Total Articles: 98
Another Case to Watch in the Ongoing Debate Over the Computer Fraud & Abuse Act
The past year has produced noteworthy decisions from the Sixth, Ninth and Eleventh Circuit Courts of Appeals – and recent Congressional hearings – regarding the applicability of the Computer Fraud & Abuse Act (“CFAA”) to employers’ claims that disloyal employees accessed their employers’ computers in order to take trade secrets, source code, and other valuable electronically stored information. The CFAA provides a federal, private right of action against any person who “knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value… .” 18 U.S.C. § 1030(a)(4).
Dispute Serves Up Lessons for Restaurateurs in Employee Defection and Trade Secrets
A case pending in New York federal court, BLT Restaurant Group LLC v. Laurent Tourondel, Michael Cinque and LT Burger, Inc., provides a reminder of important lessons for professionals in the food services and restaurant industry regarding employee defection and trade secrets issues.
Enjoining Nick Saban: Non-Compete Agreements and College Football Coaches
In the realm of examining whether non-compete provisions should be used in particular professions, this article by Clay Travis asks an interesting question: why don’t college football coaches have non-competes? It is a timely question in January as every sports media outlet is full of headlines about coaches unexpectedly moving between schools, a recent example being the abrupt move of Todd Graham from Pitt to Arizona State. It’s difficult to answer Travis’s question, but here are a few potential explanations:
RESOLVE TO SAFEGUARD COMPANY INFORMATION IN 2012
For many businesses, employees are the biggest investment and the primary safeguard of their confidential, proprietary and competitive information. For some employees, however, a slowly rebounding economy presents increased opportunities to join a competitor looking to capitalize on the specialized knowledge of an experienced industry insider.
Twas the Night Before Christmas -- Non-Compete Style
Twas the night before Christmas, when all through the company;
A disgruntled employee kept saying “please jump with me.”
Lawsuit Serves Up Lessons For Restaurateurs
A decision issued this summer by a federal district court in New York provides important lessons for professionals in the food services and restaurant industry regarding employee defection and trade secrets issues.
Lie about your age...Steal a trade secret..It's all criminal.
Could it possibly be equally as unlawful to lie about your age as it is to download trade secrets from your employer's computer? Some say that both may constitute a violation of the federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (“CFAA”), and therefore the statute must be amended.
When to Call the Feds for Trade Secret Theft
Last week, the United States District Court for the Northern District of Illinois saw the start of a bench trial in United States v. Jin, 1:08-cr-00192 (N.D. Ill. Mar. 3, 2008), in which software engineer Hanjuan Jin is accused of stealing trade secrets from her former employer Motorola Corporation to sell to the Chinese military. Jin is also giving Yihao Ben Pu a sneak peek at what lays in store for him – last month, Pu was brought up on criminal charges in the same court for stealing the trade secrets of his former employer, hedge fund Citadel. These recent high-profile cases have some employers wondering what criminal law can help them do to protect their own trade secrets and when they should involve police or federal authorities instead of merely filing a civil suit.
China Non-Compete and Trade Secrets Law: A Primer for U.S. In-House Counsel
This is the second in our series on international non-compete and trade secrets law for U.S. corporate counsel. Today, we examine the law in the world’s second largest economy, The Peoples Republic of China (PRC). The heated competition for qualified talent in the PRC makes non-compete protections a crucial topic. In a recent survey, members of the US-China Business Council reported that their #1 challenge doing business in China was “talent recruitment and retention”:
Mexico Non-Compete and Trade Secrets Law: A Primer for U.S. In-House Counsel
On paper, the restrictive covenant law in Mexico looks a bit like California, but on closer examination it may be easier for a company to achieve certain goals in Mexico. For U.S. practitioners, Mexico offers an interesting example of just how different employment laws in general – and restrictive covenant law in particular – can be in a different legal system. In Mexico, the first principles from which all restrictive covenant law derives are found in the Mexican Constitution. The Constitution of the United Mexican States contains prohibitions and guarantees intended to protect all Mexican citizens and the Mexican economy.
Managing Restrictive Covenants for a Multi-National Workforce: A Primer for U.S. In-House Counsel
Back in July 2011, we wrote in our Noncompete News blog about the challenges posed for in-house attorneys who are tasked with drafting and enforcing restrictive covenants when a company does business in many different states throughout the country.
Arbitration of Restrictive Covenant Disputes: Awards and Enforcement
We have previously addressed the pros and cons of including arbitration provisions in restrictive covenants and the efficiency of arbitrating disputes concerning those covenants. In this entry, we address how an employer can enforce an arbitrator’s award.
Misclassification of Independent Contractors: A Non-Compete Issue?
Much has been written about misclassification of employees as independent contractors. Discussion often focuses on the economic consequences of misclassification, such as the IRS concluding that it has been deprived of revenue. For instance, the Small Business Administration says that proper classification matters because it “affects how you withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes.” In a recent decision, a panel of judges from the United States Court of Appeals for the Third Circuit found one more reason it matters: companies may not be able to enforce restrictive covenants against individuals misclassified as independent contractors.
Arbitration of Restrictive Covenant Disputes: Is It Really More Efficient?
In this entry, we discussed the pros and cons of including arbitration provisions in restrictive covenants.
When Garden Leave Clauses Are Most Effectively Used and How to Enforce Them
In this entry, we discussed the ways a garden leave clause, or paying a departing employee while transitioning their clients and business to new employees, may benefit an employer.
Non-Compete Caution: Protecting the Attorney-Client Privilege
When non-compete and trade secrets lawyers are advising an employee who is preparing to transition from one employer to another, ensuring that the client’s intentions remain confidential is paramount. Often, the overriding concern is making sure that the individual’s present employer does not discover the employee’s intentions before he or she is ready to “jump.” For this reason, many of us have admonished individual clients over the years to be sure they do not communicate with counsel from their present employer’s telephones or computers. A recent Formal Opinion issued by the ABA Standing Committee on Ethics and Professional Responsibility offers yet another reason for non-compete lawyers to be sure they offer this advice to clients.
Even Hooters Has Trade Secrets
Hooters recently sued a competitor, La Cima Restaurants, alleging widespread misappropriation of trade secrets. That’s right. Trade secrets.
How Paying Departing Employees to "Tend the Garden" Can Benefit an Employer's Business
Given the difficulties many businesses encounter in preventing former employees and executives from competing through enforcement of restrictive covenants, more companies should consider using “garden leave” provisions.
Arbitration of Restrictive Covenant Disputes: Panacea or Problem?
In recent years, there has been enormous controversy over whether arbitration of statutory employment claims should be encouraged. Courts have generally encouraged arbitration to alleviate crowded dockets, while the plaintiff-side employment bar has pushed back with proposed legislation that would limit or prevent arbitration of certain kinds of disputes. Within this back-and-forth, little attention has been paid to the role of arbitration in restrictive covenant disputes. In this entry, we will address the pros and cons of including arbitration provisions in restrictive covenants.
An Intoxicating Trade Secret: Sam Adams Versus Anchor Steam
Describing itself as doing business in the “Better Beer” part of the beer market, Boston Beer Corporation – the maker of Sam Adams beers – filed a lawsuit yesterday against competitors Anchor Brewing Company and Anchor Brewers & Distillers – the maker of Anchor Steam beers – as well as Judd Hausner. (For this post, I will refer to the companies by their trade names as “Sam Adams” and “Anchor Steam.”) Sam Adams states that Hausner is a former employee who resigned effective September 22, 2011 to join Anchor Steam.
Tortious Interference? Tell me who.
Name a few claims you’d expect to see in a non-compete case. Breach of contract. Misappropriation of trade secrets. Tortious interference with contract and relationships. These are a few claims commonly pleaded in employee defection cases.
Define Your Own Legal Protection with Computer Access and Non-Disclosure Policies
Employers often prohibit employees from using work computers for personal, non-work related purposes, but let’s say an employee accesses a work computer to plan a personal vacation to Hawaii or shop for clothes for a child. Has the employee committed a federal crime? The question of whether it is a federal crime for an employee to access a company computer for purposes outside the scope of a company’s computer policy was posed by the Ninth Circuit during a recent oral argument regarding the reach of the Computer Fraud and Abuse Act (“CFAA”), in the case of En Pointe Technologies, Inc. v. Sarcom, Inc., et al.
Entering into an Employment Contract or Non-Compete Agreement with Yourself Can Have Adverse Tax Consequences
In an unpublished decision regarding taxation of the “goodwill” upon the sale of a company, the Ninth Circuit recently ruled that while professional personal relationships are generally not corporate assets, such relationships can become corporate assets if the employee has an employment contract or covenant not to compete with the corporation, which would render the value of the “goodwill” a corporate dividend instead of a personal asset.
Sealing Judicial Records in Trade Secret Litigation
It is not uncommon for parties in trade secret and non-compete litigation to ask the court for permission to file documents under seal. In a recent post, this blog discussed one court’s reaction, which was based primarily upon the public’s interest in having access to judicial records. The court’s reaction was not surprising given that courts historically have recognized that the public has a “general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Communs., Inc., 435 U.S. 589, 597 & n.7 (1978).
Protecting Your Intellectual Property
Ideas and innovation are the driving forces behind the next best product or service, which employers will not hesitate to protect. Of course, ideas don't drop out of thin air; they are most often developed by the employees hired for their creativity and technological knowledge. Thus, one common way employers can protect their interests in this regard is through Intellectual Property Agreements (IP Agreements) with their employees. Under a typical IP Agreement via a copyright "work for hire" or assignment provision, an employee cedes to his or her employer all ownership rights in any idea or invention that he or she created, invented, designed, developed, contributed to or improved upon during their employment tenure. In other words, as Plautus once said, "what isyours is mine." A recent case from New York demonstrates the benefits of a well-drafted IP Agreement and the need for conscientious assigning of ownership of employee work product.
You "Tolled" Me My Non-Compete Only Lasts a Year!!
Imagine that an employee resigns. He begins breaching his 12-month non-compete, and you promptly seek judicial relief. After allowing the parties to conduct expedited discovery and conducting a lengthy preliminary injunction hearing, the judge assigned to your case takes seven months to issue his decision. The judge finds the non-compete to be enforceable and rules that a preliminary injunction should be granted. Will the preliminary injunction run for 12 months from the date of the judge’s decision? Or will it be limited to the 5 months remaining in the term of the non-compete? According to the United States Court of Appeals for the First Circuit (applying Massachusetts law), the answer may depend on the language set forth in your contract.
Exactly Which Trade Secrets Am I Enjoined From Using?
If there is one thing that non-compete and trade secret plaintiffs and defendants can agree upon, it is that injunctions need to be clear. If an injunction is going to preclude someone from doing something, it is best if they know exactly what they can and cannot do.
Non-Competes: A Matter of Dollars and Sense?
Can employees avoid preliminary injunctions because they are not as wealthy as their employers? A recent federal court decision says “No.”
Non-Competes: Do They Favor or Hinder Fair Competition? -- You Decide
Take our poll to the right, and let us know your opinion.
Has the Internet Undermined the Confidentiality of Your Contact Database?
In our last post exploring the question of who owns social media, we addressed how employers can use confidentiality, nondisclosure and non-compete agreements to define ownership of a contact database when an employee leaves the company. But what if the employee departs and then argues that the contact information is publicly available, and therefore, the employee can use that information without regard to a confidentiality or nondisclosure agreement?
Managing Ownership of Social Media Through Confidentiality, Non-Disclosure and Other Employment Agreements
We talked last time about the importance of having employee policies addressing ownership of social media content and connections. Another place where ownership of social media should be addressed is in confidentiality, non-disclosure, non-compete and other employment agreements. These agreements can help you set ground rules, shape expectations and put in place the protections your company needs.
Non-Competes in a Multi-State Environment
Many companies have employees located in states across the country.
Want to litigate in private? Opt for arbitration.
Non-compete and trade secret litigation inherently involves disclosure of confidential information. Plaintiffs argue that defendants took or used the plaintiff’s confidential information, and they often want the defendants to turn over their files for review. Defendants often complain that the plaintiffs are engaged in a fishing expedition or that they are entitled to review the plaintiff’s files in order to pressure test the trade secret claims.
Protecting Trade Secrets: Confidential Information and Customer Relationships Audits
For any company seeking to protect its trade secrets, it is important to take reasonable measures designed to maintain the secrecy of the information at issue. Following is a list of question companies ought to consider:
3d Cir.: Enforceability of Non-Competes Where Employee Misclassified
The Third Circuit gave employers have new reasons to worry about misclassifying their employees in its decision in Figueroa v. Precision Surgical, Inc., (PDF), C.A. No. 10-4449. A former employee brought suit seeking to invalidate the non-competition agreement contained in his independent-contractor agreement (“ICA”). The plaintiff-employee alleged that his former employer could not enforce the non-compete provision because it had engaged in conduct that breached the contract. A party that breaches a material provision of a contract generally cannot later seek to enforce the contract against the non-breaching party.
Hospitality Industry: Seven Signs Your Employees May Be Poachable
A recent survey by Manpower suggests that employers across the country are planning to increase their hiring during the second quarter of 2011. Will they be hiring your best people away from you? Putting it another way . . . are your employees poachable? Consider the following:
Court Holds That Bartered Services May Qualify as "Loss" Under the Computer Fraud & Abuse Act.
An increasing number of courts have weighed in recently on whether the Computer Fraud & Abuse Act (“CFAA”) applies in the context of a faithless employee. Despite this onslaught of decisions, there are still relatively few cases that delve into the details of what qualifies as a “loss” under the statute. The definition matters because without a “loss” of $5,000 or more, employers (or anyone else) cannot bring a civil claim under the CFAA.
Court Finds Misclassification of Worker Can Invalidate Restrictive Covenant Agreement
Most employers by now understand the importance of classifying workers properly in order to comply with wage-hour, workers’ compensation and fair employment laws. They may be less aware, however, of the consequences of misclassification to other important legal interests. Following a federal court decision, the enforcement of non-competition agreements also should be an incentive to identify workers correctly as employees or independent contractors. A federal appeals court has ruled a company was not entitled to a preliminary injunction to enforce a non-competition agreement where it misclassified the worker as an independent contractor.
Court Holds That Using Facebook at Work Does Not Violate the Computer Fraud & Abuse Act
The debate rages on concerning the scope and extent of the federal Computer Fraud & Abuse Act. In simple terms, the CFAA makes it unlawful to access a protected computer without authorization (or in excess of one's authorization) and to damage the computer or obtain information that one is not entitled to obtain. Originally a criminal statute, the CFAA also provides for a civil claim if certain conditions are met. Courts have long debated whether the statute applies in the context of an alleged faithless employee who accesses an employer's information contained on a computer for an improper competitive purpose. Regardless of the varied judicial opinions addressing this point, the United States District Court for the Middle District of Florida recently rejected as "dubious" a somewhat novel argument that an employee violated the CFAA by accessing Facebook and her personal email at work. (A copy of the Court's opinion is available in pdf format below.)
Ninth Circuit Reverses Course on Computer Fraud & Abuse Act
More often than not when a management law firm informs its clients of recent case developments, the news is not good. This is an exception.
9th Circuit Rules For Employers In Protecting Trade Secrets
More often than not when a management law firm informs its clients of recent case developments, the news is not good. This is an exception.
7 Signs Your Employees Are Poachable
A recent survey by Manpower suggests that employers across the country are planning to increase their hiring during the second quarter of 2011. Are your employees poachable? Consider the following:
Settling Non-Compete Cases: Postponing Battle for Another Day?
Settlement of lawsuits is almost universally considered a good thing. Among the many benefits is the notion that the conflict ends immediately and the parties can go on with their lives with the comfort of certainty. Right? Well, maybe.
Non-Competes in Fixed Term Agreements: Special Care Required
Special caution is required concerning restrictive covenants that are ancillary to employment agreements for a fixed term (as opposed to an employment agreement for an at-will employee). Whether such covenants may be enforced could depend upon: (1) written renewal of the employment agreement upon expiration; and/or (2) the inclusion of language expressly stating that restrictive covenants contained in the agreement survive termination of the agreement. Consider the following hypothetical:
Decision Insights: Publicly Available Ingredients Do Not Invalidate Source Code’s Trade Secret Status
The recent decision in Decision Insights, Inc. v. Sentia Group, Inc., No. 09-2300 (4th Cir., Jan. 28, 2011), features two reversals of district court decisions involving a bedrock trade secrets principle: just because a secret recipe uses publicly available ingredients, it does not necessarily mean that the recipe is not a secret.
Social Media and Trade Secrets: Essential Lessons to Protect Your Company
The use of online social media such as LinkedIn is becoming increasingly prevalent, and as a consequence, employees are often very casual about what they say and do online. They frequently share information first, and think about the consequences later. Any business that does not have a solid contract, a sound social networking policy, or does not train its employees on the do's and don'ts of social networking may have a critical security gap in the protection of its trade secrets and its confidential information. Click here to join us for this free one hour webinar led by Mike Greco and Chris Stief from the Employee Defection and Trade Secrets Practice Group at Fisher & Phillips LLP as they explore steps employers can take to address this growing threat.
Not Everyone Steals A Trade Secret for Money: Some Do It For Fun.
Profit isn’t always the motive underlying trade secret theft. Sometimes people simply want revenge or to wreak havoc.
What Every CEO Should Ask the General Counsel About the Company's Trade Secrets
What are we doing to protect our company’s trade secrets? And don't tell me we have non-compete and confidentiality agreements in place. Don't tell me we have provisions in our policies and handbooks. Don't tell me about how we have electronic controls to stop employees from downloading files. I expect as much. Rather, tell me what HR and Legal are doing to make sure that protecting our trade secrets is part of the fabric and culture of our firm. What are we doing to ensure that our employees protect our trade secrets not because they have to, but because they want to. What are we doing to make sure our employees believe in our company and our mission? What metrics do we use to gauge our success outside the courtroom (and preferably to keep us out of the courtroom)?
Breach Notification Statutes: "Um...We Lost Your Social Security Number"
Employees take and misuse company information for a variety of reasons. Some do it because they want to document what they believe to be unlawful conduct. Others do it because they intend to use it in competition with their soon to be former employers. Regardless of their motivation, when employees misuse customer information, employers must recognize that such misconduct presents more than simply a competitive or employment concern. It also may trigger significant obligations under state breach notification laws.
Court Doesn’t Buy Sellers’ Effort To Get Out Of Noncompete Agreement
A purchaser of a business often require the seller to agree to a non-compete agreement as part of the sale terms. This not only has tax benefits (the agreement can be considered an acquired intangible asset and and amortized for tax purposes), but it can protect the buyer from future competitive activities of the seller in the same marketplace.
Putting the Computer Fraud and Abuse Act to Work for Employers
Consider this scenario: Your Human Resources Manager decides to leave your employ but, before she announces her decision, she copies all of the company’s policies, forms, and even confidential salary data. She emails herself copies of these files and saves them on a flash drive, which she takes with her when she leaves on the last day. You discover the theft after she’s left and are horrified. What recourse do you have?
Sixth Circuit Affirms Employee’s Conviction Under the Computer Fraud & Abuse Act
Not long ago, the Eleventh Circuit Court of Appeals upheld the conviction of an employee under the CFAA in United States v. Roberto Rodriguez. In that case, the Eleventh Circuit took on the question of whether an employee "exceeds authorized access" under the CFAA by accessing information on a computer in a manner contrary to an employer's written policies. The answer according to the Eleventh Circuit: Yes.
When is it okay for an employee to steal trade secrets?
When is it okay for an employee to steal trade secrets? According to the New Jersey Supreme Court, the answer is when an employee is trying to preserve evidence of discrimination.
Protective Orders: Alternatives to "Attorney Eyes' Only".
Federal Rule of Civil Procedure 26 provides for broad discovery: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any partys claim or defense. Relevant information need not be admissible at trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. These provisions apply with equal force in non-compete and trade secret litigation, but perhaps with greater consequence. After all, the purpose of such litigation is to protect confidential information, not to share it with competitors.
Computer Fraud & Abuse Act: Eleventh Circuit Finds Employers Policy Defines Limits of Employee's Authorized Access
Time and time again, this blog has outlined the ongoing debate in the courts over whether the federal Computer Fraud & Abuse Act (CFAA) applies in the context of departing employees. Namely, federal courts differ over whether the CFAA applies when an employee is accused of misappropriating his or her employers confidential information or trade secrets by means of the employers computer, to which the employee had authorized access as a result of his or her employment. A recent opinion by the United States Court of Appeals for the Eleventh Circuit may be seen by some as adding to debate.
Top Five Non-Compete and Trade Secret Issues to Watch for in 2011
Top Five Non-Compete and Trade Secret Issues to Watch for in 2011
Twas the Night Before Christmas -- Non-Compete Style.
Twas the night before Christmas, when all through the company;
A disgruntled employee kept saying please jump with me.
She was trying to line up a grand, mass departure;
Of which she was certain no one could outsmart her.
Departing Employees and the Stored Communications Act: Employers Beware.
Departing employees sometimes access workplace computer systems to obtain information for purposes of using it in competition with their employer. Sometimes they use the internet at work to send emails concerning their post-employment plans. And while employers have many tools and tactics at their disposal to investigate their computers and related systems, these investigations are fraught with pitfalls for the incautious employer.
Top Ten Non-Compete and Trade Secret Concerns for Inhouse Lawyers and the Companies They Represent.
Protecting a company's non-compete and trade secret interests can be a daunting task. There are so many things to consider. Here's a list of ten things to keep in mind and some resources to help you take action.
WikiLeaks Breach: Lessons Learned Regarding Trade Secret Theft
If the recent WikiLeaks release of more than a quarter-million sensitive files is not a wake-up call to companies about the need to proactively protect confidential information, nothing is. The lesson is clear. When it comes to protecting trade secrets, preventative measures are as important, if not more important, than remedial measures.
One Indispensible Lesson Every Company Should Learn From the Goldman Sachs Computer Theft Trial.
Opening arguments began yesterday in the trial of Sergey Aleynikov, a former Goldman Sachs computer programmer accused of stealing the computer code underlying Goldmans high-frequency trading programs. When Aleynikov was taken into custody by the FBI, he reportedly said he did not intend to take any proprietary code. Rather, he intended to take only open source code.
Jury Orders SAP to Pay Oracle $1.3 Billion For Theft of Software and Documents
If you had dismissed Oracle's lawsuit against rival SAP as just one more squabble between giant IT competitors, you likely weren't alone. But yesterday afternoon, all that changed when a nothern California jury ordered SAP to pay Oracle a whopping $1.3 billion for theft of software and related documents. According to Oracle's Complaint, the case arose out of "a conspiracy by German software conglomerate SAP AG to engage in and cover up corporate theft of Oracle intellectual property on the grandest scale." (A copy of Oracle's Fourth Amended Complaint available in pdf format at the bottom of this post)
Pssst...Can Your Lawyer Keep a (Trade) Secret?
The American Bar Associations Commission on Ethics 20/20 (the Commission) is examining whether technological advances are placing clients confidential information at risk, and if so, what should be done about it. The Commission recently released an Issues Paper that identifies various risks presented by the increasing use of technology by the legal profession and solicits feedback on how to address these risks.
Computer Fraud & Abuse Act: Court Rejects Argument That Employers Corporate Policies Can Make Employee Access Unauthorized Under the CFAA
No sooner than we posted last weeks blog regarding the dismissal of the United States Computer Fraud and Abuse Act (CFAA) claims against Sergey Aleynikov in the Goldman Sachs high-frequency trading code criminal prosecution, a California federal district court issued a similar noteworthy opinion dismissing CFAA claims against an employee who used his employers computer systems to misappropriate his employers trade secrets and confidential information. Accenture, LLP v. Sidhu, No. C10-2977-TEH (N.D. Cal., Nov. 9, 2010). A pdf copy of the Court's opinion is available below.
Former Socit Gnrale Trader Convicted of Stealing Proprietary Source Code; Stage Set for Goldman Sachs Source Code Prosecution
Much attention has been paid to the criminal prosecution of Samarath Agrawal, former trader at Socit Gnrale, for allegedly misappropriating the source code that fueled the high-frequency trading algorithms used by Socit Gnrale. On Friday, November 19, 2010, a jury in Manhattan convicted Agrawal of stealing the French bank's proprietary code. The United States alleged that Agrawal secretly printed out copies of the computer code last year, and planned to use it to run similar high-frequency trading programs at one of Socit Gnrales competitors. After two weeks of testimony and evidence concerning these allegations, the federal jury, comprised of four women and seven men, found Agrawal guilty of theft of trade secrets and transportation of stolen property. The sentencing phase of the trial is set for February 2011, and Agrawal could face between four to six years in prison.
Litigation Budgets in Non-Compete Cases November 14, 2010 13:22
Litigation budgets can be difficult to prepare under the best of circumstances. Budgeting for non-compete litigation, with its unpredictable nature and often front-loaded cost structure, is even more difficult. Although many factors are outside the control of parties and their counsel when it comes to litigation costs, the litigation strategy you choose can have a particularly significant impact on your budget in a non-compete case. Moreover, given the fast pace of non-compete litigation, there is an increased need to continually reassess your budget early on as developments unfold.
U.S. Loses Argument that the Computer Fraud & Abuse Act Applies to Employees Who Access Work Computers
The recent developments in the criminal prosecution of Sergei Aleynikov for his alleged misappropriation Goldman Sachs high-frequency trading platform provide more interesting insights in the ongoing debate within the federal judiciary concerning the scope of the federal Computer Fraud and Abuse Act (CFAA). Specifically, federal courts continue to debate whether the CFAA applies to the misappropriation of an employers electronic trade secrets by departing employees. In United States v. Aleynikov, the United States District Court for the Southern District of New York said the statute does not apply in this context. In reaching this conclusion and dismissing the CFAA-based count against Aleynikov, the federal court cited the civil interpretations of the CFAA offered by some recent courts that reached this same conclusion and rejected the holdings taking the opposite interpretation.
Smart Decisions by Multi-National Companies Can Keep Trade Secret Cases in U.S. Courts
Multi-national corporations operating in the United States often question whether their trade secrets will receive adequate protection in foreign markets. With this concern in mind, multi-national companies commonly prefer to litigate in U.S. courts where legitimate trade secret rights are consistently respected. When parties and witnesses are located abroad, keeping litigation in U.S. courts, however, presents certain challenges. Smart litigation decisions can make the difference. A recent case, MicroAire Surgical Instruments, LLC v. Arthrex, Inc., illustrates this point.
Financial Times Columnist Gets It Wrong: Trade Secrets Are Worth Protecting
Just in time for Halloween, The Financial Times columnist Lucy Kellaway ran a column entitled, "The Thief, His Victim and the Company Laptop," in which Ms. Kellaway shared her thoughts about the folly of trying to protect trade secrets residing on a company's computers. Ms. Kellaway's article focused on a recent failed attempt to steal a Bank of America Merrill Lynch employee's company-issued laptop.
The DOJ Doesn't Like Employers Who Agree to Play Nice
All employers want to protect the investment they make in their employees. One strategy used to accomplish this goal is the use of non-competition and non-solicitation agreements. In closely integrated industries, some businesses have all but abandoned these agreements in favor of reaching a pact with competitors not to hire away one another employees. This has been especially pertinent in California, where non-compete agreements are unenforceable. But a recent lawsuit brought by the Department of Justices Anti-Trust Division has called this strategy into question, as well as the idea of non-compete agreements as a whole.
No Notice? No Compete.
Give me ninety days notice, or sit on the sidelines for ninety days. That's what a financial services firm just said to a former employee who resigned to join UBS Financial Services with support from the United States District Court for the Northern District of New York.
LinkedIn Torpedoes Employer's Trade Secrets Claim.
In a sobering reminder that online social media is changing the way many companies do business in unforeseen ways, a federal court recently shot down an employer's trade secret claim based largely upon the availability of information via the internet. In Sasqua Group, Inc. v. Courtney, a magistrate judge for the United States District Court for the Eastern District of New York held that although an employer's customer list may have been a trade secret years ago, "the exponential proliferation of information made available through full-blown use of the Internet [presents] a different story." The district court subsequently adopted and approved the magistrate's lengthy and detailed opinion.
Violation of a Non-Solicitation Provision Via Blog Post.
Can a blog post constitute evidence of solicitation in violation of a non-solicitation agreement? According to a federal district court in Michigan, it can. The case is Amway Global v. Woodward, No. 09-12946 (E.D. Mich. Sept. 30, 2010)
Reducing the Risk of Litigation When Hiring Employees with Non-Compete Agreements
Hiring an employee who is subject to a non-competition agreement can be a risky venture. In many instances, the new employer can find itself on the receiving end of an expedited lawsuit along with the new hire. But there are a few simple measures new employers can take to reduce the chances of being named as a co-defendant in a lawsuit.
ACLU Successfully Argues Confidentiality Agreements Must Yield to Litigation Discovery.
The United States District Court for the District of Minnesota recently upheld a magistrate judges decision to issue a protective order precluding a school from enforcing confidentiality obligations against employees who disclose information in connection with formal and informal discovery in a lawsuit commenced by the ACLU.
Conspiracy Theory: Employees Conspire to Breach Non-Competes or Steal Trade Secrets.
In actions against former employees, it is sometimes difficult for the former employer to determine precisely who did what. Sometimes, one employee has a non-solicitation agreement, but the other does not. Sometimes, one employee takes a trade secret, but the other employee uses it. Asserting a cause of action for civil conspiracy can help overcome the efforts of former employees who seek to avoid liability by hiding the ball.
Garden Leave as Consideration for a Non-Compete?
How much consideration is enough? I am asked this question frequently by employers and employees attempting to determine whether their non-compete is supported by adequate consideration. Regular readers of this blog know by now that covenants signed by at-will employees after the inception of employment must be supported by new and independent consideration. But how much consideration is enough? My take: there are as many answers to that question as there are judges on the bench.
Maintaining Trade Secret Status For Customer Lists: Five Steps Every Company Can Take to Protect Customer Information
Many employers consider their customer list to be a trade secret. As this blog has previously noted, 46 states plus the District of Columbia have enacted a version of the Uniform Trade Secrets Act. In some states, the statute goes so far as to expressly provide that a customer list may qualify for trade secret protection. For example, in Colorado, a trade secret may include names, addresses or telephone numbers, or other information relating to any business or profession which is secret and of value. See Colo. Rev. Stat. Ann. 7-74-102(4). Other states are more generic and do not expressly mention customer lists. Rather, generally speaking, a trade secret is a (1) compilation of information, (2) that derives independent economic value to the owner, (3) because it is not generally known or easily ascertained by others through proper means. It is important to note, however, that trade secret status is not automatic in any state. Stated differently, although a customer list may qualify for trade secret protection, the trade secret owner will bear the burden of showing that the information is in fact a secret and valuable.
LinkedIn: A Violation of Your Employees Non-Compete?
A sales manager has signed a contract with his employer agreeing that client lists are confidential and agreeing not to solicit clients for a period of six months after the end of his employment.
Top Ten Things to Consider When Drafting A Non-Compete Agreement
Previously, we have written about the Top Ten Things to do When an Employee Resigns to Join a Competitor and the Top Ten Mistakes Made by Departing Employees. Given the favorable feedback, we continue with the following Top Ten Things to Consider When Drafting a Non-Compete Agreement.
RIAs Are Increasingly Reaping the Benefits of the Protocol for Broker Recruiting
The Protocol for Broker Recruiting, which was implemented six years ago by three of the largest wire houses, is being embraced by RIAs and small and medium sized broker-dealers a result that was unintended and unimagined at the time. In 2004, Merrill Lynch, Citigroup and UBS Financial Services formed the Protocol for Broker Recruiting (the Protocol). The Protocol is an agreement among a group of securities industry competitors to refrain from enforcing non-competes against brokers who move between signatory firms. Although the Protocol states that it was implemented to further clients interests in following their broker from firm to firm, it is clear that the initial signatories were at least equally motivated to protect against potential claims by aggressive regulators who were concerned about the movement of private customer information among firms. Although other broker-dealers could, and were invited to join the Protocol, no one really expected that they would. Yet, six years after its inception, membership in the Protocol includes almost 550 firms, including the majority of the largest wire houses. Most surprising though is the trend of smaller broker-dealers joining the Protocol to obtain the secondary benefit that the Protocol provides - protection and predictability when hiring financial advisors.
Eight Reasons Small Businesses Should Use Non-Compete Agreements
Small business owners understandably may be reluctant to use non-compete agreements for many reasons. The desire to divert precious resources to paying an attorney to prepare a contract is hardly appealing. Similarly, businesses may feel that such agreements are unnecessary because they have few employees. But as Ben Franklin once wisely advised, an ounce of prevention is worth a pound of cure.
Non-competes, Trade Secrets, and Patents! Oh My!
In today's competitive business environment, it is imperative that companies take steps to protect their intellectual property, including trade secrets, customer relationships, proprietary computer software, and business methods. Taking appropriate steps will enable companies to protect and leverage their own intellectual property and to manage the risk from claims that they are improperly using the intellectual property of others. To this end, this post summarizes some of the primary types of intellectual property protections available: contracts, trade secrets, copyrights; trademarks; and patents.
HP's Lawsuit Against Mark Hurd -- An Uphill Battle?
Much has been written about Hewlett-Packards recently filed case against its former CEO Mark Hurd following his acceptance of a job as president of Oracle. At first blush, observers seem quick to assume that HP is dead in the water because California has unequivocally rejected the inevitable disclosure doctrine. See Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443 (2002). And if you read HPs complaint, it sounds an awfully lot like an inevitable disclosure case: [Hurd] cannot perform his job at Oracle without disclosing or utilizing HPs trade secrets and confidential information. Complaint 46. (For a copy of the Complaint click on the pdf at the bottom of this post.)
Major Lindsey Drops Suit After Federal Court Nixes Computer Fraud & Abuse Act Claim and Hints at RICO Dismissal
A few days ago, this blog reported on two recent noncompete cases in which former employers have asserted RICO claims against departing employees. (Click here to see that post.) Previously, we have also commented on Computer Fraud & Abuse Act claims in similar contexts. It is the rare case, however, that involves claims under both statutes by employers against a departing employee. A few days ago, U.S. District Judge Colleen McMahon dismissed a CFAA claim in just such a case, and she hinted that a dismissal of the RICO claim could soon follow. Shortly thereafter, the plaintiff voluntarily dismissed the action reserving its right to pursue its claims in arbitration or state court.
Underutilized Provisions of the Uniform Trade Secrets Act
In 1979, the Uniform Trade Secrets Act (UTSA) was completed by the National Conference of Commissioners on Uniform State Laws, and it was amended by the Commissioners in 1985. The purpose of the UTSA was to provide states with a comprehensive model piece of trade secret legislation. To date, forty-six states plus the District of Columbia have enacted trade secret legislation, the vast majority of which substantially resembles the uniform act. (Massachusetts, New Jersey, New York and Texas have not enacted the UTSA, but legislation has been proposed recently in all of these states except Texas. Click here for more information on this pending legislation.) Despite the uniformity of the UTSA, an often overlooked provision sits at Section 8 of the statute, entitled Uniformity of Application and Construction. This section states:
RICO Claims in Noncompete Cases -- A Growing Trend?
So the former employee who walked out the door with your companys secret recipe is not in the mob. Does that mean the Racketeer Influenced and Corrupt Organizations Act (RICO) does not apply? A growing number of companies contend that it does. Recently, attorney search firm Major, Lindsey & Africa filed suit against a former employee alleging RICO violations based on accusations that the former employee took confidential information. (To read more about that case, click here.) And yesterday, Pennsylvania-based Venturi Technologies, Inc. filed a RICO claim against two former employees and the companies they created. Venturi contends the former employees formed and operated competing companies prior to resigning and surreptitiously diverted business to these entities. (For a copy of the Venturi complaint, click on the pdf file at the bottom of this post.) Does RICO apply?
Caution Required: Severability Clauses in Non-Compete Agreements.
The manner in which courts treat overly broad non-compete agreements varies from state to state. Generally speaking, there are three approaches. In some states (e.g., Georgia), if a covenant is overbroad by an inch, it might as well be overbroad by a mile because overly broad covenants will be invalidated. In other states (e.g., Arizona), overly broad covenants will be blue-penciled meaning that courts will strike through offending language but will stop short of rewriting the agreement. In still other states (e.g. Ohio), courts are free to reform restrictive covenants so that its restrictions are reasonable under the circumstances.
Computer Misuse Statutes Playing Bigger Role In Non-Compete and Trade Secret Cases.
In todays technology driven workplace, departing employees often leave with more than a few notepads and office supplies. Most companies have a wealth of information available by electronic means that proves to be too tempting for some who have designs to unfairly compete with their former employer.
Implementing a Trade Secrets Protection Program.
In the business world, protection of trade secrets can make the difference between success and failure, or profit and loss. This post seeks to show you how to protect your companys trade secrets so that in the event one of your employees steals a trade secret, you will be in the best possible position to succeed in litigation stemming from this theft.
Employees E-Mails Lead to Non-Compete Lawsuit
Employees who are considering leaving their employer for a competitor and taking with them trade secrets or proprietary information may want to think twice. A suit filed by Performance Food Group Co., LLC, a food-service distributor, alleges that a former employee did exactly that. The federal lawsuit, which alleges breach of contract, claims that the former employee sent confidential and proprietary information to a competitor, all from his work e-mail account.
Breach of Noncompetition Agreement Via LinkedIn.
LinkedIn, a social networking site targeted towards professionals, can be used as an online Rolodexa place to store ones contacts and a vehicle to maintain professional relationships. As with all social networking sites, LinkedIn and its potential uses should be on the radar of employers. One of the potential issues that has been discussed is the ability to make a recommendation on LinkedIn, whereby one user can make positive comments about another. Some critics have raised concerns about the problems that could arise should a former employee file suit for wrongful termination and use a positive recommendation left by his supervisor as evidence to support his claim.
Why Restrictive Covenants Should Include Delaware Choice-of-Law and Forum-Selection Clauses.
Many companies require high-level managers, salespeople, researchers and other key employees to sign confidentiality, non-solicitation and/or non-compete agreements, also known as restrictive covenants. These agreements are intended to prevent key employees from capitalizing on proprietary knowledge they learned or developed and relationships with customers and employees that they formed in the course of their employment for their own benefit or the benefit of competitors and against the interest of their former employers.
Slumping Economy Drives Employee-Defection Lawsuits.
Competition to obtain more customers, sell more products, and make more profits is a motivating factor that drives every company. With new revenue hard to find in the present economy, retaining what business you do have, or that you have lined up in the pipeline, is at a premium. In a situation like this, the ramifications from employee defections can be crippling i.e., years of hard work and "fair competition" can be quickly undone by a former employee who takes the benefits of those efforts to a competitor. Now is the time to make sure that you have maximized all means of protecting your client relationships and confidential information.
Creating Enforceable Noncompete Agreements with Bank Officers and Other Key Employees (pdf).
In this article, the authors discuss noncompete agreements in the context of federal
banking law. These agreements can provide a bank much needed protection
against harmful competition from a separated officer. However, the
authors caution, a noncompete agreement tied to a severance package requires
special care to ensure enforceability.
Noncompete News: Halloween Edition.
Welcome to the Noncompete News Halloween Edition. This month's devilish provision is what I like to refer to as the "hybrid noncompete nonsolicit", i.e., a restrictive covenant that at first glance looks like a prohibition against soliciting customers but, in reality, acts like a noncompete. The provision at issue is of particular interest to staffing companies or other employers that place their employees at a client site.
Drafting A Non-Competition Agreement? Ten Things You Should Consider.
After training and grooming a green employee into a highly productive and valuable member of the team, employers are frequently frustrated to learn that the employee is now their chief competitor. It's no surprise that, more and more frequently, employers are asking or requiring employees to sign non-competition agreements employment contracts that restrict the rights of employees to set up shop across the street, or take your training with them when joining your rival.
Recent Case May Complicate Enforcement of Noncompetition Agreements.
Enforcing noncompetition agreements has always been dicey. While many (but not all) states will enforce reasonable noncompetition agreements prohibiting former employees from working for competitors, courts dislike the agreements and often will look for ways to narrow or throw them out. Recently, a federal court added to the uncertainty of trying to enforce noncompetition agreements and, in the process, upped the stakes for being the first to sue under a noncompetition agreement.
