As we previously reported, CBD company Healthcare Resources Management Group, LLC (Healthcare Resources) filed an action in the US District Court for the Southern District of Florida claiming trade secret misappropriation by Medterra CBD and EcoNatura, and alleging that Medterra CBD and EcoNatura worked together to manufacture and sell a CBD cream using Healthcare Resources’ proprietary formula. On February 18, 2020, the defendants moved to dismiss the case on the grounds that Healthcare Resource failed to allege that it had provided or that Medterra had otherwise acquired any proprietary information. Healthcare Resources responded arguing that its trade secret claim is legitimate so long as (1) there was improper use of proprietary information; and (2) that use was enabled by a party who had a duty to guard and limit the use of such proprietary information.  The case has now been dismissed, but not for any of the reasons the parties briefed. Rather, in a May 21, 2020, order, Judge Donald Middlebrooks dismissed the suit without prejudice for failing to secure counsel to represent it in the case and denied Healthcare Resources’ pro se request for additional time to obtain new counsel.
Continue Reading No Counsel, No Lawsuit: Federal Court Tosses CBD Trade Secret Case

Seyfarth Partners Jeremy Cohen, Marcus Mintz, and Erik Weibust have published an article entitled “Navigating and Weathering the COVID-19 Storm with Your Trade Secrets Intact” in Corporate Compliance Insights. The article addresses several of the topics they have been blogging about over the past two months, including what constitutes “reasonable measures” to

Social distancing, a term which few of us had heard of before this year (despite the fact that it has been used since at least the early 2000s), is stretching into its third month. Notwithstanding some loosening of shelter-in-place advisories, and the fact that some employers are starting to open up offices and invite their workforce back in, a majority of employees are still working from home. This has broad implications for protection of employers’ trade secrets and confidential information—in many cases, a company’s most precious asset.
Continue Reading Security From Afar: How Best to Protect Trade Secrets in a World of Remote Working, Zoombombing, and Uncertainty

Legal analytics powerhouse Lex Machina recently released its 2020 Trade Secret Litigation Report, which highlights federal litigation trends in the last decade, as well as the last year specifically. While it’s very much an open question whether these trends will continue in light of the COVID-19 pandemic (more on that in our next  post), the report identifies some interesting data. In addition to some of the highlights contained in the official report, a deep dive of Lex Machina’s case repository reveals even more granular trends, demonstrating the wealth of information that can be gleaned and theories that can be tested from the data compiled from the more than 1.7 million federal cases in Lex Machina’s database. In fact, we have to admit that many of our own assumptions were turned upside down upon digging into the voluminous data available on the Lex Machina website! Expect to see a guest post from Lex Machina soon explaining how this data is sourced and what subscribers can do with it.

Some of the key findings in the report and/or associated data:
Continue Reading A Decade of Data Whets the Appetite for Data Nerds: Lex Machina Releases 2020 Report on Trade Secret Litigation

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

On April 16, 2020, the White House issued its “Guidelines for Opening Up America Again,” and several states have begun a slow process of emerging from the shutdown. But even the most optimistic scenarios are fraught with uncertainty. Nobody can predict when the economy will fully reopen, or what that even means in the post-COVID-19 business world. Will increased remote work become the “new normal”? Will business meetings, pitches, and conferences, continue to take place by videoconference or other remote means? What about investigations, depositions, mediations, and court proceedings? And how long will all of that last? We also do not know when the next pandemic will strike, or even if COVID-19 will rear its ugly head again in the near future.
Continue Reading Normalizing the Abnormal—Protecting Trade Secrets in a Post-COVID-19 World

On Thursday, April 23 at 12 p.m. Central, Seyfarth attorneys Erik Weibust, Marcus Mintz, and Jeremy Cohen are presenting Weathering the COVID-19 Storm With Your Trade Secrets and Customer Goodwill Intact, a webinar is Seyfarth’s Responding to the COVID-19 Pandemic Webinar Series.

COVID-19 has changed the way most companies are currently doing business, from requiring

As we previously reported,  as a result of the COVID-19 crisis, courts across the country are adjourning most appearances, including trials, and hearing only “emergency matters,” often by teleconference or other remote methods. This presents a new quandary for trade secret and restrictive covenant lawyers, who regularly must seek emergency injunctive relief to protect their clients’ trade secrets and customer goodwill. But it does not follow that these lawyers should be careless about when to seek emergency relief; in fact, quite the opposite, they must be more diligent in that regard during the current pandemic.
Continue Reading Prior Ruling on What Constitutes a Litigation “Emergency” May Not Be a Unicorn After All

Imagine this scenario: You are the general counsel of a company in a particularly competitive industry. A key company employee who has access to some of the company’s most sensitive information has been working remotely for the last three weeks as a result of the COVID-19 crisis, and the employee exploits the opportunity to print or download confidential company information to a personal device, including customer lists and product specifications. The employee then gives notice and immediately begins employment with a direct competitor and begins soliciting your top customers. You consult with outside counsel who drafts a complaint and motion for preliminary injunctive relief and expedited discovery. But, as a result of COVID-19, you cannot obtain emergency relief, or the ability to do so is severely limited. What do you do?
Continue Reading Preparing for Trade Secret and Restrictive Covenant Litigation While the Court Near You is Closed

Seyfarth Synopsis: A recent case out of the Court of Appeals in Houston, Texas highlights the challenges in proving liability against a third-party competitor for knowing participation in breach of duty of loyalty/fiduciary duty, tortious interference with contract, and conspiracy when the third-party competitor participates in the solicitation of current employees. The Court’s opinion emphasizes that although an employee owes a duty of loyalty to her current employer, current employees can generally plan to compete—and communicate among themselves to do so—while still employed. The decision further illustrates the difficulty in proving a third-party competitor participated in any unlawful plans to compete, without some evidence showing the competitor had knowledge of the departing employees’ restrictive covenants and directing the wrongful acts. As such, the opinion demonstrates the importance of enforceable non-compete, non-solicit, and confidentiality agreements with key employees.

One of the worst case scenarios for a company is an entire team—including high level executives—jumping ship to a competitor, and directly competing against the former employer in the same space and market. A recent decision from the First Circuit Court of Appeals in Houston, Texas provides an interesting look into just such a situation, and it reinforces that it is difficult for a company to recoup its damages after a max exodus of employees if it hasn’t taken the necessary precautions ahead of time.
Continue Reading A Herculean Task: Proving a Competitor’s Knowledge and Participation in an Unfair Competition Case