Robert Milligan—Seyfarth partner and co-chair of the firm’s Trade Secrets, Computer Fraud & Non-Compete practice—was named a 2022 Top Trade Secrets Lawyer in California by The Daily Journal. Robert is a leading voice in this intricate area of law, with a practice primarily focused on trade secret, non-compete, and data theft/protection litigation, investigations, and transactional work. Robert represents multinational

Continue Reading Robert Milligan Honored as a 2022 Top Trade Secrets Lawyer in California by The Daily Journal

There are limited exceptions to California’s general prohibition of post-termination non-competition agreements. One such exception is the sale of business exception found in California Business & Professions Code § 16601. This exception allows a buyer to enforce non-compete agreements against a seller if the seller is an “owner of a business entity selling or otherwise disposing of all of his or her ownership interests in the business entity.”

In Blue Mountain Enterprises, LLC v. Owen, 74 Cal. App. 5th 537 (2022), the Court of Appeal found that section 16601 applied to a three year post-termination non-solicitation of customer provision in an employment agreement and upheld the trial court’s decision to enforce the provision against the executive/seller who entered into a joint venture. The court found that section 16601 applied as a matter of law because the defendant “dispos[ed] of all of his … ownership interest” in one transaction agreement while concurrently agreeing under an employment agreement and that both contracts, along with other contracts the parties executed, were drafted to accomplish the parties’ joint venture.  Id. at 553. The court also found that the trial court correctly found that the defendant’s letter for his new business constituted a solicitation as a matter of law because the letter went well beyond an announcement by actively encouraging customers to leave and do business with his new company. Id. at 556.
Continue Reading California Court of Appeal Enforces Non-Solicitation of Customers Provision in Joint Venture Transaction Involving Key Employee

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Please join Seyfarth for a webinar on what employers need to know regarding the importance of data privacy and the impacts of the California Privacy Rights Act to your organization. Presenters
Continue Reading Upcoming Webinar! How the California Privacy Rights Act Impacts Your Business in 2022

In what may seem to be a surprising series of events, given the state’s infamous hostility to restrictive covenants, a California appellate panel recently affirmed a Los Angeles Superior Court judgment effectively enjoining Netflix from soliciting certain employees subject to specific fixed-term employment agreements with Fox. More specifically, the panel—applying reasoning similar to the California Supreme Court’s in Ixchel Pharma, LLC v. Biogen, Inc.—upheld the trial court’s granting of summary adjudication in favor of Twentieth Century Fox Film Corporation and Fox 21, Inc. (collectively, “Fox”) on their claim under Business and Professions Code sections 17200, et seq. against Netflix Inc. (“Netflix”) and corresponding injunction in an unpublished but closely followed decision.

In affirming the judgment, the panel expressly rejected Netflix’s contention that the injunction, which prohibits Netflix, “individually … and/or in concert with others,” from “solicit[ing] employees who are subject to [f]ixed-[t]erm [e]mployment [a]greements with [Fox] or induc[ing] such employees to breach their valid [f]ixed-[t]erm [e]mployment [a]greements with [Fox],” constituted “an invalid restraint on employee mobility” under California public policy, Business and Professions Code section 16600, and other statutes concerning personal services contracts. The panel acknowledged each of these arguments and underlying public policy concerns, but ultimately found that they were not supported by the facts at hand, particularly in light of countervailing policies “favoring the stability and predictability of fixed-term employment relationships.” The panel also observed that the injunction had been carefully limited, and narrowly drawn by the trial court to curb wrongful conduct by Netflix without impeding the ability of individual employees to independently seek out new employment.
Continue Reading California Court of Appeal Affirms Injunction Barring Netflix From Poaching Fox Executives, Citing Unfair Competition

In an expansive recent ruling, the California Court of Appeal in Brown v. TGS Management Co., LLC reversed a judgment confirming an arbitration award, examining the arbitrator’s findings, and ultimately invalidating a confidentiality provisions in an employment agreement under Business and Professions Code section 16600 on the grounds that they operated as a “de facto noncompete provision” and were “void ab initio and unenforceable.” The court’s decision, upholding the state’s long-standing policy in favor of employee mobility, offered a harsh word of caution for employers that use overly broad confidentiality provisions and other restrictive covenants with their California employees.
Continue Reading California Court of Appeal Extends the Reach of Section 16600 to Upset Arbitration Award Because of Alleged Overly Broad Confidentiality Provisions

Called upon by the Ninth Circuit in Ixchel Pharma, LLC v. Biogen, Inc. to answer two key questions concerning the validity of a settlement provision requiring a party’s termination of a collaboration agreement with a third-party, the California Supreme Court unanimously held:

  1. to state a claim for tortious interference with an at-will contract, a plaintiff must allege that the defendant engaged in an independently wrongful act, and
  2. in determining the validity of a competitive restriction in a business-to-business agreement under Business and Professions Code section 16600, the rule of reason applies and such restriction is not per se void.

The Court’s decision will impact how companies contracting under California law decide to set up their contracts and whether they will agree to the at-will termination of such contracts. The decision also provides some clarity for businesses that include competitive restraints with other companies in their commercial dealings, such as exclusive dealing and collaboration agreements, licenses, leases, and franchise agreements, as such restraints are not per se void under Section 16600 but subject to a rule of reason analysis.
Continue Reading California Supreme Court Clarifies Pleading Requirements for Claims of Tortious Interference with At-Will Contracts and Adopts Rule of Reason in Evaluating Competitive Restraints in Contracts Between Businesses

At the end of 2019, Coty Inc. (“Coty”) expanded its brand portfolio by closing a notable $600 million deal for a majority stake in reality star Kylie Jenner’s young cosmetics company, King Kylie LLC (d/b/a Kylie Cosmetics). The purchase placed the valuation of the Kylie Cosmetics at $1.2 billion. Drama soon followed the acquisition as reports questioning Ms. Jenner’s net worth (and consequently, the value of her cosmetics empire) surfaced in May 2020, overshadowing Coty’s launch of the Kylie Skin beauty line in Europe. On June 29, 2020, Coty announced a 21% investment in KKW Beauty (Ms. Jenner’s sister’s company) for $200 million. Prompted by these deals, the manufacturer behind both Kylie Cosmetics and KKW, Seed Beauty, LLC, filed two trade secret lawsuits in Superior Court in Los Angeles, California.
Continue Reading Not so Pretty: Cosmetic Company Acquisitions Lead to Contentious Trade Secret Spat

As many of our blog readers will know, the enforceability of restrictive covenants often depends on which state’s law applies to the dispute. For example, California is well known for refusing to enforce employee non-competition agreements and, recently, refusing to honor forum selection clauses in agreements with California employees without the employee first receiving legal advice. In contrast, with limited exceptions, most other states will generally enforce restrictive covenants. Consequently, for employers, controlling and choosing the correct law to  apply to its restrictive covenant agreements can be critical to protection of its business interests.
Continue Reading 6th Circuit Bolsters Employer’s Right to Contract for Chosen Law

On Tuesday, July 14th at 1 p.m. Eastern, Seyfarth partner Robert Milligan is presenting a 90-minute Strafford CLE webinar, “Noncompetes Under New State Law Restrictions: Wage Requirements, Notice, Time, Layoffs, Proposed Federal Legislation.”

The program will discuss recent state legislative changes and case law trends regarding non-compete agreements and other restrictive covenants in New York, California, Illinois, Washington, and other
Continue Reading Robert Milligan to Present “Enforcing of Noncompetition Clauses Under New State Laws” Webinar

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Hon. Elizabeth D. Laporte (Ret.)

Trade secret litigation in California is growing, in both volume and impact. The second-largest plaintiffs’ verdict in 2019 was $845 million, as reported by the Daily Journal, which was awarded to ASML, a Dutch semiconductor chip processing software company, in its case against XTAL, a company founded by two ex-employees of the plaintiff’s subsidiary in Santa Clara who allegedly worked in secret for XTAL using stolen trade secrets to get a head start in development and siphon off a major customer contract (ASML US Inc. v. XTAL Inc.). Another large verdict was a $66 million jury award, including a worldwide injunction, given to a San Jose LED manufacturer that sued a company for allegedly poaching its top scientist so that it could transfer its technology to China (Lumileds LLC v. Elec-Tech International Co. Ltd.). In these types of cases, plaintiffs have the advantage of being able to craft a compelling narrative of theft—most commonly, former employees surreptitiously appropriating the plaintiff company’s trade secrets for their own benefit in a rival venture—and to overcome employees’ general freedom to switch employers under California law, which voids almost all non-compete agreements (Bus. & Prof. Code Sec. 16600) and does not recognize the doctrine of inevitable disclosure (Schlage Lock Company v. Whyte, 101 Cal.App.4th 1443 (2002)). Moreover, trade secrets do not expire automatically; they allow broad protection without disclosure, unlike copyrights and patents.
Continue Reading Trade Secret Litigation on the Rise in California: How ADR Can Help