As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd.

Introduction

The purpose of this short paper is to ‘join the dots’ between a director’s fiduciary duties and especially a person holding dual or multiple directorships and trade secrets. Continue Reading Fiduciary Duties with Respect to Trade Secrets for Dual or Multiple Directors

shutterstock_393956815The Ninth Circuit recently held in United States v. Liew that it was not plain error for the district court not to instruct the jury that disclosure “‘to even a single recipient who is not legally bound to maintain [a trade secret’s] secrecy’ destroys trade secret protection.” As a result, the Ninth Circuit upheld criminal convictions under the (pre-Defend Trade Secrets Act) Economic Espionage Act (“EEA”) for trade secret misappropriation despite a third-party competitor (who was not bound by any confidentiality obligations) acquiring the trade secret.

The trade secret at issue in United States v. Liew concerned methods of producing titanium dioxide (TiO2), a white pigment found in anything from paint to Oreo creme, which makes its manufacture a (surprisingly) competitive industry. DuPont has been a leader in TiO2 production since the 1940s, when it became more efficient to produce TiO2 through a chloride-based process. DuPont opened chloride plants around the US, including one in Antioch, California and one in Ashtabula, Ohio. The Ashtabula plant was built for Sherwin-Williams, subject to a fifteen-year confidentiality agreement effective through the plant’s sale in the 1970s. The plant was sold multiple times thereafter and was ultimately acquired by a competitor of DuPont who was not bound by any nondisclosure or confidentiality obligations to the company.  Continue Reading Trade Secrets May Retain Protections Despite Disclosure to Single Competitor

shutterstock_529332652Seyfarth Synopsis: An environmental remediation technologies company is in the midst of litigation in Chinese courts over a $1.2 million contract to provide its technology to a Chinese company. According to the Chinese entity, the technology provider failed to deliver the unit in a “timeframe that was agreed.”

The West Mountain Environmental Corp. (WMT) had issued a press release in October 2016 that it had sold its first indirect thermal desorption technology (TPS) unit in China to Shanghai Hehui Environmental Technology, Co. Ltd. (Hehui). WMT valued the contract at approximately $1.2 million.

Historically, WMT had operated in China since 2012 and has treated, it claims, over 100,000 tons of contaminated soil and oil sludge using TPS technology. TPS’ patented indirect thermal desorption technology is “recognized in the industry as one of the most efficient and safest technologies for the removal of hazardous contaminants.” WMT asserts that TPS was one of the first western environmental remediation technologies successfully transferred to China which has been recognized as a top 100 environmental technology in the 3iPET Program supported by the Ministry of Environmental Protection.

This sale, WMT indicated, represented the first time that TPS technology had been used as part of a process to treat waste purified terephalic acid (PTA) sludge. “PTA is required for the manufacture of polyester fibre, polyethylene terephthalate (PET) bottle resin and polyester film and China is the largest producer of PTA at over 50 million tonnes per year.”

Now according to a recent WMT press release, it received notice that a lawsuit had been filed against it by Hehui, claiming that WMT failed to deliver the TPS unit in a “timeframe that was agreed.” As a consequence, a Chinese Court ordered that WMT’s bank accounts be frozen until a hearing is held on March 27, 2017 in Shanghai.

Subsequently WMT was informed by its Chinese legal counsel that its motion to remand its contract dispute with Hehui to arbitration in conformance with the terms of the contract between the parties was denied. The release indicated that Chinese Intermediate Court ruled that as the contract between the parties did not specify an arbitrator, so the Intermediate Court would hear the case. As a result of the ruling and based on the recommendation from Chinese legal counsel, WMT will file an objection of jurisdiction to the Intermediate Court on April 5, 2017, at which time an official hearing for the case will be set.

This case illustrates how very careful parties need to be in preparing contracts, especially in international cases. Deals in China may be especially complicated as the law varies in different provinces.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the International Employment Law Team, the Intellectual Property, or the Trade Secrets Teams

shutterstock_533123590Continuing our annual tradition, we present the top developments/headlines for 2016 in trade secret, computer fraud, and non-compete law. Please join us for our first webinar of the New Year on February 2, 2017, at 12:00 p.m. Central, where we will discuss these new developments, their potential implications, and our predictions for 2017.

1. Defend Trade Secrets Act

One of the most significant developments of 2016 that will likely have a profound impact on trade secret cases in the coming years was the enactment of the Defend Trade Secrets Act (“DTSA”). The DTSA creates a new federal cause of action for trade secret misappropriation, albeit it does not render state law causes of action irrelevant or unimportant. The DTSA was passed after several years and many failed attempts. The bill was passed with overwhelming bipartisan, bicameral support, as well as backing from the business community.

The DTSA now allows trade secret owners to sue in federal court for trade secret misappropriation, and seek remedies previously unavailable. Employers should be aware that the DTSA contains a whistleblower immunity provision, which protects individuals from criminal or civil liability for disclosing a trade secret if such disclosure is made in confidence to a government official or attorney, indirectly or directly. The provision applies to those reporting violations of law or who file lawsuits alleging employer retaliation for reporting a suspected violation of law, subject to certain specifications (i.e., trade secret information to be used in a retaliation case must be filed under seal). This is significant for employers because it places an affirmative duty on them to give employees notice of this provision in “any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” Employers who do not comply with this requirement forfeit the ability to recoup exemplary damages or attorneys’ fees under the DTSA in an action against an employee to whom no notice was ever provided.

At least one federal district court has rejected an employee’s attempts to assert whistleblower immunity under the DTSA. In Unum Group v. Loftus, No. 4:16-CV-40154-TSH, 2016 WL 7115967 (D. Mass. Dec. 6, 2016), the federal district court for the district of Massachusetts denied a defendant employee’s motion to dismiss and held that a defendant must present evidence to justify the whistleblower immunity.

We anticipate cases asserting claims under the DTSA will be a hot trend and closely followed in 2017. For further information about the DTSA, please see our webinar “New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive.”

2. EU Trade Secrets Directive

On May 27, 2016, the European Council unanimously approved its Trade Secrets Directive, which marks a sea-change in protection of trade secrets throughout the European Union (“EU”). Each of the EU’s 28 member states will have a period of 24 months to enact national laws that provide at least the minimum levels of protections afforded to trade secrets by the directive. Similar to the DTSA, the purpose of the EU’s Trade Secrets Directive was to provide greater consistency in trade secrets protection throughout the EU. For further information about the EU’s Trade Secrets Directive, please see our webinar “New Year, New Progress: 2016 Update on Defend Trade Secrets Act & EU Directive.”

3. Government Agencies Continue to Scrutinize the Scope of Non-Disclosure and Restrictive Covenant Agreements

Fresh off of signing the DTSA, the Obama White House released a report entitled “Non-Compete Reform: A Policymaker’s Guide to State Policies,” which relied heavily on Seyfarth Shaw’s “50 State Desktop Reference: What Employers Need to Know About Non-Compete and Trade Secrets Law” and contained information on state policies related to the enforcement of non-compete agreements. Additionally, the White House issued a “Call to Action” that encouraged state legislators to adopt policies to reduce the misuse of non-compete agreements and recommended certain reforms to state law books. The Non-Compete Reform report analyzed the various states that have enacted statutes governing the enforcement of non-compete agreements and the ways in which those statutes address aspects of non-compete enforceability, including durational limitations; occupation-specific exemptions; wage thresholds; “garden leave;” enforcement doctrines; and prior notice requirements.

With those issues in mind, the Call to Action encourages state policymakers to pursue three “best-practice policy objectives”: (1) ban non-competes for categories of workers, including workers under a certain wage threshold; workers in occupations that promote public health and safety; workers who are unlikely to possess trade secrets; or workers who may suffer adverse impacts from non-competes, such as workers terminated without cause; (2) improve transparency and fairness of non-competes by, for example, disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted; providing consideration over and above continued employment; or encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work; and (3) incentivize employers to write enforceable contracts and encourage the elimination of unenforceable provisions by, for example, promotion of the use of the “red pencil doctrine,” which renders contracts with unenforceable provisions void in their entirety.

While some large employers have embraced the Call to Action, even reform-minded employers are likely to be wary of some of these proposals. Moreover, this initiative may die or be limited with the new Trump administration.

On October 20, 2016, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) jointly issued their “Antitrust Guidance for Human Resource Professionals.” The Guidance explains how antitrust law applies to employee hiring and compensation practices. The agencies also issued a “quick reference card” that lists a number of “antitrust red flags for employment practices.” In a nutshell, agreements (whether formal or informal) among employers to limit or fix the compensation paid to employees or to refrain from soliciting or hiring each other’s employees are per se violations of the antitrust laws. Also, even if competitors don’t explicitly agree to limit or suppress compensation, the mere exchange of compensation information among employers may violate the antitrust laws if it has the effect of suppressing compensation.

In recent years, the National Labor Relations Board (“NLRB”) has issued numerous decisions in which workplace rules were found to unlawfully restrict employees’ Section 7 rights. Last year, the U.S. Court of Appeals for the D.C. Circuit denied Quicken Loans, Inc.’s petition for review of an NLRB decision finding that confidentiality and non-disparagement provisions in the company’s Mortgage Banker Employment Agreement unreasonably burdened employees’ rights under Section 7 of the NLRA.

4. New State Legislation Regarding Restrictive Covenants

Oregon has limited the duration of employee non-competes to two years effective January 1, 2016. Utah has enacted the Post-Employment Restrictions Amendments, which limits restrictive covenants to a one-year time period from termination. Any restrictive covenant that is entered into on or after May 10, 2016, for more than one year will be void. Notably, Utah’s new law does not provide for a court to blue pencil an agreement (i.e., revise/modify to the extent it becomes enforceable), rather the agreement as a whole will be deemed void if it is determined to be unreasonable.

In what appears to have become an annual tradition, Massachusetts legislators have attempted to pass legislation regarding non-competes, to no avail. Two other states in New England, however, are able to claim accomplishments in that regard. Specifically, Connecticut and Rhode Island each enacted statutes last summer imposing significant restrictions on the use of non-compete provisions in any agreement that establishes employment or any other form of professional relationship with physicians. While Connecticut’s law limits only the duration and geographic scope of physician non-competes, Rhode Island completely banned such provisions in almost all agreements entered into with physicians.

5. Noteworthy Trade Secret, Computer Fraud, and Non-Compete Cases

In Golden Road Motor Inn, Inc. v. Islam, 132 Nev. Adv. Op. 49 (2016), the Supreme Court of Nevada refused to adopt the “blue pencil” doctrine when it ruled that an unreasonable provision in a non-compete agreement rendered the entire agreement unenforceable. Accordingly, this means that employers conducting business in Nevada should ensure that non-compete agreements with their employees are reasonably necessary to protect the employers’ interests. Specifically, the scope of activities prohibited, the time limits, and geographic limitations contained in the non-compete agreements should all be reasonable. If an agreement contains even one overbroad or unreasonable provision, the employer risks having the entire agreement invalidated and being left without any recourse against an employee who violates the agreement.

The Louisiana Court of Appeal affirmed a $600,000 judgment, plus attorneys’ fees and costs, against an ex-employee who violated his non-compete when he assisted his son’s start-up company compete with the ex-employee’s former employer. See Pattridge v. Starks, No. 50,351-CA (Louisiana Court of Appeal, Feb. 24, 2016) (Endurall III).

A Massachusetts Superior Court judge struck down a skin care salon’s attempt to make its non-compete agreement seem prettier than it actually was. In denying the plaintiff’s motion for a preliminary injunction, the court stressed that employees’ conventional job knowledge and skills, without more, would not constitute a legitimate business interest worth safeguarding. See Elizabeth Grady Face First, Inc. v. Garabedian et al., No. 16-799-D (Mass. Super. Ct. March 25, 2016).

In a case involving alleged violations of the Kansas Uniform Trade Secrets Act (“KUTSA”) and the Computer Fraud and Abuse Act (“CFAA”), a Kansas federal district court granted a defendant’s motion for summary judgment, holding that (a) payments to forensic experts did not satisfy the KUTSA requirement of showing an “actual loss caused by misappropriation” (K.S.A. 60-3322(a)), and (b) defendant was authorized to access the company’s shared files and, therefore, he did not violate the CFAA. See Tank Connection, LLC v. Haight, No. 6:13-cv-01392-JTM (D. Kan., Feb. 5, 2016) (Marten, C.J.).

The Tennessee Court of Appeals held that the employee’s restrictive covenants were unenforceable when the employer had not provided the employee with any confidential information or specialized training. See Davis v. Johnstone Group, Inc., No. W2015-01884-COA-R3-CV (Mar. 9, 2016).

Reversing a 2-1 decision of the North Carolina Court of Appeals, the state’s Supreme Court held unanimously that an assets purchase-and-sale contract containing an unreasonable territorial non-competition restriction is unenforceable Further, a court in that state must strike, and may not modify, the unreasonable provision. See Beverage Systems of the Carolinas, LLC v. Associated Beverage Repair, LLC, No. 316A14 (N.C. Sup. Court, Mar. 18, 2016).

The Ohio Court of Appeal upheld a non-compete giving the former employer discretion to determine whether an ex-employee was working for a competitor. See Saunier v. Stark Truss Co., Case No. 2015CA00202 (Ohio App., May 23, 2016).

In a clash between two major oil companies, the Texas Supreme Court ruled on May 20, 2016, that the recently enacted Texas Uniform Trade Secrets Act (“TUTSA”) allows the trial court discretion to exclude a company representative from portions of a temporary injunction hearing involving trade secret information. The Court further held a party has no absolute constitutional due-process right to have a designated representative present at the hearing.

A Texas Court of Appeals held on August 22, 2016, that a former employer was entitled to $2.8 million in attorneys’ fees against a former employee who used the employer’s information to compete against it. The Court reached this ruling despite the fact that the jury found no evidence that the employer sustained any damages or that the employee misappropriated trade secrets.

In Fidlar Technologies v. LPS Real Estate Data Solutions, Inc., Case No. 4:13-CV-4021 (7th Cir., Jan. 21, 2016), the Seventh Circuit Court of Appeals affirmed a district court’s conclusion that a plaintiff had produced no evidence refuting the defendant’s contention that it honestly believed it was engaging in lawful business practices rather than intentionally deceiving or defrauding the plaintiff. Even though the plaintiff’s technology did not expressly permit third parties to access the digitized records and use the information without printing copies, thereby avoiding payment of fees to plaintiff, such access and use were not prohibited.

A divided Ninth Circuit panel affirmed the conviction of a former employee under the CFAA, holding that “[u]nequivocal revocation of computer access closes both the front door and the back door” to protected computers, and that using a password shared by an authorized system user to circumvent the revocation of the former employee’s access is a crime. See United States v. Nosal, (“Nosal II”) Nos. 14-10037, 14-10275 (9th Cir. July 5, 2016).

The Ninth Circuit in Facebook v. Power Ventures, Case No. 13-17154 (9th Cir. Jul. 12, 2016), held that defendant Power Ventures did not violate the CFAA when it made copies and extracted data from the social media website despite receiving a cease and desist letter. The court noted that Power’s users “arguably gave Power permission to use Facebook’s computers to disseminate messages” (further stating that “Power reasonably could have thought that consent from Facebook users to share the [Power promotion] was permission for Power to access Facebook’s computers”) (emphasis in original). Importantly, the court found that “[b]ecause Power had at least arguable permission to access Facebook’s computers, it did not initially access Facebook’s computers ‘without authorization’ within the meaning of the CFAA.”

6. Forum Selection Clauses

California enacted a new law (Labor Code § 925) that restrains the ability of employers to require employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where the employee was individually represented by a lawyer in negotiating an employment contract. For companies with headquarters outside of California and employees who work and reside in California, this assault on the freedom of contract is not welcome news.

We also continued to see federal district courts enforcing forum selection clauses in restrictive covenant agreements. For example, a Massachusetts federal district court last fall transferred an employee’s declaratory judgment action to the Eastern District of Michigan pursuant to a forum-selection clause in a non-compete agreement over the employee’s argument that he had signed the agreement under duress because he was not told he would need to sign it until he had already spent the money and traveled all the way from India to the United States.

7. Security Breaches and Data Theft Remain Prevalent

2016 was a record year for data and information security breaches, one of the most notably being WikiLeaks’ release of emails purportedly taken from the Democratic National Committee’s email server. According to a report from the Identity Theft Resource Center, U.S. companies and government agencies saw a 40% increase in data breaches from 2015 and suffered over a thousand data breaches. Social engineering has become the number one cause of data breaches, leaks, and information theft. Organizations should alert and train employees on following policy, spotting potential social engineering attacks, and having a clear method to escalate potential security risks. Employee awareness, coupled with technological changes towards better security will reduce risk and exposure to liability. For technical considerations and best practices and policies of attorneys when in the possession of client data, please view our webinar, “A Big Target—Cybersecurity for Attorneys and Law Firms.”

8. The ITC’s Extraterritorial Authority in Trade Secret Disputes

In a case involving the misappropriation of U.S. trade secrets in China, the U.S. Supreme Court was asked to decide whether Section 337 of the Tariff Act does, in fact, authorize the U.S. International Trade Commission (“ITC”) to investigate misappropriation that occurred entirely outside the United States. See Sino Legend (Zhangjiangang) Chemical Co. Ltd. v. ITC. The crux of Sino Legend’s argument was that for a statute to apply abroad, there must be express congressional intent. Not surprisingly, Sino Legend argued that such intent was missing from Section 337 of the Tariff Act. In Tianrui Group Co. Ltd. v. ITC, 661 F.3d 1322 (Fed. Cir. 2011), the Federal Circuit held that such intent was manifest in the express inclusion of “the importation of articles … into the United States” which evidenced that Congress had more than domestic concerns in mind. On January 9, 2017, the Supreme Court denied Sino Legend’s petition for certiorari, thereby keeping the ITC’s doors open to trade secret holders seeking to remedy misappropriation occurring abroad. For valuable insight on protecting trade secrets and confidential information in China and other Asian countries, including the effective use of non-compete and non-disclosure agreements, please check out our recent webinar titled, “Trade Secret and Non-Compete Considerations in Asia.”

We thank everyone who followed us this year and we really appreciate all of your support. We will continue to provide up-to-the-minute information on the latest legal trends and cases in the U.S. and across the world, as well as important thought leadership and resource links and materials.

shutterstock_521249434The United States International Trade Commission (“ITC”) is an independent, quasijudicial Federal agency with broad oversight over trade matters.  In addition to trade practices such as dumping and subsidies, the ITC adjudicates matters involving the misappropriation of trade secrets and theft of intellectual property.  Specifically, Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337(a)(1)(A), prohibits “unfair methods of competition and unfair acts in the importation of articles … into the United States.”

In 2012, the Federal Circuit—which has jurisdiction over all ITC matters—was asked to consider whether the ITC had authority to investigate the misappropriation of trade secrets protected by domestic law when the misappropriation occurred exclusively in China.  See Tianrui Group Co. Ltd. v. ITC, 661 F.3d 1322 (Fed. Cir. 2011).  The Federal Circuit answered in the affirmative and held that the ITC had authority to “investigate and grant relief based in part on extraterritorial conduct insofar as it is necessary to protect domestic industries from injuries arising out of unfair competition in the domestic marketplace.”  Tianrui, 661 F.3d at 1324.  Following Tianrui, domestic companies have used the ITC to redress misappropriation of trade secrets far from American shores so long as the misappropriation resulted in the importation of products into the US causing domestic injury.  For further background on the Tianrui decision, please see our prior post here.

The ITC’s extraterritorial authority established in Tianrui is once again being challenged.  Recently, in another case involving the misappropriation of American trade secrets in China, the Supreme Court was asked to decide whether Section 337 of the Tariff Act does, in fact, authorize the ITC to investigate misappropriation that occurred entirely outside the United States.  See Sino Legend (Zhangjiangang) Chemical Co. Ltd. v. ITC, cert petition available here.  The crux of Sino Legend’s argument is that for a statute to apply abroad, there must be express congressional intent.  Not surprisingly, Sino Legend argues that such intent is missing from Section 337 of the Tariff Act.  In Tianrui, the Federal Circuit held that such intent was manifest in the express inclusion of “the importation of articles .. into the United States” which evidenced that Congress had more than domestic concerns in mind.  Tianrui, 661 F.3d at 1329.  To prevail, Sino Legend must convince the Supreme Court to not only hear its case, but to overrule Tianrui’s holding that such intent is evident from the “importation of articles” clause in the Act.

Sino Legend’s petition comes at an interesting time.  The Supreme Court is only 8 justices following the death of Justice Scalia, perhaps making it even more difficult for cert to be granted.  At the same time, trade with China was a repeat theme of President-Elect Trump’s presidential campaign.  Companies with operations abroad should closely monitor the progress of Sino Legend, as reversal of Tianrui will result in the removal of a powerful tool in a trade secret owner’s arsenal against extraterritorial misappropriation of trade secrets.

shutterstock_183065225We are pleased to announce the webinar “International Trade Secret and Non-Compete Law Update” is now available as a podcast and webinar recording.

In Seyfarth’s third installment of its 2015 Trade Secrets Webinar series, Seyfarth attorneys focused on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involved a discussion of non-compete and trade secret issues in Europe and China compared to the United States. This webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements

As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.

International…local law compliance is key

One size does not fit all! Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction. However, there are some common requirements and issues regarding enforceability based on the region (e.g. in Europe, see below). Bearing in mind non-compete covenants across the world may be unlawful in certain countries or heavily restricted, employers should carefully tailor agreements to satisfy local legal requirements and appropriately apply local drafting nuances to aid enforceability of any restrictive covenants.

The general approach to restrictive covenants in Europe, is that the restrictions should not go further than is reasonably necessary to protect the employer’s legitimate business interests. This restrictive approach is a continuing trend across Europe. For example, there is a recent prohibition in the Netherlands on non-compete clauses in fixed-term contract unless justified by the special interests of the company. In practice, this means that employers should particularly focus on the duration and scope (in terms of geographical coverage and the employee’s own personal activities) of the restrictions and be mindful of any local payment obligations when preparing restrictive covenants (e.g. in France and Germany). Europe is also making an attempt to remedy the uneven levels of protection and remedies in relation to trade secrets. The draft EU Directive for trade secret protection is currently making its way through the legislative process with no firm timeline for adoption.

In addition to local or regional nuances, employers should take advantage of other contractual and/or tactical mechanisms as a “belt-and braces” approach, such as, claw-backs and forfeiture of deferred compensation (where permitted), use of garden leave provisions, and strategic use of forum selection and choice-of-law provisions. Employers operating in the U.S. should also consider strategic use of mandatory forum selection and choice-of-law provisions in restrictive covenant agreements with U.S.-based employees.

Practical measures should also be taken to protect confidential information and trade secrets, including limiting access to sensitive information, using exit interviews, and (provided that applicable privacy laws are followed) monitoring use of company IT resources and conducting forensic investigations of departing employees’ computer devices.

France…do not miss the deadline

Drafting a non-compete clause under French labor law requires specific care as Courts are particularly critical of the following: duration, the geographical and activities scope, the conditions in which the employer releases the employee from such obligation, the employee’s role, the interests of the company and the financial compensation provided by the clause.

Recent case law shows that French Courts are strict when it comes to the interpretation of the non-compete clauses and the possibility to waive the non-compete clause. If an employer misses the relevant contractual deadline to release an employee from their non-compete, the financial compensation will be due for the entire period. Similarly, if the employer waives the non-compete prematurely, the Courts will consider the waiver as invalid.

During employment an employee is subject to a general obligation of confidentiality and breach may be subject to civil and criminal sanctions. Only “trade secrets”, however, are protected post-termination under certain circumstances. Employers should therefore automatically include a confidentiality clause in employment agreements to strengthen the protection of the company’s data post-termination. Good news for employers, the French High Court recently confirmed that, unlike non-compete covenants, a confidentiality clause does not require any financial compensation.

United Kingdom…less is NOT more

Restrictive covenants are potentially void as an unlawful restraint of trade! In practical terms, this means that such covenants are only likely to be enforceable where they are fairly short in duration, the restriction is narrowly focused on the employee’s own personal activities (e.g. by geographical scope) and is specific to the commercial environment. Unlike in some European jurisdictions, payment will not ‘rescue’ an unenforceable restriction. In addition, the English Courts tend to have an unforgiving nature when it comes to poor drafting even if the intention of the parties is obvious. Employers should therefore also consider other creative and acceptable ways to aid enforceability, such as, deferring remuneration and varying and reaffirming covenants.

Absent any agreement, only “trade secrets”, which is narrowly defined, will be protected after employment. Employers should therefore ensure that employment contracts and/or other free-standing binding agreements provide full coverage for the protection of confidential and other valuable business information post-termination. Often the physical protection of confidential information is underestimated (e.g. encrypting data, installing passwords, secure storage, etc.), which can be a more effective and a less costly approach for employers in the long-term. Employers should therefore also seek to retain physical control of such information in order to reduce and limit unwanted disclosure and misuse.

China …. stay atop an evolving regulatory system

In China, employers should ensure that they have a non-compete agreement with the employee at the time of employment, so that the employer can decide whether to enforce or not to enforce the non-compete agreement for a period of post-employment.

In addition, employers should ensure that documents are marked with ‘confidential’, or that other measures are taken to protect confidential information.  Otherwise, remedies may not be available under the Chinese law for breach of confidential obligations.  Employers should also review and update rules and policies regarding confidentiality and security arrangements. Pre-employment vetting of R&D staff is also essential to prevent unexpected breach or non-compliance with trade secret and IP rights.

As a notable (and relatively recent) development, Injunctive relief for trade secret infringement is available in Shanghai and Anhui.

WebinarTo accommodate our global audience, the third installment in the 2015 Trade Secrets Webinar Series will be available as an on-demand broadcast on Tuesday, April 14, 2015 at 9:00 a.m. Central.

Seyfarth attorneys Wan Li, Ming Henderson and Daniel Hart will focus on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involve a discussion of non-compete and trade secret issues in Europe and China compared to the United States. This webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries to ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Summary of Topics:

  • Overview of key rules for non-compete and non-disclosure agreements in Europe
  • Key principles of non-compete and non-disclosure agreements in the United Kingdom and France, including recent case developments
  • Latest developments in non-compete and trade secret law in China
  • The European Commission’s proposed directive on trade secrets protection throughout the European Union
  • Practical considerations under U.S. law for multinational employers to effectively protect their trade secrets and confidential information

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

*CLE: CLE Credit for this webinar has been awarded in the following states: CA, IL and NY. CLE Credit is pending for the following states: GA, NJ, 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.

We are pleased to announce the webinar “International Trade Secrets and Non-Compete Law Update,” is now available as a podcast and webinar recording.

The fifth webinar in the 2014 series, was presented by Wan Li, Ming Henderson, Justine Turnbull and Daniel Hart, focused on non-compete and trade secret considerations from an international perspective. Specifically, the webinar involved a discussion of non-compete and trade secret issues in Europe, Australia, and China compared to the United States. This 90-minute webinar provided valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries and ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

As a conclusion to this well-received webinar, we compiled a list of key takeaway points, which are listed below.

International

One size does not fit all.  Requirements for enforceable restrictive covenants vary dramatically from jurisdiction to jurisdiction.  Bearing in mind non-compete covenants may be unlawful in certain countries or heavily restricted, employers should carefully tailor agreements to satisfy local legal requirements and appropriately apply local drafting nuances to aid enforceability of any restrictive covenants .  In addition, employers should take advantage of other contractual and/or tactical mechanisms as a “belt-and braces” approach , such as, clawbacks and forfeiture of deferred compensation (where permitted), use of garden leave provisions, exclusivity and strategic use of forum selection and choice-of-law provisions.

Employers should also take practical measures to protect their confidential information and trade secrets, including limiting access to sensitive information, using exit interviews, and (provided that applicable privacy laws are followed) monitoring use of company IT resources and conducting forensic investigations of departing employees’ computer devices.

France

Drafting a non-compete clause under French labour law requires specific care as Courts are particularly critical of the following: duration, the geographical and activities scope, the employee’s role, the interests of the company and the financial compensation provided by the clause.  Case law and the applicable collective bargaining agreement may also provide minima to comply with and employers should be mindful of these.  

During employment an employee is subject to a general obligation of confidentiality and breach may be subject to civil and criminal sanctions. Only “trade secrets”, however, are protected post-termination under certain circumstances. Employers should therefore enter into a confidentiality agreement to strengthen the protection of the company’s data post-termination.

UK

Restrictive covenants are potentially void as an unlawful restraint of trade and are therefore only enforceable if they go no further than is necessary to protect legitimate business interests. In practical terms, this means that such covenants are only likely to be enforceable where they are fairly short in duration, the restriction is narrowly focused on the employee’s own personal activities (e.g. geographical scope) and is specific to the commercial environment. Careful drafting is key especially given the unforgiving nature of the English Courts when it comes to poor drafting even if the intention of the parties is obvious. Employers should also consider other creative and acceptable ways to aid enforceability, such as, deferring remuneration and varying and reaffirming covenants.

Absent any agreement, only “trade secrets” will be protected after employment. Employers should therefore ensure that employment contracts and/or other free-standing binding agreements provide full coverage for the protection of confidential and other valuable business information post-termination. In addition, employers should also physically protect their confidential information  (e.g. encrypting data, installing passwords, secure storage, etc.) and seek to retain control of it to reduce and limit unwanted disclosure and misuse. Physical security can be a more effective and less costly approach in the long-term. 

Australia

It is possible to protect an organization’s confidential information, customer or client connections, trade secrets and other proprietary interests from inappropriate use by former employees in Australia. To do this detailed consideration is required of the employee’s role and responsibilities and we as their personal situation. Further, protection must not only be included in the written terms of employment but also employed at a very practical level in the business, for example, by password protecting documents, limiting access to confidential information to those who ‘need to know’ and by expressly reminding employees in different forms about the importance of certain information and relationships to the business and their related obligations.

When the Walt Disney Company built the “It’s a Small World” ® ride for the New York World’s Fair in 1964, they probably had no idea of the challenges that globalization could pose 50 years later. From cases involving the sale of stolen trade secrets to foreign companies to departing employees setting up competing business in different jurisdictions, many of our recent posts illustrate an unmistakable fact: in an increasingly globalized world, protection of trade secrets, confidential information, and other intellectual property presents global challenges as never before.

On Thursday, July 31, 2014 at 9:00 a.m. Central, Seyfarth attorneys from across the globe will present an on-demand webinar focused on non-compete and trade secret considerations from an international perspective. During the 90-minute webinar, Seyfarth attorneys Wan Li (Shanghai), Ming Henderson (London), Justine Turnbull (Sydney) and Daniel Hart (Atlanta) will provide valuable insight on non-compete and trade secret issues in Europe, Australia, and China compared to the United States.

Topics will include the following

  • Overview of key rules for non-compete and non-disclosure agreements in Europe
  • Key principles of non-compete and non-disclosure agreements in the United Kingdom, France and Australia, including recent case developments
  • Latest developments in non-compete and trade secret law in China
  • The European Commission’s proposed directive on trade secrets protection throughout the European Union
  • Practical considerations under U.S. law for multinational employers to effectively protect their trade secrets and confidential information

Please register to receive access to the broadcast by clicking here.

 

To accommodate our global audience, the fifth installment in the 2014 Trade Secrets Webinar Series will be available as an on-demand broadcast on Thursday, July 31, 2014 at 9:00 a.m. Central. Please register to receive access to the broadcast.

Seyfarth attorneys Wan Li, Ming Henderson, Justine Turnbull and Daniel Hart  will focus on non-compete and trade secret considerations from an international perspective. Specifically, the webinar will involve a discussion of non-compete and trade secret issues in Europe, Australia, and China compared to the United States. This 90-minute webinar will provide valuable insight for companies who compete in the global economy and must navigate the legal landscape in these countries and ensure protection of their trade secrets and confidential information, including the effective use of non-compete and non-disclosure agreements.

Summary of Topics:

  • Overview of key rules for non-compete and non-disclosure agreements in Europe
  • Key principles of non-compete and non-disclosure agreements in the United Kingdom, France and Australia, including recent case developments
  • Latest developments in non-compete and trade secret law in China
  • The European Commission’s proposed directive on trade secrets protection throughout the European Union
  • Practical considerations under U.S. law for multinational employers to effectively protect their trade secrets and confidential information

 

 

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

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

*CLE: CLE Credit for this webinar has been awarded in the following states: CA, IL and NY. CLE Credit is pending for the following states: GA, NJ, 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.