As a special feature of our blog –special guest postings by experts, clients, and other professionals –please enjoy this blog entry summarizing a recent presentation at the ABA Annual Meeting in Boston, Massachusetts on the Latest Developments in Trade Secret and Non-Compete Law by ABA Law Student Reporter Melissa Lauretti, a law student at the University of Connecticut.

-Robert Milligan, Editor of Trading Secrets

By Melissa Lauretti

In today’s competitive marketplace, organizations are prepared to invest time and resources in protecting their trade secrets as it is estimated that companies in the United States lose $160 to $480 billion each year due to trade secret misappropriation. Recently, there have been legislative efforts at the federal level to enhance the protection of trade secrets, namely by creating a federal civil cause of action for trade secret theft. While many companies support the expansion of legal remedies against misappropriators, organizations must also proactively protect their confidential information by educating their employees and implementing industry best practices.

The CLE program “Latest Developments in Trade Secret and Non-Compete Law” provided attendees with an overview of legislative efforts to enhance the protection of trade secrets at the federal and state levels, highlighted legislative activities and court rulings related to the enforceability of non-compete agreements in various states, discussed legislative developments in the areas of social media and cyber espionage, and described best practices for protecting trade secrets at the corporate level. Robert Milligan, Partner in the Litigation and Labor & Employment Departments of Seyfarth Shaw LLP and Co-Chair of its Trade Secrets, Non-Compete and Computer Fraud group served as the program’s moderator. Katherine Perrelli, Partner and Chair of Seyfarth Shaw’s national Litigation Department; Jerry Cohen, Partner at Burns & Levinson, LLP; and Karen Tompkins, Senior Legal Counsel, Employment at Stryker Corporation shared their insights as panelists.

Federal Legislative Activity

Presently there is no federal civil cause of action for trade secret misappropriation, so plaintiffs are often resigned to vindicating their rights in state courts. However, there are bills pending in the United States Senate and House of Representatives that, if enacted, would provide a federal civil cause of action for trade secret theft. The panelists discussed the merits of these pieces of legislation. For example, the Defend Trade Secrets Act of 2014 would allow a plaintiff to obtain a seizure order, but some have questioned whether this remedy may be subject to abuse and have concerns about implementation. The Trade Secrets Protection Act of 2014, which was introduced in the House of Representatives in July 2014, refines the seizure provisions in the Defend Trade Secrets Act of 2014 and also provides trade secret owners with extensive remedies for trade secret misappropriation. Congress is expected to weigh in on the two trade secret bills after it returns from August recess.

State Legislative Developments

At the state level, there has been increased activity in the trade secrets and non-compete arenas. Texas became the 48th state to adopt the Uniform Trade Secrets Act; New York and Massachusetts are the only states that have not yet adopted a version of the Act. This past legislative session, the Massachusetts legislature considered a bill to adopt the Uniform Trade Secrets Act. Although the legislation failed, panelist Katherine Perrelli noted that it is likely that discussions will continue in the next legislative session.

In terms of non-compete agreements, there are various nuances and differences among states. The legislatures of New Jersey and Maryland proposed bans on enforcing non-compete agreements against employees who claim unemployment, while legislatures in Massachusetts and Minnesota considered restrictions and bans on non-compete agreements. Given the differences in the enforcement of non-compete agreements among states, it is particularly important for multi-state employers to remain abreast of legislative developments. Seyfarth Shaw’s 2014-2015 50 State Desktop Reference: What Employers Need to Know About Non-Compete and Trade Secrets Law is one resource that employers can use to remain informed of the diverse non-compete landscape.

Preemption

The panel discussed the differences across the nation in how courts have addressed trade secret preemption. While some states permit plaintiffs to bring common law claims, such as breach of duty of loyalty and tortious interference, along with trade secret claims arising out of the misuse of company trade secrets, other states do not permit plaintiffs to bring such claims and preempt common law claims.

Best Practices for Protecting Trade Secrets and Drafting Non-Compete Agreements

In light of the present legal and legislative landscape, the panelists provided attendees with practical tips for protecting trade secrets and drafting non-compete agreements. According to a 2013 Symantec/Ponemon study that surveyed 3,317 employees, half of the employees who left their jobs retained their employers’ confidential information, and forty percent of those individuals planned to use that information in their new roles. Thus, educating employees about the importance of protecting company information is a vital part of an organization’s protection and enforcement process.

In terms of safeguarding proprietary company information, it is recommended that companies:

  • conduct entrance and exit interviews with employees;
  • educate managers and human resources professionals regarding the company-owned items that employees must return upon their departure;
  • transparently communicate the company’s policies regarding the monitoring of employees’ electronic devices and communications to employees;
  • disable employees’ access to company and computer networks at the time of departure;
  • creature a culture of compliance and confidentiality where employees recognize the value of protecting trade secrets in a supportive and collaborative environment; and
  • share best practices within their industries to protect valuable business data.

As to non-compete agreements, express representations and clear drafting are keys to enforcement. Employers should ensure that they research states’ practices on enforcing forum selection clauses, and draft forum specification and choice of law provisions with that information in mind, including provisions concerning personal jurisdiction and representations concerning connections to the forum state. Similarly, employers should ensure that agreements address full-time, part-time, and consultant relationships in recognition of the fact that employees may fluidly shift roles within an organization. Finally, employers should ensure that employees receive sufficient consideration for signing non-compete agreements, which may vary by state; specifically, continued employment is sufficient consideration in many states, but in other venues, employers must give employees additional consideration, such as a bonus, before the non-compete is enforceable.

Voting is open for the American Bar Association’s Annual 100 Best Legal Blogs competition until August 8th. Thank you to those who have already voted — we’ve received some really nice feedback over the last week.  If you have not already voted, we hope you will cast your vote today to help keep Seyfarth’s Trading Secrets blog on the ABA’s list for 2014.

Trading Secrets is a resource for employers and legal professionals that provides timely legal and news updates to C-suite executives, corporate in-house counsel, technology and security officers, and HR professionals concerned about protecting their valuable trade secrets, intellectual capital, workforce, customer relationships, and other confidential information.

The blog also offers a mobile device version; video blogs; podcasts of our popular and informative webinars on trade secret, non-compete, and computer fraud issues; and resources, including an archive library from 2008 to the present, and our 50 state non-compete/trade survey and social media survey.

Help us gain some extra recognition by casting your vote in the ABA’s annual 100 best legal blogs competition!

You only have a few days left to vote: The deadline is August 8, 2014.

Click the link here to vote. Simply provide a short explanation of why you like this blog.

 

The American Bar Association recently announced their winners for their 7th Annual Blawg 100 competition and our Trading Secrets blog has made the list for the first time in the Labor & Employment category!

We thank everyone who nominated and voted for us, and we really appreciate all of your support.

The ABA is now conducting a secondary competition identifying the best legal blog within the Top 100 and we would appreciate your support in helping us have Trading Secrets further recognized.

Friday, December 20, 2013 is the deadline to vote for our blog. You can vote here: http://www.abajournal.com/blawg100 (registration is required). 

Hurry over to the polls, and cast your vote!

Thanks again for your support.

I recently presented on “Hot Topics In Trade Secret Law Across the Nation” at the ABA Annual Meeting in San Francisco, California.

Here are seven key takeaways regarding best practices and latest developments from the event that you may find useful:

Understanding the Importance of Trade Secret Preemption

Simply put, trade secret preemption or supersession is the concept that the Uniform Trade Secrets Act (adopted in 47 states) preempts or supersedes all other civil claims for the theft and/or wrongful use of information, except for breach of contract claims. Such claims are typically conversion, unfair competition (common law or statutory), tortious interference with contractual relations or business expectancy, breach of fiduciary duty or breach of duty of loyalty. Additionally, some states do not even permit such claims based upon the theft of confidential information that does not rise to the level of a trade secret. These non-UTSA claims can often be easier to prove than trade secret claims and can provide for tort remedies, rather than mere contract remedies.

In many states, non-UTSA claims are preempted by the UTSA and its preemption provision. Some states, however, still permit plaintiffs to bring such non-UTSA claims along with the trade secret claim and only preclude plaintiffs from pursuing the non-UTSA claims if a determination has been made that the information at issue is a trade secret. There is even variety within states, such as California, where three separate approaches have been followed by various courts.

While typically viewed as a “lawyers’ topic,” trade secret preemption is a much more significant and important topic that companies must be educated about to effectively protect their information assets. Many are surprised that some courts (following the strict preemption approach) view the UTSA as statute that actually “limits liability” for information theft. In those states following the strict preemption approach, companies are typically left with only two potential claims for the theft of information by former employees or other third parties, breach of contract and trade secret misappropriation. This reality underscores that employers should use confidentiality and non-disclosure agreements, rather than merely employee handbook policies to protect their proprietary information, so that they are not left with only one claim against a misappropriator.

Additionally, juries typically have high standards for what information qualifies for trade secret protection so trade secret preemption places added importance on companies thoughtfully classify their information assets and ensuring that valuable information is properly protected through reasonable secrecy measures. It also highlights that companies must have effective onboarding and termination procedures to ensure that employees are effectively educated regarding the importance of protecting company information and to ensure that companies obtain the return of their valuable information when employees leave. Valuable information assets that are not adequately protected will leave companies with little to no legal recourse if they are later stolen. Please see our previous webinar concerning best practices for protecting trade secrets in the hiring and termination of employees.  

Importance of Protecting Trade Secrets Throughout Litigation

Companies often need to be reminded when they initiate a trade secret lawsuit that the information at issue must be protected throughout the litigation process. The parties to the litigation will typically enter into a protective order which limits who may obtain access to documents and information exchanged in the litigation subject to strict confidentiality and non-disclosure obligations. Additionally, the protective order, court rules, and applicable case authority provide the requirements for filing or lodging documents in the litigation under seal when they are submitted to the court in connection with the determination of particular case issues.

While some litigants may view such sealing motions as perfunctory, some courts scrutinize sealing motions and generally evaluate whether it is in the public interest to seal such documents and whether there are other significant interests. The recent Apple v. Samsung case in the Northern District of California provides a reminder that courts independently evaluate whether documents should be sealed regardless of agreements between the parties to the litigation. Parties need to understand that these motions often must be brought to preserve the confidentiality of the information, that they are not inexpensive, and there is also some risk that the court will not always grant the motion.

The importance and cost of preserving confidentiality through the litigation is part of the checklist that plaintiffs should take into account before filing suit. Sensible counsel understand that they must continue to educate the judge throughout the litigation regarding the importance of keeping documents and information sealed in the case. Parties to contracts should also be cognizant that confidential documents and information exchanged during the relationship may later be subject to first party or third party discovery. They should require notification provisions in their contracts providing sufficient time to seek a protective order to protect the confidentiality of information or documents called for in discovery prior to disclosure.   

Is the Computer Fraud and Abuse Act Still a Viable Weapon in Employee Mobility Litigation?

Is the Computer Fraud and Abuse Act dead for employers that want to use it against employees who misuse their computer systems? The Ninth Circuit and Fourth Circuit have significantly pared down the utility of using the Act in the typical employee data theft scenario. Violations of computer use policies are not typically actionable in these jurisdictions if the employee was provided access to the computer network and the data at issue. Some jurisdictions still allow plaintiffs to bring CFAA claims for such violations demonstrating that analyzing the individual state and circuit authorities are essential in properly evaluating such claims. Even in the Ninth Circuit, violations of computer access policies, unauthorized password sharing to obtain unauthorized access to a protected computer, and violations of access revocation restrictions have recently been found actionable. Legislation has recently been proposed to “reform” the Computer Fraud and Abuse Act which would limit its applicability to pure hacker scenarios. For more information on the debate concerning whether violations of internet terms of service should constitute a violation of the Computer Fraud and Abuse Act, please see our webinar on “How Big Data Impacts Trade Secret, Computer Fraud and Privacy Law.”

Dealing with the Employee Whistleblower Who Takes Company Data

Employee whistleblowers are one of the more challenging areas that companies must face. A swift investigation is necessary to get a handle on the situation. The employee should be immediately interviewed and the company should make immediate efforts to obtain the return of any truly proprietary data. Civil and criminal remedies will need to be considered, particularly if proprietary company data has been stolen or compromised. All the while the employer will need to comply with its whistleblower compliance program and not retaliate against the employee for engaging in any protected activity. It is not an easy process to balance even for the most diligent employers.  Strategies for avoiding these scenarios include, employing hiring best practices, restricting access to key information on a need-to-know basis to only trusted employees, watching for employees who are downloading, transferring, or printing large amounts of documents/information and employing software solutions to prevent such actions, and having a thorough action plan on the shelf to employ for a rainy day. For more information on this topic, please see our webinar entitled “Employee Theft of Trade Secrets or Confidential Information in Name of Protected Whistleblowing.”

BYOD Explosion and Data Security

More companies are adopting BYOD policies to permit employees to use their own personal computing devices to access the company network. Companies must institute BYOD policies that protect company information, provide clear limits on access, and provide for clear protocols at termination. As employees can access work and personal email accounts on the same mobile devices, employers must be vigilant that employees do not rapidly transmit company files to their personal accounts. There are also greater risks for data security breaches with the greater accessibility provided by BYOD.  Employee education regarding security, including precautions to take outside the office and abroad, file encryption, and the use of secured computer networks is essential.

Effectively Conducting a Computer Forensic Investigation

Companies must keep up to date with the latest ways that valuable information is leaked or otherwise compromised. Such information can be compromised by hard copy theft, emailing of company information to personal accounts, CD burning, and the transfer of data to thumb drives and FTP sites. Companies must respond to the latest threats such as the unauthorized storage of valuable information in the cloud with third party file sharing sites. Many sophisticated companies use software to detect and prevent large data transfers either via email, USB, or third party file sharing sites. Additionally, it is essential to understand what data can be stored on specific electronic devices to understand what may be recoverable in a computer forensic investigation. For example, the iPhone 5, when compared to other smart phones or electronic storage devices, may have material differences in what may be stored and recovered in a computer forensic investigation. Lastly, social media evidence is becoming more useful in establishing non-compete and trade secret violations, but employers must be cognizant of employee privacy considerations in using and demanding access to social media accounts. Prudent employers should utilize compliant social media policies and social media ownership agreements.  

Annual Review of Significant Trade Secret Cases Across the Nation

The ABA Trade Secrets Committee also provided the audience with its Annual Case Law Review. The Review summarizes the most significant trade secret cases in the nation in 2012 and early 2013.

The American Bar Association is holding its annual competition for the 100 best legal blogs and Seyfarth’s Trading Secrets blog is once again in the running.

Whether you are an avid reader of our timely legal and news updates, look forward to our popular “top 10 year in review” post, enjoy our complimentary webinars, or simply utilize our legal resources page, we would greatly appreciate your support in helping our blog make the ABA’s top 100 list. 

You can cast your vote at http://www.abajournal.com/blawgs/blawg100_submit/

Hurry, the deadline to vote is this Friday, August 9, 2013.  

Thanks for your support.

Seyfarth attorneys Jason Stiehl, Robert Milligan and Joshua Salinas contributed to the ABA IP Section, Trade Secrets and Interferences with Contracts Committee’s Annual Trade Secret Case Review.

The Annual Review found here discusses some of the most significant trade secret and non-compete decisions across the country. It is a good resource for those who try to stay current on trade secret and non-compete developments from across the country.

If you are interested in joining the Committee and working on the Annual Review, please click here.