerations from an international perspective. The webinar involved a discussion of non-compete and trade secret issues in Europe and Asia, including the threats to trade secrets and confidential information in these regions. The similarities and differences in approach among the various jurisdictions were discussed and compared to the United States. The panel discussed drafting considerations for confidential/trade secret protection and non-compete agreements as well as appropriate policies in these regions, along with a discussion of sources of protection other than written agreements and policies. This webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these regions and ensure protection of their trade secrets.
· One size does not fit all when it comes to drafting employment restrictive covenants for employers operating in international countries. Local jurisdictions take an active interest in agreements that restrict employees from competition as a matter of public policy. Companies must be mindful of the legal requirements for valid non-competes and non-solicits where the employees predominantly provide services or where the employees are likely to later compete. Even where the parties agree on a governing law or forum, the courts in the local jurisdiction often apply local law requirements and void restrictive covenants that do not comply.
· Trade secrets: default statutory protections only go so far. Though many countries make trade secret misappropriation unlawful (similar in some respects to the U.S.), this protection may not be helpful unless a company takes active measures to define and protect its proprietary information. Companies should execute confidentiality agreements adequately defining what a company considers confidential and proprietary and also put in place technological and security protocols to restrict access to the company’s most valuable proprietary information. Failure to take such measures can undermine a company’s claim that the information constitutes a trade secret. Companies must also be mindful that their security precautions do not interfere with employees’ privacy rights, particularly in Europe.
· Non-competes: are they worth the effort in every instance? In some jurisdictions, non-competition restrictions require payment to the former employee during the restrictive period. And, in some cases, even an employer who no longer wishes to oblige the employee cannot waive the non-compete and the obligation to pay. Additionally, injunctive relief may not be available in some countries, making a non-compete the least expedient means for protecting the company from unfair competition. Across the board use of non-competes may not be the most cost-effective or efficient way to protect a company’s competitive position or trade secrets. Rather, companies should formulate a thoughtful strategy that only utilizes non-competes with employees for which there is a legitimate business and legal justification.
2011 Trade Secrets Webinar Series
Beginning in January 2011, we will begin another series of Trade Secret webinars. Planned topics for the 2011 series include Trade Secrets in the Financial Services Industry, Georgia’s New Non-Compete Statute, Choosing the Right IP Protection: Patent or Trade Secret, The Anatomy of a Trade Secret Audit, and Maintaining Trade Secrets in the New World of Cloud Computing. For notifications concerning our upcoming webinars, please sign up for our Trade Secrets, Computer Fraud & Non-Competes mailing list by clicking here.