Establishing jurisdiction over a defendant is critical in every lawsuit. Trade secret cases are certainly no different.  A recent appellate decision from Texas underscored this important point by dismissing a plaintiff’s claim against a defendant – who did not even deny that he received misappropriated trade secrets – for lack of jurisdiction.

The case is Joe Formicola v. Virtual Integrated Analytics Solutions, LLC, 14th Court of Appeals, Texas, Case No. 14-22-00412-CV (the state court case is Virtual Integrated Analytics Solutions LLC vs. Optimal Designs Incorporated et al., Case No. 202215877, in the 189th District Court of Harris County, Texas). On May 11, 2023, the Texas Court of Appeals Court overturned the trial court’s ruling and granted Formicola’s request to dismiss Virtual’s claims against him for lack of personal jurisdiction.  

The plaintiff, Virtual, is a Texas company, which sells products and services to a variety of technological Industries. One of Virtual’s direct competitors is Optimal Designs Inc., another Texas corporation controlled by James Reed, a Texas resident. 

Virtual offered to purchase Optimal and hire Reed as a new director. Reed accepted the offer, but before the deal was completed, Virtual began sharing trade secrets with Reed, including a profit-sharing agreement that Virtual was actively negotiating with another company, Himarc. Virtual tasked Reed with finalizing the agreement with Himarc, but instead of doing so,  Reed started seeking out other partnerships that included Optimal and excluded Virtual.  It was during this time that Reed approached Joe Formicola, a Michigan resident, and offered to deliver the misappropriated Himarc partnership. Formicola accepted Reed’s proposal and began engaging in a business partnership with Reed based on Virtual’s confidential information and business relationship.

Virtual ultimately filed suit against several individuals and entities, including Formicola. In response, Formicola filed a special appearance for purposes of challenging jurisdiction, but the trial court denied Formicola’s motion. At no point did Formicola ever attempt to contest the trial court’s jurisdiction over him on a factual basis, nor did he ever produce any evidence disproving Virtual’s allegations that he had received misappropriated trade secrets from Reed. Instead, Formicola simply challenged the trial court’s jurisdiction on a purely legal basis by arguing that Virtual’s allegations, even if true, were insufficient to establish both general personal jurisdiction and specific personal jurisdiction.

In its response to Formicola’s motion, Virtual only addressed the issue of whether the trial court had specific personal jurisdiction over Formicola. Similarly, on appeal, Virtual only defended the trial court’s exercise of specific personal jurisdiction.

As the Texas Court of Appeals noted, “Virtual did not allege that Formicola ever came to Texas to meet with Reed regarding this business relationship. Similarly, Virtual did not allege that Formicola agreed to operate this business in Texas, or that he ever solicited any business customers in Texas. Virtual did not even allege that Formicola had hatched the plan to misappropriate Virtual’s trade secrets. Quite the opposite, Virtual alleged that Reed obtained the trade secrets from Virtual in Texas, and then Reed approached Formicola in Michigan with a plan for their misappropriation.”

Based on these facts, the Appeals Court concluded that “Reed’s unilateral activity cannot be attributed to Formicola for jurisdictional purposes. The facts alleged in Virtual’s live pleading, even if true, do not demonstrate that Formicola purposefully availed himself of the privilege of conducting activities in Texas.” Accordingly, the Appeals Court concluded that “the trial court erred by denying Formicola’s special appearance because the facts alleged by Virtual are legally insufficient to show that Formicola purposefully availed himself of the privilege of conducting activities in Texas” and dismissed all of Virtual’s claims against Formicola for lack of personal jurisdiction.

Takeaway:  Before incurring the considerable time, energy, and expense associated with preparing and filing suit against a defendant in a trade secret case (where, more often than not, it is critical that the case proceed immediately and likely also involves a motion for emergency injunctive relief), be particularly careful to have nailed down personal jurisdiction.  Thoroughly examine where the alleged misappropriation and wrongdoing occurred, especially in cases involving parties from multiple states. Otherwise, extremely valuable time could be lost forever to the detriment of your legitimate trade secret claims.

Wednesday, July 19, 2023
3:00 p.m. to 4:00 p.m. Eastern
2:00 p.m. to 3:00 p.m. Central
1:00 p.m. to 2:00 p.m. Mountain
12:00 p.m. to 1:00 p.m. Pacific


Confidentiality obligations and restrictive covenants are crucial tools employed by organizations to protect sensitive information, trade secrets, and competitive advantages. However, recent state law and regulatory developments and NLRB decisions have created a complex web of considerations that employers must navigate when drafting and enforcing these agreements. Seyfarth’s fourth installment in the 2023 Trade Secrets Webinar Series aims to provide in-depth insights into two key areas of concern: carveouts to employment confidentiality obligations and the intersection between the NLRB and restrictive covenants, including the NLRB’s recent attacks on confidentiality provisions and non-compete agreements.

During this webinar, our esteemed panel of legal experts will delve into the following key topics:

  • The evolving landscape of employment confidentiality obligations and risks created by overbroad restrictions
  • The NLRB’s increasingly aggressive positioning against restrictive covenants
  • Recent case studies
  • Strategies for compliance and risk mitigation


Alex Meier, Partner, Seyfarth Shaw LLP

Sul Ah Kim, Partner, Seyfarth Shaw LLP

Cary Burke, Partner, Seyfarth Shaw LLP


If you have any questions, please contact Sadie Jay at and reference this event.

This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC and VA. The following jurisdictions may accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, NH. The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD. For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. Please note that attendance must be submitted within 10 business days of the program taking place. If you have questions about jurisdictions, please email

On May 25, 2023, the Second Circuit issued an opinion in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Group, Inc., No. 21-1370 (2d Cir. 2023) that provides guidance regarding recoverable damages in trade secret misappropriation disputes under the Defend Trade Secrets Act (“DTSA”).

The Second Circuit held that under the DTSA unjust enrichment damages cannot be awarded for avoided development costs absent evidence that the trade secret’s value was diminished by the misappropriation. The Second Circuit also provided clear instruction on what remedies are available under the DTSA, limiting the amount that a plaintiff can recover.  An injured party may be entitled to both equitable relief and monetary damages upon a finding of liability under the DTSA.  As to compensatory damages, the DTSA permits the recovery of: (1) “damages for actual loss caused by the misappropriation;” and (2) “damages for any unjust enrichment caused by the misappropriation…that is not addressed in computing damages for actual loss.”

The Second Circuit clarified that damages for unjust enrichment are meant to apply to instances such as “where the value of the secret is damaged, or worse yet – destroyed.”  On this basis, the court vacated the jury’s $285 million compensatory damage award to TriZetto which was predicated on Syntel’s avoided development costs, that is, the money Syntel saved by misappropriating a competitor’s trade secret rather than developing it itself.  The court declared that when deciding whether unjust enrichment in the form of avoided costs is available to an injured party, the relevant inquiry is into whether the misappropriation injured the party beyond its actual lost profits.

In this instance, the Second Circuit held that because Syntel’s misappropriation “did not diminish, much less destroy,” the commercial value of TriZetto’s trade secrets, and because the district court had enjoined Syntel’s use of the trade secrets, “TriZetto suffered no compensable harm” beyond its lost profits.  Thus, as a matter of law, TriZetto was “not entitled to avoided costs as a form of unjust enrichment damages.”  In reaching this conclusion, the Second Circuit expressed concern that by focusing only on the misappropriating party’s saved expenses to award avoided costs without also examining the damage suffered by the injured party and the effect of injunctive relief, “avoided costs would be available as unjust enrichment damages in any case of misappropriation, even where a trade secret owner suffers no compensable harm beyond its lost profits or profit opportunities.”  In the view of the court, this “would permit avoided costs awards that are more punitive than compensatory.”

Syntel Sterling demonstrates that, at least in the Second Circuit, unjust enrichment damages, including avoided costs, are not available without evidence that the misappropriation harmed the commercial value of the trade secret.

Following the recent passage through the New York State Senate, on June 20, 2023, the New York State Assembly voted to approve a bill, which, if enacted, would ban all post-employment non-compete agreements. We previously reported on the key features of Senate Bill S3100A here. Assembly Bill A1278 is now headed to Governor Hochul’s desk for review, and she has 30 days from receipt to consider the Bill. Given her 2022 State of the State agenda in which Governor Hochul explicitly wrote in favor of legislation to eliminate certain non-compete agreements, expectations are that she will sign the Bill into law. While several states have recently enacted legislation placing income restrictions on non-competes, New York is poised to prospectively ban all employee non-competes regardless of income, making it the fifth state to do so after California, North Dakota, Oklahoma, and Minnesota. We will continue to monitor and report on any further developments.

Wednesday, June 21, 2023
3:00 p.m. to 4:00 p.m. Eastern
2:00 p.m. to 3:00 p.m. Central
1:00 p.m. to 2:00 p.m. Mountain
12:00 p.m. to 1:00 p.m. Pacific


In today’s digital age, trade secrets are an essential asset for businesses to stay ahead of the competition. As businesses continue to operate remotely, protecting trade secrets has become increasingly important. Seyfarth’s third installment in the 2023 Trade Secrets Webinar Series will provide valuable insights and practical tips on how to manage and safeguard your company’s confidential information in a remote work environment.

During the webinar, you will learn about the following topics:

  • The importance of trade secret protection in a remote work environment
  • The risks associated with remote work and trade secret protection
  • Strategies for safeguarding trade secrets in a remote work environment
  • Best practices for managing trade secrets in a remote work environment


Katherine Perrelli, Partner, Seyfarth Shaw LLP
Dawn Mertineit, Partner, Seyfarth Shaw LLP
Cathryn Johns, Associate, Seyfarth Shaw LLP


If you have any questions, please contact Sadie Jay at and reference this event.

This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC and VA. The following jurisdictions may accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, NH. The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD. For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. Please note that attendance must be submitted within 10 business days of the program taking place. If you have questions about jurisdictions, please email

New York is poised to join the growing number of states enacting legislation to curtail the use of non-compete agreements by employers. On June 7, 2023, the New York State Senate voted to pass Bill No. S3100A, which, if enacted, would ban all post-employment non-compete agreements, along with Bill No. S6748, which is generally aimed at preventing the establishment of monopolies, monopsonies, and restraints of trade by, among other things, curtailing  the use of non-compete agreements. The Bills are currently awaiting passage by the New York State Assembly and are expected to be signed by Governor Kathy Hochul.

Continue Reading New York State Senate Approves Bills Banning Use of Non-Compete Agreements

As various states and federal agencies seek to prohibit or limit the use of non-competes, Connecticut joined the trend. Connecticut’s new legislation, SB 9, expands restrictions on the enforceability of physician non-competes and extends these restrictions to advanced practice registered nurses (APRNs) and physician assistants (PAs).

Connecticut: SB 9

On June 5, 2023, the Connecticut Senate passed SB 9, sending it to Governor Ned Lamont to sign into law. The governor’s signature is a formality as the bill passed both houses of the Connecticut Legislature unanimously. By limiting the circumstances in which non-competes are enforceable under Connecticut law, SB 9 adds additional restrictions to the use of such covenants in physician employment agreements while extending these restrictions to APRN and PA employment agreements. Notably, the bill was significantly amended prior to passage with earlier versions banning non-competes for physicians, APRNs and PAs entirely.

Continue Reading New Non-Compete Health Care Restrictions in Connecticut

Seyfarth Shaw’s Trade Secrets group has secured a notable position as one of the best in the country, according to the esteemed Legal 500 United States 2023 edition. This recognition reaffirms Seyfarth’s commitment to excellence in the field of trade secrets law. Corporate counsel feedback has played a pivotal role in determining this ranking, with Seyfarth partners Michael Wexler, Robert Milligan, Kate Perrelli, and Dawn Mertineit earning a spot in the editorial’s “Leading Lawyers” category, while Joshua Salinas is recognized as a “Rising Star.” Jesse ColemanDaniel Hart, and James Yu are also mentioned in the guide for their exceptional client service.

The Legal 500 United States guide emphasizes Seyfarth’s Trade Secrets team’s exceptional ability to effectively communicate complex legal issues and provide multiple resolution options in a clear and concise manner. This expertise has empowered client companies to make well-informed and timely decisions. Clients have praised the team’s efficiency in communication and recommendations, enabling them to prioritize appropriately. Additionally, the guide highlights the team’s high-quality service, responsiveness, quick turnaround, and friendly approach.

Renowned as an independent guide offering comprehensive coverage of legal services, The Legal 500 United States is widely regarded for its authoritative assessment of law firm capabilities. It acknowledges and rewards exceptional in-house and private practice teams and individuals based on extensive research conducted over the past 12 months. The awards are bestowed upon elite legal practitioners, recognizing their outstanding contributions to the dynamic and ever-evolving US legal market.

Seyfarth Shaw’s Trade Secrets group’s inclusion in the Legal 500 rankings reinforces their position as a trusted and respected authority in trade secrets law. With their dedication to providing exceptional legal counsel, clear communication, and efficient service, Seyfarth continues to serve as a valuable partner for companies seeking comprehensive trade secrets protection and strategic guidance in today’s highly competitive business environment.

The Nevada legislature passed new legislation recently that essentially bans all non-compete clauses in physician contracts while severely limiting the instances in which a hospital or psychiatric hospital may employ a physician as an employee, rather than as a contractor. Assembly Bill 11 was introduced in February 2023 and had passed both the Senate and Assembly by May. However, Nevada Governor Joe Lombardo vetoed the bill in June, leaving AB 11’s future uncertain. The bill passed both legislative houses just shy of a veto-proof majority. If ultimately passed over the veto, AB 11 would make the following changes:

Physician Non-competes: Dead on Arrival?

Section 7.8 makes the largest change to existing law, prohibiting virtually all noncompetition covenants in physician contracts. The relevant text proscribes noncompetition covenants which “restrict a provider of health care employed by or contracted with a hospital in [Nevada] from providing medical services at another medical facility or office during or after the term of the employment or contract.” As indicated, section 7.8 most notably applies not only to covenants which restrict competition after the terms of employment, but those that restrict it during as well.

Such covenants will be deemed void and unenforceable, regardless of whether they satisfy Nevada’s requirements to enforce noncompetition covenants: (1) Must be supported by valuable consideration; (2) Must not impose any restraint that is greater than required for the protection of the employer; (3) Must not impose undue hardship on the employee; and (4) Imposes restrictions appropriate in relation to the valuable consideration.

Physician Employment: Contractors, not Employees

While it is a practice in Nevada that a physician works as a contractor rather than an employee of a hospital, AB 11 would codify this practice. Section 1 of the bill prohibits a hospital or psychiatric hospital from employing a physician as an employee “for the purpose of engaging in the practice of medicine, homeopathic medicine or osteopathic medicine.”

Existing law permits a county hospital or hospital district, a private nonprofit medical school, a nonprofit medical research institution or certain mental health facilities operated by divisions of the Department of Health and Human Services to employ physicians in certain circumstances. Section 1 additionally exempts hospitals or psychiatric hospitals participating in a graduate program approved by the Accreditation Council for Graduate Medical Education or its successor organization, or hospitals or psychiatric hospitals owned or operated by the State Government from its blanket prohibition.

Section 2 further clarifies that medical facilities “conducted by and for the adherents of any church or religious denomination for the purpose of providing care and treatment in accordance with the practices of the religion of the church or denomination,” or “operated and maintained by the United States Government or any agency thereof” are exempt from section 1’s blanket prohibition.

Limiting Physician Speech: Sharp Curtailments

Existing law already makes it unlawful for employers to discriminate against any employee for inquiring about, discussing or voluntarily disclosing his or her wages to another employee. Section 7.3 expands these protections by prohibiting hospitals or psychiatric hospitals from including in a physician contract provisions which prevent the physician from discussing: “(1) His or her wages or salary; (2) Any harassment, violence or retaliation he or she or any other person experience at the hospital; or (3) Any other information relating to the working conditions at the hospital.” This section also prohibits hospitals or psychiatric hospitals from taking any action to prevent a physician from discussing such topics or working for another medical facility or office.

Enforcement and Applicability: A (Brief) Reprieve for Employers

The provisions of sections 7.8 and 7.3 would be subject to administrative enforcement by the Labor Commissioner. However, section 9 states that sections 1, 7.8 and 7.3 “do not apply to any contract existing on the effective date of this act.” But sections 7.8 and 7.3 will apply to any such contract that is renewed after AB 11 is passed.

AB 11 in Relation to Other Legal Developments

Nevada’s potential enactment of AB 11 stands in contrast to recent legislative action out of Iowa. On June 1, Iowa Governor Kim Reynolds signed HB 357 into law, narrowing the scope of HB 2521. Enacted less than a year ago, HB 2521 prohibits healthcare employment agencies from “[r]estrict[ing] in any manner the employment opportunities of an agency worker by including a non-compete clause in any contract with an agency worker or health care entity.” HB 357 narrows the scope of this law by removing the non-compete restriction for direct care service providers (those who provide health care services to consumers through “person-to-person contact”).

We will continue to follow the developments on this front as state legislatures continue to propose legislation regarding restrictive covenants.

Over last week, two seemingly unconnected events happened that impact restrictive covenant and labor law. First, the National Labor Relations Board’s General Counsel, Jennifer Abruzzo, issued a memorandum opining that certain non-compete agreements may violate the National Labor Relation Act by suppressing workers’ ability to engage in protected concerted activity. Second, the Supreme Court issued the Glacier Northwest, Inc. v. Teamsters decision, where it held that allegedly intentional property destruction by a union was not covered by Garmon preemption, a preemption rule that restricts state courts from adjudicating state law claims that actually or arguably constitute an unfair labor practice. But in that ruling, a majority of the justices confirmed Garmon remains good law.

So putting the two together, does this mean that all non-compete litigation is preempted? After all, if a non-compete “reasonably chills” an employee’s ability to engage in protected concerted activity, and Garmon still operates to prevent state law claims that actually or arguably impede on the NLRB’s jurisdiction to adjudicate unfair labor practices, then a lawsuit to enforce a non-compete should be preempted, right?

Well, probably not. The reasoning in the General Counsel’s memo would not extend to statutory supervisors, and there is minimal existing legal support for the NLRB’s continued annexation of matters traditionally within state jurisdiction.

The General Counsel’s Memo

My colleagues previously posted about the General Counsel’s memo here. In short, the NLRB’s General Counsel released a memo theorizing that non-competes could impair an employee’s right to engage in concerted activity protected by Section 7 of the National Labor Relations Act. While the General Counsel seems intent on creating penumbra Section 7 rights that remain after employment ends, that position exists only in theory at this point. But even potential action by the NLRB creates potential preemption challenges to restrictive covenants. 

A Brief Overview on Garmon

The NLRB is meant to be the first and primary forum to adjudicate matters invoking federal labor policy. To provide the Board with space to cultivate labor law free from state interference, Garmon preemption carves out from state regulation activity that is both actually and arguably prohibited by the NLRA.

Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8, in turn, makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7.

When a controversy is actually or arguably preempted by Garmon, a reviewing court should instead defer to the NLRB’s primary jurisdiction to avoid “the specter that state law will say one thing about the conduct underlying the dispute while the NLRA says another.” The animating rationale for preemption is that the NRLB—not states—should set federal labor policy and define the contours for what qualifies as an unfair labor practice and collective activity.

The Potential Impact on Restrictive Covenant Litigation

The General Counsel’s position, if it were actually adopted, threatens to create a procedural mess in restrictive covenant litigation. If the General Counsel got her wish and a non-compete agreement could, in fact, constitute an unfair labor practice by unduly restricting an employee’s ability to engage in protected concerted activity, then a court would arguably be unable to enforce the agreement or even determine whether it was enforceable. That question would first go to the Board. Employees could potentially complicate an action to enforce the agreement further by preemptively filing an unfair labor practice charge against the employer, thus creating a potential retaliation claim against the employer if the employer proceeded with filing a lawsuit.

Of course, this risk is theoretical without further evidence that the NLRB would adopt the position taken by the General Counsel. And the General Counsel’s memo, even if adopted, would only cover statutory “employees” under the NLRA, because generally only statutory employees under the NLRA have a right to exercise Section 7 rights. A statutory “supervisor” under the NLRA—meaning an employee who acts in the interest of an employer and whose position involves the exercise of independent judgment[1]—does not have the right to engage in concerted action. Without some theoretical impingement on Section 7 rights, the NLRB lacks any arguable basis to take action involving a statutory supervisor’s restrictive covenants.

But seasoned restrictive covenant litigators should understand this memo has the potential to create a lot of mischief in employee departure litigation. It will be critical to have counsel experienced in both restrictive covenant litigation and NLRB proceedings. Fortunately, Seyfarth fits the bill on both fronts.

[1] A statutory supervisor is “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” 29 U.S.C. § 152(11).