As we have discussed on this Blog over the past several years, the Protocol for Broker Recruiting (“Protocol”) allows for reciprocal poaching of brokers. More specifically, if a broker leaves one Protocol firm for another Protocol firm, the broker can (a) take certain account information (client names, addresses, telephone numbers, email addresses, and account title information) to his/her new firm and (b) solicit the clients he/she serviced at his/her former firm. Naturally then, the Protocol’s requirements conflict with confidentiality and restrictive covenant provisions that are commonly found in broker employment agreements and firm policies. Continue Reading Former Protocol Members Are Stepping Up Their Restrictive Covenant Enforcement
A small, Chicago-based magnetic picture frame developer’s claims for trade secret misappropriation against a photo album manufacturer will be headed to trial after an Illinois federal district court largely denied the parties’ cross-motions for summary judgment. Puroon, Inc.’s (“Puroon”) founder and CEO, Hyunju Song, developed the “Memory Book,” “an all-in-one convertible photo frame, album, and scrapbook” that included magnetic openings and an “interchangeable outside view.” In 2013, Puroon launched a website displaying the Memory Book and Song attended various trade shows where attendees were able to interact with the product. Song also sent samples of the Memory Book to representatives of certain retailers without requiring them to sign a nondisclosure agreement. Continue Reading Are Mom-and-Pop Companies Treated Differently When it Comes to Abandoning Trade Secrets? A Federal Court in Illinois Says Yes.
On November 1, 2018, the California Court of Appeal, Fourth Appellate District affirmed a trial court’s ruling in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. et al., No. D071924, 2018 WL 5669154 (Cal. App. 2018), which (1) invalidated the plaintiff’s non-solicitation of employees provision in its Confidentiality and Non-Disclosure Agreements (CNDAs), (2) enjoined AMN from enforcing or attempting to enforce the employee non-solicitation provision in its CNDA with any of its former employees, and (3) awarded $169,000 in reasonable attorneys’ fees to defendants for plaintiff’s use of the provision.
The case is a significant decision which may impact some employers’ continued use of employee non-solicitation provisions with their California employees, at least in certain industries. There is now a split in California authorities and the issue is likely ripe for California Supreme Court guidance.
AMN and Aya are competitors in the business of staffing temporary healthcare professionals, namely providing “travel nurses” to medical care facilities across the country. When former employees, named as individual defendants in the action and who worked as travel nurse recruiters in California, left AMN for Aya, AMN brought suit against Aya and the former employees, asserting 11 causes of action, including for breach of contract and trade secret misappropriation. Continue Reading California Appellate Panel Affirms Injunction Blocking Use of Employee Non-Solicitation Provision in Dispute Between Travel Nurse Providers
- Have trade secret protections. Built into the definition of a trade secret is the requirement to have reasonable secrecy measures. Companies that do not use non-disclosure agreements with their employees can be at a tremendous disadvantage if they decide to litigate against former employees for trade secret misappropriation. Well thought out policies, procedures, and agreements are a must to have defensible trade secret protections.
- Be careful who you hire and what baggage they may come with. Sometimes what appears too good to be true is in fact the case. Employers should take particular care when hiring high-level employees or sales employees from direct competitors. They should carefully review any restrictive covenants that the candidate has before extending an offer and ensure that the prospective employee does not bring data from their previous employer.
- Don’t be a company that has a “Do what I say not what I do approach.” Many company sabotage their own trade secret protections by requiring lower level and mid-level employees to follow policies, procedures, and agreements but then upper management, including executives, fail to abide by the same policies, procedures, and agreements—this can lead to a confused and disgruntled workforce. A culture of confidentiality, which is a staple of companies that adequately protect trade secrets, starts at the top.
- Protect your company trade secrets along the supply chain. In today’s global and mobile economy, companies often hire contractors, consultants, or third parties to assist with products or services. Those same third parties are often provided access to the company’s trade secrets as part of their role in the supply chain. Companies need to ensure that they have had adequate agreements and cybersecurity protections in place with those third parties to ensure that trade secrets are not compromised.
- Have coherent computer policies and enforce those policies. Companies conduct business via email and through the transfer and sharing of electronic files. Those files may contain trade secrets and can be easily transferred to a variety of storage devices and accounts, including computers, electronic devices, and the cloud. Companies should provide clear instructions to employees concerning acceptable use, storage, and transfer of company files and should enforce those policies. Some companies use software solutions to monitor compliance and prevent data extraction. Many trade secret cases involve the illicit transfer of company files to personal devices or accounts.
While these tips provide a good overview, it is highly recommended that you consult a Seyfarth attorney familiar with counseling or litigating trade secret matters to develop a robust plan to protect your company’s trade secrets and intellectual property.
On Thursday, October 25, 2018, at 3:30 p.m. Eastern, Seyfarth Partner Dawn Mertineit will be a panelist for Boston Bar Association’s first ever Employment Law Conference. The “Non-Compete Agreements—What You Need to Know About the New Law” presentation is focused on the recently passed Massachusetts non-compete law and how it’s been affecting businesses with Massachusetts employees.
For more information or to register, click here.
On October 9, Los Angeles County Superior Court Judge Frederick Shaller confirmed his tentative decision weeks earlier that the “show cause” penalty in the NCAA’s bylaws violates California law.
The decision was issued as a tentative ruling on plaintiff (former running back coach at USC) Todd McNair’s claim for declaratory relief. McNair sought—and received—a determination that the NCAA bylaw provisions including the “show cause order” penalty levied against him were void under Cal. Bus. & Prof. Code § 16600. Continue Reading California State Court Rules that NCAA “Show Cause” Penalty Constitutes an “Unlawful Restraint” Under California Law
On Wednesday, November 28, 2018, at 1:00 to 2:30 p.m. Eastern, Seyfarth Partner and Trade Secrets, Computer Fraud & Non-Compete Practice Group Co-Chair Robert Milligan is presenting a Strafford live webinar. The “Drafting Enforceable Non-compete and Non-Solicitation Agreements: Compliance with New State Statutes and Case Law” webinar panel will discuss recent legislative and case law trends regarding non-compete and non-solicitation agreements, offer best practices for structuring permissible contracts, and explain how to determine whether existing agreements are lawful.
The webinar will focus on the following topics:
- What are the recent legislative changes affecting restrictive covenants?
- What are the recent case law decisions affecting non-compete and non-solicitation agreements?
- How can employers structure restrictive covenants to comply with new laws and decisions?
- How can employment counsel analyze existing agreements for compliance?
For more information and to register for the webinar, click here.
Readers of our blog will recall that this summer, the Massachusetts legislature passed a non-compete reform bill after nearly a decade of fruitless attempts. The new law goes into effect today, meaning that any agreements signed today or in the future will need to comply with the new law.
As a brief recap, the key provisions of the new bill are as follows: Continue Reading Today’s the Day: Massachusetts’ New Non-Compete Law Goes into Effect
In Seyfarth’s sixth installment in its 2018 Trade Secrets Webinar Series, Seyfarth attorneys Daniel Hart, Marjorie Culver, Alex Meier, and Paul Yovanic Jr. focused on how to identify the greatest threats to trade secrets, tips and best practices for protecting trade secrets abroad, and enforcement mechanisms and remedies.
As a conclusion to this well-received webinar, we compiled a summary of takeaways:
- You don’t want to be in a position where you’re relying exclusively on trade secrets law to protect proprietary information. When possible, execute a confidentiality agreement. This will not only protect a wider range of information, but also often helps with securing pre-discovery injunctive relief.
- In order to adequately protect trade secrets abroad, companies should inform employees of the important nature of secret information, take steps to secure secret information and limit access only to necessary employees, and avoid liability without culpability by revising employment agreements and informing new hires of the prohibited conduct.
- Restrictive covenants abroad are easier to enforce when agreements are narrowly tailored for duration, geographic scope, and nature and when penalties are reasonable.
- For international misappropriation, consider whether you want to pursue relief in the foreign jurisdiction or in the United States. The Defend Trade Secrets Act and, in some instances, Section 337 actions before the International Trade Commission rules offer powerful alternatives to proceedings in other jurisdictions.
Back in 2015, we covered the divided holding of the Ninth Circuit in Golden v. California Emergency Physicians Medical Group, that a “no re-hire” provision in a settlement agreement could constitute a restraint of trade in violation of California law. After a second round at the Ninth Circuit, the case has been reversed and remanded yet again, based on the panel majority’s conclusion that the “no re-hire” provisions at issue were overbroad and unenforceable. Continue Reading Ninth Circuit Confirms “No Re-Hire” Clauses Can Constitute Unlawful Restraints of Trade in California