Louisiana Court Treats Inevitable Disclosure Provision as Non-Compete Clause Subject to Geographic Restrictions

May an employer enforce a contract provision that forbids an employee to leave and take another job that would require him to use or reveal the employer’s confidential information? In Louisiana, maybe not, unless the agreement complies with Louisiana’s non-compete statute, La. Rev. Stat. § 23:921.

In O’Sullivan v. Sunil Gupta, M.D., LLC, 2017 WL 3438349 (E.D. La. 2017), a federal district judge in Louisiana invalidated such a clause because the contract did not list geographic restrictions required by La. Rev. Stat. § 23:921. That statute nullifies “[e]very contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind,” unless the agreement meets certain criteria. Among other things, the agreement must be limited in duration to no more than two years after employment ends, and it may apply only to specified parishes (counties) and municipalities in which the employer “carries on a like business.” The confidentiality agreement in O’Sullivan did not restrict the application of the clause to any particular parishes or cities. Continue Reading

Google vs. Uber: Tech Giants Square Off Over Driverless IP

uber-serp-logo-f6e7549c89Waymo LLC — formerly Google’s self-driving car program and currently a stand-alone company owned by Google’s parent company — is now in fierce competition with Uber to develop and capitalize on driverless technology. This battle intensified on February 23, 2017, when Waymo filed a lawsuit against Uber Technologies, Inc., Ottomotto LLC, and Otto Trucking LLC.

Trade Secret Claims. Waymo’s lawsuit focuses on the actions of one former employee, Anthony Levandowski, who was a manager at Waymo and now leads a parallel self-driving car program for Uber. Mr. Levandowski resigned from Waymo in January 2016, but Waymo alleges that in December 2015 he downloaded more than 14,000 highly confidential business files, which included information on Waymo’s new and unique radar system. To add to the suspicious downloading activity, Waymo alleges that Mr. Levandowski met with Uber executives shortly after acquiring the files.

Waymo’s lawsuit further alleges that Mr. Levandowski went to great lengths to conceal the downloading. According to Waymo, he attached an external hard drive to his laptop and installed a new operating system “to erase any forensic fingerprints that would show” that he copied Waymo’s confidential information. Waymo also alleges that Mr. Lewandowski set up a competing company prior to his departure that later became Otto, and that he told coworkers of his plan. When Mr. Lewandowski resigned, Waymo alleges, other employees joined his new venture and took with them confidential supplier lists, manufacturing details, and highly technical information.

Within months after Mr. Levandowski started his competing business, Uber purchased it for $680 million. Waymo asserts that Uber’s self-driving car program had stalled before its acquisition of Otto, and that shortly after the acquisition, Uber represented to regulatory authorities that it was using an in-house custom built radar system. A Waymo employee was inadvertently copied on an email to Uber employees from a vendor of one of its radar system components. The email included an attachment of an Otto radar system that was similar to Waymo’s design. Waymo’s lawsuit followed.

Uber has not had an opportunity to respond to the allegations, but Waymo’s complaint paints a compelling story that we will continue to monitor and report on.

Take Away. It is no surprise that Uber wants to be on the cutting edge of self-driving car technology: a future with self-driving cars poses a significant challenge to Uber’s current business model. But this case stands as a cautionary tale that competitors — both big and small — can rely on state and federal laws to protect confidential and proprietary information from being exploited by their competitors.

Employers who rely on confidential information to compete should take steps, like Waymo alleges it took, to protect proprietary information. Laws that prohibit trade secrets theft are often unavailable when employers fail to take reasonable measures to protect their secrecy. Some fairly easy steps can be taken, such as restricting access to confidential information accessible to only high-level employees on a “need to know” basis and requiring and enforcing confidentiality and non-compete agreements. On the other hand, employers planning to hire an employee of a competitor (or acquire a business owned by a competitor’s former employee) should be highly vigilant about enforceable non-compete agreements and potential trade secret theft.

Trade Secret Dispute Brewing In Minnesota

beer clashThe popularity of craft beers has skyrocketed.  A report cited in Fortune claims that microbreweries’ market share increased from 5.7 percent in 2011 to 12 percent in 2015. This growth has led to competition as microbreweries capitalize on the growing appetite for their product. Unsurprisingly, competition has led to allegations of unlawful conduct.

Summit Brewing Company, one of the oldest microbreweries in the United States, recently filed a lawsuit alleging that its former VP of Sales coordinated with a Sales Market Manager to disclose trade secrets to a direct competitor. Summit alleges that the VP entered into an independent consulting agreement with a direct competitor within months of ending his employment. Summit further alleges that the Market Manager then emailed the former VP trade secrets that were passed on to high-level executives of the direct competitor. The allegedly stolen trade secrets included: (1) propriety sales and marketing plans, tools, strategies, and programs; (2) pricing and distribution plans, tools, strategies, and programs; (3) production goals; (4) growth strategies; (5) distributor relationship information; and (6) management systems and techniques.

At first glance, one might expect the recipe of Summit’s beers to be the subject of this brouhaha. But Summit’s claims reveal how state laws can protect proprietary information that falls outside a rigid concept of trade secrets. Strategic goals and distribution and marketing plans can qualify as protected trade secrets if they are valuable and not publicly known. When employees leave to work for a competitor, employers should take prompt action to investigate whether any trade secrets have possibly left the company as well.

Update Your Confidentiality Agreements and Policies *Now*

Tidea netheft of trade secrets by rogue employees is frighteningly common. When employees leave or lose their jobs, about half “steal corporate data and don’t believe it’s wrong” and forty percent “plan to use the data in their new jobs,” according to a 2012 global survey published by Symantec, a security firm. The survey was based on responses from thousands of employees in the United States, United Kingdom, France, Brazil, China, and Korea.

To help businesses crack down on trade secret theft, on Wednesday President Obama signed the Defend Trade Secrets Act of 2016. When someone willfully and maliciously steals another’s trade secrets, the Act gives the trade secret owner a powerful weapon: a right to seek exemplary damages and attorney’s fees. Exemplary damages may be up to twice the amount of the damages that may be awarded under the Act.

But if the trade secret owner is an employer and the thief is an employee, contractor, or consultant, there is a special requirement to preserve the employer’s right to exemplary damages and attorney’s fees. The employer must have given them notice of a subsection of the Act relating to immunity. Continue Reading

Obama Signs Federal Trade Secret Act

Today, President Obama signed the Defend Trade Secrets Act (DTSA) into law. The DTSA amends the existing Economic Espionage Act that was previously limited to criminal cases on behalf of the Department of Justice. The DTSA now allows companies to pursue trade secret claims in federal court under federal law. A copy of DTSA can be found here.

House Passes Federal Trade Secrets Bill

downloadWe recently reported that the U.S. Senate passed the Defend Trade Secret Act (“DTSA”), which would create a federal private cause of action for trade secret theft.

This week was the U.S. House of Representatives turn. The House overwhelmingly voted to approve the DTSA by a margin of 410-2. The bill is now headed to President Obama, whose administration has indicated strong approval.

And the Obama administration is not alone in voicing support. The Under Secretary of Commerce for Intellectual Property was vocal in praising the bill, as were corporations like Microsoft and General Electric and lobbying groups like the U.S. Chamber of Commerce, who issued a statement “urg[ing] President Obama to sign this legislation into law as soon as possible.”

We will continue to update you with any new developments and will also begin a new series of posts analyzing important aspects of the new legislation.

Federal Trade Secrets Bill Passes Senate

200px-US_senate_sealOn Monday, the Senate unanimously passed the Defend Trade Secrets Act (“DTSA”) — a bill that would allow companies to pursue trade secret theft through civil litigation in federal court. This long-awaited measure is a major step towards elevating trade secrets to the level of federal protection enjoyed by the other intellectual property, such as patents, copyrights, and trademarks. Currently, if companies want to sue for trade secret theft, they are generally relegated to state courts where there is a patchwork of inconsistent laws modeled after the Uniform Trade Secrets Act (“UTSA”). The DTSA would create a uniform standard for trade secret misappropriation and provide companies with pathways to injunctive relief and monetary damages to preserve evidence, prevent disclosure, and account for economic harm suffered from misappropriation.

The Legislation.  The DTSA would authorize a private civil action in federal court for the misappropriation of a trade secret that is related to a product or service used in, or intended for use in, interstate or foreign commerce. The proposed legislation defines “misappropriation” consistently with the UTSA, and provides for similar remedies, including injunctive relief, compensatory damages, exemplary damages and attorneys’ fees for willful or malicious cases of misappropriation. But the DTSA also differs from the UTSA in several important aspects that could greatly assist companies.  Most importantly, the DTSA provides a direct avenue for companies to use the federal court system to protect trade secrets. The DTSA also provides preemptive measures that companies may utilize to preserve evidence, and to thwart dissemination or theft before it occurs. For instance, companies who suspect that the confidentiality of their trade secrets may be compromised could apply for an ex parte order that allows the government to seize its trade secrets before giving any notice of the lawsuit to the defendant. This seizure protection goes well beyond what courts are typically willing to order under existing state and federal law. The DTSA’s statute of limitations period is also five years, as compared to just three under the UTSA. Additionally, the DTSA allows for treble exemplary damages and, unlike the UTSA, contains no language preempting other causes of action that arise under the same common nucleus of facts.

The Implications. Of the four types of intellectual-property rights — copyrights, trademarks, trade secrets, and patents — trade secrets are unique. Trade secrets are not registered with any federal agency, and companies currently have no direct avenue to protect them under federal law through civil litigation. The DTSA addresses these unique qualities by opening the doors of federal courts to companies looking to protect what they consider to be valuable trade secrets. If the House and Senate come together on final legislation, it would be the federal government’s most aggressive response to trade secret theft. We will keep you updated as the DTSA moves to through Congress and the White House.

“Cannibal Cop” Decision Deepens Circuit Split On Federal Hacking Statute

imagesProsecutors and employers take notice — one of the most robust, wide-reaching tools against computer fraud and abuse could be blunted. The Second Circuit recently joined the Fourth and Ninth circuits in narrowly interpreting the Computer Fraud and Abuse Act (CFAA) in United States v. Valle, 807 F.3d 508 (2d Cir. 2015). Valle, an ex-cop, was convicted of using his access to police databases to aid his gruesome plot to kidnap, torture, and eat a woman, but the Second Circuit overturned that conviction based on its reading of the CFAA. While the Valle case made lurid headlines in the New York press, it has further reaching consequences for the CFAA. The decision deepens the circuit split against the First, Fifth, Seventh, and Eleventh circuits, which give prosecutors and employers more room to bring claims under the CFAA with a broader interpretation of the act.

At stake is the ability of prosecutors and employers to use the CFAA for a common fact pattern in both criminal and civil actions under the statute — when an employee uses his work computer to access information that he is otherwise permitted to access for a non-work purpose in contravention of company policy. The Second Circuit’s Valle decision joins the Fourth and Ninth circuits to say that the CFAA cannot be used for this purpose and is actually meant to only cover traditional hacking activity. On the other side, the First, Fifth, Seventh, and Eleventh circuits still permit a prosecutor, or an employer in a civil CFAA case, to use the act when an employee improperly uses his company access for a non-work purpose.

With a 4-3 circuit split, the stage is set for a potential review by the U.S. Supreme Court. Internet scholars, criminal defense lawyers, and employers have already been filing amicus briefs at the appellate level, arguing both sides of the issue. And all of it turns on the interpretation of a single phrase – what does “exceeds authorized access” mean under the CFAA?

Continue Reading

Sixth Circuit Highlights Importance of Non-Disclosure Agreements

confidentialThe Sixth Circuit recently held that an employer’s “playbook” was protected from disclosure and use, even if the business information was not a “trade secret.” (Orthofix, Inc. v. Hunter, No. 15-3216 (Nov. 17, 2015))  Fortunately for Orthofix, its employment agreements included non-disclosure provisions. The Sixth Circuit found that those provisions protected more than just “trade secrets” and that the former employee breached his contractual obligations by disclosing Orthofix’s confidential business information to a competitor.

Background. Orthofix sells medical devices and hired Eric Hunter as a salesman for its bone growth simulators. Hunter signed an employment agreement that included non-compete and non-disclosure provisions. Orthofix assigned Hunter to a specific territory, where he developed customers and acquired detailed information about doctors’ schedules, idiosyncrasies, and medical device preferences. After nearly 12 years of employment, Hunter and another Orthofix employee (Bob Lemanski) began to negotiate employment with an Orthofix competitor. A plan was developed for Hunter and Lemanski to work for the competitor while avoiding non-competed issues: Hunter would stop selling devices to customers he previously serviced after introducing them to Lemanski, and Lemanski would do the same with his customers. Hunter also disclosed Orthofix’s “playbook” to the competitor — including Orthofix’s customer lists, wholesale price information, sales data, staff contacts, physician schedules and preferences, and physicians’ prescribing habits. Hunter also drew on his “knowledge” about customers’ prescribing habits, schedules, and contact information when introducing the competitors’ representatives to these customers.

District Court Decision. Orthofix sued Hunter for misappropriating trade secrets and breaching his employment agreement’s non-disclosure provisions. The suit was pending in the U.S. District Court for the Northern District of Ohio, where a bench trial was eventually held. The district court dismissed the claims, finding that Hunter was not liable because Orthofix did not protect its trade secrets with reasonable measures and because the non-disclosure provision was an unenforceable non-compete agreement that prohibited Hunter from using general skills and knowledge.

Sixth Circuit Decision. The Sixth Circuit overturned the district court’s decision. Its opinion began with a discussion about the “three separate categories of business information” — trade secrets; contractually protected information; and general skills and knowledge. The Sixth Circuit ultimately held that the district court erred by confusing “Orthofix’s contract claim against Hunter for disclosure of ‘confidential information’ with a claim for misappropriation of trade secrets.” The Sixth Circuit held that Orthofix’s non-disclosure provision protected information that may not qualify as a trade secret and that went beyond Hunter’s “general skills and knowledge.” In holding that Hunter breached his employment agreement, the Sixth Circuit also held that the non-disclosure provision’s scope did not transform it into an unenforceable non-compete agreement, as Hunter did not rely on his “general skills and knowledge” when using and disclosing Orthofix’s “playbook.” The Sixth Circuit remanded the case for the district court to calculate damages, which Orthofix’s expert valued at $1,623,877 in lost profits.

Take-Away. This decision should prompt all employers to confirm that they have non-disclosure agreements in place. If drafted properly, these agreements can provide substantial protection, even if the business information does not technically qualify as a trade secret.