Many will be surprised to learn that a company may need to advance attorney’s fees to a former director or officer being sued by the company for theft of trade secrets or other misconduct while serving as an officer or director, and to indemnify that director or officer if she or he prevails at the end of the lawsuit. This article describes how a company’s articles of incorporation, organic documents or contracts may require such advancement or indemnification, and what companies ought to consider in drafting such provisions.
Employers commonly include prohibitions against post-employment soliciting of customers and employees in employment agreements. Most states simply treat prohibitions against soliciting customers like non-compete agreements—they are generally unenforceable unless narrowly tailored. Other states go beyond the non-compete analysis and apply additional factors to determine whether a customer non-solicit is enforceable.
When it comes to non-solicits of employees, it’s commonly thought that they are easier to enforce than full-blown non-compete restrictions—but are they? The answer lies in state law, and states approach the issue differently.
The Federal Rules of Civil Procedure were amended in December 2015 to help mitigate the risk of inadvertent disclosure of privileged information present in virtually every litigation. Such risk, however, is particularly acute in litigation involving trade secrets, non-competition, non-solicitation, and/or non-disclosure agreements.
Employee mobility litigation poses a special risk for inadvertent disclosure because of the email address “autofill” function common in various email programs. Needless to say, employees use work-issued email accounts. Even after the employee leaves the company, the email account often remains active and may be monitored by the former employer, especially if the employee and company become litigation adversaries. Continue Reading
The past two years have marked a seemingly volatile time for non-compete law in the United States, traditionally a state issue. National political forces—the United States Department of the Treasury, the White House, and Senators Al Franken and Chris Murphy—showed an interest in attempting to limit the enforceability of non-competes. We have previously covered this shift here and here. But in 2017, that federal tide has turned with the arrival of the Trump administration.
Regulating non-competes has long been exclusively the domain of the states. But in 2015, Senators Al Franken and Chris Murphy introduced a bill to limit the use of non-competes in contracts with low-wage workers. In March 2016, the Department of the Treasury’s Office of Economic Policy issued a report titled “Non-compete Contracts: Economic Effects and Policy Implications.” It concluded that non-competes are harmful to the broader economy. Two months later, the Obama White House released a “Call to Action” encouraging states to reform and limit non-compete agreements. Continue Reading
Many commentators have explored what the Defend Trade Secrets Act of 2016 (the DTSA) offers litigants that was previously unavailable under state law. Now consider the inverse: what might state law take away under the DTSA? The answer may be “a lot,” depending on the jurisdiction.
We’ve previously explained the foolishness of trying to destroy or alter electronically stored information that qualifies as evidence in litigation. Why foolish? Because the attempt implies a belief that such misconduct won’t be detected. When scrutinized by the right experts, the attempt will be detected; when properly presented to a court, it likely will be sanctioned.
Take the recent case of Organik Kimya, San. ve Tic., A.S. v. ITC, an appeal from the U.S. International Trade Commission to the U.S. Court of Appeals for the Federal Circuit. The Dow Chemical Company (“Dow”) claimed that former Dow employees assisted Organik Kimya San. ve Tic., A.S. (“Organik”) in misappropriating Dow’s trade secrets to develop competing paint additives. Once Organik received the complaint, the foolishness began.
After the judge permitted Dow to inspect a certain laptop, Organik “began overwriting the laptop’s hard drive by copying the Program Files folder at least 108 times.” This looks like an effort to occupy any available space on the hard drive and thus purge remnants of deleted files. It certainly leads to the question: Why would someone do such a thing? Under these circumstances, there is no good reason. This was an obvious, clumsy attempt to delete files and make them unrecoverable days before a court-ordered forensic examination. Continue Reading
Well, that didn’t take long! Not even a full year after President Obama signed the Defend Trade Secrets Act into law on May 11, 2016, Judge Edward G. Smith of the United States District Court for the Eastern District of Pennsylvania entered judgment for plaintiff on the first DTSA claim to be litigated to a jury verdict.
To be fair, the case was already in progress when DTSA became law, so plaintiff Dalmatia Import Group, Inc. amended its complaint to add the claim to its existing state law trade secret claims. The jury awarded Dalmatia $500,000 on both its federal and state trade secret misappropriation claims.
That’s when things got interesting. Defendants argued that because the jury was never instructed on the differences between the federal and state statutes – most importantly that damages were not available under the federal statute prior to its May 2016 enactment – the court should decline to enter judgment on a verdict that did not clearly apportion damages between the state and federal claims.
Ultimately, the court sided with the plaintiff. But the dispute raised an interesting question: Now that both federal and state claims are available in most jurisdictions, can you and should you plead both? In California, where I practice, the answer is not all that straightforward.
You might have heard about “mining for metadata.” What does it mean? How is it done? Should you do it?
When the origins of a critical document are at issue, you know to examine that document’s metadata. “Mining for metadata” is something else. It’s the process of using software to systematically search through the metadata embedded in a collection of documents. Since metadata sometimes can determine or affect the outcome of a case, it’s important to know how and when you may mine an opponent’s metadata, and how you can protect yourself from those who may want to mine yours. Continue Reading
Employees continue to believe that they can outsmart their electronic storage devices and the metadata of the files on those devices – and they continue to be wrong.
In Engility Corporation v. Daniels, the trial court entered a preliminary injunction against two former employee-defendants, largely because the court did not believe their assertions that they no longer possessed trade secrets belonging to their former employer, the plaintiff. Click here for the Order Granting Preliminary Injunction in Part.
Daniels’ attempted explanation is a bit convoluted and hard to summarize quickly. To get the full flavor, you should read the judge’s summary of it. But there are two components to that attempted explanation that bear directly on points I raised in my previous blogs on the use of metadata and electronic storage devices in proving or defending against claims of theft of trade secrets. Continue Reading
It should come as little surprise to employers that the New York courts take a skeptical view of non-compete agreements between employers and employees. Consistent with this view, a New York State appellate court recently confirmed what many, including prior authors of this blog, already understood: in New York, any employer who terminates an employee without cause risks losing the ability to enforce a non-compete agreement against the employee.
The recent decision, Buchanan Capital Mkts., LLC v. DeLucca, et al., 41 N.Y.S.3d 229 (1st Dept. 2016), came on appeal by a financial compliance consultancy (employer) seeking an injunction to enforce non-compete agreements against former employees who solicited business from the employer’s entire client list soon after leaving employment. The employees did so despite non-solicitation provisions within the non-compete agreements prohibiting the client solicitation. Continue Reading