Trade Secrets & Employee Mobility

Peter A. Steinmeyer and Lauri F. Rasnick, Members of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s Chicago and New York offices, respectively, co-authored an article in Thomson Reuters Practical Law, titled “Garden Leave Provisions in Employment Agreements.”

Following is an excerpt (see below to download the full article in PDF format):

In recent years, traditional non-compete agreements have come under increasing judicial scrutiny, with courts focusing on issues such as the adequacy of consideration, the propriety of ...

California has always been a challenging jurisdiction for employers in terms of limiting unfair competition by former employees and protecting trade secrets. However, employers in the state can significantly enhance their ability to protect their business interests in these areas with a little planning and strategic thinking.

In this issue of Take 5, we look at some proactive steps that employers can take to prevent unfair competition by departed employees and protect trade secrets from misappropriation:

• Critical Importance of Realistically Identifying and Protecting Trade ...

NuScience Corporation is a California corporation that researches, develops and distributes health and beauty products, including nutritional supplements. In 2009, NuScience obtained by default a permanent injunction in a California federal court against Robert and Michael Henkel, the nephew of a woman from whom NuScience purchased the formula for a nutritional supplement, prohibiting them from selling or marketing NuScience’s trade secrets. Before the federal court injunction was entered, NuScience terminated the employment of David McKinney, NuScience Vice ...

In an order dated April 20, 2017, New York’s Court of Appeals agreed to hear Sergey Aleynikov’s appeal of his conviction under an arcane New York criminal statute.

Aleynikov is a former Goldman Sachs computer programmer, arrested in July 2009 and accused of stealing computer source code from the bank.  Originally, a federal jury found him guilty of violating both the National Stolen Property Act and the Economic Espionage Act, but that verdict was overturned by the Second Circuit in April 2012 (after Aleynikov had been incarcerated for over a year).

More recently, Aleynikov also ...

Before the Defend Trade Secrets Act (“DTSA”) became federal law in the spring of 2016, Supreme Court watchers would likely care little about prospective justices’ approach to trade secrets matters.  Such matters were the province of state law, and the phrase “trade secret” might be avoided, even in passing, in the opinions of the Supreme Court for entire terms or more.  But with DTSA cases being reported with increasing regularity, differences in interpretation are beginning to emerge.  Supreme Court attention may follow.

Because DTSA says that “misappropriation of a trade secret” can involve unlawful acquisition of a trade secret, or improper disclosure of a trade secret, or unauthorized use of a trade secret, the impact of the statute’s May 11, 2016 “effective date” has been the subject of some debate.  For instance, should the act apply to a trade secret unlawfully acquired on May 10, 2016 but improperly used or disclosed on May 12, 2016 or thereafter?  Likewise, what if a trade secret unlawfully acquired and used before May 10^, 2016 is used again after May 11, 2016?  These issues have come up in cases in March and January 2017 in the Northern District of California, in March 2017 in the Eastern District of Pennsylvania, and earlier in the Middle District of Florida.  The answers and analysis found in these opinions is not always entirely consistent, which suggests that this issue under DTSA  as well as others will continue to be litigated.

Should differences arise between circuits, the Supreme Court might be called upon to interpret the reach of DTSA. In that vein, one might wish to look at the Court’s newest member, Neil Gorsuch, and his opinions while a 10^th Circuit judge in Storagecraft Technology Corp. v. Kirby, 744 F. 3d 1183 (10th Circuit 2014), and in Russo v. Ballard Medical Products, 550 F. 3d 1004 (10th Circuit 2008). Each reveal interesting elements of Judge — now Justice — Gorsuch’s approach to trade secrets matters.

Storagecraft proves interesting opinion on several levels.  That case involved the Utah trade secrets act in a case coming to the 10^th Circuit after being brought in the federal district court as a matter of diversity jurisdiction.  In addressing one of the appealing defendant’s arguments, the Gorsuch opinion rejected the notion that one need show that a defendant facilitated another’s commercial gain to recover under the statute:

In 2016, several states enacted laws that were designed, in varying degrees, to limit non-competes, including Illinois, Utah, Connecticut and Rhode Island. Which states are most likely to do the same in 2017?

Idaho:  A bill proposed in January, House Bill 61, would amend an existing Idaho law that has made it easier for employers to enforce non-competes against the highest paid 5% of their employees and independent contractors.  The bill would alleviate the burden placed on such “key” personnel by the existing law by, among other things, eliminating the rebuttable presumption of ...

In non-compete matters, it is often said that trial judges dislike enjoining individuals and will go out of their way to avoid doing so. A recent decision by the Florida Court of Appeals, Allied Universal Corporation v. Jeffrey B. Given, may be a good example of such a situation – as well as an example of an employer that took an immediate appeal and got the relief it wanted.

In Allied Universal, the trial court denied a motion for a preliminary injunction to enforce the terms of a non-compete with a former employee, even though the employee failed to rebut evidence that his non-compete was ...

As the law’s first anniversary approaches, federal courts continue to adjudicate claims arising under the Defend Trade Secrets Act (“DTSA”).  Enacted on May 11, 2016, DTSA provides the first private federal cause of action for trade secret misappropriation, allowing parties to sue in federal court for trade secret misappropriation.  Although the law is in its infancy, employers and legal practitioners filing complaints that assert DTSA claims must nevertheless adhere to longstanding rules of pleading set forth by the Supreme Court and the Federal Rules of Civil Procedure ...

As we have written about and discussed extensively on this blog over the past year, the Defend Trade Secrets Act (“DTSA”) – enacted on May 11, 2016 – provides the first private federal cause of action for trade secret misappropriation, allowing parties to sue in federal court for trade secret misappropriation regardless of the dollar value of the trade secrets at issue.  Given that the law is less than a year old, federal courts seeing DTSA cases for the first time are still parsing through its language and clarifying its scope.  Although it is still a developing issue, two recent ...

In Acclaim Systems, Inc. v. Infosys, the U.S. Court of Appeals for the Third Circuit recently rejected a claim for tortious interference with a non-compete, because the plaintiff introduced no evidence of actual knowledge that the individuals in question were covered by non-competes.

Infosys, an IT services company, bid on a job from Time Warner Cable (“TWC”) that had been serviced by a competitor, Acclaim. TWC decided to transfer the project over to Infosys, but wanted Infosys to hire four contractors who previously worked with Acclaim on the project.

Infosys acceded to ...