There is no denying that social media continues to transform the way companies conduct business. In light of the rapid evolution of social media, companies today face significant legal challenges on a variety of issues ranging from employee privacy and protected activity to data practices, identity theft, cybersecurity, and protection of intellectual property.

Seyfarth Shaw is pleased to provide you with the 2017–2018 edition of our easy-to-use guide to social media privacy legislation and what employers need to know. The Social Media Privacy Legislation Desktop Reference:

  • Describes the content and purpose of the various states’ new social media privacy laws.
  • Delivers a detailed state-by-state description of each law, listing a general overview, what is prohibited, what is allowed, the remedies for violations, and special notes for each statute.
  • Provides an easy-to-use chart listing on one axis the states that have enacted social media privacy legislation, and on the other, whether each state’s law contains one or more key features.
  • Offers our thoughts on the implications of this legislation in other areas, including trade secret misappropriation, bring your own device issues and concerns, social media discovery and evidence considerations, and use of social media in internal investigations.
  • Concludes with some best practices to assist companies in navigating this challenging area.

How To Get Your Desktop Reference

To request the 2017–2018 Edition of the Social Media Privacy Legislation Desktop Reference as a pdf or hard copy, please click the button below:

Robert Milligan, along with Certified Forensic Computer Examiner Jim Vaughn, presented The Defend Trade Secrets Act – The Biglaw Partner and Forensic Technologist Perspective webinar for Metropolitan Corporate Counsel on Thursday, November 2. They focused on the key features of the DTSA and compared its key provisions to the state Uniform Trade Secrets Act (UTSA) adopted in many states, and they provided practical tips and strategies concerning the pursuit and defense of trade secret cases in light of the DTSA and some predictions concerning the future of trade secret litigation.

As a conclusion to this well-received webinar, we compiled a summary of takeaways:

  • The Defend Trade Secrets Act provides trade secret owners a new federal property right and provides them additional options and remedies when their trade secrets are stolen.
  • Employers should consider how they treat employee personally owned devices for work as well as corporate issued mobile devices. Getting access to those devices may prove to be challenging upon an employee’s departure. Having a policy and technology in place to allow the employer to gain access to their data is critical.

 

The Massachusetts legislature is back at it again. Under new leadership, the Joint Committee on Labor & Workforce Development recently scheduled a hearing for October 31, 2017 on the non-compete reform bills proposed in January of this year. While we know little about the hearing, the bills to be discussed are presumably Senate Bill S.988 and companion House Bill H.2366. These identical bills were filed in January 2017 by the same legislators who began this process back in 2009, Senator William Brownsberger and Representative Lori Ehrlich.

As we previously reported, the proposed law brings many past proposals to the table with some new additions as well. We also reported in July and November of 2016 that the House and the Senate were unable to bridge their differences and agree on a compromise bill that year. For a detailed overview of the bills likely to be discussed in the upcoming hearing, please see our prior report.

We will continue to monitor these developments and report back with any updates. Perhaps 2017 is finally the year for non-compete and trade secret reform in Massachusetts after all. Readers of this blog know all too well, however, that this may just be another of the many attempts that the Massachusetts Legislature is unable to see through to its fruition.

On June 3, 2017, Governor Sandoval signed Assembly Bill 276 into law, amending Nevada Revised Statute 613, which governs non-competition agreements. Notably, the law adds requirements to the enforceability and validity of non-competition agreements, and importantly, now allows courts to “blue-pencil” non-competition agreements, overturning Nevada Supreme Court’s recent decision in Golden Road Motor Inn, Inc. v. Islam.

First, the new law establishes that a non-competition agreement is void and unenforceable unless the agreement satisfies four requirements. The agreement must: (1) be supported by valuable consideration; (2) not impose a restraint greater than what is required to protect the employer; (3) not impose an undue hardship on the employee; and (4) impose restrictions that are appropriate in relation to the valuable consideration supporting the agreement. Continue Reading Nevada Enacts New Non-Compete Law

shutterstock_494317324On May 19, 2017, Texas Governor Greg Abbott signed into law several amendments to the Texas Uniform Trade Secrets Act (“TUTSA”), located in Chapter 134A of the Texas Civil Practice & Remedies Code. The amendments go into effect on September 1, 2017.  In doing so, Texas has aligned its statute more closely with federal law and codified recent judicial interpretations of the law.

Two events precipitated the amendments, one legislative, one judicial.  In the first, Congress passed the Defend Trade Secrets Act (“DTSA”) in May 2016, which provides a federal cause of action for trade-secret misappropriation. In the second, the Texas Supreme Court announced in In re M-I L.L.C., 505 S.W.3d 569 (Tex. 2016) that a presumption exists that a party is authorized to participate and assist in the defense of a trade-secret misappropriation claim under TUTSA, which presumption cannot be surmounted unless the trial court considers a seven-factor balancing test.  These events resulted in the following key changes to the TUTSA: Continue Reading Texas Legislature Clarifies and Expands the Texas Uniform Trade Secrets Act

shutterstock_392113519Seyfarth attorney Joshua Salinas will serve on a panel for “Trade Secrets in 2017: Recent Legal Trends and Developments LIVE Webcast,” presented by The Knowledge Group, LLC Live Webcast Series, on May 25, 2017.

Unquestionably, US companies face an increasing threat of cyberattacks from rival companies and foreign governments and the likely targets are trade secrets and other sensitive business information. Since many US companies have overseas operations, the threat of trade secret theft is on the rise which results to billion-dollar intellectual property (IP) theft losses annually.

To address the perceived insufficient legal protection of trade secrets, lawmakers have enacted a series of laws, such as the Economic Espionage Act of 1996 (EEA) and the Defend Trade Secrets Act (DTSA). The US Congress may also support further law and policy efforts aimed at improving trade secret protection. An increase in criminal enforcement efforts is also expected as President Trump indicates the value he gives on IP protection.

In this two-hour LIVE Webcast, a panel of distinguished professionals and thought leaders organized by The Knowledge Group will help businesses and IP counsel understand the recent legal trends and developments in relation to trade secrets. They will provide a comprehensive outlook for the year ahead and will also underscore best practices in protecting trade secrets.

Key topics include:

  • Trade Secret: Current Legal Trends and Developments
  • Trade Secret Theft
  • Trade Secret Protection under the Trump Administration
  • Best Practices to Protect Trade Secrets
  • Legislative Outlook

For more information and registration, click here.

shutterstock_210713560Since July 1, 2001, Missouri law with respect to non-solicitation clauses has been fairly straightforward.  Specifically, § 431.202 of the Missouri Statutes states that a covenant not to solicit between an employer and an employee is presumed reasonable if it is no longer than one year in duration and designed to protect confidential information, customer relationships, and/or good will. Section 431.202 also states that the statute does not apply to covenants not to compete, thereby allowing the courts to decide the enforceability of a non-competition clause on a “case-by-case” basis.  (Id. § 3).

A Bill, however, currently pending in the Missouri House of Representatives seeks to abolish Missouri’s non-solicit statute and ban all restrictive covenants except for those restrictive covenants found in a “business to business” setting.  Specifically, House Bill 479, introduced by Representative Keith Frederick (R), seeks to eliminate all types of restrictive covenants (non-compete, non-solicit, and non-hire) except when the restrictive covenants involve the sale of a business or are between two corporations engaged in a joint venture. The Bill would go into effect August 28, 2017.  Thus, any restrictive covenant agreement between an employer and an employee that is a) controlled by Missouri law and b) entered into after August 28, 2017 would be unenforceable.

In addition to House Bill 479, a recent Federal Court decision in the Eastern District of Missouri also has the attention of non-compete lawyers. In Durrell v. Tech Electronics, Inc., plaintiff Robert Durrell brought suit against his former employer, Tech Electronics, Inc., alleging that he was wrongfully terminated and retaliated against for taking FMLA leave. Durrell’s Complaint further alleges that the restrictive covenants found in his Employment Agreement are unenforceable due to a lack of consideration. The Court denied Tech’s Motion to Dismiss Durrell’s restrictive covenant claims by ruling that at-will employment is “not a source of consideration under Missouri contract law.” Notably, the Court did not address § 431.202’s specific language that a non-solicitation clause is enforceable if it protects confidential information, customer relationships, and/or good will. In fact, the Court does not even mention § 431.202 in its opinion. (Probably because the Court was only asked to address whether “at-will employment” is sufficient consideration for enforcing a restrictive covenant).

We will continue to monitor House Bill 479 (the Bill is currently in “Executive Session”) as well as the Durrell case, and will provide all relevant updates on this blog.

shutterstock_547628332In Spring 2011, the Georgia legislature passed a new restrictive covenant statute, which, for the first time, allowed Georgia courts in reviewing non-competition agreements between employer and employee to blue-pencil or “modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.” O.C.G.A. § 13-8-53(d). Since the new Georgia statute only applies to agreements executed after its enactment, there has been limited litigation concerning the meaning and scope of this provision.

Most of the litigation between 2011 and the present has involved requests by a party that the Court strike an offending provision in a non-compete agreement. Recently, the Northern District of Georgia was given the opportunity to determine whether Georgia’s blue-pencil provision also gives Georgia courts the authority to modify an unenforceable non-compete provision. In LifeBrite Labs., LLC v. Cooksey, No. 1:15-CV-4309-TWT, 2016 WL 7840217, at *1 (N.D. Ga. Dec. 9, 2016), the former employer, LifeBrite, sued its former employee, Cooksey, after she began working for a competitor company. Cooksey’s non-compete provision provided as follows:

7.2. Non-Competition. For as long as she is employed and for a period of one (1) year thereafter, employee shall not participate, directly or indirectly, as an owner, employee, consultant, office management position, in any proprietorship, corporation, partnership, limited liability company or other entity, engaged in any laboratory testing that is being sold by employee on behalf of company.

The Northern District of Georgia found that this provision was overbroad and unenforceable as it did not contain any geographic limitation. Consequently, the Court considered whether or not Georgia’s blue-pencil rules allowed it to modify the non-compete provision to insert a reasonable geographic limitation. In reasoning through the analysis, the Court referred to pre-2011 cases in which Georgia courts interpreted a similar non-compete provision in the context of sale of business agreements. In those cases, Georgia courts held that the blue-pencil marks but it does not write. Thus, the NDGA declined to enforce Cooksey’s non-compete and held that in applying Georgia’s blue-pencil statute, “courts may not completely reform and rewrite contracts by supplying new and material terms from whole cloth.”

The NDGA also noted that Georgia’s employers are “sophisticated entities” which “have the ability to research the law in order to write enforceable contracts; courts should not have to remake their contracts in order to correct their mistakes.” This case is simply further caution to Georgia employers to review their non-competition agreements for overbreadth, vagueness, and the absence of essential limiting terms. As always, the attorneys at Seyfarth Shaw LLP are available to assist in these endeavors.

The LifeBrite Laboratories, LLC v. Cooksey case was dismissed with prejudice on January 25, 2017.

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_66377878Last Friday, on January 20, 2017, the Massachusetts Legislature began its annual tradition of attempting to promulgate non-compete and trade secret reform in the Commonwealth. A new bill has been filed by the same legislators who began this process back in 2009, Senator William Brownsberger and Representative Lori Ehrlich, which brings many of the past proposals to the table with some new additions as well. As we reported in July and November, the House and the Senate were unable to bridge their differences and agree on a compromise bill in 2016.

The bill seeks to adopt much of the Uniform Trade Secrets Act. In addition, it would formally recognize the inevitable disclosure doctrine, providing that “threatened misappropriation may be enjoined upon principles of equity, including, but not limited to, consideration of party conduct before or after commencement of litigation and circumstances of potential use, upon a showing that information qualifying as a trade secret has been, or inevitably will be, misappropriated.”

On the non-compete side, the bill notably limits non-competes (with some exceptions) to a duration of one year from the date of termination, requires that the employee receive the non-compete prior to a formal offer of employment or two weeks prior the commencement of the his or her employment, and requires consideration beyond continued employment for post-hire non-competes. The bill also requires courts to apply the bright-line “red pencil” approach if the non-compete agreement fails to satisfy any of bill’s requirements, but grants courts the discretion to reform or otherwise revise an agreement to comply with certain safe harbors set forth in the bill.

Other provisions of the proposed legislation may cause some consternation for businesses or, at the very least, may require those businesses to change their practices. For example:

  • An agreement must expressly state that the employee has the right to consult with counsel prior to signing;
  • Employers must review all non-competes with their employees at least once every three years for them to remain valid and enforceable;
  • For post-hire non-competes, notice must be given at least ten days before the agreement becomes effective;
  • If the employee has breached his or her fiduciary duties, or taken property of the employer, the duration of the non-compete may be extended to two years;
  • A geographic reach of any non-compete is that is limited to “areas in which the employee, during any time within the last 2 years of employment, provided services or had a material presence or influence is presumptively reasonable”;
  • A restriction that “protects legitimate business interest and is limited to only the specific types of services provided by the employee at any time during the last 2 years of employment is presumptively reasonable”;
  • Employers have ten days after the termination of employment to “notify the employee in writing by certified mail of the employer’s intent to enforce the noncompetition agreement.” If the employer fails to do so, the non-compete is deemed waived by the employer. That being said, this requirement does not apply if the employee has unlawfully taken the employer’s property or already breached the non-compete, a non-solicit, an anti-piracy/no-raid covenant, a confidentiality agreement, or a fiduciary duty;
  • Non-compete agreements would not be enforceable against (1) employees who are not exempt under the Fair Labor Standards Act, 29 U.S.C. §§ 201-209, (2) undergraduate or graduate students engaged in short-term employment, (3) employees terminated without cause or laid off, (4) employees who are 18 or under, and (5) non-employees who perform services for less than one year; and
  • If the employee is a resident of, or has been working in, Massachusetts for at least thirty days immediately prior to the termination, Massachusetts law will apply, rending any out-of-state choice of law provision unenforceable.

Notably absent from the bill is the inclusion of a provision requiring “garden leave,” forcing employers to pay former employees bound by non-compete agreements fifty percent of their highest annualized salary over the last two years of employment for the restricted period. Such a provision has appeared in many of the proposed bills in the past few years.

We will continue to monitor these developments and report back with any updates. Perhaps 2017 is the finally year for non-compete and trade secret reform in Massachusetts after all. Readers of this blog know all too well, however, that this may just be another New Year’s resolution that the Massachusetts Legislature is not able to keep.

A special thanks to our friend Russell Beck for his thoughtful analysis of, and input into, the latest proposed legislation.