Trade Secrets

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After being slapped with a post-trial judgment last April totaling $2.2 million for misappropriation of confidential and proprietary information, two Wyoming bank executives were named in an unprecedented “Notice of Intent to Prohibit” filed in December by the Federal Reserve Board.  If these executives thought that more than two million dollars in civil liability was harsh, they were mistaken, as they now face a much harsher consequence:  a ban from the banking business altogether.

In its Notice, the Federal Reserve Board alleges that two executives, Frank Smith and Mark Kiolbasa, conspired to misappropriate the confidential and proprietary business information of their employer, Central Bank & Trust in Wyoming, and to give it to Central’s competitor, Farmers State Bank, in exchange for employment and an ownership interest in Farmers.  The Notice contends that the bankers engaged in unsafe and unsound banking practices in breach of their fiduciary duties to Central Bank and seeks a hearing to determine whether they should be permanently barred from participating in the banking industry “in any manner.”

It is unclear whether this action stands on its own or is part of larger movement by the Federal Reserve to crack down on confidential and trade secret misappropriation.  Regardless, it is an issue we will closely monitor given its sizeable consequences.  The risk of a Federal Reserve action for a permanent ban on participation in the banking business adds greater protection to banks, but creates new risks at the same time.  The same bank who threatens to report one of its executives to Feds could also hire a new executive who brings the same baggage with them.  With the Federal Reserve Board’s recent Notice, we are continuing to notice a trend of the governments’ involvement in the confidential and trade secret misappropriation world.

As noted in our February 20th blog post, Robert O’Rourke, a 30 year salesman for cast iron products manufacturer Dura Bar, went on trial in Chicago (Northern District of Illinois) for allegedly stealing Dura trade secrets before leaving to work for a Chinese competitor.  According to the government, O’Rourke downloaded 1,900 files (in 20 minutes) that contained Dura trade secrets and then attempted to board a flight to China with the trade secrets in hand.  The FBI stopped O’Rourke at the gate and subsequently charged O’Rourke with 13 counts of trade secret theft.

At trial, O’Rourke’s defense team acknowledged that O’Rourke downloaded the 1,900 files and was in possession of the files at the time of his arrest, but maintained that the files were not trade secrets because Dura did not take “reasonable measures” to keep the information confidential.  Unfortunately for O’Rourke, the jury disagreed and convicted O’Rourke on seven counts of trade secret theft.  In reaching its decision, the jury found that Dura took reasonable steps to keep its information confidential.  O’Rourke’s texts to his ex-wife about the “damage he could do” to Dura” by giving the 1,900 files to a Dura competitor probably did not help O’Rourke either.

Each count carries a maximum 10 year prison sentence but a sentencing date has not been set because O’Rourke’s attorneys have indicated that they will be filing a motion asking to set aside the jury verdict and/or for a new trial.  We will keep monitoring the case so please check back here for updates.

Please join us for a one-hour CLE webinar on Wednesday, March 20, 2019, at 1:00 p.m. Eastern / 12:00 p.m. Central / 10:00 a.m. Pacific.

On March 20, 2019, at 12:00 p.m. Central Time, in Seyfarth’s second installment of its 2019 Trade Secrets Webinar Series, Seyfarth attorneys will focus on trade secret and client relationship considerations in the banking and financial services industry.

Seyfarth attorneys J. Scott Humphrey and Marcus Mintz will address the following topics:

  • Practical steps financial institutions can implement to protect trade secrets and client relationships
  • What to do if your trade secrets are improperly removed or disclosed or if a former employee is violating his/her restrictive covenant agreements
  • How to prosecute a case against a former employee who is a FINRA member
  • The impact of the Protocol for Broker Recruiting on trade secrets and client relationships

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

In a case highly watched by trade secret lawyers and others, Robert O’Rourke, a 30-year salesman for cast iron products manufacturer Dura Bar, went on trial last week in Chicago (Northern District of Illinois) for allegedly stealing Dura trade secrets before leaving to work for a Chinese competitor. According to the government, O’Rourke was a highly respected salesman at Dura until he became disgruntled with Dura management and decided to leave Dura for a Chinese competitor. Over a two year period, O’Rourke met with the Chinese competitor (the identity of the Chinese company has not been disclosed) and eventually accepted employment with the competitor. Before resigning from Dura, O’Rourke downloaded 1,900 files that contained Dura trade secrets and subsequently attempted to board a flight to China with the trade secrets in hand. O’Rourke was stopped at the gate by the FBI and subsequently charged with 13 counts of trade secret theft.

O’Rourke’s defense team acknowledged in opening statements that O’Rourke downloaded the 1,900 files and was in possession of the files at the time of his arrest. The 1,900 files, according to O’Rourke’s attorney, however, were not trade secrets because Dura did not take “reasonable measures” to keep the information confidential. Thus, it appears that this case will be determined by whether Dura took reasonable steps to protect its trade secrets/confidential information. The trial is expected to last about three weeks—we will continue to monitor the trial, so please check back for updates.

The American Intellectual Property Law Association (AIPLA) will host its annual Trade Secret Law Summit at the American Express Company in New York City’s Financial District on March 21-22, 2019.

Seyfarth is a proud sponsor of the Summit, at which partners Erik Weibust (Vice Chair of AIPLA’s Trade Secret Law Committee) will be speaking on Protection of Trade Secrets in the Social Media Era,  and moderating a panel on Trade Secrets and Restrictive Covenants in the Financial Services Industry, on which Scott Humphrey will be speaking.  Other Seyfarth attendees will include James Yu, Jeremy Cohen, and Dawn Mertineit.

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

Seyfarth Shaw Partner Erik Weibust and Associate Alex Meier published a Law360 article about trade secret protections related to social media. Weibust and Meier discuss risks employers face when employees access social media accounts, as well as some e-discovery considerations for social media. To learn more, check out “Trade Secret Protection and Social Media: A 5-Year Update” from Law360 here.

On Tuesday, February 26, 2019, at 12 p.m. to 2:00 p.m. Eastern, Seyfarth Partner and Trade Secrets, Computer Fraud & Non-Compete Practice Group Co-Chair Robert Milligan is presenting a webinar for myLawCLE, a partner of the Federal Bar Association. The “Latest Developments in Trade Secrets Law and Non-Compete and Non-Solicitation Agreements” webinar covers some of the recent developments in trade secret law and recent legislative and case law trends regarding non-compete and non-solicitation agreements and offers best practices for structuring permissible contracts.

Key topics include:

  • Impact of the federal Defend Trade Secrets Act on trade secrets law
  • Overview of key trade secret cases involving preemption, damages, and identification
  • Current Plaintiff and Defense trade strategies in trade secret litigation
  • What are the recent legislative changes and case law decisions affecting restrictive covenants?
  • How can employers structure restrictive covenants to comply with new laws and decisions
  • Emerging areas in restrictive covenants

For more information and to register, click here.

The 2018 Trading Secrets Year in Review is a compilation of our significant blog posts from throughout the year and is categorized by specific topics such as: Trade Secrets, Computer Fraud and Abuse Act, Non-Compete & Restrictive Covenants, Legislation, International, and Social Media and Privacy. As demonstrated by our specific blog entries, including our Top 10 Developments and Headlines, 2018 Trade Secrets and Non-Competes Webinar Series Year in Review, and our dedicated page concerning DTSA legislation, our blog authors stay on top of the latest developments in this area of law and provide timely and entertaining posts on significant new cases, legal developments, and legislation.

The 2018 Trading Secrets Year in Review also includes links to the recordings of webinars in the 2018 Trade Secrets Webinar Series. More information on our upcoming 2019 webinars is available in the program listing contained in this Review. Our highly successful blog and webinar series further demonstrate that Seyfarth Shaw’s national Trade Secret, Computer Fraud & Non-Competes Practice Group is one of the country’s preeminent groups dedicated to trade secrets, restrictive covenants, computer fraud, and unfair competition matters.

Clients and friends of the firm can request a digital or printed copy of the 2018 Trading Secrets Year in Review below.

In Seyfarth’s first installment in its 2019 Trade Secrets Webinar Series, Seyfarth attorneys Michael Wexler, Robert Milligan, and Joshua Salinas reviewed noteworthy cases and 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 provided predictions for what to watch for in 2019.

As a conclusion to this well-received webinar, we compiled a summary of takeaways:

  • The Supreme Court will soon Rule on the meaning of the terms confidential and trade secrets within the meaning of Exemption 4 to FOIA which may have far reaching  implications to trade secret and non-compete practitioners.
  • State legislation across the country, including in Idaho, Utah, Colorado, and Massachusetts, continues to narrow or place further conditions on the scope of enforceable restrictive covenants.
  • Employers with Massachusetts employees should take care to review choice of law, choice of venue and consideration to support their agreements.
  • Employers with California employees should carefully evaluate whether to continue to use post-termination non-solicitation of employee covenants with their employees and contractors and discuss their options with counsel.
  • Company owners should be careful to not draw the attention of state attorney generals and the justice department by entering into agreements with competitors regarding the mobility of employees.

Continuing our annual tradition, we have compiled our top developments and headlines for  2018-2019 in trade secret, non-compete, and computer fraud law.

1. Government Agencies Increasing Scrutiny of Restrictive Covenants

In mid-2018, the Attorneys General of ten states investigated several franchisors for their alleged use of “no poach” provisions in their franchise agreements. In a July 9, 2018, letter, the Attorneys General for New Jersey, Massachusetts, California, Washington, D.C., Illinois, Maryland, Minnesota, New York, Oregon, Pennsylvania, and Rhode Island requested information from several franchisors about their alleged use of such provisions. Less than twenty-four hours later, some franchisors (mostly different ones than those who received the information demands) entered into agreements with the Washington State Attorney General’s Office to remove such clauses from their franchise agreements. The recent focus by state law enforcement on franchisors is a new twist, given that restrictive covenant agreements in the franchise industry are typically given more leeway than in the employment context. Continue Reading Top 10 Developments and Headlines in Trade Secret, Non-Compete, and Computer Fraud Law in 2018/2019