The Defend Trade Secrets Act (DTSA) states very clearly that an injunction issued pursuant thereto may not “prevent a person from entering into an employment relationship,” and that any conditions placed on a former employee’s employment in an injunction must be based on “evidence of threatened misappropriation and not merely on the information the person knows.” (Emphasis added). This language appears to bar injunctive relief under the DTSA based on the “inevitable disclosure doctrine,” which in some states permits a court to enjoin a former employee from working for a competitor—even in the absence of a signed non-compete agreement—if it can be established that the employee would “inevitably” (even if inadvertently) use his or her former employer’s trade secrets on behalf of a new employer. As a result, when the statute was first enacted, many commentators assumed that claims based on the inevitable disclosure doctrine would quickly be shot down. In practice, however, that does not appear to be the case. At the very least, some recent federal court decisions have sown confusion around this issue.

We recently wrote about a federal court’s ruling in the Northern District of Illinois that applied the inevitable disclosure doctrine to a DTSA claim. Despite its non-precedential value, this ruling was significant because it interpreted a federal law to allow the application of a doctrine that has been expressly rejected in several states, including California, Maryland, and Virginia, and, again, appears to be barred by the plain language of the DTSA. That case can perhaps be explained by the fact that it was decided on a motion to dismiss, not a motion for injunctive relief, and thus the DTSA’s apparent prohibition on basing an injunction on inevitable disclosure was not necessarily implicated. The same cannot be said about a decision that was issued just three weeks later by the United States Court of Appeals for the Third Circuit, in which the Court applied the inevitable disclosure doctrine in the context of a temporary restraining order. The case is Fres-co Systems USA, Inc. v. Hawkins, 2017 WL 2376568 (3rd Cir. June 1, 2017).
Continue Reading The Third Circuit Addresses the Defend Trade Secrets Act and Appears to Have Applied the Inevitable Disclosure Doctrine

shutterstock_160974335In a recent formal Ethics Opinion, the American Bar Association stressed that lawyers must make reasonable efforts to prevent inadvertent or unauthorized access to confidential information relating to the representation of their clients. The ABA recognized that in the age of constant cybersecurity threats, law firms are targets for hackers for two reasons:

(1) they obtain, store and use highly sensitive information about their clients while at times utilizing safeguards to shield that information that may be inferior to those deployed by the client, and (2) the information in their possession is more likely to be of interest to a hacker and likely less voluminous than that held by the client.

The Opinion further recognizes that while the Model Rules of Professional Conduct do not impose greater or different duties of confidentiality based upon the method by which a lawyer communicates with his or her client, electronic communication involves risks that are constantly changing.
Continue Reading ABA Encourages Encryption of Emails When Transmitting Confidential Client Information

shutterstock_66377878Last Friday, on January 20, 2017, the Massachusetts Legislature began its annual tradition of attempting to promulgate non-compete and trade secret reform in the Commonwealth. A new bill has been filed by the same legislators who began this process back in 2009, Senator William Brownsberger and Representative Lori Ehrlich, which brings many of the past proposals to the table with
Continue Reading Will The Massachusetts Legislature Finally Be Able To Keep Its New Year’s Resolution to Pass Non-Compete Reform?

shutterstock_532304278This past Spring, we reported on the recently enacted Defend Trade Secrets Act (“DTSA”), which provides a new federal civil cause of action to trade secret owners seeking to pursue claims of trade secret misappropriation.  Last week, the U.S. District Court in Massachusetts addressed the whistleblower immunity provision of the DTSA, which protects anyone who discloses a trade secret in confidence to a government official or an attorney “solely for the purpose of reporting or investigating a suspected violation of law.”  In denying an employee’s motion to dismiss his employer’s DTSA claim, the district court held that a defendant must present evidence to justify the immunity.  The case is Unum Group v. Loftus, No. 16-cv-40154-TSH (D. Mass. December 6, 2016).
Continue Reading Federal Court Rejects Defend Trade Secrets Act Whistleblower Immunity Defense on a Motion to Dismiss and Orders Employee to Return Stolen Trade Secrets

As tshutterstock_163690979he Obama administration winds down, its regulators are showing no signs of letting up.  Last week the Commodities Futures Trading Commission (CFTC) decided that it should no longer be constrained by its subpoena power when it seeks to obtain highly confidential and propriety algorithms used by electronic trading firms.  In a 2-1 vote, the CFTC commissioners proposed a
Continue Reading CFTC Proposes New Rule Allowing it to Obtain Trading Firm’s Trade Secrets Without Due Process

shutterstock_312797282Earlier this fall, the U.S. District Court in Massachusetts transferred an employee’s declaratory judgment action to the Eastern District of Michigan pursuant to a forum-selection clause in a non-compete agreement over the employee’s argument that he had signed the agreement under duress because he was not told he would need to sign it until he had already spent the money and traveled all the way from India to the United States. The court also used the value of the employee’s annual salary, not just the damages the former employee was seeking to recover, to determine whether the minimum threshold for diversity jurisdiction had been satisfied, because his former employer was seeking to enforce his non-compete and keep him out of work. The case is Kurra v. Synergy Computer Solutions, Inc., No. 15-cv-13952-ADB (D. Mass.).
Continue Reading Federal Court Rejects Foreign Employee’s Attempt to Avoid Forum Selection Clause on Grounds He Signed Under Duress Upon Arriving in U.S.

shutterstock_331572470We’ve written a lot this summer about the Massachusetts legislature’s latest failed attempt at non-compete reform. Two other states in New England, however, are able to claim accomplishments in that regard. Specifically, Connecticut and Rhode Island each enacted statutes this summer imposing significant restrictions on the use of non-compete provisions in any agreement that establishes employment or any other form
Continue Reading Two New England States Pass Legislation Restricting Physician Non-Competes

shutterstock_348832949 (1)On May 5, 2016, the White House issued a report largely piggybacking on a recent U.S. Treasury Department study, on which we previously posted, with a primary focus on the purported misuse and negative impacts of non-compete agreements.  The White House report reiterated much of what the Treasury Department covered its March 31, 2016 study, and focused on
Continue Reading White House Issues A Call To Arms With Respect To Non-Competes

shutterstock_369744050The U.S. Department of Treasury recently released a study on the effect of non-compete agreements, taking a hard line with respect to their social and economic benefits and purported harms.  Specifically, while the authors of the study acknowledge that in some cases non-compete agreements can promote innovation, they ultimately conclude that the potential harm of misuse by employers outweighs those
Continue Reading U.S. Treasury Department Suggests That Non-Compete Reform is Necessary

shutterstock_17677981On March 25, 2016, a Massachusetts Superior Court judge struck down skin care salon Elizabeth Grady Face First, Inc.’s (“Elizabeth Grady” or the “Company”) attempt to make its non-compete agreement seem prettier than it actually is.  In denying Elizabeth Grady’s motion for a preliminary injunction, the court stressed that employees’ conventional job knowledge and skills, without more, will not constitute
Continue Reading You Can’t Put Lipstick On This Pig: Beauty Company’s Non-Compete Deemed Unenforceable