It is well known that courts interpreting their respective states’ versions of the Uniform Trade Secret Act (“UTSA”) have not uniformly applied UTSA’s preemption provision. While some states hold that their acts only preempt claims involving information that constitutes a “trade secret,” others hold that their acts also preempt claims based on information that may not technically meet the “trade secret” definition. See, e.g., Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 733 (7th Cir. 2014) (concluding that Illinois’s UTSA preempts claims “that are essentially claims of trade secret misappropriation, even when the alleged ‘trade secret’ does not fall within the Act’s definition”); Am. Biomedical Grp., Inc. v. Techtrol, Inc., 374 P.3d 820, 827 (Okla. 2016) (holding that Oklahoma’s UTSA preempts “conflicting tort claims only for misappropriation of a trade secret” and “does not displace tort claims for information not meeting this definition” (internal quotation marks and citation omitted)). Continue Reading 5th Circuit Provides Guidance on the Scope of Louisiana Uniform Trade Secrets Act’s Preemption Provision
Late last night, after close to a decade of “will they or won’t they” nail biters, the Massachusetts legislature finally passed a non-compete bill, just minutes before the end of the 2018 legislative session. (For a recap of the many twists and turns over the years, here is just a smattering of blog posts on the topic).
The new bill, which will become effective on October 1, 2018, if signed by Governor Baker, codifies certain aspects of existing common law, but makes some significant changes to non-compete jurisprudence in the Bay State that employers will need to be mindful of. Continue Reading At Long Last, Non-Compete Legislation: Massachusetts Finally Passes Non-Compete Bill After Nearly a Decade
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.
This blog originally appeared in ALM Intellectual Property Strategist.
One year after its enactment, the Defend Trade Secrets Act (DTSA) continues to be one of the most significant and closely followed developments in trade secret law. The statute provides for a federal civil cause of action for trade secret theft, protections for whistleblowers, and new remedies (e.g., ex parte seizure of property), that were not previously available under state trade secret laws. The less than 70 reported DTSA cases to date provide an early glimpse into how courts may interpret the statute going forward and what early concerns about the statute may have been exaggerated.
Overstated Ex Parte Seizure Concerns
The ex parte seizure provision of the DTSA was one of the most controversial provisions of the statute during its drafting. The provision allows a trade secret holder to request, without notice to the alleged wrongdoer, that a district judge order federal law enforcement officials to seize property to prevent the propagation or dissemination of trade secrets. Opponents of the DTSA argued that the ex parte seizure provision would open the door to abuse by purported “trade secret litigation trolls” and increase litigation costs. The cases to date involving the seizure provision suggest that those early concerns may not materialize. Continue Reading Emerging Issues In the Defend Trade Secrets Act’s Second Year
A lawyer’s favorite phrase might be “it depends.” And when an employer asks whether its customer lists qualify as a trade secret, “it depends” is often the answer. But even if it’s difficult to definitively state whether customer lists qualify as a trade secret, the converse—whether customer lists might not constitute a trade secret—can be helpful to assessing how much protection a court will provide.
With the advent of the Uniform Trade Secrets Act (“UTSA”), no state categorically denies trade-secrets status to customer lists. That’s because the default definition of a “trade secret” under the UTSA includes compilations of information, and several states modified the default definition to explicitly include customer lists as potential trade secrets. See, e.g., Conn Gen. Stat. § 35-51(d); O.C.G.A. § 10-1-761(4); Or. Rev. Stat. § 646.461(4); 12 Pa. Cons. Stat. Ann. § 5302. Other states opted to mention that a “listing of names, addresses, or telephone numbers” may qualify as a trade secret if the listing, like any trade secret, has independent economic value because it is not readily ascertainable and is subject to reasonable efforts to maintain its secrecy. See, e.g., Co. Rev. Stat. Ann. § 7-74-102(4); Oh. Rev. Code Ann. § 1333.61(D).
States still, however, apply varying degrees of scrutiny before conceding that customer lists constitute a trade secret. In more skeptical jurisdictions, courts decline to confer trade-secrets status on customer lists for one of three reasons. Continue Reading Are My Customer Lists a Trade Secret?
We reported in our post of June 11th that Governor Patrick had introduced a sweeping economic growth bill (HB4045) — that, if passed, would ban employee non-competes in the Commonwealth. We also explained that subsequent to Governor Patrick’s bill, another bill (HB4082), was introduced that stripped Governor’s Patrick’s bill and left only those portions dealing with trade secrets and non-competes. This new bill would adopt the Uniform Trade Secrets Act, repeal the current statutes regarding theft of trade secrets (Sections 42 and 42A of Chapter 93), and ban employee non-compete agreements. HB4082 was likely introduced because of concerns that Governor Patrick’s bill would not make swift enough progress, since the other provisions that did not relate to employee non-compete agreements were so broad in scope.
The second bill, HB4802, was referred to the Joint Committee on Economic Development and Emerging Technologies in early June, and now that Committee has scheduled a public hearing for July 1, 2014 from 11:00 a.m. to 2:00 p.m. in Room B-1 at the Statehouse. Similar to the committee hearing held previously on Governor Patrick’s broader economic bill (HB4045), we expect to hear testimony from constituencies on both sides of the non-compete debate. As the Boston Globe noted after the hearing on Governor Patrick’s bill, “[t]he sides are generally split according to size, with large, established employers … working to maintain the status quo, and people from the startup world — including venture capitalists who invest in early-stage companies — pushing to let workers jump to rivals whenever they want.We will be attending the hearing, and will report out after.
Also, still in play are the House and Senate’s economic development bills. As we reported previously, the House economic development bill is notably silent on the issue of non-competes and adoption of the Uniform Trade Secrets Act. The Senate economic bill, which was released this morning, is also silent on the issue of non-competes, but adopts the Uniform Trade Secrets Act. Both economic bills are pending. After votes on any amendments to the Senate bill next week, a conference committee will be appointed with three members from each body to reconcile the House and Senate versions. Since neither of the economic bills mention non-competes at all, the final version of the bill (after they reconcile the House and Senate bills) sent to the Governor for his signature (by July 31) will not change state law on non-competes. Separate and apart from the pending economic bills, whether or not a standalone bill like HB4802 will get to the Governor for signature by January 31st remains to be seen.
Against this backdrop, you may wonder what is next on the legislative path for HB4802 after the July 1st hearing. As we understand it, the Committee will meet after the hearing to decide next steps. This could happen as soon as Tuesday after the hearing, or sometime thereafter. The bill could emerge from the Joint Committee as is, or it could include amendments. Some are suggesting that the bill will be amended and a compromise bill will emerge that will then go to the House Ways and Means Committee, where any changes to bills are reported. It could then be reported out to the full House for consideration, or it may have to go back to committee.
In sum, it is difficult to predict at this juncture whether HB 4082 will survive in its current form, or evolve toward a compromise bill like the one previously introduced by Senator William Brownsberger and Representative Lori Ehrlich in late 2012. Keep in mind that after July 31, there will be no more formal sessions of this legislature. While informal sessions will still occur, typically those only address “non-controversial” legislation, such as the changing of a street name. It is also worth noting that this is the last year of the two year legislative session, so unless the legislature acts on HB4802 before end of July, the legislation would have to be reintroduced into a new congress in January — with a new governor.
We will continue to monitor all the pending bills, as well as any others that may be filed, and report back after the July 1 hearing. You may be interested in today’s Boston Business Journal’s article on the non-compete debate in Massachusetts.
Last week, Massachusetts Governor Deval Patrick proposed sweeping legislation that would eliminate employee non-compete agreements in Massachusetts. While it remains to be seen whether this bill will actually become law, employers should be aware of the potential implications of this far-reaching bill, and should implement steps sooner rather than later to protect their trade secrets and confidential information should non-competes become unenforceable in the Commonwealth.
Eliminating All Employee Non-Competes in Massachusetts
The Governor’s bill, entitled “An Act to Promote Growth and Opportunity” (HB4045), includes a provision that would invalidate all non-compete agreements in Massachusetts, with a few very limited exceptions, regardless of industry. This would bring Massachusetts in line with only California and North Dakota, the only other states that prohibit employee non-compete agreements.
The limited exceptions to the proposed Massachusetts statute include non-competes entered into in connection with the sale of a business (or the sale of substantially all of the assets of a business), where the restricted party owns at least 10% of the business and received significant consideration for the sale, and non-compete agreements arising outside of an employment relationship.
Additionally, the bill would not affect non-solicitation agreements (both those prohibiting solicitation of an employer’s customers and those prohibiting solicitation of employees), non-disclosure agreements, forfeiture agreements, or agreements not to reapply for employment to the same employer. While the bill does not explicitly reference “garden leave” or “bench” provisions (where the employee is compensated not to compete during the restricted period), it would seem to bar such provisions, as they would presumably be deemed to prohibit or restrict an employee’s ability to seek or accept other employment. This is something the legislature should clarify and/or the courts may ultimately need to consider in interpreting the bill, should it pass.
One of the most notable provisions of the bill, however, provides that the prohibition on non-compete agreements applies to agreements executed before the bill’s effective date. Companies whose only protection of confidential and proprietary information or customer relationships consisted of non-compete agreements (which is not advisable) will have to ensure that they have appropriate protections in place moving forward.
Adoption of the Uniform Trade Secrets Act
The bill also includes a provision adopting the Uniform Trade Secrets Act (“UTSA”)—making Massachusetts the forty-ninth state to have adopted some version of the UTSA, with only New York lagging—and another provision that would repeal the current statutory provisions related to liability for trade secret misappropriation and injunctive relief (Sections 42 and 42A of Chapter 93 of the Massachusetts General Laws).
Unlike the current statutory scheme in Massachusetts, the UTSA explicitly permits injunctive relief for actual or threatened trade secret misappropriation (whereas under the current scheme, actual misappropriation must be established). The UTSA also specifies that damages can include not only the actual loss caused by the misappropriation, but also unjust enrichment damages.
Like the current statutory scheme, courts can award multiple damages for trade secret misappropriation: The UTSA would allow awards of exemplary damages of up to twice the amount of actual loss or unjust enrichment, where the misappropriation is willful and malicious.
The UTSA also includes a provision permitting a court to award attorneys’ fees in trade secret misappropriation cases to the prevailing party if: (i) a claim of misappropriation is made or defended in bad faith, (ii) a motion to enter or terminate an injunction is made or resisted in bad faith, or (iii) willful and malicious misappropriation exists. Unlike the section of the bill eliminating non-competes, the section relating to the UTSA would not apply retroactively.
What Does This Mean For Your Business?
Faced with incredibly disparate opinions in the business community, and the fact that Governor Patrick’s administration is in its final months, it may be that the bill in its current form will wither on the vine. Instead, previous bill sponsors may continue their hard work to find a compromise between outright elimination of non-competes and a codification of the common law, which has evolved in most instances in the Commonwealth, to enforce those non-competes that are narrowly tailored and address the employer’s legitimate business needs to protect its good will, confidential information, and trade secrets.
While some studies have suggested a connection between enforcement of non-competes and limited regional growth (for example, comparing the boom of Silicon Valley, where non-competes are unenforceable, to the more tempered success of the Route 128 area in Massachusetts), other studies have noted that a variety of factors distinguish these regions, such as cultural and structural differences between the East and West Coasts. Accordingly, we anticipate that critics of this bill will point out that the Patrick administration’s claim that non-competes “are a barrier to innovation in Massachusetts” may not be quite that cut-and-dried.
Notwithstanding the fact that the bill may ultimately not become law, employers with operations in Massachusetts should take steps to prepare themselves in the event the bill is passed, in which case even those agreements that were executed prior to its passage would be invalidated.
Best practices include:
- Identifying the various types of valuable information within a company and assessing the secrecy measures protecting such information.
- Drafting and enforcing robust confidentiality and invention assignment agreements that clearly define the sort of information and documents the company considers a trade secret or confidential;
- Implementing entrance interview protocols to educate employees about their non-disclosure obligations from the very start of their employment;
- Implementing exit interview protocols to both remind departing employees of their continuing non-disclosure obligations, and also to ensure that employees return all documents and software at termination;
- Conducting regular employee education programs that create a culture of confidentiality whereby employees understand the value of protecting company data;
- Labeling confidential information as such where appropriate;
- Limiting access to trade secrets, including implementing computer access codes, passwords, identification badges, and locked files for hard copies;
- Regular evaluations of effective trade secret protection measures that take into account new technologies and trends, such as social media and cloud computing issues;
- Notifying departing employees’ new employers about your concerns of trade secret disclosure (whether advertent or inadvertent) or misappropriation;
- Reviewing computer records (including email activity, USB drive usage, and phone records) to determine whether a former employee disclosed or maintained sensitive information leading up to or after termination; and
- Use of non-solicitation agreements to limit a departing employee’s ability to call on your customers or other employees.
Implementing these practices will help protect your business should Governor Patrick’s bill pass. In the meantime, non-compete agreements that are reasonably tailored to protect your company’s legitimate business interests are still enforceable, and may add another layer of protection.
The Boston Globe reported this morning that Massachusetts Governor Deval Patrick will propose legislation today that would eliminate non-compete agreements in technology, life sciences, and “other industries,” with his secretary of Housing and Economic Development, Greg Bialecki, stating that the administration “feel[s] like noncompetes are a barrier to innovation in Massachusetts.” No word just yet on what “other industries” might include.
While Governor Patrick had previously been more tempered in his views on non-compete agreements, his current position supporting the outright elimination of such restrictive covenants is hardly surprising in light of comments made by Bialecki at a hearing before the Massachusetts Legislature’s Joint Committee on Labor and Workforce Development just seven months ago. At that hearing, on which we previously reported here, Bialecki foreshadowed today’s move, stating that the Patrick Administration supported the outright elimination of non-compete agreements, stating that such agreements “stifle movement and inhibit competition.”
While the proposed legislation has not yet been filed, the Globe has reported that it is modeled after California’s ban on non-compete agreements, and that it will include a provision adopting the Uniform Trade Secrets Act (the “UTSA”). As we have previously noted here, Massachusetts is currently one of only a handful of states that has not adopted the UTSA.
More details to follow once the proposed legislation is publicly available, including what other industries may be affected by the administration’s proposal. It is not often that you hear states wanting to be more like California particularly on labor and employment issues.
As part of our annual tradition, we are pleased to present our discussion of the top 10 developments/headlines in trade secret, computer fraud, and non-compete law for 2013. Please join us for our complimentary webinar on March 6, 2014, at 10:00 a.m. P.S.T., where we will discuss them in greater detail. As with all of our other webinars (including the 12 installments in our 2013 Trade Secrets webinar series), this webinar will be recorded and later uploaded to our Trading Secrets blog to view at your convenience.
Last year we predicted that social media would continue to generate disputes in trade secret, computer fraud, and non-compete law, as well as in privacy law. 2013 did not disappoint with significant social media decisions involving the ownership of social media accounts and “followers” and “connections,” as well as cases addressing liability or consequences for actions taken on social media, such as updating one’s status, communicating with “restricted” connections, creating fake social media accounts, or deleting one’s account during pending litigation.
We also saw more states (e.g., Arkansas, Utah, New Mexico, California, Colorado, Nevada, Michigan, New Jersey, Oregon, and Washington) enact legislation to protect employees’ “personal” social media accounts and we expect more states to follow.
The circuit split regarding the interpretation of what is unlawful access under the Computer Fraud and Abuse Act (“CFAA”) remains unresolved and another case will need to make its way up to the Supreme Court or legislation passed to clarify its scope as federal courts continue to reach differing results concerning whether employees can be held liable under for violating computer use or access policies.
There have also been several legislative efforts to modify trade secret, computer fraud, or non-compete law in various jurisdictions. Texas adopted a version of the Uniform Trade Secrets Act, leaving Massachusetts and New York as the lone holdouts. Oklahoma passed legislation expressly permitting employee non-solicit agreements. Massachusetts, Michigan, Illinois, New Jersey, Maryland, Minnesota, and Connecticut considered bills that would provide certain limitations on non-compete agreements but they were not adopted.
We expect more legislative activity in 2014, particularly regarding privacy, the scope of the CFAA, and trade secret legislation to curb foreign trade secret theft and cyber-attacks.
Finally, while the Snowden kerfuffle and NSA snooping captured the headlines in 2013, government agencies remained active, including some high profile prosecutions under the Economic Espionage Act, the release of the Obama Administration’s Strategy on Mitigating the Theft of U.S. Trade Secrets, and the National Labor Relations Board’s continued scrutiny of employers’ social media policies. We expect more government activity in this space in 2014.
Here is our listing of top developments/headlines in trade secret, computer fraud, and non-compete law for 2013 in no particular order:
1) Dust Off Those Agreements . . . Significant New Non-Compete Cases Keep Employers On Their Toes
Employers were kept on their toes with some significant non-compete decisions which forced some employers to update their agreements and onboarding/exiting practices. First, in Fifield v. Premier Dealer Services, an Illinois appellate court found that less than two years employment is inadequate consideration to enforce a non-compete against an at-will employee where no other consideration was given for the non-compete. Second, in Dawson v. Ameritox, an Alabama federal court found that a non-compete executed prior to employment was unenforceable. Next, in Corporate Tech. v. Hartnett, a Massachusetts federal court held that initiating contact was not necessary for finding solicitation in breach of a customer non-solicitation agreement. Lastly, in Assurance Data v. Malyevac, the Virginia Supreme Court found that a demurrer (i.e., a pleading challenge) should not be used to determine the enforceability of non-compete provisions but rather evidence should be introduced before making such a determination.
2) Continued Split of Authority On the Computer Fraud and Abuse Act and Efforts to Reform CFAA and Enhance Federal Trade Secret and Cybersecurity Law
Courts in Massachusetts, Minnesota, and New York joined the Ninth Circuit’s narrow reading of the CFAA and limited its applicability to pure hacking scenarios rather violations of employer computer usage or access policies. Additionally, in 2013, Representative Zoe Lofgren introduced Aaron’s Law, named after the political hackvist Aaron Swartz, to reform of the Computer Fraud and Abuse Act. Her proposed legislation would limit the CFAA to pure hacking scenarios and exclude violations of computer usage policies and internet terms of service from its scope. Lofgren also introduced legislation which would create a federal civil cause of action in federal court for trade secret misappropriation. Other legislation to prevent intellectual property theft was also introduced including the Deter Cyber Theft Act, which aims to block products that contain intellectual property stolen from U.S. companies by foreign countries from being sold in the United States. The Cyber Economic Espionage Accountability Act was also introduced and allows U.S. authorities to “punish criminals backed by China, Russia or other foreign governments for cyberspying and theft.” We expect Congress to consider similar legislation in 2014.
3) Texas Adopts Uniform Trade Secrets Act
Texas joined forty-seven other states in adopting some version of the Uniform Trade Secrets Act. Until recently, Texas common law governed misappropriation of trade secrets lawsuits in Texas. The new changes under the Texas UTSA (which we discuss in more detail here) provide protection for customer lists, the ability to recover attorneys’ fees, a presumption in favor of granting protective orders to preserve the secrecy of trade secrets during pending litigation, and that information obtained by reverse engineering does not meet the definition of a trade secret. Legislation has been introduced in Massachusetts to adopt the Act but has yet to pass. For additional information on recent trade secret and non-compete legislative updates, check out our webinar “Trade Secrets and Non-Compete Legislative Update.”
4) High Profile Prosecutions and Trials under Computer Fraud and Abuse Act and Economic Espionage Act
2013 saw several high profile prosecutions and trials under the CFAA and Economic Espionage Act. Bradley Manning, who allegedly leaked confidential government documents, to WikiLeaks, and Andrew ‘Weev’ Auernheimer, who allegedly hacked AT&T’s servers, were both convicted under the CFAA. Executive recruiter David Nosal was convicted by a San Francisco jury of violating federal trade secret laws and the CFAA and sentenced to one year and a day in federal prison. In U.S v. Jin, the Seventh Circuit upheld the conviction of a Chicago woman sentenced to four years in prison for stealing trade secrets of her employer before boarding a plane for China. For additional information on criminal liability for trade secret misappropriation, check out our webinar “The Stakes Just Got Higher: Criminal Prosecution of Trade Secret Misappropriation.”
5) More Social Media Privacy Legislation
Arkansas, Utah, New Mexico, Colorado, Nevada, Michigan, New Jersey, Oregon, and Washington all passed legislation social media privacy legislation in 2013 that prohibited employers from asking or insisting that their employees provide access to their personal social networking accounts. California extended its current social media privacy law to specify that it encompassed public employers. We expect more states to enact social media privacy legislation in 2014.
6) Continued Uncertainty on the Scope of Trade Secret Preemption
Courts have continued struggled with the scope and timing of applying preemption in trade secret cases but there is a growing movement to displace common law tort claims for the theft of information. Such claims are typically tortious interference with contract, conversion, unfair competition, and breach of fiduciary duty. In essence, plaintiffs may only be left with breach of contract and a trade secret claim for the theft of information if a jurisdiction has adopted a broad preemption perspective. Courts in western states such as Arizona, Hawaii, Nevada, Utah, and Washington have preempted “confidential information” theft claims under their respective trade secret preemption statutes.
In K.F. Jacobsen v. Gaylor, an Oregon federal court, however, found that a conversion claim for theft of confidential information was not preempted. In Triage Consulting Group v. IMA, a Pennsylvania federal court permitted the pleading of preempted claims in the alternative. Additionally, in Angelica Textile Svcs. v. Park, a California Court of Appeal found that there was no preemption of claims for breach of contract, unfair competition, conversion, or tortious interference because the claims were based on facts distinct from the trade secret claim and the conversion claim asserted the theft of tangible documents. In contrast, in Anheuser-Busch v. Clark, a California federal court found that a return of personal property claim based on the taking of “confidential, proprietary, and/or trade secret information” was preempted because there was no other basis beside trade secrets law for a property right in the taken information. For additional information on the practical impact of preemption on protecting trade secrets and litigating trade secret cases, check out our webinar “How and Why California is Different When it Comes to Trade Secrets and Non-Competes.”
7) Growing Challenge of Protecting of Information in the Cloud with Increasing Prevalence of BYOD and Online Storage
While the benefits of cloud computing are well documented, the growth of third party online data storage has facilitated the ability for rogue employees to take valuable trade secrets and other proprietary company electronic files, in the matter of minutes, if not seconds. The increasing use of mobile devices and cloud technologies by companies both large and small is likely to result in more mobile devices and online storage being relevant in litigation. A recent article in The Recorder entitled “Trade Secrets Spat Center on Cloud,” observed that the existence of cloud computing services within the workplace makes it “harder for companies to distinguish true data breaches from false alarms.”
An insightful Symantec/Ponemon study on employees’ beliefs about IP and data theft was released in 2013. It surveyed 3,317 employees in 6 countries (U.S., U.K., France, Brazil, China, South Korea). According to the survey, 1 in 3 employees move work files to file sharing apps (e.g. Drop Box). Half of employees who left/lost their jobs kept confidential information 40% plan to use confidential information at new job. The top reasons employees believe data theft acceptable: (1) does not harm the company does not strictly enforce its policies; (2) information is not secured and generally available; or (3) employee would not receive any economic gain. The results of this study serve as a reminder that employers must be vigilant to ensure that they have robust agreements and policies with their employees as well as other sound trade secret protections, including employee training and IT security, to protect their valuable trade secrets and company data before they are compromised and stolen. Employers should implement policies and agreements to restrict or clarify the use of cloud computing services for storing and sharing company data by employees. Some employers may prefer to simply block all access to such cloud computing services and document the same in their policies and agreements. For a further discussion about steps and responses companies can take when their confidential information and/or trade secrets appear, or are threatened to appear, on the Internet, check out our webinar “My Company’s Confidential Information is Posted on the Internet! What Can I Do?”
8) Continued Significance of Choice of Law and Forum Selection Provisions In Non-Compete and Trade Secret Disputes
The U.S. Supreme Court’s recent decision in Atlantic Marine v. U.S.D.C. for the W.D. of Texas appears to strengthen the enforceability of forum selection clauses as it held that courts should ordinarily transfer cases pursuant to applicable and enforceable forum selection clauses in all but the most extraordinary circumstances. While Atlantic Marine did not concern restrictive covenant agreements or the employer-employee context, it may nonetheless make it more difficult for current and/or former employees to circumvent the forum selection clauses contained in their non-compete or trade secret protection agreements. Many federal courts continue to enforce out-of-state forum selection clauses in non-compete disputes (see AJZN v. Yu and Meras Eng’r’g v. CH2O), while some courts have disregarded forum selection clauses in such disputes “in the interests of justice.” The Federal Circuit in Convolve and MIT v. Compaq and Seagate, held that information at issue lost its trade secret protection when the trade secret holder disclosed the information because it failed to comply with the confidential marking requirement set forth in a non-disclosure agreement. Accordingly, trade secret holders should be careful what their non-disclosure agreements say about trade secret protection otherwise they may lose such protection if they fail to follow such agreements.
9) Social Media Continues to Change Traditional Legal Definitions and Analyses
Social media continues to change the way we define various activities in employment, litigation, and our everyday lives. A Pennsylvania federal district court in the closely watched Eagle v. Morgan case found that a former employee was able to successfully prove her causes of action against her former employer for the theft of her LinkedIn account, but she was unable to prove damages with reasonable certainty. Recent cases in Massachusetts and Oklahoma held that social media posts, updates and communications with former customers did not violate their non-solicitation restrictive covenants with their former employer. In the litigation context, a New Jersey federal court issued sanctions against a litigant for deleting his Facebook profile, while a New York federal court allowed the FTC to effectuate service of process on foreign defendants through Facebook. The Fourth Circuit held that “liking” something on Facebook is “a form of free speech protected by the First Amendment.” Federal district courts in Nevada and New Jersey illustrated the growing trend of courts finding that individuals may lack a reasonable expectation of privacy in social media posts. For further discussion on the relationship between social media and trade secrets, check out our webinar “Employee Privacy and Social Networking: Can Your Trade Secret Survive?”
10) ITC Remains Attractive Forum to Address Trade Secret Theft
The Federal Circuit caught the attention of the ITC and trade secret litigators alike when it ruled in TianRui Group Co. v. ITC that the ITC can exercise its jurisdiction over acts of misappropriation occurring entirely in China. Since then, victims of trade secret theft by foreign entities are increasingly seeking relief from the ITC (e.g. In the Matter of Certain Rubber Resins and Processes for Manufacturing Same (Inv. No. 337-TA-849)). 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.“
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We attended a hearing today before the Massachusetts Legislature’s Joint Committee on Labor and Workforce Development regarding the pending non-compete legislation on which we have previously posted.
Among others who testified about the issue was Governor Deval Patrick’s Secretary of Housing and Economic Development, Gregory Bialecki.
Mr. Bialecki finally acknowledged publicly what the Patrick Administration has been dancing around for some time now (see our recent post on the issue here), and which we believed was inevitable: that it supports the “outright elimination of enforceability” of all non-compete agreements in Massachusetts, regardless of their duration or geographic scope. Mr. Bialecki also said that the Patrick Administration wants to see Massachusetts adopt the Uniform Trade Secrets Act, which it believes provides sufficient protection to companies (see our previous post on this issue).
If the legislature were to adopt the Patrick Administration’s suggestions, Massachusetts may be the next California as it relates to non-compete and trade secret law.
Below is Secretary Bialecki’s full testimony (with our emphasis added to the most notable points). We will provide a more detailed report on the legislative hearing in the coming days.
Dear Chairman Conroy and Senator Wolf,
Thank you for the opportunity to appear before you today. I am here to express the strong support of the Patrick Administration for substantial reform of the current rules on the enforceability of non-competition agreements in Massachusetts.
I gave very similar testimony to this committee almost two years ago. Now, as then, there are bills in the Legislature that call for changes to our current rules regarding the enforceability of non-competes and bills that call for the end to such enforceability.
I suggested two years ago that it seemed increasingly unlikely that we could achieve any meaningful consensus among the stakeholders on changes to our current system that left non- competes in place. I think that this has turned out to be the case, as the debates and disagreements that you will hear today are almost exactly the same as those that you heard two years ago.
I also suggested two years ago that if we could not achieve any meaningful consensus among the stakeholders on changes to our current system, then the best course for Massachusetts would be the outright elimination of enforceability of non-competition agreements. I am here today to affirm that the Patrick Administration now supports such outright elimination, combined with adoption of the Uniform Trade Secrets Act, which has been demonstrated in other states to protect the loss or disclosure of proprietary information by departing employees.
A key element of the Patrick Administration’s economic development strategy has been to build on the strength of our world-class innovation economy. A key measure of success for our economic development and job creation policies and programs considers whether our policies and programs effectively support the innovation and entrepreneurship that has given us our critical competitive advantage for so many years. If our policies and programs do not provide this support then we should simply re-consider them. Our policy on non-compete agreements needs reform because Massachusetts should do everything it can to (1) retain talented entrepreneurs; (2) support individual career growth and flexibility; and (3) encourage new innovative businesses that are the engines of economic growth. Massachusetts employers currently have tools to protect the stability of their businesses.
Retention is Key: We do an excellent job of educating talented people here in the Commonwealth. However, if they work here and sign a non-compete agreement, we are essentially asking those same talented people to leave and to become entrepreneurs elsewhere. If Massachusetts is not able to create an environment that gives entrepreneurial talent a chance to thrive, then the most effective job creating companies may be pushed to grow to scale in states like California. In fact, we have heard examples of entrepreneurs at MIT who were advised to start their businesses outside of Massachusetts as a result of non-compete agreements laws. Non-competes stifle movement and inhibit competition and we do not want that. The evidence is clear—we are not seeing the kind of spin-offs and starts up at the same rate that previously made Massachusetts an enviable model.
Individual career growth is good for the Commonwealth: We encourage our talent to be creative, to be innovative, and to network with other talented people. Furthermore, we encourage employers to recruit talented people. However, we send a mixed message: providing the talent needed to support the kind of explosive growth we want in the innovation economy is considerably more difficult if employees are legally unable to move between jobs in the innovation economy. The current law makes it considerably harder for employees to leave their current employers, whether due to the actual enforcement of a non-competition agreement, or more frequently, just due to the threat of enforcement. The individual has no effective recourse. The only thing to do is to suspend relevant work until the term of the non-compete agreement expires. Most individuals are not in a financial position to afford not working for the term of the non-compete. Being out of the market for the term is a major liability to the individual’s career and future development. An individual who has 10 or 20 or 30 years of experience and expertise is forced to avoid using their expertise during the term of their non-compete agreement. We do not want this mixed message to continue.
We want innovative businesses. A priority of this Administration has been to support and enhance the innovation economy. Massachusetts has long had a vibrant and leading edge in research and the innovative community. Many of the fundamental technological advances like the Internet economy and digital media had beginnings in Massachusetts in the past couple of decades. However, we could do more. We need more start-ups, especially in the technology and bio-tech sectors. Start-ups are good; they create jobs, push innovation to new heights, and retain talent. Many of our current employers, larger and small, report they are unable to attract lateral or advanced talent due to our current laws limiting the mobility of our workforce.
Current employers should not feel threatened: Senators Brownsberger, Vice-Chairman Ehrlich, and Leader Bradley have championed the efforts in the legislature to reform the current system. While, we understand employers concerns that protecting their proprietary information is critical, non-compete agreements are neither the best option nor the only available vehicle to protect companies. By adopting the Uniform Trade Secrets Protection Act, and limiting or abolishing non-compete agreements, we will have an opportunity to both grow our economy and protect a company’s proprietary information.
The Uniform Trade Secret Act (UTSA) has been adopted in 47 other states and the District of Columbia. The UTSA and other tools protect an employer’s trade secrets and proprietary information, which is fundamentally important. Patents, confidentiality agreements, and trade secrets are more than sufficient to protect legitimate company interests against former employees. Even without non-compete agreements, companies still have a disproportionate ability to litigate against the individual.
You will certainly hear today from businesses and business groups who would prefer to keep the current legal arrangements regarding non-competes intact. While holding onto their current employees may be convenient for employers, it is not at all clear that it is necessary to their business success. Our businesses could recruit the very talent they need without a non-compete agreement impeding the opportunity.
For these reasons, we support outright elimination of enforceability of non-completive agreements in Massachusetts combined with adoption of the Uniform Trade Secrets Act.