Today's post features Nos. 4 through 6 of the Top Ten Trade Secret and Non-Compete Decisions of 2011. They are:
6. IBM v. Visentin (U.S. District Court for the Southern District of New York and U.S. Court Appeals for the Second Circuit) and Aspect Software v. Barnett (U.S. District Court for Massachusetts)These two cases presented the same issue -- to what extent should a non-compete be enforced when the new employer and former employee have put safeguards in place to protect the plaintiff's trade secrets and customer relationships. Both of these cases provide a fine example of what a company should do if it wants to hire an employee with a non-compete but minimize potential entanglements with the former employer (see my previous blog post on the Aspect Software case where the former employee and new employer incorporated 8 steps to safeguard the plaintiff's interests). However, taken together, these two cases also reinforce another feature of non-compete and trade secret cases -- their unpredictability. In Visentin, the Southern District of New York (and later, the Second Circuit) found that the former employee and the new employer (HP) had acted reasonably to protect the business interests of the former employer (IBM) and that the non-compete should not be enforced to prevent the employee's new job with HP. In contrast, in Aspect Software, although the district court commended the former employee and his new employer, Avaya, for "the scrupulous steps" they took to safeguard the plaintiff's trade secrets and customer relationships, it still enforced the non-compete because of concerns that the employee would inevitably use his former employer's trade secrets.
As increased employee mobility and a poor economy continue into 2012, look for more cases like Visentin and Aspect Software. Courts will be forced to balance the interests of all parties and still protect the legitimate interests of the former employer. These cases may have a profound impact on the viability of the inevitable disclosure doctrine, the traditional counterweight to an employee's assurances about his or her good faith efforts to protect the former employer's trade secrets.
5. Mattel v. MGA (U.S. District Court for the Southern District of California, Los Angeles)Will it ever end?
When I first started putting this list together, I thought about using movie titles to highlight the key qualities of each case. When it came to selecting a title for this bitter case, plenty came to mind -- "There Will Be Blood" and "Drag Me to Hell" certainly would have captured it nicely. However, the most fitting title is probably "Reversal of Fortune" as this epic lawsuit, at least in its most recent round, has swung decisively in favor of MGA.
If you are reading this post, you are likely familiar with the history of this dispute which began in 2003, when Mattel first sued MGA for stealing the idea for the pouty-lipped Bratz Line through a former Mattel employee. In 2008, Mattel won a $100 million jury verdict, only to see that judgment reversed by the Ninth Circuit. Then, in April 2011, MGA prevailed during the second jury trial, not only persuading the jury to reject Mattel's claims but also to award MGA $83 million on its trade secret counterclaims. That award swelled to $310 million when the district court imposed exemplary damages and attorneys fees in post-trial proceedings. What will the next ruling bring? No one really knows, as the trade secret version of Jarndyce and Jarndyce continues to work its way through California's federal courts.
4. U.S. v. Nosal (U.S. Court of Appeals for the Ninth Circuit)The scope of the Computer Fraud and Abuse Act (CFAA) continues to beguile litigants and courts alike, and no CFAA case raised more eyebrows in 2011 than the Ninth Circuit's decision in U.S. v. Nosal, 642 F.3d 781 (9th Cir. Apr. 28, 2011). In Nosal, the Ninth Circuit held that the violation of a computer use policy that placed "clear and conspicuous restrictions on the employees’ access” to the employer’s computer system and the specific data at issue could be enough to qualify as conduct that exceeded authorized access, a necesssary element of a CFAA claim.
We will reveal our top three cases next week, so please stay tuned. In the meantime, have a safe and happy new year.
Tags: trade secrets, non compete, covenant not to compete, confidential information, IBM, Visentin, Aspect Software, Avaya, Barnett, Nosal, Computer Fraud and Abuse Act, CFAA, Mattel, MGA, Facebook, MaxBounty
Computer Fraud and Abuse Act (CFAA) | General | Intellectual Property | Copyrights | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
Courts continue to grapple with whether to enforce a non-compete against a former employee who joins a competitor but takes affirmative steps to protect the former employer's trade secrets and avoids former customers. For example, in Aspect Software v. Barnett, the U.S. District Court of Massachusetts enforced a non-compete even though it found that the employee and his new employer had taken "scrupulous steps" to protect his former employer's trade secrets decision. Now, another important decision on this issue, IBM v. Visentin, 2011 WL 672025 (S.D.N.Y. Feb. 16, 2011), has just been affirmed by the U.S. Court of Appeals for the Second Circuit. In contrast to Aspect Software, the U.S. District Court for the Southern District of New York found that the efforts of the employee and new employer in Visentin were sufficient to avoid any inevitable disclosure of IBM's trade secrets; its denial of IBM's request for a preliminary injunction was affirmed by the Second Circuit on November 3, 2011. Even by trade secret litigation standards, the Visentin case has moved at warp speed: On Jan. 19, 2011, Giovanni "John" G. Visentin, a general manager at IBM, announced his intention to leave IBM to work for HP. Although Visentin offered to remain at IBM for a reasonable transition period, IBM declined that offer and instead immediately sent someone to his home to retrieve his laptop. The next day, IBM filed a complaint alleging breach of his non-compete and misappropriation of trade secrets, and moved for a preliminary injunction. U.S. District Court Judge Loretta Preska held a four-day hearing beginning on February 11, 2011 and issued a comprehensive 61-page opinion on February 16, 2011 denying IBM's request. Essentially, Judge Preska rewarded Visentin and HP for their good behavior. The district court was persuaded that the steps taken by Visentin and HP would safeguard IBM's interests. Those steps included not only directing Visentin not to share any IBM confidential information but also specifically structuring his new position to avoid any overlap with areas that he oversaw at IBM. In addition, Judge Preska found that as a general manager, Visentin's exposure to IBM's trade secrets was minimal and in the absence of misconduct by Visentin, IBM had not met its burden of showing that he would inevitably disclose the few trade secrets that he had. Judge Preska's decision also reinforces how an employer initially reacts to the news of the employee's resignation may be an important factor when the district court balances the equities. In particular, Judge Preska emphasized IBM's decision to refuse Visentin's offer to remain at IBM and its refusal to discuss the new position with Visentin exacerbated the very emergency for which IBM sought the court's assistance. (For a more detailed analysis of Judge Preska's decision, which includes the perceptive note that I included above, please see Weil's reprint of an April 4, 2011 article in The New York Law Journal). The Second Circuit simply affirmed Judge Preska's opion with a summary order, concluding for "substantially the same reasons" in Judge Preska's "thoughtful and well reasoned" opinion that she did not abuse her discretion. The takeaway? It is difficult to completely reconcile the holdings in Visentin and Aspect Software, as the former employee and new employer implemented similar safeguards to protect the former employer's trade secrets in both cases. Perhaps the difference in the roles and responsibilities of the respective employees may account for the different rulings, as well as the fact that they were issued by courts in different jurisdictions applying arguably different standards (New York and Massachusetts have not adopted the UTSA). Whatever the case, Visentin certainly stands for the proposition that good behavior, sound planning and methodical execution can save the day.
Tags: IBM, trade secrets, non-compete, Visentin, Aspect Software, Barnett, Second Circuit
General | Inevitable Disclosure | Injunctions | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
For those of you who were able to join the recent PLI presentation on "Trade Secret Theft: Effective Tools for High Stake Disputes," I hope you enjoyed it as much as Victoria Cundiff and I did. For those that were not, here are some of the highlights: Hiring Employees with Non-Competes: This remains a real source of concern for employers who do not want to get ensnared in litigation over a hire. Victoria discussed the recent holding in IBM v. Visentin, 2011 WL 672025 (S.D.N.Y. 2011), where the Southern District of New York modified a non-compete to permit a former IBM employee to work for Hewlett-Packard because of steps the employee and Hewlett-Packard took to protect IBM's proprietary interests. Visentin is similar factually to the recent Aspect Software case about which I wrote last month. In Aspect Software, the District Court of Massachusetts arrived at a different result despite similar efforts by the former employee and Avaya. Although the holding in Aspect Software may be the exception, it reinforces the importance of selecting the right forum. "Procedural" Safeguards: One question highlighted concern about the effectiveness of written agreements and other safeguards that are, at the end of the day, dependent upon the good faith of the employee or business partner receiving the confidential information. Although there are measures to protect trade secrets that minimize or counteract this human element (encryption, monitoring data usage and access, etc.), those safeguards cannot completely eliminate the human component.
I had the privilege of speaking on a panel in May with Malcolm Harkins, Intel's Chief Information Security Officer, on the challenges of protecting sensitive data in the age of WikiLeaks. While Malcolm addressed a number of procedures and techniques available to an employer, I was struck by how much he stressed the creation of a vigilant and proactive culture to protect that data. At the end of the day, that culture, along with the reinforcment and training necessary for instilling that culture, remains the best defense.
This dovetails into another issue that arose as a result of a question, the importance of annual training and certifications/acknowledgements for the protection of confidential information. As Victoria noted, it's a good idea to have execution of the certifications coincide with other annual events, such as open enrollment for health insurance and annual reviews. Challenges for Multi-Jurisdictional Clients: "One-state-fits-all" agreements may be difficult to enforce because of the differences in non-compete and trade secret law from state to state. A forum selection clause may not solve that problem, as out-of-state courts may disregard the forum selection clause under choice of law principles and apply their own law if they see fit. Victoria noted that when selecting choice of law for an agreement, it may be worthwhile to factor in where your competitors are located (for example, California) in anticipation that any dispute with a former employee make take place there. WikiLeaks, the Internet and Trade Secrets: Not surprisingly, this remains an issue of real concern, particularly the question of whether a trade secret claim is lost once the trade secret makes its way to the Internet. As some may recall, I addressed this issue in a post in May; there is some authority allowing for a claim for a trade secret that has made its way to the Internet, provided one can demonstrate, among other things, that steps were taken to remove it from the Internet, that it was posted only briefly, etc. I am going to dig deeper to see what other courts have said and put together a future post on this topic.
Tags: PLI, Trade Secrets, Non-Competes, Victoria Cundiff, safeguards, confidentiality, WikiLeaks, Internet, Intel, IBM, HP, Aspect Software, Avaya
General | Intellectual Property | IP Litigation | Non-Compete Enforceability | Restrictive Covenants | Trade Secrets
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