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Thursday Wrap-Up (May 23, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 23. May 2013 11:30

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • A Pennsylvania Court of Appeals has rejected the two-prong test (objective test of speciousness and subjective test for bad faith) used by many federal courts for an award of attorneys fees for a bad faith trade secrets action under the Pennsylvania Uniform Trade Secrets Act reports Law360. In Kraft v. Downey, the Superior Court reversed a trial court's dismissal of a claim for attorneys fees by the defendants, even though the plaintiffs prevailed at trial on other claims. (A hat tip to Mark Grace for forwarding the opinion to me).
  • Ericsonn and Airvana have reached an agreement in principle to settle their trade secrets case, Bloomberg is reporting. Airvana had secured a preliminary injunction in New York Supreme Court that had threatened to disrupt a $3 billion opportunity with Sprint and had resulted in Airvana's claim that Ericsonn had violated the injunction. For more on the case and injunction, see my March post here.
  • For the latest involving the prosecution of Walter Liew for the alleged theft of DuPont's titanium dioxide trade secrets, see "Feds Say Execs Can't Ax DuPont Trade Secrets Charges," as reported by Law360.
  • "Using Computer Forensics to Investigate IP Theft," advise Sid Venkatasen and Elizabeth McBride for Law Technology News.
  • "Kentucky Court Finds No Insurance Coverage for Trade-Secrets Claim," reports Eric Ostroff in his Trade Secrets Law Blog.
  • "Massachusetts Federal Court Takes Jurisdiction Over 'One-Man' Georgia Corporation Whose Agent Allegedly Stole Trade Secrets in Massachusetts," reports Brian Bialas for Foley & Hoag's Massachusetts Noncompete Law Blog.
  • "Recapping the Latest Blue Belt Tech. Non-Compete Dispute (This Time vs. Stryker)," summarizes Jonathan Pollard for the non-compete blog.
  • "Act On Clarifying Ownership of Work-Related Social Media Accounts Before You Become 'Dinner,'" recommends Daniel Schwartz in his Connecticut Employment Law Blog.
  • If you are into podcasts, check out, "The Administration is Focused on Preventing Trade Secrets Misappropriation. Your Business Should Be, Too," by Victoria Cundiff of Paul Hastings.
  • "Proposed Non-Compete Legislation in Connecticut Follows Legislative Trend" advises Kenneth Vanko in his Legal Developments in Non-Competition Blog.
  • If you are interested in more on the $44 million verdict in the Wellogix/Accenture dispute, check out "I Thought We Broke Up Years Ago! Why You Should “Throw Out” Trade Secrets As Soon As A Business Relationship Ends" by Matthew Kugazaki and Valerie Goo for Orrick's Trade Secrets Watch and Eric Ostroff's "A Cautionary Tale About Sharing Trade Secrets With Consultants — Fifth Circuit Affirms $44 Million Verdict."

Cybersecurity Posts and Articles:

  • "California law would require breach notice if online account information is stolen," reports Dan Kaplan for SC Magazine.
  • "Cyber Compliance: Hiring a Cybersecurity IT Firm for Rookies," advises Christopher Matthews for The Wall Street Journal's Risk & Compliance Reporter.
  • "Why CISPA is a global problem," warns TechnoLlama.
  • "Data Breach - Your Organization Needs a Plan" recommends Nicole Reiman of Schnader Harrison Segal & Lewis LLP for JDSupra.
  • "Corporate Security's Weak Link: Click-Happy CEOs: Top Bosses, Exempt From Companywide Rules, Are More Likely to Take Cyber-Attackers' Bait," reports The Wall Street Journal. For more on Spearphishing (or attacks geared towards senior executives better known as whaling, see my post here).
  • "GSA, DOD Solicit Advice On Revamping Cybersecurity," advises Kathryn Brenzel for Law360.

Computer Fraud and Abuse Act Posts and Cases: 

  • "Applying Georgia Long-Arm Statute, Eleventh Circuit Finds No Personal Jurisdiction Based on Internet Activity" in a CFAA dispute, courtesy of Colin Freer for Berman Fink Van Horn's Georgia Non-Compete and Trade Secret News Blog.
 

Thursday Wrap-Up (May 9, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 9. May 2013 06:20

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Cybersecurity Posts and Articles:

  • Well, it's official: "U.S. Blames China’s Military Directly for Cyberattacks," reports The New York Times. Also see "PENTAGON: Chinese Hackers Have Stolen Data From 'Almost Every Major U.S. Defense Contractor,'" asserts The Business Insider, "Pentagon report says U.S. computer hacking 'appears to be attributable' to Chinese government," reports The Verge and "U.S. Says China's Government, Military Used Cyberespionage," reports The Wall Street Journal.
  • "A cybersecurity primer for legal departments: Understanding the basic terms and concepts needed to protect your company from cyber attacks" by David Lim for Inside Counsel.

Trade Secret and Non-Compete Posts and Articles:

  • Less than two months after its introduction, Texas has adopted the Uniform Trade Secrets Act effective Sept. 1, 2013, reports Orrick's Trade Secrets Watch Blog. It appears that the version adopted is similar to that proposed by Dallas State Senator John Carona and will include a presumption in favor of granting protective orders to protect trade secrets in litigation, including limiting access to confidential information to attorneys and their experts. (For more on the proposed statute, see my post earlier this year as well as Robert Milligan's recent post).
  • Connecticut is joining the list of states tinkering with their non-compete laws, advises Daniel Schwartz in his Connecticut Employment Law Blog.  In "Bill Targets Non-Compete Agreements But Would Also Create New Cause of Action," Daniel reports that the bill allows "reasonable" non-competes but would permit an aggrieved employee the right to sue if the non-compete was unreasonable or the employee was not provided with at least 10 days to consider the non-compete before signing it.
  • "Chinese Couple Sentenced to 3 Years and 1 Year for Theft of GM Hybrid Technology," advises Todd Sullivan in his Trade Secrets Blog.
  • And in another prosecution, "Ex-Frontier Chemist Dodges Prison For Disclosing Recipes," as Law360 reports that the U.S. District Court for Utah sentenced Prabhu Prasad Mohapatra to time served — three days — and ordered him to pay $3,435 in restitution.
  • "Georgia Supreme Court Rejects Independent Claim for Inevitable Disclosure of Trade Secrets," reports Eric Ostroff in his Trade Secrets Law Blog.  Kenneth Vanko has a post on the case as well in his Legal Developoments in Non-Competition Agreements Blog.
  • Eric Ostroff also has a fine post entitled "Five Ways to Protect Trade Secrets When an Employee Departs."  If you have not bookmarked Eric's blog, you should as he is churning out very good content regularly.
  • Those in Pennsylvania should be aware of a decision out of the U.S. Eastern District of Pennsylvania reports the Employee Discrimination Reporter. In De Lage Landen v. Thomasian, the District Court refused to enforce a non-compete despite proof that the former employee had breached a non-solicitation provision by approaching a former colleague. The court reasoned that the parties were not sufficient competitors, there was no showing of future harm, money damages were available, and therefore no irreparable harm was present.
  • "Fracking and Trade Secrets: An Introduction," advises Kenneth Vanko in his Legal Developoments in Non-Competition Agreements Blog.
  • "Fisher/Unitech (Basically) Loses Non-Compete Fight Against Former Sales Exec," advises Jonathan Pollard for the non-compete blog.
  • "Doctor Non-Solicitation Agreement Not Supported By Legitimate Business Interest," reports Zach Jackson for Epstein Becker's Trade Secrets & Noncompete Blog.
  • "Employers Slow To Guard Data Amid Social Media, Tech Boom," bemoans Erin Coe for Law360.
  • "Data Security Policies and Procedures Still Lacking," warns Catherine Dunn for Corporate Counsel.
  • In "Unleashing job hoppers could give economy a bounce," Reynolds Holdings posits in an article for Reuters that releasing unemployed workers from their non-competes might help the economy.
  • "China Non-Competes. The Basics Have Become Clearer," advises Dan Harris in his China Law Blog.

Computer Fraud and Abuse Act Posts and Cases:

  • "California Federal Court Dismisses Computer Fraud and State Unfair Competition Claims Alleged Against Ex-Employees Accused Of Stealing Computer Source Code," reports Paul Freehling for Seyfarth Shaw's Trading Secrets Blog.
  • "Programmer Arrested For Cyberattack On Ex-Employer," reports Law360.
  • "Use a Software Bug to Win Video Poker? That’s a Federal Hacking Case," proclaims Kevin Paulson for Wired.
  • "Who's at Fault for the CFAA Mess? Blame Congress," sighs Brian Bialas for Foley & Hoag's Massachusetts Noncompete Law Blog. Sounds good to me.
 

Thursday Wrap-Up (May 2, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 2. May 2013 07:10

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • Good advice from Josh Durham: "Use Covenants Not To Compete To Protect Legitimate Business Interests, Not Just Because You’re Scared Of A Little Competition." In his post for Poyner Spruill's Under Lock & Key Blog, Josh recounts the holding of a recent North Carolina case, Phelps Staffing LLC v. CT Phelps, Inc., in which the court found that a non-compete involving temporary staffing employeees lacked a legitimate business interest to justify the restraint. It is an important reminder to companies to ensure that their non-competes be narrowly tailored to protect interests that actually arise from the former employee's employment.
  • Sergey Aleynikov will stand trial a second time, this time in New York State's Supreme Court, for the alleged theft of Goldman Sachs' trade secrets, reports The Wall Street Journal and Law360. Judge Ronald Zweibel ruled that the state charges were not barred by the dismissal of his federal conviction under the Economic Espionage Act last year by the U.S. Court of Appeals for the Second Circuit. (For more on the Aleynikov saga, see my posts here and here).
  • For more on the Ohio Supreme Court's recent holding that rental payments are trade secret, see Todd Sullivan's take in his Trade Secrets Blog. Todd notes the incongruity in the Court's reasoning that disclosure of the trade secrets would lead to a "poisonous" tenant environment, despite the fact that it noted later in its opinion that the landlord's expert said tenants were incentivized not to share rental information. (My post on the case can be found here).
  • "Pushing Back Against Restrictive Covenants in Physician Agreements" advocates Mark Gisler as he questions whether non-competes violate the American Medical Association's code of ethics.
  • "Illinois Federal Court Issues Preliminary Injunction Prohibiting Use Of Misappropriated Trade Secrets But Rejects Request For Expanded Injunction Based On Alleged “Inevitable Disclosure” reports Paul Frehling for Seyfarth Shaw's Trading Secrets Blog.
  • "Florida Court Reverses Preliminary Injunction on Restrictive Covenant," reports Peter Vilmos for Burr & Forman's Non-Compete Trade Secrets Law Blog.  Eric Ostroff also has a post on the case in his Trade Secrets Law Blog.
  • "When a Restriction on Soliciting "Prospective" Customers Is Unreasonable (and How to Fix It)," recommends Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • "Never Bring a Knife to a Gun Fight: One Simple Weapon to Fight Economic Espionage in a Cyberspace World," warns Hayden J. Silver III for Womble Carlyle for The Compass.
  • "Why intellectual property theft is everyone’s problem," remind Texas U.S. Attorneys Sarah Saldana and John M. Bales for The Dallas Morning News.
  • "Does social media change the meaning of “solicitation”? How to prevent ex-employees from using social networks to lure employees or customers" recommends Jon Hyman for Inside Counsel. 
  • "Why Abuse of Discretion Matters to Employers (Non-Compete)," advises Rob Radcliff for his Smooth Transitions Blog.
  • "Trade Secret “Inevitable Disclosure” Doctrine Taking Shape in North Carolina," advises Betsy Cook Lanzen of Womble Carlyle for The National Law Journal.

Cybersecurity Posts and Articles:

  • "Reflections On Recent Cybersecurity Developments," ponder David N. Fagan, John K. Veroneau, Robert Nichols and Kristen E. Eichensehr of Covington & Burling LLP for Law360.
  • "The War On Cybercrime: How Far Can You Go?" posits Gabriel Ramsey, Mark Mermelstein and James Hsaio of Orrick for Corporate Counsel.
  • "Is the Specter of a Cyber Cold War Real?" asks James McGregor for The Atlantic.
  • "Law firm fell victim to phishing scam, precipitating $336K overseas wire transfer, bank suit alleges," reports Debra Cassens Weis for The ABA Journal's Law News Now.
  • "Looking at the Future of Cybersecurity," predicts Sue Reisinger for Corporate Counsel.

Computer Fraud and Abuse Act Posts and Cases:

  • Looking for a post-mortem on the recent CFAA trial of David Nosal? Then check out "In Executive's Trade Secret Prosecution, a Company's Outsized Role," by Vanessa Blum who covered the trial for The Recorder, Venkat Balasubrumani's post in the Technology & Marketing Law Blog and Daniel Joshua Salinas' post for Seyfarth Shaw's Trading Secrets Blog.
  • Earlier this week, The Washington Post ran a front-page story, "As cyberthreats mount, hacker’s conviction underscores criticism of government overreach," detailing the prosecution of hacker Andrew Auernheimer.
  • Similarly, The ABA Journal has drawn attention to efforts to reform the CFAA, in an article "Hacker’s Hell: Many want to narrow the Computer Fraud and Abuse Act," by Stephanie Francis Ward.
 

Friday Wrap-Up (April 5, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 5. April 2013 09:40

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Articles:

  • House Intelligence Committee Chairman Mike Rogers (R-MI) has announced that he will be presenting a bill later this year that will penalize foreign countries that sponsor hackers that attempt to steal trade secrets from U.S. companies. In an article for Main Justice, Katy O'Donnell writes that Rogers will be considering some unconventional remedies such as suspension of visas and other tools.
  • "DuPont Wins Kolon Property In $920M Recovery Effort," reports Law360.
  • For the latest on the Eagle v. Morgan social media ownership case, see Jessica Mendelson's post for Seyfarth Shaw's Trading Secrets Blog. As Jessica details, the trial court found that Dr. Eagle's former employer misappropriated her LinkedIn profile but that Dr. Eagle failed to prove her damages.
  • "Live Events Agency Sues Former Employees And Independent Contractor For Breach Of Non-Solicitation Agreements," advises John Paul Nefflen for Burr & Forman's Non-Compete Trade Secrets Blog.
  • "Patterson Atty Gained Secrets Through Ruse, Doc Says," reports Law360. According to the article, the attorney approached a Pennsylvania physician to advise him and then extracted information from the inventor of surgical stapling technologies in order to give a client a leg up in licensing negotiations.
  • "Cease and Desist Letters Enjoy an Absolute Privilege from Libel Claims," advises Kara Maciel for Epstein Becker's Trade Secrets & Non-Compete Blog.
  • "MGA's Trade Secrets Claim On Brink In Bratz Case," reports Law360, as MGA fights upstream to revive its trade secrets claim.
  • "Restaurant Industry Giant Landry’s Sues Former Employee & Rival Restaurant Company," advises Jonathan Pollard in the non-compete blog.
  • "Many U.S. Businesses in China Cite Data Theft," reports Carlos Tejada for The Wall Street Journal's Corruption Currents Blog. According to the survey, 26% of companies with a presence in China have had their trade secrets stolen and 40% see the risks rising.
  • "How New Trade Secret Legislation Impacts Pharma Compliance Programs," reports Fish & Richardson's Jose Sierra for the Pharmaceutical Compliance Monitor.
  • "Practice Tip: Don't Call Your Liquidated Damages Clause a 'Penalty In the Contract," cautions Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • For the litigators: "Sanctions For Deleted Facebook Give Employers A Boost," reports Law360. Epstein Becker has a post about the case as well.

Cybersecurity Posts and Articles:

  • In The Wall Street Journal's "Weekend Interview" entitled, "Why China is Reading Your Email," cyber expert Timothy Thomas believes the recent cyber attacks are part of a military strategy and that an offensive strategy may be needed.
  • "Cyberattacks Seem Meant to Destroy, Not Just Disrupt," notes Nicole Petlroth for The New York Times Bits Blog.
  • "New Hacking Study Shows What Good Guys Are Up Against," advises The Wall Street Journal's Digits Blog.

Computer Fraud and Abuse Act Posts and Cases:

  • "Aaron Swartz’s Prosecutors Were Threatened and Hacked, DOJ Says," reports David Kravets for Wired.
  • "Is the Computer Fraud and Abuse Act a Failed Experiment?" asks Brian Bialas in Foley & Hoag's Massachusetts Noncompete Law Blog, in a rejoinder to Eric Goldman's post on the CFAA last week.
 

Quarterly Social Media Update: Courts Apply Common Sense on Whether Social Media Communications Violate Non-Solicitation Agreements

 
by John Marsh 28. March 2013 23:00

Whether a former employee’s use of social media may violate a restrictive covenant remains a special area of concern for many employers.  Two recent cases suggest that courts will treat social media communications no differently than they would any other and will focus on the substance and manner of the communication and evaluate it using the agreement before them. 

In Invidia LLC v Difonzlo, 2012 WL 5576406 (Middlesex [Mass.] County Super. Court, Oct. 22, 2012), a Massachusetts court concluded that a former employee’s announcement on her Facebook page that that she was leaving to join a competitor did not amount to a violation of her non-competition and non-solicitation agreement with her former employer.

The stylist, Maren DiFonzo, worked at the Invidia salon for two years and had signed a non-competition covenant that had two-year and ten-mile restrictions.  When she resigned from Invidia, she immediately began working for a competitor less than two miles away and she posted information about her new position on her Facebook page.  Although Invidia said her departure precipitated an “unprecedented . . . wave of no-shows, cancellations or non responses,” the salon could not demonstrate that she was responsible.

After Invidia’s attorney threatened to sue both DiFonzo and the competitor, she was laid off.  In a conversation with the competitor’s owner, Invidia’s majority owner, Patzleiner, alleged that Invidia simply “intended to send a message” to its employees and “did not care” whether DiFonzo solicited Invidia’s customers.

In rejecting the employer’s request for an injunction, the Superior Court of Middlesex County sidestepped the issue of enforceability of the agreement and instead found that irreparable injury was lacking because Invidia had demonstrated its ability to calculate with reasonable certainty the monetary loss it would sustain for each client DiFonzo took.  The court also found no evidence that DiFonzo breached her confidentiality covenant or solicited any Invidia customers.  The court noted that a few customers had contacted her but “[s]o long as they reached out to [her] and not vice versa, there could be no violation of the non-solicitation provision.” 

In the second, more recent case, Pre-Paid Legal Service, Inc. v. Cahill, Case No. CIV-12-346-JHP (D. Okla., Jan. 21, 2013), an Oklahoma federal court refused to find that a post on a Facebook page amounted to a solicitation (although the court did find evidence of other improper solicitations and enforced the agreement in light of those violations).

Todd Cahill was a top salesman for Pre-Paid Legal.  Prior to leaving and joining Nerium, another multi-level marketing company that sold skin care products, Cahill met with one of his colleagues and solicited him to join him at Nerium.   Cahill then called a meeting of “Elite Leaders” (his team of high performing associates) to tell them he was leaving. Although he did not mention by name the name of his new employer, he told his colleagues that he had lost faith in Pre-Paid Legal and that anyone who was interested should email him.

After that meeting, he left Pre-Paid Legal. There was no evidence that Cahill misappropriated any confidential associate or account information, but he did post information about his new company on several semi-private Pre-Paid Legal Facebook pages (pages Cahill had created to mentor his associates at Pre-Paid Legal). He did not post further to these pages, but he had been posting information about Nerium on his personal Facebook page.

After Pre-Paid Legal sued Cahill for misappropriating its trade secrets and violations of his non-solicitation agreement, the Magistrate assigned to the case found that while Cahill had violated his non-solicitation agreement by approaching his colleagues, he had not solicited them through the use of the Facebook pages.  Relying on the Invidia LLC case above, the Magistrate found that the posts were less explicit in inviting colleagues to join him.

The Takeaway:  These decisions, taken together, are noteworthy because they illustrate that a court will apply the same principles for social media communications that it will apply for other types of communications.  An announcement on a Facebook post that merely informs readers of an employee’s new job is simply not the same as an active solicitation.  Expect more common sense decisions like this one that look at the substance of the communication in question.

Tags:

Non-Compete Enforceability | Non-Solicitation Agreements | Restrictive Covenants | Social Media

 

Friday Wrap-Up (March 8, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 8. March 2013 16:30

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:


Trade Secret and Non-Compete Posts and Articles:

  • "Eaton-Frisby fight that started with trade-secrets theft claims set for trial in Mississippi," reports Alison Grant for The Cleveland Plain Dealer. Todd Sullivan also has his take on the case in his Trade Secrets and Employees Defection Blog.
  • "Judge Trims Fuhu's Trade Secrets Suit Over Toys R Us Tablet" reports Law360.
  • For an update on the Eagle v. Morgan dispute over ownership of a LinkedIn account, see "Federal Court Questions Whether Damages Exist in LinkedIn Account Ownership Dispute," by Jessica Mendelson for Seyfarth Shaw's Trading Secrets Blog.
  • "MGA Maneuvers to Rescue Big Bratz Trade-Secrets Award," advises Amanda Brondstadt for The American Lawyer.
  • "Can the public interest trump a non-compete?" asks Rob Radcliff in The Smooth Transitions Blog, and his answer is "yes," at least in the healthcare industry.
  • "Trade Secrets Injunction Order Demonstrates Difficulty of Balancing Competing Interests" advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • Fisher & Phillips' Michael Greco has his monthly post on highlights in trade secret and non-compete law for February 2013.
  • And Brian Bialas has a similar post of 10 recent noteworthy trade secret and non-compete cases and posts for Foley & Hoag's Massachusetts Noncompete Law Blog.


Cybersecurity Posts and Articles:

  • "Unintended Consequences of 'Bring Your Own Device,'" advises Susan Ross for Corporate Counsel.
  • And given the recent news of cyberattacks, David Stewart has decided to revisit the debate over whether U.S. companies should be permitted to "hackback" against foreign cyberspies and crooks in Steptoe's Cyberblog.


Computer Fraud and Abuse Act Posts and Cases:

  • "Attorney General: Aaron Swartz Case Was a ‘Good Use of Prosecutorial Discretion,’" advises David Kravets for Wired.
  • "Thinking Of Bringing A Computer Fraud And Abuse Act Claim In Federal Court? Consider This Recent Opinion," warns Josh Durham for Poyner Spruill's Under Lock & Key Blog.
  • And for an account of a reluctant witness in the Aaron Swartz prosecution, see Quinn Norton's post for The Atlantic entitled, "Life Inside the Aaron Swartz Investigation."
 

Thursday Wrap-Up (February 21, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 21. February 2013 18:00

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Cybersecurity Posts and Articles:

  • After the Obama administration's announcement of its initiative to combat international trade secret theft, the other big news this week was The New York Times front-page article calling out China's army for its role in hacking U.S. companies. In "Chinese Army Unit Is Seen as Tied to Hacking Against U.S.," The Times cited a report by the security firm Mandiant that fingered Unit 61398 of the Peoples Liberation Army as having a role in 141 attacks in recent years.
  • Spearphishing -- i.e., using targeted attacks against employees based on information gleaned from social media -- was used in these cyberattacks, according to an article by Kim Zetter for Wired, "Chinese Military Group Linked to Hacks of More Than 100 Companies."
  • "Claims of cyberstealing by China prompt administration to develop more aggressive responses," reports The Washington Post.
  • "Cyberwar With China Is Here, Like It or Not," laments Arik Hesseldahl for All Things Digital.
  • "U.S. ready to strike back against China cyberattacks," reports Associated Press.
  • "Successful hacker attack could cripple U.S. infrastructure, experts say," reports Erin McClam for NBC News.
  • "Cloud Data Security: How to Analyze your Risk," recommends Emma Byrne for Forbes.

Trade Secret and Non-Compete Posts and Cases:

  • In the most recent social media decision in the trade secret and non-compete context, the U.S. District Court of Oklahoma has recently found that a former employee's Twitter invitations and Facebook posts did not violate the provisions of a non-solicitation agreement.  Venkat Balasubramani of the Technology & Marketing Law Blog (Feb. 18 post) and Seyfarth Shaw's Justin K. Beyer both have posts on this decision (if time permits, I may do a post with my thoughts on this decision this weekend).
  • Ernst & Young has been sued for allegedly stealing the trade secrets of its client, Express Scripts, after having been engaged to provide consulting services to Express Scripts in its acquisition of Medco Solutions last year, reports Todd Sullivan in his Trade Secrets & Employee Defections Blog. Ernst & Young says a former employee did violate its policies.
  • "South Carolina Court of Appeals Upholds Physician Non-Compete and Forfeiture Provisions," reports Parker Poe's EmployNews.
  • In another healthcare trade secret case, "Indiana Univ. Health Misused Trade Secrets, Suit Says" reports Law360.
  • "The End of Noncompete Agreements in Minnesota?" asks Mark E. Dooley for Thompson Hall as he describes a recent bill proposed in Minnesota to ban non-competes along the lines of California.
  • "Analysis of a Winning Argument for Enforcing a Non-Compete Agreement at the Preliminary Injunction Stage," reports John Paul Nefflen for Burr & Forman's Noncompete Trade Secrets Blog.
  • "Is Mattel raising the white flag in Bratz copyright case?" asks Alison Frankel in her On The Case Blog.
  • Considering what discovery you might need for your next trade secrets or non-compete case? Then check out Kenneth Vanko's post, "Some Thoughts On Pursuing Expedited Discovery," which provides some practical pointers on what you need to do.
  • "5 Trade Secret Trends That Could Shape 2013," predict Randall Kahnke, Kerry L. Bundy and Peter C. Magnuson of Faegre Baker Daniels LLP for Law360.

Computer Fraud and Abuse Act Posts and Cases:

  • "IP: Why companies need clear policies against giving computer access to non-employees," advise James Ware and Mindy Ware for Inside Counsel.
 

Friday Wrap-Up (February 8, 2013): Noteworthy Trade Secret, Non-Compete and Cybersecurity News from the Web

 
by John Marsh 8. February 2013 14:00

Here are the noteworthy trade secret, non-compete and cybersecurity stories from the past week, as well as one or two that I missed over the past couple of weeks:

Trade Secret and Non-Compete Posts and Cases: 

  • In an unusual ruling, the U.S. Court of Appeals for the Sixth Circuit upheld the convictions of two engineers for stealing Goodyear's trade secrets, but vacated the sentences, essentially holding that they were too lenient, reports Law 360. Both Todd Sullivan and Kenneth Vanko provide their takes on the decision.
  • In what may be the final installment of the trade secret case that will live in infamy, the U.S. Court of Appeals affirmed a district court's finding that train equipment manufacturer Wabtec Corp. copied rival Faiveley Transport USA Inc.’s trade secrets involving braking technology used in New York City's subway system, but knocked the jury's damages award down to $15 million. This case caused great consternation in the trade secret community several years ago when the Second Circuit inexplicably reversed an injunction and held that a defendant could use a plaintiff's trade secrets so long as it did not disclose them.
  • "Recent California Supreme Court Decision Stokes Debate Over Scope of Trade Secret Preemption" advises James D. McNairy for Seyfarth Shaw's Trading Secrets Blog.
  • "Court Finds Common Law Causes of Action Not Preempted by New Jersey Trade Secrets Act" writes Michael Kessel for Littler's Unfair Competition & Trade Secrets Counsel Blog.
  • "Orrick wins $23 million award vs MGA, Bratz maker sues to vacate" advises Alison Frankel's On The Case Blog.
  • "A Surge In Trade Secret Misappropriation Cases at ITC" report Jeffrey Telep and Taryn Williams of King & Spalding for Law360.
  • "Failing to Trust the Public: The Process of Submission of the Enabling Amendment to the Georgia Constitution for the Restrictive Covenant Act Was Unconstitutional" writes David Pardue for his Trade Secrets and IP Today Blog.
  • Jonathan Pollard has a post about an interesting non-compete case in the broadcast industry that was recently filed in Alabama.
  • "Florida Appellate Court Says: “'Independent Contractor' Still an Employee for Purposes of Enforcing Non-Compete Agreement" advises Peter Vilmos for Burr & Forman's Trade Secrets Noncompete Blog.
  • "Calif. Noncompete Clauses — Still Unenforceable" reports David Bloom of Milbank Tweed for Law360.
  • "IBM Suit Over Corporate Raiding Illustrates Use of Social Media Evidence" advises Kenneth Vanko in his Legal Developments in Non-Competition Agreements Blog.
  • "10 Steps to Take When Hiring from a Competitor" recommends Peter Steinmeyer for Epstein Becker's Trade Secrets & Noncompete Blog.

Computer Fraud and Abuse Act Posts and Cases:

  • For those looking for the latest on Aaron's Law, see "Congresswoman Posts Revamped 'Aaron's Law' on Reddit" as reported in Mashable.
  • "Employment Agreement Restrictions Determined Whether Employees Exceeded Authorized Access Under Computer Fraud and Abuse Act" advises Shawn Tuma about a recent federal decision out of Oklahoma that elected not to follow the reasoning of U.S. v. Nosal.
  • "How 'Aaron's Law' Is Good for Business" advises Doc Searls for the Harvard Business Review.
  • "We Need to Think Beyond the Aaron in ‘Aaron’s Law" writes Micah Schaeffer for Wired.

 Cybersecurity Posts and Articles:

  • The big cybersecurity story this week were the reports by The Washington PostThe New York Times and The Wall Street Journal that they believed Chinese hackers had penetrated their defenses to spy on their communications with critics of the Chinese government.
  • "Here a Hack, There a Hack, Everywhere a Cyber Attack" laments Arik Hesseldahl for All Things Digital.
  • "Calling General Counsel to the Front Lines of Cybersecurity" reports Sue Reisinger for Corporate Counsel.
 

The Trade Secret Litigator's Top 10 Trade Secret and Non-Compete Cases of 2012: Nos. 4 through 7

 
by John Marsh 3. January 2013 23:30

Last week, I reported on Nos. 10 through 8 of the Trade Secret Litigator's Top 10 Trade Secret and Non-Compete of 2012.  Here are Nos. 4 through 7, with the top three to follow this weekend:

7.  PhoneDog v. Kravitz (U.S. Dist. Ct. for Northern Dist. of Cal.), Eagle v. Morgan (U.S. Dist. Ct. for Eastern Dist. of Penn.) and Christou v. Beatport (U.S. Dist. Ct. Col. May 2012).  As employers continue to grapple with managing their employees' use of social media, these three cases illustrate the  consequences that can flow from uncertainty over who owns social media property such as a Twitter handle, a LinkedIn account or password log-in information.  As trade secret claims are tougher and tougher to assert because of the inherent visibility of social media information, employers can be expected to rely more on traditional claims of ownership for social media as a result of these cases.

PhoneDog v. Kravitz and Eagle v. Morgan have both received considerable media attention as they are among the first cases to address ownership of LinkedIn and Twitter accounts.  However, because they arose in situations where the employers failed to have formal policies or written agreements establishing the parameters for the ownership of social media, the employers were unable to secure conclusive determinations and forced to litigate the cases.  Indeed, in the PhoneDog case, the employee was able to keep the disputed Twitter handle as part of the settlement.  Ultimately, disputes like these will be less frequent as employers recognize the importance of policies and written agreements in ensuring that their social media accounts and log-in information remain their property.  For more on these cases, please see my posts here and here.

6. Acordia of Ohio v. Fishel (Supreme Court of Ohio) and DePuy Orthopaedics, Inc. v. Waxman (1st App. Dist. Florida).  In a year in which it became more difficult to enforce non-compete agreements, these decisions stood out because they held that in the context of a merger, non-compete provisions would survive and be enforced to the benefit of the new company.  The Acordia of Ohio case raised eyebrows here in Ohio because the Ohio Supreme Court initially declined to enforce the non-compete on the grounds that the covenants at issue did not specifically provide for assignment or have language establishing that they would benefit any successor or assign of the employer.  However, in a highly unusual development, the Ohio Supreme Court agreed to reconsider the decision and reversed itself in October.

5. U.S. v. Liew (U.S. Dist. Ct. for Northern Dist. of Cal.).  Why is a criminal case that has not even gone to trial and in which one of the major defendants was dismissed No. 5 in the Trade Secret Litigator's Top 10?  The timing of this case and the willingness of the U.S. Department of Justice to indict a company (Pangang Group) owned by officials of the Chinese government are the reasons for its inclusion, as this case may ultimately be remembered as the tipping point in cementing the perception that China was a threat to the trade secrets of American companies.

It is important to remember that the unprecedented indictment of Pangang Group took place in February when Chinese Vice President Chair Xi Jinping was visiting the United States.  Prior to that visit, complaints about the misappropriation of the trade secrets were largely perceived as anecdotal.  In my view, there seemed to be a hesitancy on the part of many to complain about the perceived lack of protection of trade secrets in China, perhaps because raising these concerns might result in retaliation or that those raising them might be accused of racism.

However, about the time of that visit, leading media, including The Wall Street Journal and The New York Times ran a number of articles highlighting the complaints of many U.S. companies about the failure (or in some cases, the active participation) of the Chinese Government in cases of trade secret theft.  During that visit, Vice President Joe Biden and Senator John Kerry both were reported to have expressed concern about, among other things, the complaints of their constituents about the theft of trade secrets. 

In this context, the announcement of the indictment of Pangang Group signified an acknowledgement of the federal government to not only recognize the problem but take forceful action to combat it.  It also served as a catalyst for media attention, which in turn brought concerns about protection of trade secrets in China to the surface.

4.  American Chemical Society v. Leadscope (Ohio Supreme Court), SASCO v. Rosendin Electric (California 4th App. Dist.), MPI Release, LLC v. Loparex LLC (U.S. Dist Ct. for Southern Dist. of Indiana), and Best Medical Int'l v. Spellman (U.S. Dist. Ct. for Eastern Dist. of Pa.).  These four cases highlight the increasing dangers that can arise from an ill-advised trade secret case as they all involved awards against plaintiffs who were essentially found to have brought their trade secret cases in bad faith.  

The American Chemical Society case resulted in a jury verdict of over $26.5 million in compensatory and punitive damages in favor of the defendants, former employees who counterclaimed and successfully argued the underlying trade secret litigation against them was brought maliciously to destroy their company (it ultimately settled for about $20 million).  In SASCO, a California appellate court affirmed a significant award of attorneys fees after a plaintiff dismissed a weak trade secrets case.

The increasing frequency of these cases should serve as a powerful reminder that companies considering trade secret claims need to carefully evaluate those claims and remember the power of the "David v. Goliath" narrative in trade secret cases.
 
Stay tuned for Nos. 1 through 3 this weekend.

 

Update on Social Media Ownership Cases Impacting Trade Secret and Non-Compete Law

 
by John Marsh 6. December 2012 09:45

I have been meaning to provide an update on the social media, cybersecurity and cloud computing issues that were addressed at the California State Bar's 37th Annual IP Institute at which I presented a little over three weeks ago (thanks again to co-panelists Robert Milligan and Janet Craycroft for the opportunity to speak with them).  I will get a series of posts out over the next couple of weeks providing the highlights by topic. 

In light of developments this past week, I thought it made sense to start with cases dealing with disputes over ownership of social media accounts.  At the presentation, and in this update, I focused on the four leading social media ownership cases from the past year:  PhoneDog v. Kravitz, Eagle v. Morgan, Ardis Health v. Nankivel and Christou v. Beatport, LLC.  While PhoneDog and Eagle have commanded the most attention, the Ardis Health decision remains, in my view, the most important because it is the only one that involves a written agreement establishing that the employer in question had ownership over the social media at issue.  Indeed, the absence of agreements in the other cases, and the resulting litigation because of that lack of clarity, reinforces the importance of having written agreements that spell out what is the employer's and what is the employee's.

PhoneDog v. Kravitz, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal. Nov. 8, 2011):  It has been reported that the PhoneDog case has recently settled, and apparently favorably to the former employee, Noah Kravitz (if spending thousands of dollars of legal fees for a twitter handle can be deemed a victory).  PhoneDog sued Kravitz over his Twitter handle and the log-in information needed for that Twitter account, and had asserted, among others, claims for misappropriation of trade secrets and conversion.  This case has probably generated the most media attention, as Twitter has become an important source for news content and sharing.

Kravitz had been responsible for assisting PhoneDog with its branding and marketing efforts through Twitter and, as a result, he had generated more than 17,000 followers, a significant number under Twitter standards.  As a result of the parties' conflicting accounts of ownership, the district court denied Kravitz's motion to dismiss.  Again, no written agreement was signed by the parties documenting ownership of the social media account.  (For more on the PhoneDog case, see my post earlier this year).  Consequently, as I suspected earlier this year, Kravitz may have been in a stronger position as to the Twitter handle since it was presumably set up in his name.

Eagle v. Morgan, 2011 WL 6739448 (E.D. Pa.. Dec. 22, 2011):  Trial for this case was scheduled for October and postponed to November; as of the date of this post, I have not been able to find out about the trial's results or whether the case has settled.  According to one blog account that I read a couple of months ago, the plaintiff Dr. Linda Eagle is now representing herself pro se because she could no longer afford counsel.

Dr. Eagle had formed a company called Edcomm and created a LinkedIn account to help her and her company better network and market.  She eventually sold Edcomm and was terminated.  When she was denied access to her LinkedIn account, she sued Edcomm's new owners under a host of different theories.  Her misappropriation of trade secrets claims were dismissed because the LinkedIn information was readily ascertainable to the public and her Computer Fraud and Abuse Act and Lanham Act claims were recently dismissed because of the absence of credible damages.  However, her common law claims, including conversion, were allowed to proceed.

Again, like PhoneDog, there was no agreement as to what social media was owned by the company or Dr. Eagle.

Christou v. Beatport, LLC, 2012 WL 872574 (D. Colo. March 14, 2012):  This Colorado district court decision found that there were sufficient allegations to support a trade secret claim in a dispute between two former business partners over a social media account.  Again, like PhoneDog and Eagle cases, this decision is of limited precedential value because it was only at the motion to dismiss stage.  Again, the absence of a written agreement clouds this issue, and will lead to a decision, if the case is not settled, that will likely turn on the facts and circumstances surrounding the establishment and maintenance of the accounts.

Ardis Health, LLC v. Nankivell, Case No. 11 5013 (NRB) (Oct. 19, 2011, S.D.N.Y.):  In Ardis Health, a former employee who was responsible for Ardis Health's social media and related websites refused to return the access information for those accounts. Relying on a Work Product Agreement that the employee signed, Ardis Health was able to secure a preliminary injunction compelling the return of the access information for those accounts. This decision was straightforward as the employee had signed an agreement and there was no dispute over who owned the social media accounts.  This is the only case with an agreement, and not surprisingly, it ended up in favor of the employer.

The Takeaway.  At the 37th IP Institute, Robert and I both believed that written agreements are the key to demonstrating ownership, and this is borne out by the cases that I have listed above.  Policies are certainly important and need to be kept up to date as well, but for social media accounts that are important to an employer, or an employee, it is always prudent to have a written agreement spelling out who owns what.  Otherwise, courts will be forced to look to factors such as who set up the account, in whose name the account was in, and other traditional indicia of ownership to determine who truly owns the social media at issue.
 
I will follow up with a post (or posts) in the next week or so addressing some of the other issues that we addressed on social media, cybersecurity and cloud computing.

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California | New York | Pennsylvania | Social Media | Trade Secrets

About John Marsh

John Marsh Hahn Law AttorneyI’m a Columbus, Ohio-based attorney with a national legal practice in trade secret, non-compete, and emergency litigation. Thanks for visiting my blog. I invite you to join in the conversations here by leaving a comment or sending me an email at jmarsh@hahnlaw.com.

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