Unfair Competition & Trade Secrets Counsel - The latest news and innovative strategies for protecting trade secrets and preventing unfair competition

By Harry Jones 

A recent study by independent data privacy research firm Ponemon Institute of 3,317 individuals in six industrialized countries found that employees are moving intellectual property, including trade secrets, outside their companies in all directions. 

Over half of those surveyed admitted they had emailed business documents to their personal email accounts; 41% said they do this at least once a week. The same percentage of respondents confessed they downloaded company IP to personally-owned tablets or smartphones. A majority of those surveyed did not believe this was “wrong.” The most common justification for data misuse was that “it’s not hurting the company.” 59% of U.S. survey respondents believed it would be fine for a software developer to re-use source code he created for a prior employer, even without permission (a higher percentage than in the U.K., France, China, or South Korea). Furthermore, 37% of the employees polled reported they use file-sharing apps (such as Google Docs™ or Dropbox™) in the cloud, without permission from their employers. The majority of survey respondents admitted they did not take any steps to delete the data after transferring it. Thus, when employees leave, they may retain confidential information, without malice or even forethought. Half of the survey respondents admit they left employment with portions of their former employer’s confidential information, and 40% say they will use it in their new jobs.

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By Paul Kennedy 

Non-compete restrictions are creations of state law, which can sometimes vary on key aspects of contract formation and enforceability. One of those aspects is the extent to which states will reform or "blue pencil" the language of the restrictions. In many states a court will rewrite the terms of the restrictions to make them reasonable, thus fulfilling the parties' contractual intent. Courts in other states refuse to tamper with a restriction's language, requiring the non-competes to rise or fall on their literal terms.   

One means of avoiding state-specific nuances that might otherwise threaten enforceability is a choice-of-law provision that designates the law of an enforcement-friendly jurisdiction to apply to the agreement's interpretation. While states often honor the contracting parties' intent to apply another state's law, a potential problem arises when the chosen state's law violates a fundamental public policy of the state where enforcement is sought. To that point, the Restatement (Second) of Conflict of Laws, Section 18, provides that parties' choice of law will not apply if "application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue." Hence, in a lawsuit brought outside a home jurisdiction, one argument to avoid enforceability of a non-compete is that the chosen law violates the policy of the forum state.

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By Dylan Wiseman

On December 28, 2012, President Obama enacted the Theft of Trade Secrets Clarification Act of 2012, which clarifies the scope of the Economic Espionage Act of 1996 (18 U.S.C. §§ 1831-39). The newly enacted amendments are intended to reverse the recent Second Circuit decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012). 

In the heavily-criticized Aleynikov decision, the Second Circuit overturned a conviction against a former employee accused of stealing trade secret computer source code under the Economic Espionage Act. To understand purpose of the Theft of Trade Secrets Clarification Act, it is necessary to review the facts of the Aleynikov ruling. 

In Aleynikov, the defendant was previously employed by Goldman Sachs & Co. as a computer programmer. He helped develop source code for the company’s proprietary high-frequency trading (HFT) system that was used in securities and commodities trading for making large volumes of trades within fractions of a second. On the last day of his employment in June 2009, he encrypted and uploaded more than 500,000 lines of source code for the HFT system to a server in Germany. After uploading the source code, the defendant deleted the encryption program and his history of computer commands. When he returned to his home in New Jersey, he then downloaded the encrypted source code for use at his new employment with a Chicago-based startup that sought to create its own HFT system. In July 2009, after returning from Chicago following a meeting with his new employer’s principals with a flash drive and a laptop containing portions of the Goldman HFT source code, he was arrested by the FBI. 

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In a rare procedural move, the Ohio Supreme Court reconsidered and reversed its May 24, 2012 decision in Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-2297 ("Fishel I"). At issue was the enforceability of restrictive covenants in employee noncompete agreements subsequent to a  merger. In Fishel I, affirming the decisions of the lower courts, the Ohio Supreme Court held that all assets and property, including employment contracts and agreements, transferred through operation of law to the resulting company post-merger. The merged company, however, was precluded from enforcing its predecessor's noncompete agreements because the agreements did not contain language that extends to others, such as the company's "successors or assigns," and the noncompete agreements had expired as to all the employees involved.  

On October 11, 2012, the Ohio Supreme Court reversed its position in a 6-1 ruling (Pfeifer dissenting), holding that the surviving company could enforce the agreements as if it had stepped into the shoes of the original contracting company. See Acordia of Ohio, L.L.C. v. Fishel, 2012 Ohio LEXIS 2454 ("Fishel II"). 

To learn more about the decision, please continue reading Littler's ASAP, The Ohio Supreme Court Reverses Its Position on the Enforceability of Noncompete Agreements after a Merger, by Thomas Metzger and Melanie Houghton.

By Dylan Wiseman and Tomomi Glover

The battle continues in the trade secret misappropriation dispute between DuPont Co. and competitor Kolon Industries over para-aramid fibers, often used to strengthen military or police gear.  Eastern District of Virginia Judge Payne issued a staggering 20-year worldwide injunction prohibiting Kolon from producing its Heracron fibers, which is significant not only for the duration and scope of the injunction, but for the 70-page opinion analyzing the standard and basis for issuing the permanent, post-verdict injunction. There may be more to come on appeal, but, as it stands, the opinion provides significant ammunition for trade secret owners seeking an injunction in cases of misappropriation.

After lengthy analysis, the court held that the eBay standard, which requires irreparable harm and unavailability of an adequate remedy of law for an injunction in patent cases, does not apply for a violation of the Virginia Uniform Trade Secrets Act (VUTSA). The court instead applied Virginia state law, holding that because DuPont had proved a violation of the VUTSA, it need not prove irreparable harm or the lack of an adequate remedy at law. Since nearly all states have adopted some version of the Uniform Trade Secrets Act, DuPont will be useful to trade secret owners outside of Virginia and across most of the United States.

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