Q&A: Duane Morris Attorneys Weigh In On Recent Trade Secret Law Trends

Duane Morris partners Lawrence Pockers, Shannon Hampton Sutherland and Daniel Walworth shared their views on the latest trends in trade secret law.

Thomson Reuters: What trends are you seeing in trade secret litigation?

Shannon Hampton Sutherland: Last year, President Barack Obama signed into law the Defend Trade Secrets Act, which gives plaintiffs the ability to file trade secret cases in federal court without diversity jurisdiction. That is fairly significant because in the past, plaintiffs would have to file in state court, and now there is a federal cause of action that allows plaintiffs to go directly to federal court, which generally is a benefit. The second thing is that anecdotally, we are seeing more criminal cases come out of trade secrets theft than we’ve seen in the past. Prosecutors are taking up cases at a rate higher than normal, especially when foreign nationals are involved.

To read the full text of this article, please visit the Duane Morris LLP website.

Massachusetts Court Rules California Law Supersedes Massachusetts Choice-of-Law Provision and Non-Compete Clause in Employment Contract

By Gregory S. Bombard

On June 9, 2017, the Business Litigation Session (BLS) of the Massachusetts Superior Court issued a decision about the extraterritorial application of California’s public policy against non-competition agreements (Full text of the decision: Oxford Global Resources, LLC v. Jeremy Hernandez).  The plaintiff, Oxford, is a recruiting and staffing company headquartered in Massachusetts.  It hired the defendant to work as an entry-level “account manager” in an office in California.  As a condition of his employment, the employee signed a “protective covenants agreement” that included non-solicitation, non-competition, and confidentiality provisions.  This agreement contained a Massachusetts choice-of-law provision and a Massachusetts choice-of-venue provision.  Continue reading Massachusetts Court Rules California Law Supersedes Massachusetts Choice-of-Law Provision and Non-Compete Clause in Employment Contract

Recent Appellate Decision Draws Attention to Key Steps to Enforcing Restrictive Covenants

The Pennsylvania Superior Court’s recent decision in Metalico Pittsburgh, Inc. v. Douglas Newman, et al., No. 354 WDA 2016, 2017 PA Super. 109 (Apr. 19, 2017), confirms the importance of careful contractual drafting in agreements containing non-compete clauses and other post-employment restrictive covenants. In circumstances where an employee is hired for a term of employment but later becomes an at-will employee, that contractual language may determine the enforceability of the agreement’s non-compete and non-solicitation provisions.

To read the full text of this post by Duane Morris partner Luke McLoughlin, please visit the Duane Morris Appellate Review Blog.

White House Recommends Non-Compete Reforms

By Shannon Hampton Sutherland and Gregory S. Bombard

Last week, the White House called on states to enact sweeping reforms to their non-compete laws. The White House’s new policy position is that “most workers should not be covered by a non-compete agreement” and that, although “each state faces different circumstances,” many employers have sufficient other targeted remedies to protect their legal interests.

In its policy statement, the White House called on states to enact “non-compete” reforms, including one or more of the following: Continue reading White House Recommends Non-Compete Reforms

A Call to Arms: How Timing Matters Under the New Defend Trade Secrets Act

By Shannon Hampton Sutherland and Julian A. Jackson-Fannin

On September 27, 2016, in Adams Arms, LLC v. Unified Weapon Systems, Inc., et al.,[1] the U.S. District Court for the Middle District of Florida issued one of the first substantive opinions concerning claims brought under the new Defend Trade Secrets Act (“DTSA”).[2]

The DTSA, which became effective on May, 11, 2016, expanded the jurisdiction of federal courts by, among other things, creating a new federal civil cause of action for trade secret misappropriation when “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.”[3]  Although the DTSA has been hailed as the new “national standard for trade secret misappropriation,”[4] with certain exceptions, its provisions are largely consistent with the well-known Uniform Trade Secrets Act (“UTSA”) currently adopted by 48 states, the District of Columbia and the U.S. Virgin Islands.[5]  The DTSA prohibits both the improper “acquisition” of a trade secret as well as its “disclosure.”  As the DTSA continues to make its first impressions on federal courts around the country, threshold questions have arisen concerning the timing of misappropriations and what theories of recovery apply under the freshly minted law. Continue reading A Call to Arms: How Timing Matters Under the New Defend Trade Secrets Act

The “No Update” Update: Massachusetts Legislature Concludes Session Without Passing Noncompete Reform

By Bronwyn L. Roberts

As reported in The Boston Globe, the Massachusetts Senate and House concluded their legislative session on July 31, 2016, without passing noncompete reform legislation. This comes as a bit of a surprise as the House and Senate have in 2016 each passed a noncompete reform bill. Additionally, Governor Charlie Baker has, through a spokesperson, recently indicated support for the House bill that sought to restrict noncompetes by creating “Garden Leave,” consisting of payment during the restricted period of at least 50 percent of the employee’s annualized base salary. However, for those who have followed this process over the years, the fact that neither bill passed is consistent with many other failed attempts over the years to overhaul the Massachusetts noncompete landscape.

Thus, the noncompete reform debate, which has been ongoing in the Massachusetts legislature since at least 2009, continues. We will keep you updated.

Continue reading The “No Update” Update: Massachusetts Legislature Concludes Session Without Passing Noncompete Reform

House Unanimously Passes Legislative Limits on Massachusetts Noncompetes and Passes Massachusetts Uniform Trade Secrets Act and, in Doing so, Introduces Paid Garden Leave

By Bronwyn L. Roberts

On June 29, 2016, just four months after Massachusetts House Speaker Robert A. DeLeo promised to put new legislative limits on noncompetition agreements, the House unanimously passed a bill (150-0) doing just that and also passed the Massachusetts Uniform Trade Secrets Act. To become law, the bill (House Bill 4434) still needs to pass the Senate and be signed by Governor Charlie Baker.

While much of the bill would merely codify some of the key issues judges already look at when analyzing whether an agreement is enforceable under Massachusetts law, there are some provisions that represent a sea change in the noncompete landscape.

Continue reading House Unanimously Passes Legislative Limits on Massachusetts Noncompetes and Passes Massachusetts Uniform Trade Secrets Act and, in Doing so, Introduces Paid Garden Leave

Negotiating and Enforcing Protective Orders in Trade Secret Cases

bba_panel_060916

On June 9, 2016, Duane Morris attorney Gregory S. Bombard moderated a panel at the Boston Bar Association on “Negotiating and Enforcing Protective Orders in Trade Secret Cases.”  The panel discussed best practices for protecting a client’s secret information during litigation, from discovery through motion practice and trial.  Michael R. Gottfried, the managing partner of Duane Morris’s Boston office, spoke about his experience using trade secret information at trial.   Also on the panel were Kenneth Berman of Nutter, McClennen & Fish and Sarah Herlihy of Jackson Lewis.

For more information, please contact Mr. Gottfried or Mr. Bombard of the Boston office or the members of the Non-Compete and Trade Secrets Practice.

Texas Supreme Court Holds that a Trial Court Must Balance the Parties’ Competing Interests Before Deciding Whether a Corporate Representative Should be Excluded from an Injunction Hearing Involving Trade Secrets under the Texas Uniform Trade Secrets Act

By
Shannon Hampton Sutherland, Co-Chair, Duane Morris Non-Compete and Trade Secrets Practice, http://www.duanemorris.com/attorneys/shannonhamptonsutherland.html, and
Corey M. Weideman, Duane Morris Associate, http://www.duanemorris.com/attorneys/coreymweideman.html

On May 20, 2016, in In re: M-I, LLC, d/b/a M-I Swaco, No. 14-1045, 2016 Tex. LEXIS 389 (Tex. May 20, 2016), the Texas Supreme Court issued its much anticipated first decision involving the Texas Uniform Trade Secrets Act (“TUTSA”). TUTSA, which became effective on September 1, 2013, updated Texas law governing trade secret matters by, among other things, providing an unambiguous definition of a “trade secret”, expanding injunctive relief, and authorizing recovery of attorneys’ fees for willful and malicious activity. TUTSA also includes a specific provision requiring trial courts to protect the secrecy of a trade secret through reasonable means. See TEX. CIV. PRAC. & REM. CODE § 134A.006. This section of TUTSA, and the extent to which a trial court must protect the secrecy of an alleged trade secret during an injunction hearing, was the focus of the Court’s attention in In re: M-I, LLC.

In In re: M-I, LLC, the Texas Supreme Court held that the due-process right of a party to have a designated representative present at an injunction hearing involving alleged trade secrets is not absolute, and the trial court abused its discretion when it summarily concluded – without first balancing the competing interests at stake – that excluding the defendant’s corporate witness from portions of the injunction hearing involving trade secrets would violate due process.

The basic facts of the trade secret case underlying the mandamus proceeding in In re: M-I, LLC are typical: an employee with a signed non-compete and confidentiality agreement left his job to work for one of his former employer’s competitors, and a dispute ensued shortly thereafter. The former employer, M-I, filed suit for trade secret misappropriation and sought injunctive relief against its former employee and his new employer, National Oilwell Varco, L.P. (“NOV”).  Relying on Section 134A.006 of TUTSA, M-I requested that NOV’s corporate representative be excluded from the courtroom during a portion of the hearing on M-I’s application for temporary injunction. The trial court summarily denied M-I’s request, however, concluding that the exclusion of NOV’s designated representative would be a “total violation of due process.” Instead, the trial court admonished NOV’s representative not to disclose or use anything he heard in the courtroom. Concerned about disclosing testimony regarding its trade secrets to NOV and placing the secrecy of the alleged trade secrets at risk by doing so, M-I postponed the injunction hearing to file a mandamus request with an intermediate appellate court. The intermediate appellate court denied the mandamus request and M-I filed a new mandamus request to the Texas Supreme Court.

Mandamus relief is available, the Court noted, when the trial court abuses its discretion and no adequate appellate remedy exists. The Court first explained that there is no adequate appellate remedy for an erroneous order to disclose a trade secret before examining whether the trial court abused its discretion.

In conditionally granting M-I’s request for mandamus relief, the Texas Supreme Court held that the trial court abused its discretion by summarily refusing M-I’s request to conduct portions of the temporary injunction hearing outside the presence of the NOV’s designated representative. The Court explained that courts have discretion to exclude parties and their representatives in limited circumstances when “countervailing interests overcome [the] presumption” in favor of participation. Rather than summarily denying M-I’s request, the Court explained, the trial court was required, at a minimum, to balance the parties’ competing interests.

  • First, the trial court was required to determine the degree of competitive harm M-I would have suffered from the dissemination of its alleged trade secrets to NOV’s corporate representative, including by considering the relative value of the alleged trade secrets and whether the NOV corporate representative was a competitive decision-maker.
  • Second, the court was required to determine the degree to which NOV’s defense of M-I’s claims would be impaired by the representative’s exclusion at such a preliminary stage of the proceeding.

Importantly, the Court noted that, “[i]f the trial court conducted the required balancing, it may have been within its discretion to decide that due process required NOV’s designated representative to be present.” The trial court’s error was failing to conduct the balancing at all.

In short, TUTSA plaintiffs should not assume that the court will exclude the other side’s representative when alleged trade secrets are disclosed, and TUTSA defendants should not assume that the court will permit their representatives to participate in all phases of a TUTSA case. The trial court must develop a factual record to balance the parties’ countervailing interests before deciding whether to exclude a witness.

Lawrence Pockers Moderated a Panel at the DRI Business Litigation Seminar

Lawrence H. Pockers
Lawrence H. Pockers, co-chair of Duane Morris’ Non-Compete and Trade Secrets Practice Group, moderated a panel discussion at the DRI Business Litigation Seminar in Nashville, Tennessee, on May 5, 2016.

The panel was titled “Restrictive Covenants Enforcement Realities Around the Country: The In-House Perspective on Chasing the Departed,” and the panelists were Kelly Grace Huller, Globus Medical Inc.; Jennifer A. McGlinn, Ricoh Americas Corp.; and Stacey N. Schmidt, Fidelity Investments.