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,

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

Even before the COVID-19 pandemic, businesses around the world had been bracing for the financial and operational impact of the new California Consumers Privacy Act (“CCPA”), which took effect January 1, 2020. Despite existing and ongoing uncertainty around how to comply and interpret the law, the courts had already began seeing private class actions brought under the CCPA (or using the CCPA as a placeholder with Business and Professions Code Section 17200 and tort claims) filed in February—each presenting interesting and far-reaching legal questions about the new law.
Continue Reading The Impact of COVID-19 on the California Consumer Privacy Act

Seyfarth attorneys Robert Milligan, John Tomaszewski, and Darren Dummit are presenting “The California Consumer Privacy Act – What It Is and What Clients Need to Know, Particularly in Light of COVID-19,” a webinar for ITechLaw on April 7, 2020, at 9 a.m. Central.

The California Consumer Privacy Act (CCPA) went into effect on January 1,

The Ninth Circuit has certified questions to the California Supreme Court in Ixchel Pharma v. Biogen seeking guidance as to: 1) whether section 16600 of the California Business and Professions Code extends to contracts between businesses; and 2) whether pleading an independent wrongful act is necessary to state a claim for intentional interference with a contract outside the at-will employment contract context. The California Supreme Court has agreed to accept the Ninth Circuit’s inquiry and the appellate briefing was recently completed. We expect the Supreme Court to have oral argument and likely rule in the summer or fall of 2020. The California Supreme Court’s disposition of the novel issues could have sweeping ramifications that ripple through commercial and business industries.
Continue Reading Ninth Circuit Seeks Guidance From California Supreme Court on Business to Business Non-Competes

Continuing our annual tradition, we have compiled our top developments and headlines for 2019 & 2020 in trade secret, non-compete, and computer fraud law. Here’s what you need to know to keep abreast of the ever-changing law in this area.

1. Another Year, Another Attempt in Congress to Ban Non-Competes Nationwide

Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) introduced legislation in 2019 entitled the Workforce Mobility Act (“WMA”). The WMA seeks to ban non-compete agreements outside of the sale of a business or dissolution of a partnership.

Not only would the WMA abolish covenants not to compete nationwide, outside of the extremely narrow exceptions highlighted above, but it would also provide the Department of Labor (DOL) and Federal Trade Commission (FTC) with broad enforcement power. If enacted, the legislation would empower the FTC and DOL to enforce the ban through fines on employers who either fail to notify employees that non-compete agreements are illegal or who require employees to sign covenants not to compete. Additionally, the WMA establishes a private right of action for all employees allegedly aggrieved by a violation of the WMA.

The WMA contains a carve out for parties to enter into an agreement to protect trade secrets. As currently drafted, the WMA does not abrogate the scope of protections provided by the Defend Trade Secrets Act.

Presently, there are no generally applicable federal restrictions on non-compete agreements, and enacting such a law would have to pass Constitutional muster. We expect to see continued activity at the federal legislative level to attempt to ban or limit the use of non-competes.

2. New State Legislation Regarding Restrictive Covenants


Continue Reading Top 10 Developments and Headlines in Trade Secret, Non-Compete, and Computer Fraud Law for 2019 & 2020

Seyfarth Synopsis: Knowledge that a competitor or former employee is misappropriating trade secrets is difficult to come by. At the same time, however, once a company has notice that misappropriation may be occurring, the statute of limitations begins to run on any trade secrets misappropriation claim. A recent decision from the California Court of Appeals reinforces these rules and provides a good reminder of the need to take proactive steps to protect any possible claims.

When a competitor or former employee misappropriates a company’s trade secrets, the company often does not know for an extended period of time. This is especially true when the perpetrator takes action to conceal its misappropriation. For these reasons, the statute of limitations only starts to run once the company knows or should have known of the misappropriation. But this rule is not a universal remedy; companies should be aware that once they have sufficient knowledge that misappropriation may be occurring, they must take action or risk the running of the statute of limitations. A recent decision from the California Court of Appeals reinforces these principles.
Continue Reading A Little Knowledge Is a Dangerous Thing: Beware the Statute of Limitations in Trade Secrets Misappropriation Cases