shutterstock_78698299In recent weeks, courts almost routinely have been denying preliminary injunctive relief in cases alleging violation of non-compete and similar employment agreements.  Three examples: Burleigh v. Center Point Contractors, 2015 Ark. App. 615 (Oct. 28, 2015); Evans v. Generic Solution Engineering, LLC, Case No. 5D15-578 (Fla. App., Oct. 30, 2015); and Great Lakes Home Health Services Inc. v. Crissman, No. 15-cv-11053 (E.D. Mich., Nov. 2, 2015).

Status of those cases.  In each of those cases, injunctions were denied or, if granted by a lower court, the order was reversed.

Burleigh.  When he was employed in 2012 by Center Point, a general commercial construction company, Burleigh had more than 10 years of experience in construction in northwest Arkansas.  His title was operations manager and estimator.  He signed non-compete (two years, within a radius of 50 miles from Bentonville, Arkansas), non-solicitation, and confidentiality covenants.  In 2014, he resigned and formed, with a friend, a competitor of Center Point.

Center Point sued Burleigh.  His motion to dismiss the complaint was denied, and Center Point sought a preliminary injunction.  The trial court granted the injunction including two additions to the non-compete agreement: (a) the court required Burleigh to give Center Point notice of and details concerning any prospective business activity that would compete with activities in which he was engaged on or before the date he resigned, and (b) Center Point was ordered to post a $50,000 bond.  He appealed.

The Arkansas Appellate Court reversed and remanded.  It held that Center Point failed to demonstrate a likelihood of success on the merits.  According to the court, there was no evidence that Center Point provided Burleigh with any “special training,” “proprietary formulas,” “trade secrets,” “confidential business information,” or “a secret customer list.”  Further, Center Point did not show that he learned anything at Center Point that would give him an unfair advantage in the bidding process.  Therefore, “Center Point did not have a legitimate interest to be protected by agreement, and the non-compete agreement only shielded Center Point from ordinary competition.”

Evans v. Generic.  In order for a former employer to prevail in a suit under Florida law based on a non-competition covenant, enforcement of the covenant must be shown to be necessary in order to protect the former employer’s “legitimate business interests.”  Reaching a decision similar to that in Center Point, the Florida Appellate Court held that the former employer failed to make the requisite showing.

The former employer, Tech Guys, builds online sales and marketing systems.  It does not have employees, preferring instead to retain independent contractors.  One of them was Chinn who had signed a restrictive covenant prohibiting, for two years after termination of his relationship with Tech Guys, work for current or former Tech Guys clients.  While working for Tech Guys, Chinn assisted one of its significant clients, RRI, which had a three-year non-exclusive contract for services.

When Chinn left Tech Guys, he and another ex-Tech Guys independent contractor — but one who had not signed restrictive agreements — formed a competitor.  After RRI’s contract with Tech Guys expired, RRI offered to continue to use Tech Guys (although not exclusively).  The offer was declined.  When RRI became a client of Chinn’s new company, Tech Guys sued Chinn and his company and obtained a preliminary injunction.

The defendants appealed, and the appellate court reversed.  According to the appellate tribunal, the “facts are insufficient to support the trial court’s finding of a substantial business relationship in need of protection.”

Great Lakes Home.  Great Lakes is a home-health and hospice provider.  Crissman was vice-president for operations and planning in Michigan.  At the time of her employment, she signed non-competition, non-solicitation, and confidentiality covenants.  Pursuant to the agreements, she promised that for two years after termination, she would not divert or attempt to divert from Great Lakes business opportunities in any county where Great Lakes was Medicare-certified on the date she was employed by Great Lakes.

Eighteen months after leaving Great Lakes, Crissman accepted a position with a competitor.  Her responsibilities included work in various states but not in any county where Great Lakes does business.  Great Lakes sued her and sought a preliminary injunction.  Judge Rosen authored a detailed must-read opinion, clearly laying out Michigan law on the subject and explaining in detail why injunctive relief was denied.

Confidentiality.  Great Lakes contended the court could presume that Crissman disclosed Great Lakes’ confidential information.  Crissman rebutted the presumption by submitting a signed and sworn denial that she had made any improper disclosures and describing in detail the firewall established with her new employer that precluded any disclosures.

Non-compete.  Great Lakes argued that Crissman was liable for non-compete covenant violations because of her employment by a competitor that was servicing areas where Great Lakes operated.  There was no allegation that Crissman, personally, violated the covenant.  The parties agreed that her new employer did provide services competitive to those offered by Great Lakes even though there was no evidence that she participated.  The court concluded that Great Lakes’ interpretation of the covenant would preclude her “from working in any capacity, in any location, with a competitor as defined in the Agreement” (emphasis in the original).  That interpretation was held to violate Michigan law which provides that “‘non-competition agreements must be tailored so that the scope of the agreement is no greater than is reasonably necessary to protect the employer’s legitimate business interests’” (quoting from an earlier Michigan district court case but adding the emphasis).

Extension of the non-compete agreement.  Judge Rosen observed that enforcement of the non-compete agreement would require extending its duration since, by its terms, it expired in August 2015.  Although conceding that Great Lakes had been diligent in seeking injunctive relief, he pointed to Michigan law restricting extension of such covenants to “the most extreme circumstances.”  Here, he held, there was “no clear ‘flouting’ of the Agreement or bad faith.”  Accordingly, Great Lakes had failed to demonstrate a likelihood of success on the merits.

Takeaways.  These cases, and other similar recent decisions, indicate that courts are reluctant to enter preliminary injunctions for alleged violations of employment agreements.  Even if the non-compete time period and geographic area are reasonable, a mere showing that the ex-employee went to work for a competitor during that period and within that area may no longer be sufficient.  Rather, the moving party seemingly will have to demonstrate clearly that the ex-employee him- or herself caused damages by poaching significant customers, hiring away invaluable workers, or disclosing highly confidential information.

 

shutterstock_248648887Several members of Seyfarth’s Trade Secrets, Computer Fraud & Non-Competes Practice Group attended the AIPLA’s annual Trade Secret Law Summit on November 12-13, 2015.  Rick Lutkus spoke on a panel that was moderated by Erik Weibust entitled “The Ethics of Data Security and Trade Secret Protection for Lawyers,” which we will post about separately.

Another session, entitled “Perspectives From The Bench: How State and Federal Judges View the Growth and Scope of Trade Secret and Restrictive Covenant Disputes,” featured an impressive panel of the Honorable Mitchell H. Kaplan and the Honorable Janet L. Sanders, both of whom sit in the Business Litigation Session of the Suffolk Superior Court, and the Honorable F. Dennis Saylor, IV, a district court judge for the U.S. District Court for the District of Massachusetts.  These judges provided some very valuable insights with respect to seeking injunctive relief in a trade secret and/or restrictive covenant case.

Here are some key takeaways from the panel:

  • Equitable factors matter.  All three judges agreed that notwithstanding the terms of an employment agreement, they are far more sympathetic to young or low-level employees who might be prevented from earning a living due to the enforcement of a non-compete agreement, as opposed to a CEO or other high level executive, particularly where he or she was paid a handsome severance package.  Indeed, the panel agreed that the language of the agreement is “just the beginning” of the analysis, and that they will certainly consider other equitable factors such as this.
  • Ex parte motions are disfavored. The panel consistently agreed that they only grant ex parte orders sparingly, and instead will typically issue a short order of notice to allow defendants some time to respond to plaintiffs’ allegations.  Judge Sanders further noted that she is typically not swayed by plaintiffs’ counsel’s outraged protestations that they have not had an opportunity to review defendant’s opposition papers when the plaintiff has demanded an expedited hearing.  In other words, the plaintiff made its bed and now has to sleep in it.
  • Forensic discovery should not be a battleground. Judge Saylor noted that it is relatively easy for forensic experts to make mirror images of parties’ electronic devices, and accordingly he is generally receptive to requests to conduct forensic discovery to determine whether and to what extent confidential information or trade secrets has been misappropriated and/or misused.  He further noted that parties should not object to a neutral third party forensic expert, which should allay concerns that competitors will be rooting around in the company’s “crown jewels.”  Finally, he warned that to the extent employees put company documents on personal devices, they cannot then complain about the prospect of a forensic expert accessing those personal devices .On this same topic, Judge Sanders explained that parties should do their best to work cooperatively on forensic discovery, given that judges are frequently not as savvy regarding the technological details of forensic discovery.  That said, she did suggest that the party seeking forensic discovery should not seek broad forensic searches on a competitor’s entire network (which she deemed a “red flag” that the moving party is being unreasonable); instead, absent extreme circumstances, forensic discovery should be limited to the departing employees’ relevant devices.
  • The parties’ pre-litigation conduct matters. Judge Kaplan explained that the parties’ behavior leading up to litigation can be incredibly persuasive.  Obviously, “bad actors” will suffer grave consequences, and conversely, an employee who takes steps to ensure that his or her departure goes smoothly with sensitive materials promptly returned to the employer will have a much easier time convincing the court that an injunction is unnecessary.  Judge Sanders concurred, noting that she is more sympathetic to employees who are terminated without cause, although she admitted that her thinking may shift if the employer attempted to “do right” by the terminated employee by providing severance.   Judge Saylor agreed that an employee who ignores inquiries by her former employer regarding whether she retained trade secrets will have a much more difficult time arguing to the court that she didn’t know that she had done anything wrong.  Judge Kaplan concurred, contrasting that scenario by noting that a party who responds to a cease and desist letter representing that it will abide by contractual, common law, or statutory obligations to the extent reasonable will go a long way in convincing the court that an injunction is unnecessary.Both Judge Saylor and Judge Kaplan agreed that while pre-litigation correspondence between the parties can at times be useful, angry emails between attorneys that are clearly written for purposes of motions for injunctive relief are rarely compelling to the court.
  • Make life easy for your judge. In addition to cooperating with the opposing counsel on such matters as timing and scope of discovery, the panel stressed how useful it is for the parties (whether jointly or separately) to bring a reasonable, clear proposed order that the judge can simply sign, without significant (or any) edits.  This is particularly useful in cases where the judge may not have the same depth of understanding as the parties on highly technical terms.
  • Be wary of over-redacting. The panel discussed motions to impound or seal materials that parties deem confidential.  The panel’s consensus was that many litigants over-designate materials as confidential, and stressed that attorneys should discuss with clients how to limit redacted or sealed pleadings, notwithstanding that it is frequently a difficult conversation.  The judges emphasized that litigation happens in the public forum, and parties should take pains to limit their redactions to what is truly necessary to protect confidential information and trade secrets.
  • Finally – Be reasonable! While this should be obvious, it bears noting that all judges stressed the need to be reasonable in requests for injunctive relief (as well as in oppositions).  Judge Saylor specifically noted that while judges oftentimes want to find a middle ground, judges tend to migrate towards the party that is being more reasonable.  Pressing for the most draconian measures — or conversely, refusing to agree to “no-brainers” such as refraining from using obviously misappropriated information — is unreasonable and could backfire.

Of course, given the fact-intensive nature of non-compete and trade secret cases, and the broad latitude that judges are given to issue equitable relief, the facts of the case, the relief being requested, the economy, and even the proclivities of the judge can make or break a case.  Nevertheless the advice above should be considered in each case.

Untitled-1Though an employer may be eager to bring a trade secret claim against former employees as soon as possible, filing suit before properly vetting the claim can lead to serious consequences: a malicious prosecution case against the lawyers who signed the pleadings.

A law firm is fighting such allegations in California after losing at bench trial on behalf of FLIR Systems, Inc. and Indigo Systems Corporation (collectively, “FLIR”), who brought suit against a group of former employees attempting to launch a competing business. Though the California Court of Appeal for the Second District affirmed a lower court’s ruling that the employee’s malicious prosecution suit could not proceed, Parrish v. Latham & Watkins, 238 Cal.App.4th 81 (2015), the California Supreme Court recently announced it will reconsider that decision.

The Underlying Dispute

FLIR developed and sold microbolometers, devices used to detect infrared radiation for infrared cameras, night vision, and thermal imaging. In 2004, while still working for FLIR, the group of employees presented FLIR with a business plan to outsource microbolometer manufacture. When the group left to form another business in 2006, FLIR believed their plan to launch a new business had to have incorporated intellectual property owned by FLIR.

The former employees had several meetings with FLIR to ensure the company that they had no intention of using its intellectual property. The business plan they were using had been created by one of the individuals prior to joining the company and involved licensing the necessary intellectual property from a third party.

FLIR was nonetheless convinced that the new business plan “necessarily presume[d]” use of its trade secrets and filed suit. In support of its position, FLIR presented two brief expert declarations stating that the experts were unaware of any third parties in the infrared market other than FLIR with the requisite intellectual property, and concluded that this meant FLIR’s ex-employees “could not pursue” their business plan without the use of FLIR’s trade secrets.

The trial court denied the employees’ motion for summary judgment, finding that although they “made a compelling argument” that they were entitled to summary judgment, the concepts involved in the litigation were “highly technical” and merited further review. However, the same judge who had denied summary judgment ruled in the employees’ favor after a bench trial, not only denying FLIR any relief but also finding that FLIR had brought and pursued the action in bad faith and should pay more than $1.6 million in attorney fees.

Trial Court Finds Bad Faith

The court pointed to the fact that California law does not recognize the “inevitable disclosure” theory, which permits a trade secret owner to prevent a former employee from working for a competitor despite the owner’s failure to prove the employee has taken or threatens to use trade secrets, as long as it can be demonstrated that the employee’s new job duties will inevitably cause the employee to rely upon knowledge of the former employer’s trade secrets. While FLIR’s former employees had raised a “reasonable suspicion that they might misuse [FLIR’s] trade secrets,” the court concluded that “reasonable suspicion” is not an adequate basis for relief under the Uniform Trade Secrets Act.

The court noted that its earlier denial of the employees’ summary judgment motion did not preclude it from ruling that the action had been brought in bad faith, an issue that was not pertinent at that stage, as the court had not yet heard all the evidence or considered witness credibility. After the bench trial, it became clear to the court that FLIR had been “unwilling to take the risk that [the former employees] might be able successfully to complete without misuse of [FLIR’s] trade secrets.” The court made several findings consistent with objective and subjective bad faith, including that FLIR:

  • “unreasonably discounted ways in which [the former employees] could have proceeded with their new company lawfully;”
  • “downplayed” the former employees’ plans to license technology from a third party and to make sales to that third party; and
  • “failed to take reasonable measures to ally [its] fears by learning more about [the former employees’] plans.”

In fact, three of FLIR’s witnesses testified at trial that they did not know at the time the lawsuit was filed that the former employees planned to work with a third-party company, and that, “had they known such facts, their concerns regarding [the former employees] would have been allayed.”

Malicious Prosecution Case Pending

The trial court’s award was affirmed on appeal, and the employees brought an action against FLIR’s law firm for malicious prosecution. They asserted that the firm pursued the action even though they knew the legal basis for their theory, inevitable disclosure, was discredited in California, and even though they knew that FLIR had an anti-competitive purpose in suing them.

The California Court of Appeal has held that the malicious prosecution claim is barred by the “interim adverse judgment rule,” which holds that the denial of a dispositive motion on the merits in an underlying action precludes the maintenance of a subsequent malicious prosecution action. In other words, because the trial court had denied the former employees’ motion for summary judgment before granting judgment in their favor, there was probable cause for the underlying trade secret suit, and thus no basis for malicious prosecution.

However, the California Supreme Court’s decision to rehear the case means the firm is not yet off the hook. Hopefully, whatever the outcome, the Supreme Court’s opinion will provide guidance for trade secret litigators trying to zealously advocate for their client without putting both the client and themselves at risk.

WebinarOn Thursday, November 19, 2015 at 12:00 p.m. Central, Seyfarth attorneys John Skelton, Erik Weibust and Anne Dunne will present the ninth and final installment of its 2015 Trade Secrets Webinar series, Seyfarth attorneys will focus on how to implement and enforce covenants against competition in the franchise context. A franchisor’s trade secrets, confidential information, and goodwill are often among its core assets, and implementing and enforcing covenants against competition are a common, and effective, means of protecting such business interests.  

The Seyfarth panel will specifically address the following topics:

  • The basic requirements of an enforceable covenant against competition.
  • The importance of covenants against competition are important in the franchise context.
  • What constitutes a protectable interest in the franchise context?
  • What is a reasonable restriction to place on franchisees, both in-term and post-term?
  • State specific nuances and particularities.

Our panel consists of attorneys with significant experience advising franchise, dealer, and distributor clients on protecting their brands, trade secrets, and other intellectual property, including litigating trade secret cases, drafting protection agreements, and conducting trade secret audits.

Registration
There is no cost to attend this program, however, registration is required.

register

 

If you have any questions, please contact events@seyfarth.com.

*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.

IP LifecycleAs a special feature of our blog—special guest postings by experts, clients, and other professionals—please enjoy this blog entry from Stroz Friedberg, a global leader of cybersecurity, investigations and risk management. The firm recently launched Strategic Intellectual Property Protection Services (SIPPS), an offering Stroz Friedberg designed to help companies best handle intellectual property throughout its lifecycle.

-Robert Milligan, Editor of Trading Secrets

Across industries ranging from pharma to entertainment to electronics, the success of an organization is often directly tied to its intellectual property. However, many companies don’t effectively determine whether their products or internally developed solutions constitute protected intellectual property until there is a need for enforcement action.

It’s better (and easier) for a company to identify its intellectual property and trade secrets at the outset than it is for a company to retrofit its intellectual property and trade secrets to a bad event. Waiting until intellectual property is misappropriated delays enforcement, and is generally less successful overall than defining intellectual property early on. After identification, it is also important for an organization continually to evaluate how it safeguards its intellectual property. If a company proactively identifies and protects its trade secrets, enforcement efforts, if necessary, will prove much easier—even more so when a detailed response plan is already in place.

Stroz Friedberg has been called upon to help clients at distinct points in the IP lifecycle, and helps its clients and counsel think strategically and mitigate risks such as insiders, hackers and even simple negligence. This posting is designed to give the reader a quick overview of Strategic Intellectual Property Protection Services—from identification, to prevention, to enforcement. SIPPS is a complete misappropriation readiness solution.

Identification

If you are a regular reader of this blog, you know that a company’s intellectual property is vulnerable while it is still being developed: “The idea must be kept secret in order to enjoy the later protection,” writes Bartosz Sujecki in a previous Trading Secrets post about proposed new trade secrets in Europe, https://www.tradesecretslaw.com/2014/12/articles/trade-secrets/new-rules-on-trade-secrets-in-the-eu-the-european-commission-proposal-on-the-protection-of-know-how-in-the-eu. The relatively unstructured way in which some ideas come to life does not obviate the need to take reasonable steps proactively to identify and protect trade secrets. See, e.g., https://www.tradesecretslaw.com/2015/07/articles/trade-secrets/trade-secret-protection-what-are-reasonable-steps/. Without early and robust identification, trade secret enforcement down the road often proves far more difficult.

Understanding early on the way in which the law protects intellectual property is not always an easy task. The identification process should not be kept so secret that outside experts are not called in to help. Leveraging outside experts at the early stages—with the same physical and technical controls in place that safeguard early development intellectual property from insider and outsider threats alike—will best position the company to evaluate whether secrets should remain confidential, be prosecuted as patents, or otherwise be afforded  special protection. Meanwhile, critical development employees are left to focus on the creative production and refinement of the intellectual property itself.

When an organization can identify its trade secrets early, the organization will be better prepared to safeguard those secrets. Such early identification of trade secrets helps ensure that the company is taking reasonable steps to protect its intellectual property, which in turn demonstrates the history of diligence necessary to successfully pursue legal remedies down the road.

Protection

After the arduous process an organization undergoes to define its intellectual property, it needs to apply the same diligence and focus to protecting it. Protecting intellectual property involves a combination of people, process, and technology. How is it segregated within the company’s environment? Who has access to it? How are permissions and access controlled? What technologies exist within the environment to monitor unauthorized access? How well do the organization’s existing policies and procedures protect it?

This may also be the ideal time for a security risk assessment to ensure that no physical or technical vulnerabilities exist at the end user or enterprise level that would make data exfiltration possible. No one wants to see a competing product come to market two weeks after theirs—but it does happen.

Enforcement

Having a well-developed enforcement plan of action around identified and protected intellectual property before a misappropriation event occurs makes all the difference in the world. Seeking inchoate relief to immediately block a perpetrator from misusing valuable intellectual property involves stringent timing and other requirements. Organizations that have invested time and energy in working with experts to tailor a readiness position are better equipped to meet those requirements—especially when necessary business stakeholders, outside counsel, forensic experts, and even source code specialists are lined up and at the ready to react, engage, and pursue relief.

Assistance with Trade Secret Strategy throughout the IP Lifecycle

Intellectual property is always vulnerable to some degree, but the more proactive a company is, the better it can harness the value of its assets. With a thorough understanding of your intellectual property—where it is located, how it is protected both legally and digitally, and how you will respond in the event of theft—you will be best positioned for whatever challenges come your way. Leverage outside expertise throughout the process, and use the same experts who are familiar with your intellectual property lifecycle to help enforce your rights.

As experts who have helped organizations deal with the aftermath of data breaches and computer crimes, we have witnessed firsthand how crucial it is to be prepared—but even in the aftermath of a breach or theft, we focus on more than just dealing with the aftermath, and work on developing new solutions that could be used to help organizations in the future. For example, while helping a video game engine developer win a trade secret case (see: https://www.elys.com/case-studies/an-epic-battle-of-game-giants), we wrote proprietary software tools that could compare source code versions across repositories. We have developed a range of other preventative services, including Payment Card Industry assessment, data analytics and transaction monitoring, privacy audits, and incident response plans, to name a few. We know what makes a trade secret or other piece of intellectual property unique, and we can help you come up with a unique plan to protect it.

theifOn the evening of November 17th, Brooklyn Law School’s Trade Secrets Institute will be hosting its annual Symposium at the Law School. This year’s Symposium is titled “Protecting Trade Secrets in a World of Cybercrime” and will feature state and federal prosecutors, private practitioners as well as cybersecurity experts. The evening event will begin with a panel discussing the investigation and prosecution of digital trade secret theft and will be followed by a second panel discussing the representation of the targets of cybercrime. With the frequency of damaging cybercrime incidents on the rise, the panels will address current challenges and best practices for private companies and government alike. For those interested, please RSVP here.

shutterstock_276783140We are pleased to announce the webinar “Social Media Privacy Legislation Update” is now available as a podcast and webinar recording.

In Seyfarth’s eighth installment in its series of Trade Secrets Webinars, Seyfarth social media attorneys discussed their recently released Social Media Privacy Legislation Desktop Reference and addressed the relationship between trade secrets, social media, and privacy legislation.

As a conclusion to this well-received webinar, we compiled a list of  brief summaries of the more significant cases that were discussed during the  webinar:

  • In KNF&T Staffing Inc. v. Muller, Case No. 13-3676 (Mass. Super. Oct. 24, 2013) a Massachusetts court held that updating a LinkedIn account to identify one’s new employer and listing generic skills does not constitute solicitation. The court did not address whether a LinkedIn post could ever violate a restrictive covenant.
  • Outside of the employment context, the Indiana Court of Appeals in Enhanced Network Solutions Group Inc. v. Hypersonic Technologies Corp., 951 N.E.2d 265 (Ind. Ct. App. 2011) held that a nonsolicitation agreement between a company and its vendor was not violated when the vendor posted a job on LinkedIn and an employee of the company applied and was hired for the position, because the employee initiated all major steps that led to the employment.
  • In the context of Facebook, a Massachusetts court ruled in Invidia LLC v. DiFonzo, 2012 WL 5576406 (Mass. Super. Oct. 22, 2012) that a hairstylist did not violate her nonsolicitation provision by “friending” her former employer’s customers on Facebook because “one can be Facebook friends with others without soliciting those friends to change hair salons, and [plaintiff] has presented no evidence of any communications, through Facebook or otherwise, in which [defendant] has suggested to these Facebook friends that they should take their business to her chair.”
  • Similarly, in Pre-Paid Legal Services, Inc. v. Cahill, Case No. CIV-12-346-JHP, 2013 U.S. Dist. LEXIS 19323 (E.D. Okla., Jan. 22, 2013) a former employee posted information about his new employer on his Facebook page “touting both the benefits of [its] products and his professional satisfaction with [it]” and sent general requests to his former co-employees to join Twitter. A federal court in Oklahoma denied his former employer’s request for a preliminary injunction, holding that communications were neither solicitations nor impermissible conduct under the terms of his restrictive covenants
  • The Virginia Supreme Court in Allied Concrete Co. v. Lester, 285 Va. 295 (2013) upheld a decision sanctioning a plaintiff and his attorney a combined $722,000 for deleting a Facebook account and associated photographs that undermined the plaintiff’s claim for damages stemming from the wrongful death of his wife in an car accident. The deleted photographs showed plaintiff holding a beer while wearing a T-shirt with the message, “I Love hot moms.” Subsequent testimony revealed that the plaintiff’s attorney had instructed his paralegal to tell the plaintiff to “clean up” his Facebook entries because “we do not want blowups of this stuff at trial.”
  • PhoneDog v. Noah Kravitz, No. C11-03474 MEJ, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal., 2012) involved a dispute over whether a Twitter account’s followers constitute trade secrets even when they are publically visible. The court denied the defendant’s motion to dismiss and ruled that PhoneDog, an interactive mobile news and reviews web resource, could proceed with its lawsuit against Noah Kravitz, a former employee, who PhoneDog claimed unlawfully continued using the company’s Twitter account after he quit.  The court held that PhoneDog had described the subject matter of the trade secret with “sufficient particularity” and satisfied its pleading burden as to Kravitz’s alleged misappropriation by alleging that it had demanded that Kravitz relinquish use of the password and Twitter account, but that he has refused to do so.  With respect to Kravitz’s challenge to PhoneDog’s assertion that the password and the Account followers do, in fact, constitute trade secrets — and whether Kravitz’s conduct constitutes misappropriation, the court ruled that the such determinations require the consideration of evidence outside the scope of the pleading and should, therefore, be raised at summary judgment, rather than on a motion to dismiss.  The parties ultimately resolved the dispute.
  • The Second Circuit Court of Appeals in Triple Play v. National Labor Relations Board, No. 14-3284 (2d. Cir. Oct. 21, 2015) affirmed an NLRB decision that a Facebook discussion regarding an employer’s tax withholding calculations and an employee’s “like” of the discussion constituted concerted activities protected by Section 7 of the National Labor Relations Act. The Facebook activity at issued involved a former employee posting to Facebook, “[m]aybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money . . . Wtf!!!!” A current employee “liked” the post and another current employee posted, “I owe too. Such an asshole.” The employer terminated the two employees for their Facebook activity. The 2nd Circuit affirmed the NLRB’s decision that the employer’s termination of the two employees for their aforementioned Facebook activity was unlawful.

The following is a collection of social media policies that have been implemented by various companies:  http://socialmediagovernance.com/policies/. While these policies can serve as a helpful guide, companies should tailor their own social media policies and consult with counsel.

For more information, please contact your Seyfarth Shaw LLP attorney, Robert B. Milligan at rmilligan@seyfarth.com, Daniel P. Hart at dhart@seyfarth.com or Joshua Salinas at jsalinas@seyfarth.com.

Social media is everywhere nowadays. The line between professional and personal with these accounts is growing more and more blurred. As such, lines designed to protect employee privacy are intersecting with trade secret protection in conflicting ways.

Joining LXBN TV to explain is Seyfarth Shaw attorney Eric Barton—author on the firm’s blog, Trading Secrets.

shutterstock_186262970This upcoming Halloween reminds us that employers face their own terrors in trying to protect trade secrets and other valuable company information in the workplace, particularly if they have poor onboarding and departure protocols with their employees.

The following video illustrates some of the bad practices committed by both company personnel and employees that can “trick” companies into losing trade secrets or other confidential information or expose them to other liability.

Our recent Halloween-themed best practices presentation provides several “treats” for companies as it highlights some of the practical strategies to avoid the potential horrors illustrated in the video above. These best practices include:

  • Creating a culture where employees understand confidentiality and what information the company considers confidential
  • Making it clear to employees that they should not use or bring any former employer’s confidential information
  • Emphasizing the importance of the company’s non-disclosure and trade secret protection agreements
  • Considering the implementation of computer, network, and social media use and access agreements and policies
  • Conducting exit interviews and ensuring all company property (both hard copy and electronic) is returned when employees depart
  • Training modules with examples of “dos” and “don’ts”
  • MARK THINGS CONFIDENTIAL!!!
  • Provide access on need to know basis
  • Make security protocol familiar and uniform

Have a safe and happy Halloween!

There’s no doubt that protection of trade secrets is a major concern for most businesses operating in today’s global economy. As we have previously discussed, a fshutterstock_169048001ew years ago CREATe.org and PwC US released a report that highlighted how far-reaching and deeply challenging trade secret theft is for companies operating on a global scale. Notably, in their report, CREATe.org and PwC estimated that trade secrets theft costs anywhere between 1-3% of the GDP of the United States and other industrial economies.

To address the threat to the trade secrets of US businesses, earlier this year Senators Orrin Hatch (R-UT) and Christopher Coons (D-DE) introduced the “Defend Trade Secrets Act of 2015” (S. 1890) in the United States Senate, while Rep. Doug Collins (R-GA) introduced an identical version of the same bill (H.R. 3326) in the United States House of Representatives. As we discussed here, if enacted, the Defend Trade Secrets Act would provide a civil cause of action in federal court to private litigants for “misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce.” In addition, the bill seeks to (1) create a uniform standard for trade secret misappropriation by expanding the Economic Espionage Act; (2) provide parties pathways to injunctive relief and monetary damages to preserve evidence, prevent disclosure, and account for economic harm to companies; and (3) create remedies for trade secret misappropriation similar to those in place for other forms of intellectual property.

Both bills have garnered widespread bipartisan support and are currently pending review by the Judiciary Committees in each chamber. As of publication of this blog post, the Senate bill has 10 cosponsors (6 Republicans, 4 Democrats), while the House bill has 62 cosponsors (42 Republicans, 20 Democrats). Given the bi-partisan and bi-cameral nature of the bills, many commentators have predicted that the Defend Trade Secrets Act of 2015 stands a very strong chance of becoming law. Nevertheless, given the current status of the bills in committee, it is unlikely that either bill be scheduled for a floor vote by the end of the year. Staff on Capitol Hill report that, while the House’s bill’s sponsors hope to see committee action by Christmas, the Chairman of the House Judiciary Committee has only committed to moving the legislation, not to a specific time frame. The Senate bill likewise currently has no scheduled date for Judiciary Committee action.

Meanwhile, across the Atlantic, the European Commission’s proposed Directive to protect trade secrets has now crossed most procedural hurdles necessary for a first reading in the European Parliament. As we discussed here, the proposed Directive (if enacted) would substantially alter the legal landscape in Europe regarding trade secret protection and would require all member states to provide certain minimum standards of legal protection for trade secrets. Earlier this year, the European Parliament’s Committee on the Internal Market and Consumer Protection and Committee on Industry, Research and Energy both reviewed the proposed Directive and published their comments and recommended amendments to the proposal. The Parliament’s Committee on Legal Affairs subsequently published its own report, which includes the other committees’ reports and a draft resolution for vote by the European Parliament.

In its draft resolution, the Committee on Legal Affairs accepted some of the amendments proposed by other committees, particularly amendments to address concerns that the proposed Directive could have an anti-competitive impact or could be used to chill free expression. Among other proposed amendments, the Committee on Legal Affairs has made the following amendments:

  • Adding language to clarify that the Directive “does not provide any ground to trade secret holders to limit the use of experience and skills honestly acquired by employees in the normal course of their employment or to add any restriction for employees to occupy a new position, to those provided for in their employment contract, in compliance with relevant Union and national law;”
  • Adding language to emphasize the importance of trade secrets protection for small and medium-sized enterprises (“SMEs”);
  • Adding language to clarify that the measures and remedies provided under the Directive should not restrict whistleblowing activity and the safeguard the freedom of the press;
  • Changing the statute of limitations for trade secrets misappropriation claims to three years (the Commission’s original text proposed a limitations period of “at least one year but not more than two year after the applicant became aware, or had reason to become aware, of the last fact giving rise to the action”);
  • Amending the Directive’s remedies for protection of trade secrets during litigation to ensure that “those restrictions should not be such as to prevent at least one person from each of the parties and their respective legal representatives from having full access to all the documents in the file” ( in contrast, the Commission’s original text was written broadly enough to permit “Attorneys’ Eyes’ Only” protective orders like those commonly used in litigation in the U.S.).

With the publication of a draft resolution, the proposed directive now awaits a vote in the European Parliament upon the conclusion of additional negotiations between the Parliament and the Council of the European Union (which has already reached an agreement on a general approach for establishing a new legal framework for the protection of trade secrets). Staff of the European Commission in Brussels have reported to us that the Council and the Parliament are attempting to reach an agreement that would permit adoption of the proposed directive on a first reading in the Parliament. Currently, the European Parliament is expected to vote on the initiative around March 2016, but the precise date for a first reading has yet to be determined.

We will continue to track developments on both sides of the Atlantic as these proposed measures continue to be considered in the U.S. Congress and in the European Parliament.

Dan Hart is a Partner at Seyfarth Shaw’s Atlanta office and will be presenting “Protection of Trade Secrets in the US, EU, and Other Countries” at the International Technology Law Association’s 2015 European Conference, which will be held in London from November 4-6.  More information about the conference can be found here.