On Friday, May 18, Eric Barton participated in a panel discussion at the 2018 ITechLaw World Technology Conference, updating attorneys from around the globe on the latest developments in cyber vulnerabilities and crime. In today’s world, businesses and individuals face the certain knowledge that electronic systems are not entirely secure. Mr. Barton’s presentation provided “real world” guidance on how companies can encourage and promote innovation while still protecting their highly valuable trade secrets and intellectual property from both internal and external threats and attacks. Mr. Barton also detailed several recent cases that provide excellent guidance on how to best protect a company’s valuable information, as well as the impact that technological advancements have had on U.S. attorneys’ professional ethics requirements, as mandated by the ABA.

On the panel with Mr. Barton were Alexander Baranchikov, an IP attorney from Moscow, and Rodrigo Azevedo Pereira, an IP attorney from San Paulo, Brazil. Mr. Baranchikov provided an entertaining update on the latest data protection cases and developments in Russia, as well as a detailed synopsis of how the Russian legal system addresses and resolves IP claims. Mr. Pereira discussed the crisis management framework that attorneys should consider using when addressing an online or ransomware attack. Calling upon his extensive experience in crisis management work, Mr. Pereira detailed how to build a multifaceted team, as well as how to respond urgently and efficiently to limit PR damages.

A copy of Mr. Barton’s presentation is available here. The panel was extremely well received and the topics prompted various discussions among the participants. For any follow-up questions or information, please do not hesitate to contact Mr. Barton directly at ebarton@seyfarth.com.

 

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Jeremy Morton, Partner at Harbottle & Lewis LLP, London, UK.

The UK government has finally launched a consultation on its proposed “Trade Secrets (Enforcement, etc) Regulations 2018,” in advance of the June 9, 2018, deadline to implement the EU Trade Secrets Directive of 2016. Responses to the consultation are due by March 16. Continue Reading UK Reveals Its Future Approach to Trade Secrets

shutterstock_529332652Seyfarth Synopsis: An environmental remediation technologies company is in the midst of litigation in Chinese courts over a $1.2 million contract to provide its technology to a Chinese company. According to the Chinese entity, the technology provider failed to deliver the unit in a “timeframe that was agreed.”

The West Mountain Environmental Corp. (WMT) had issued a press release in October 2016 that it had sold its first indirect thermal desorption technology (TPS) unit in China to Shanghai Hehui Environmental Technology, Co. Ltd. (Hehui). WMT valued the contract at approximately $1.2 million.

Historically, WMT had operated in China since 2012 and has treated, it claims, over 100,000 tons of contaminated soil and oil sludge using TPS technology. TPS’ patented indirect thermal desorption technology is “recognized in the industry as one of the most efficient and safest technologies for the removal of hazardous contaminants.” WMT asserts that TPS was one of the first western environmental remediation technologies successfully transferred to China which has been recognized as a top 100 environmental technology in the 3iPET Program supported by the Ministry of Environmental Protection.

This sale, WMT indicated, represented the first time that TPS technology had been used as part of a process to treat waste purified terephalic acid (PTA) sludge. “PTA is required for the manufacture of polyester fibre, polyethylene terephthalate (PET) bottle resin and polyester film and China is the largest producer of PTA at over 50 million tonnes per year.”

Now according to a recent WMT press release, it received notice that a lawsuit had been filed against it by Hehui, claiming that WMT failed to deliver the TPS unit in a “timeframe that was agreed.” As a consequence, a Chinese Court ordered that WMT’s bank accounts be frozen until a hearing is held on March 27, 2017 in Shanghai.

Subsequently WMT was informed by its Chinese legal counsel that its motion to remand its contract dispute with Hehui to arbitration in conformance with the terms of the contract between the parties was denied. The release indicated that Chinese Intermediate Court ruled that as the contract between the parties did not specify an arbitrator, so the Intermediate Court would hear the case. As a result of the ruling and based on the recommendation from Chinese legal counsel, WMT will file an objection of jurisdiction to the Intermediate Court on April 5, 2017, at which time an official hearing for the case will be set.

This case illustrates how very careful parties need to be in preparing contracts, especially in international cases. Deals in China may be especially complicated as the law varies in different provinces.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team, the Intellectual Property, or the Trade Secrets Teams

itechlaw_logoSeyfarth Shaw LLP is pleased to be a Global Sponsor at ITechLaw’s 2016 European Conference in Madrid on November 9-11.

ITechLaw is a not-for-profit organization established to inform and educate lawyers about the unique legal issues arising from the evolution, production, marketing, acquisition and use of information and communications technology.

The conference will feature a wide-ranging program and invaluable networking opportunities that will focus on cutting-edge legal topics, including e-commerce, e-contracting, disruptive technologies, data protection developments, and the impact of cognitive technologies in the legal spheres. Attendees at the European Conference include leading attorneys in private practice, in-house counsel, business executives focusing on the global economy, government officials and academics.

This year, Seyfarth Shaw Partner Robert B. Milligan serves on ITechLaw’s Board of Directors and is Chair of the Intellectual Property Committee. He will also serve as the moderator of the Disruptive Technologies session, which will cover:

  • a practical approach to the Internet of Things (IoT)
  • consumer protection in the age of IoT
  • the impact of robotics, artificial intelligence & disruptive technologies in law

In addition, Seyfarth Shaw is pleased to co-sponsor the conference. Please stop by our table during the conference to learn about our Intellectual Property, Global Privacy & Security and Trade Secrets, Computer Fraud & Non-Competes Practice Groups.

For more information, click here.

In this installshutterstock_543904594ment in Seyfarth’s 2016 Trade Secrets Webinar Series, International attorney Dominic Hodson focused on non-compete considerations from an international perspective. Dominic discussed general principals and recent international developments in non-compete issues around the globe. Companies who compete in the global economy should keep in mind these key points:

  • Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction. However, there are some common requirements and issues regarding enforceability based on the region, particularly in common law jurisdictions such as the UK, Canada (excluding Quebec), Australia/New Zealand, and Singapore/Hong Kong. A restrictive covenant is void unless it is reasonable to protect a legitimate interest of the employer; simply wanting to stop competition post-termination is not a legitimate interest.
  • Outside of common law countries, there is no uniformity in rules, and every country must be taken separately. There are often detailed statutory rules that the clause must fulfill, but nevertheless there are repeating themes: There must be reasonableness to the non-compete agreement, and you must require proportionality between the clause and the interest sought to be protected.
  • With respect to non-common law countries, liquidated damaged are often allowed. Civil law countries tend to be much more forgiving of liquidated damages and don’t have the same rules regarding “penalty clauses.”

WebinarOn Thursday, July 28, at 12:00 p.m. Central, Seyfarth attorney Dominic Hodson will present “International Non-Compete Law Update,” the eighth installment in Seyfarth’s 2016 Trade Secrets Webinar series.

Mr. Hodson will focus on non-compete considerations from an international perspective. Specifically, the webinar will involve a discussion of recent developments, and a refresher in general principals, in non-compete issues around the globe. This webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including via the effective use of non-compete and non-disclosure agreements.

*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.

register

shutterstock_384957430Earlier today (by a vote of 503 to 131 with 18 abstentions), the European Parliament approved the text of a proposed Directive for the protection of trade secrets in the European Union.  Once approved by the European Council (which is typically a formality), the Directive will be binding on all EU member states and will require member states to enact national legislation that meets certain minimum requirements for the protection of trade secrets.

Up to this point, no legal framework has existed for the protection of trade secrets throughout the EU.  In 2013, the European Commission commissioned a study on trade secrets protections in EU member states by comparison to legal protections for trade secrets in the United States, Switzerland, and Japan.  Following that study, which highlighted the lack of uniformity in the laws of EU member states, the European Commission proposed an initial draft of the directive to remedy perceived inadequacies in the existing legal framework.  With adoption of the new directive, EU member states now have a period of 24 months to adopt national legislation that meets certain minimum standards of protection for trade secrets.

Several key provisions of the Directive are notable.

First, the directive provides a uniform definition of a “trade secret” as “information which meets all the following requirements: (a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; (b) has commercial value because it is a secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”  (Directive, Art. 2 ¶ 1.)

Second, the directive defines the following conduct as unlawful:

  • “Acquisition of a trade secret without the consent of the trade secret holder shall be considered unlawful, whenever carried out by . . . unauthorised access to, appropriation of, or copy of any documents, objects, materials, substances or electronic files, lawfully under the control of the trade secret holder, containing the trade secret or from which the trade secret can be deduced; [and] any other conduct which, under the circumstances, is considered contrary to honest commercial practices.” (Directive, Art. 3 ¶ 2.)
  • “The use or disclosure of a trade secret shall be considered unlawful whenever carried out, without the consent of the trade secret holder, by a person who is found to meet any of the following conditions: (a) have [sic] acquired the trade secret unlawfully; (b) be in breach of a legally valid confidentiality agreement or any other duty to maintain secrecy of the trade secret; [or] (c) be in breach of a legally valid contractual or any other duty to limit the use of the trade secret.”  (Directive, Art. 3 ¶3.)
  • “The acquisition, use or disclosure of a trade secret shall also be considered unlawful whenever a person, at the time of acquisition, use or disclosure, knew or should, under the circumstances, have known that the trade secret was obtained directly or indirectly from another person who was using or disclosing the trade secret unlawfully within the meaning of [Art. 3 ¶3].”  (Directive, Art. 3 ¶4.)
  • “The production, offering or placing on the market of infringing goods, or import, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret when the person carrying out such activities knew, or should, under the circumstances, have known that the trade secret was used unlawfully within the meaning of [Art. 3 ¶3].”  (Directive, Art. 3 ¶5.)

Third, the Directive establishes exceptions that essentially creates a whistleblower defense to trade secrets misappropriation claims, similar to language in the U.S. Senate’s version of the proposed Defend Trade Secrets Act pending in the U.S. Congress.  The relevant portion of the text provides as follows:

“Member States shall ensure that the application for the measures, procedures and remedies provided for in this Directive is dismissed when the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases: (a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media; (b) for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest; (c) the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise; (e) for the purpose of protecting a legitimate interest recognised by Union or national law.”

(Directive, Art. 4.)

Fourth, the Directive requires member states to establish limitations periods for trade secrets claims, as follows: “Member States shall, in accordance with this article, lay down rules on the limitation periods applicable to the substantive claims and actions for the application of the measures, procedures and remedies pursuant to this Directive. . . . The duration of this limitation period shall not exceed six years.”  (Directive, Art. 7.)

Fifth, the Directive requires member states to establish minimum rules for protection and preservation of trade secrets during litigation, including measures that “shall at least include the possibility (a) to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons; (b) to restrict access to hearings, when trade secrets or alleged trade secrets may be disclosed, and their corresponding records or transcript to a limited number of persons; (c) to make available to any person other than those comprised in the limited number of persons referred to in points (a) and (b) a non-confidential version of any judicial decision, in which the passages containing trade secrets have been removed or redacted.”

To take full advantage of the protections provided by the new Directive, as well as the protections that will be afforded by the Defend Trade Secrets Act in the U.S., employers on both sides of the Atlantic would be wise to review their existing practices and procedures to ensure that they are taking “reasonable steps under the circumstances” to protect their trade secrets, including:

  • Reviewing IT policies and procedures for protecting sensitive information;
  • Reviewing existing employment agreements, including restrictive covenant agreements in jurisdictions where they are permitted, to ensure that they provide appropriate levels of protection permitted under applicable law;
  • Reviewing existing employment policies regarding protection of confidential information and ensuring that employees are adequately trained on the policies; and
  • Reviewing employee exiting policies and procedures to ensure that sensitive information is returned upon the end of employment.

In addition, in light of the new whistleblower protections afforded by both the EU Directive and the Defend Trade Secrets Act, employers should ensure that their policies and practices are in compliance with all applicable anti-retaliation laws and that management employees are properly trained on best practices to reduce the risks of whistleblower retaliation claims.

For more on these practical tips and background to the Directive and the Defend Trade Secrets Act, please check out our recent webinar on these topics.

shutterstock_102405310As we have previously reported in this blog, this week marks a milestone in ongoing attempts in the European Union to overhaul the existing regulatory framework for the protection of trade secrets.  Earlier today, members of the European Parliament debated the compromise text of the proposed Directive to protect trade secrets.  A full recording of the debate can be found here.

Today’s debate came on the heels of a press conference earlier in the day by MEP Constance Le Grip (European People’s Party — France), the rapporteur who has shepherded the proposed directive in the European Parliament for the past 18 months.  For those who have been following the proposed Directive, Ms. Le Grip’s comments provide an interesting explanation of the varying political considerations that produced the compromise text, including balancing the concerns of businesses and the rights of workers.

Questions posed by journalists at the press conference are perhaps more interesting.  If the questions posed by journalists (as well as the comments by many MEPs during the debate) are any indication, considerable opposition exists to the proposed directive.  While business groups and many MEPs have largely welcomed the proposed directive, other MEPs and some interest groups have expressed concern that the proposed directive will be used by companies to stifle whistleblowers and journalists.  Notably, the compromise text already includes language that expressly guarantees protection of whistleblowers, freedom of the press, and other fundamental rights, as follows:

Member States shall ensure that the application for the measures, procedures and remedies provided for in this Directive is dismissed when the alleged acquisition, use or disclosure of the trade secret was carried out in any of the following cases:

(a) for exercising the right to freedom of expression and information as set out in the Charter of Fundamental Rights of the European Union, including respect for freedom and pluralism of the media;

(b) for revealing a misconduct, wrongdoing or illegal activity, provided that the respondent acted for the purpose of protecting the general public interest;

(c) the trade secret was disclosed by workers to their representatives as part of the legitimate exercise of their representative functions in accordance with Union or national law, provided that such disclosure was necessary for that exercise;

(e) [sic] for the purpose of protecting a legitimate interest recognised by Union or national law.

See Proposed Directive [compromise text], Art. IV.   Yet despite this language, opponents of the proposed directive have argued that the directive does not go far enough in protecting whistleblowers.   Whether such concerns are wide enough to scuttle the proposed directive remains to be seen.      

A full vote on the proposed directive is scheduled for tomorrow.  For up-to-date coverage of the proposed directive, please look for an update in this blog following tomorrow’s vote.

shutterstock_46364566As we reported last month in this blog, in December the European Council and representatives of the European Parliament reached a “provisional agreement” on the European Commission’s proposed Directive to protect trade secrets.  With this provisional agreement, the Council and representatives of the European Parliament agreed on compromise language to be submitted to the Parliament for approval, thus clearing the way for adoption of the proposed directive in the next few months.

At the time that we reported on this development, the compromise text was not yet available.  However, now that the Parliament and Council have completed a legal-linguistic review of the text, the full English-language version of the compromise text is now available.  With the benefit of the full text, we can now answer one final open question that we reported last month — i.e., what is the scope of the protections that will be available to trade secrets during litigation under the compromise text?

As we previously noted, the European Commission’s original text contemplated that courts in Member States may issue “Attorneys’ Eyes Only” protective orders like those that are typically used in trade secrets cases in the U.S.  Specifically, the Commission’s original text provided that:

Member States shall also ensure that the competent judicial authorities may, on a duly reasoned application by a party, take specific measures necessary to preserve the confidentiality of any trade secret or alleged trade secret used or referred to in the course of the legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret. The measures referred to . . .  shall at least include the possibility: (a) to restrict access to any document containing trade secrets submitted by the parties or third parties, in whole or in part; (b) to restrict access to hearings, when trade secrets may be disclosed, and their corresponding records or transcript.   In exceptional circumstances, and subject to appropriate justification, the competent judicial authorities may restrict the parties’ access to those hearings and order them to be carried out only in the presence of the legal representatives of the parties and authorised experts . . .

In contrast, in its draft Legislative Resolution, the European Parliament’s Legal Affairs Committee watered down this language with the following proposed language that would appear to eliminate true “Attorneys’ Eyes Only” protective orders:

The measures referred to . . .  shall at least include the possibility: (a) to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties to a limited number of persons, in whole or in part provided that at least one person from each of the parties, and, where appropriate in view of the proceedings, their respective lawyers and/or legal representatives, are given access to the document in full; (b)  to restrict access to hearings, when trade secrets or alleged trade secrets may be disclosed, and their corresponding records or transcript to a limited number of persons, provided that it includes at least one person from each of the parties, and, where appropriate in view of the proceedings, their lawyers and/or legal representatives . . .

Based on the compromise text, the Council and representatives of the Parliament appear to have adopted the Legal Affair’s Committee’s approach, albeit with different language.  The relevant portion of the compromise text now reads as follows:

Member States shall also ensure that the competent judicial authorities may, on a duly reasoned application by a party, take specific measures necessary to preserve the confidentiality of any trade secret or alleged trade secret used or referred to in the course of the legal proceedings relating to the unlawful acquisition, use or disclosure of a trade secret. Member States may also allow competent judicial authorities to take such measures on their own initiative.

The measures referred to in the first subparagraph shall at least include the possibility:

(a) to restrict access to any document containing trade secrets or alleged trade secrets submitted by the parties or third parties, in whole or in part, to a limited number of persons;

(b) to restrict access to hearings, when trade secrets or alleged trade secrets may be disclosed, and their corresponding records or transcript to a limited number of persons;

(c) to make available to any person other than those comprised in the limited number of persons referred to in points (a) and (b) a non-confidential version of any judicial decision, in which the passages containing trade secrets have been removed or redacted.

The number of persons referred to in points (a) and (b) of the second subparagraph shall be no greater than what is necessary in order to ensure compliance with the right to an effective remedy and to a fair trial of the parties to the proceedings and shall include, at least, one natural person from each party and the respective lawyers or other representatives of those parties to the proceedings.

Proposed Directive, Article 8, ¶ 2.

Assuming that this compromise text is approved by the European Parliament, legislatures and courts in Member States will no doubt take different approaches to effectuate this language.  Although the final compromise text is somewhat weaker than the protections that U.S. practitioners typically see in trade secrets litigation, on balance the compromise language provides a reasonable baseline for protection of trade secrets during litigation that is probably more than sufficient for most disputes.

The compromise text is expected to be submitted to the full European Parliament for approval in the next few months.  If the Parliament approves the text on a first reading, the European Council will approve the European Parliament’s position and the Directive will be adopted.  Member States then will be required to enact national law consistent with the Directive within two years.  We will continue to track progress of the proposed Directive as it crosses the final hurdle necessary for adoption.

shutterstock_306766586In the latest of our series of post-employment protection blog posts, we consider the compliance and regulatory issues that need to be thought through when drafting an effective post-employment restraint in Australia.

How will any restraint payment be structured?

The threshold question is what kind of payment (if any) to make in return for the agreement of an employee not to engage in particular activities, such as working for a competitor, soliciting business from clients, etc.

The best option will depend on the particular circumstances.

Payment could be part of normal salary. There could be a separate lump sum payment which is paid when the agreement is made or at the time the restraint is called on. Alternatively, an employer might wish to drip feed monthly payments during the restraint period. There are a number of ways to structure the arrangements that best suit the business and the employee concerned.

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It is also possible for no specific payment to be made in return for the restraint. However, at a practical level, paying an individual not to engage in certain activities such as working for a competitor or poaching staff might mean the obligations are more likely to be complied with. For example, an executive who is not “out of pocket” during the restraint period is less likely to need to take the risk of working for a competitor.

From a purely legal perspective payment does not guarantee enforceability. When the payment is made and the quantum are discretionary matters to be taken into account by a court asked to enforce a restraint. In our experience, it is very helpful to be able to point to payment in return for agreement to be restrained.

Payment for a restraint will, of course, raise a number of regulatory disclosure, approval and tax issues.

“Gardening leave” compared to a post-employment restraint

At the outset it’s important to distinguish between:

  • payment of salary during a period of notice of termination where the employee is not required to work, which is referred to commonly as “gardening leave” because the employee cannot commence working for another employer but can engage in leisure activities such as gardening (Notice Payments); and
  • additional payment/s made after termination of employment in return for the former employee’s agreement to be prevented from engaging in certain activities such as working for a competitor or approaching their former clients, suppliers or colleagues (Restraint Payments).

Notice Payments will not raise the same issues as Restraint Payments. However, neither payment will guarantee the legal enforceability of the restrictions but will merely be a factor that a court may consider in deciding whether the restrictions are reasonable. The argument is that the payment will go some way to addressing the public policy concern about restraints to the effect that they should not deprive a person of their ability to earn a living.

Termination benefits requiring shareholder approval

In the case of certain executives (broadly “Key Management Personnel” as defined in the Corporations Act 2001 and directors) Restraint Payments may also require the approval of shareholders in general meeting if they are in connection with termination of employment or the transfer of any undertaking or property of the company. This is because the corporations legislation in Australia specifically deems a payment that is made as part of “a restrictive covenant, restraint-of-trade clause or non-compete clause” a benefit that requires shareholder approval.

Whether such approval is required must be determined on a case by case analysis. Generally, Notice Payments will not be caught by this requirement.

Board determination of “reasonableness” of the payment

For some executives a company’s board of directors may also have to determine whether a Restraint Payment is “reasonable” in the context of the limits on payments to related parties under the corporations legislation. This is an issue that should be considered at the time a restraint provision is drafted and agreed. If a benefit is not considered reasonable then it will require shareholder approval. External advice may need to be taken by a board to assist its determination of whether a proposed payment is reasonable.

Disclosure

Corporations legislation and the Listing Rules of the Australian Securities Exchange impose obligations on companies to make disclosures about executive pay, including Restraint Payments and Notice Payments, in certain circumstances. Whether a payment is ultimately disclosed publicly may be a relevant consideration in deciding whether the payment is commercially acceptable to both the executive or employee and the company. On this basis any potential disclosure obligations should be considered at the time of drafting and agreeing payment obligations for restraints.

Taxation

Finally, the tax treatment of a Restraint Payment may be different to the tax treatment of a Notice Payment, depending on whether the Restraint Payment is categorised as an employment termination payment or a capital payment. Specific consideration of this issue will also be required.

Well drafted restraints of trade are a necessary and reasonable business tool and can be highly effective to protect business interests. To be enforceable, and to prevent side issues becoming a problem, the above matters need to be carefully thought through at the time the restraint is drafted and agreed.