Noncompete agreements are nothing new, in fact, 18% of all U.S. workers are subject to noncompetes while an estimated 70% of senior executives and 43% of engineers are bound by noncompetes. Employers frequently use noncompetes—which may restrict former employees from working for or starting competing businesses for a set period of time—to protect a company’s goodwill and trade secret information and as an effective tool for retaining talented employees from making a move to a competitor. Employees subject to these agreements may also be subject to a provision that provides for “garden leave,” which requires that an employee who is in the process of terminating their employment stay away from the workplace or work from home or another location during their notice period. In some cases, such “garden time” may not be paid. Recently, Massachusetts weighed in on the issue of “garden leave.” In first-of-its-kind legislation, Massachusetts signed into law House Bill No. 4714 stating that former employees in Massachusetts serving required “garden time” under noncompete agreements may be entitled to pay. Under this legislation, employers are required to pay former workers serving out their “garden leave” at least 50% of the workers’ base salary or, alternatively, provide “mutually-agreed upon consideration.” This reflects a compromise between opponents of noncompete agreements, who argue that they restrict economic growth, and the business community, which views noncompete agreements as necessary to protect legitimate business interests. In addition, this new legislation places Massachusetts squarely in the middle of a divide between states like California, which prohibits noncompete agreements except in certain limited contexts, and the many states that allow for their enforcement. However, as a practical matter, it remains to be seen how frequently former employees on “garden leave” will actually receive compensation since the bill does not define or restrict adequate consideration. Stay tuned…
New York has recently enacted disclosure laws that could impact clean product manufacturers’ ability to protect their trade secret chemical formulations. While California was the first U.S. state to pass a law requiring disclosure of all substances contained in cleaning products, New York’s Department of Environmental Conservation (“DEC”) Household Cleansing Product Information Disclosure Program imposes stricter requirements than California on what must be disclosed.
Both laws require manufactures of cleaning products to disclose all chemicals used in household cleaning products on their websites, and identify any ingredients that appear on authoritative lists of chemicals of concern. However, the New York law also requires manufactures to identify any ingredient that is a nanoscale material.
While both laws have an exemption allowing trade secrets to not be disclosed there are some key differences:
California’s Cleaning Product Right to Know Act of 2017
New York’s Household Cleansing Product Information Disclosure Program
|Disclose all intentionally added ingredients unless it is confidential business information (“CBI”)||Disclose all intentionally added ingredients, including those present in trace quantities, PLUS all ingredients present only as an unintentional consequence of manufacturing and present above trace quantities (0.1%) where the manufacturer knows or should reasonably know of such ingredients, impurities, or contaminants, unless they are withheld as CBI|
|Provide CBI justification only on request for audit by the Attorney General||Provide CBI justification only on request of the DEC for evaluation|
|Penalty: prohibited from selling product||Penalty: prohibited from selling product PLUS an initial fine of up to $2500, and $500 for each additional day of violation|
California’s requirements for manufacturers are a lot clearer than New York’s: the “knew or should have known” standard in New York may make full disclosure more difficult. But in either state, manufacturers are able to protect their trade secret information and withhold it from disclosure. What remains to be seen is how (and if) litigation arises challenging a company’s decision to withhold CBI, what kind of information falls within that scope, and what justification is required to maintain trade secret protection.
The America Invents Act, the Defend Trade Secrets Act, and recent Court decisions demonstrate the ongoing changes affecting intellectual property. The new Trump administration is expected to continue this trend from the legislative perspective, and is expected that Congress will consider further legislation that may rival the size of the America Invents Act. At the same time, there are several key cases before the Federal Circuit and the Supreme Court that will continue to shape how the courts interpret the laws that Congress enacts. IP practitioners need to be aware of the state of play and how it may affect their business. What challenges could you face?
Tune into the Trump Administration’s Focus on IP Webinar, and join Terry Rea and Mike Songer from Crowell & Moring as they discuss key issues and trends affecting intellectual property including a discussion of the administrative and judicial trends that have a direct impact on all forms of intellectual property, including patents and copyrights. Please click here to listen to the webinar or here to access the webinar event page.
In less than a year from its enactment, the Defend Trade Secrets Act (DTSA) has now yielded its first jury verdict with a victory for the Florida-based company Dalmatia Import Group, Inc. The center of controversy revolved around a gourmet fig spread made with a secret recipe and process. The jury returned a $500,000 award for theft of trade secrets, with another $2 million awarded for other claims. This case raises several important issues regarding damages and pleading both a state trade secret claim and a DTSA claim in the same lawsuit.
The facts of the case highlight the issues involved with disclosing trade secrets to vendors or distributors. Launched in 1999, Dalmatia’s Fig Spread by all accounts has become a popular gourmet article for many households. The recipe and production processes used to make the spread are claimed to be proprietary and extensively safeguarded. Dalmatia engaged New York-based company FoodMatch as an exclusive distributor and began using Pennsylvania company Lancaster Fine Foods as a contract manufacturer to expose the fig jam to a wider audience. To protect its trade secrets on the recipe and production process for the fig spread, Dalmatia required non-disclosure and non-competition agreements from FoodMatch and Lancaster.
The trio’s collaboration proved to be very successful for several years. However, in 2015 Dalmatia became dissatisfied with the quality of the fig spread from Lancaster and FoodMatch. Dalmatia then chose to engage another company for its manufacturing and distribution needs.
1. Clearly label Christmas cards as “Confidential” if these contain secret wishes.
2. Amend Confidentiality Agreements and Employee Manual to include the required Whistleblower language – those elves have rights.
3. Have robust exit interviews with all departing elves, reminding them of their obligations to keep “reindeer games” secret.
4. Insist that expert toy makers are warned not to reveal secret information while enjoying (too much) mulled wine with ‘Happy Holidays’-industry peers.
5. Further restrict access to the Sleigh Packing Room with candy cane key fobs.
On Friday, September 9, the U.S. Chamber of Commerce urged the Obama Administration to take more action against the theft of trade secrets and other intellectual property. The Chamber did so in response to a Request for Information issued by the National Institute of Standards and Technology (NIST), seeking industry input regarding various cybersecurity issues, including the economic consequences of hacking.
The Chamber explained that “IP-related industries generate 35 percent of America’s economic output and are responsible for two-thirds of all exports and more than 40 million jobs” and that the “threat of trade secrets theft is of increasing concern to U.S. economic well-being and job creation.” Noting that it had previously called on Congress to pass federal civil legislation, it praised the passage of the Defend Trade Secrets Act as a step in the right direction.
Underlying the Chamber’s emphasis on trade secrets protection was its broader goal of establishing norms and deterrence to “heighten the costs on sophisticated attackers that would willfully hack America’s private sector for illicit purposes.” This was one of only three “top” cybersecurity issues that the Chamber chose to address, along with standards and information sharing, and that it urged the executive branch to prioritize.
These and other comments submitted will help inform the new Commission on Enhancing National Cybersecurity, which President Obama recently convened. The Commission will then craft recommendations to the President for improving cybersecurity – and possibly trade secrets protection – across the public and private sectors.
On June 15, Crowell & Moring hosted a trade secrets webinar, “What the New Federal Trade Secrets Law Means for Your Clients.” The panelists, Mark Klapow, Mark Romeo, Mike Songer, and Vince Galluzzo provided an overview Defend Trade Secrets Act (DTSA), signed by President Obama in May. The panelists also discussed how the courts are likely to interpret certain provisions and provided best practice guidance how to use DTSA to your client’s advantage.
- The DTSA creates the first federal civil cause of action for trade secret litigants. Litigants can now freely access federal courts, including technology savvy judges, broad subpoena powers, and straightforward discovery rules and procedures.
- There is no preemption, so Uniform Trade Secrets Act (UTSA)-based state law claims remain independently viable. The definition of trade secrets and the test for misappropriation remain largely unchanged from the UTSA.
- Ex parte seizures are available on a heightened showing to stop imminent threats and attach assets.
- Notice requirements need to be incorporated into new and amended employee agreements to obtain enhanced damages and fees.
Please click on a link below to access webinar materials. (Note: to listen to the full recording you will need to sign-in or register with ON24.)
If you have any questions or would like additional information, please contact our team.
The Texas Supreme Court on Friday issued its first decision interpreting the recently enacted Texas Uniform Trade Secrets Act (TUTSA), holding that a defendant’s corporate representative does not have an absolute right to remain in the courtroom while a plaintiff’s trade secrets are discussed. In re M-I L.L.C. d/ba/ MI-Swaco, No. 14-1045 (Tex. Jan. 13, 2016). The Court’s decision is significant both because it is the first time the Texas Supreme Court has addressed the relatively new legislation (TUTSA was passed in late 2013), but also because its signals the Court’s willingness to interpret TUTSA expansively.
Another court has rejected the broader interpretation of the Computer Fraud and Abuse Act (“CFAA” or “the Act”) as applying to employees who exceed their authorized use. A recent decision in Minnesota highlights the issue of whether the Act imposes civil liability on employees who have permission to access their employers’ data, but do so with a wrongful purpose. See TripleTree, LLC v. Walcker No. 16-609, 2016 WL 2621954 (D. Minn. May 6, 2016).
The court considered this question in the context of a trade secrets case. A former employee of TripleTree, an investment banking company, was discovered to have accessed the Company’s confidential information and to have engaged in a series of suspicious activities just prior to leaving the Company for a competitor. Id. at *1. TripleTree filed claims against its former employee for, among other things, violating the CFAA and the Minnesota Uniform Trade Secrets Act. Id. at 2.
The court sua sponte considered whether it should dismiss TripleTree’s CFAA claim. Id. at *3. The CFAA sanctions a person who “intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from a protected computer.” 18 U.S.C. § 1030(a)(2)(c). Any person who suffers from a violation of the Act may bring a civil claim for damages. 18 U.S.C. § 1030(g). As an employee of TripleTree, the Defendant was permitted to access the Company’s confidential information. The court considered whether the Defendant’s malicious intent in accessing the information transformed an otherwise lawful act (using the Company’s computers) into a violation of the CFAA.
As predicted, today, May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016, S. 1890. Prior blog posts describe the details of this powerful federal weapon for use in protecting trade secrets, and you can find further information here.