Yes, the DTSA Ex Parte Seizure Provision Is Constitutional

A defendant opposing or challenging an injunction under the Defend Trade Secrets Act (DTSA) often has several potential defenses, including arguing that the information at issue is not truly a trade secret, that the injunction is unnecessary or overbroad, or that the defendant simply “didn’t do it.”  One argument that should not make the cut, however, is that the DTSA is unconstitutional.

This advice runs counter to a recent New York University Law Review article suggesting that the ex parte seizure provision of the Defend Trade Secrets Act (DTSA) would not survive due process scrutiny and therefore should be eliminated.

Of the hundreds of claims brought under the DTSA since it went into effect in May 2016, we are unaware of any cases where litigants have attacked its constitutionality, much less successfully. Although the note raises some due process concerns that are not unreasonable in theory, challenging the ex parte seizure provision on a constitutional basis likely would be ineffective in practice. Nor should the concerns expressed in the note require any legislative correction.

First, the note argues that the risk of error is much greater in ex parte seizure applications under the DTSA than in ex parte temporary restraining orders (TROs) under Federal Rule of Civil Procedure 65. The supposed increased risk of error is based on the fact-intensive nature of trade secret litigation, and the purported difficulty in deciding whether a trade secret exists without a counter-narrative.

Continue Reading

Are Your Diversity Initiatives Trade Secrets?

Last month, a tech giant (IBM) sued one of its former executives who went to work for another tech giant (Microsoft), alleging that she breached her non-compete agreement and misappropriated trade secrets. Given the parties involved, you probably assume that the trade secrets at issue were source codes or algorithms. In fact, they were IBM’s diversity initiatives, strategies, and data.

In IBM v. McIntyre, IBM alleged that its former chief diversity officer, Lindsay-Rae McIntyre, misappropriated IBM’s trade secrets by accepting an offer to hold the same title at Microsoft.  IBM’s chief concern with McIntyre’s new employment concerned her “first-hand knowledge of IBM’s confidential strategies, secret diversity representation data, proprietary technologies, and recruitment, retention, and promotions plans for diverse talent.” According to IBM, such information would inevitably help Microsoft to compete against IBM for the “same diverse talent” that McIntyre was responsible for recruiting, retaining, and developing at IBM. IBM sought injunctive relief against McIntyre to prevent her from working for Microsoft until the expiration of the twelve-month non-competition period in her agreement with IBM.

Continue Reading

Why Companies May Have to Pay Ex-Directors’ Legal Fees

LawMany 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.

Non-Solicitation-of-Employee Agreements Are Not Non-Competes—Except When They Are

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.[1]  Other states go beyond the non-compete analysis and apply additional factors to determine whether a customer non-solicit is enforceable.[2]

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.

Continue Reading

The Danger of “Autofill” and Inadvertent Disclosure in Employee Mobility Matters

Control KeyThe 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

Non-Competes Depart the Federal Scene in the New Administration

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

To Plead or Not to Plead? That Is the (State or Federal) Question

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.

Continue Reading