As reported by Trade Secrets Watch last month, several states (including Maryland, Maine, New Hampshire, and Rhode Island) recently passed legislation curtailing the use of non-compete agreements. Now, the federal government wants in on the action.
A federal district court judge in Chicago sentenced Robert O’Rourke, a former employee of iron bar manufacturer Dura-Bar, to one year and one day in prison last week for stealing trade secrets. Well, not quite. O’Rourke was convicted on February 25 of seven counts of stealing and attempting to steal trade secrets, but moved for a new trial. In her October 11 order, Judge Andrea Wood denied the motion, holding that the trial evidence demonstrated O’Rourke’s intent to steal and use trade secrets—even if some of the proprietary information stolen did not actually constitute a trade secret. READ MORE
In August 2019, federal prosecutors indicted Feng Tao, a Chinese scientist conducting research at the University of Kansas, on fraud charges. The indictment may not appear notable at first glance. But when viewed against the backdrop of the Trump administration’s escalating trade war and the Department of Justice’s “China Initiative,” the facts underlying this prosecution may tell a deeper story.
As part of its China Initiative—a program announced in November 2018 to combat state-sponsored intellectual property theft—the DOJ set out to develop an enforcement strategy concerning universities and research laboratories. These institutions are considered particularly vulnerable targets of Chinese espionage because of their status as recruiters of foreign talent and incubators of state-of-the-art technology. The FBI has since begun scrutinizing universities’ ties to China, reaching out to schools around the country to curb the threat of technology and trade secret theft posed by researchers tapped by the Chinese government. READ MORE
It’s common sense that, to protect a trade secret, the information must remain secret. However, when trade secret misappropriation claims arise and litigation ensues, the court and the parties involved need to understand at least the broad confines of the alleged trade secret. While the Federal pleading standard for a plaintiff’s complaint is the same regardless of what the trade secret may be—namely, that the plaintiff include sufficient particularity of the trade secret’s subject matter—what constitutes “sufficient particularity” will depend on the type of information alleged to be a trade secret. AlterG, Inc. v. Boost Treadmills LLC, a recent decision in the Northern District of California, highlighted this fact when the court found the plaintiff had adequately pleaded facts to describe one trade secret, but failed to do so for another. READ MORE
The start of September means that summer is unofficially over. However, the end of beach season also means that big changes to state non-compete laws are on the horizon.
In the past three months, Maryland, Maine, New Hampshire, and Rhode Island have all passed legislation directly aimed at curtailing the use of non-compete agreements. This flurry of activity reflects a growing national concern about the fairness of non-compete restrictions and their impact on the U.S. workforce. For tangible evidence of this increasing concern, look no further than the preambles of the new laws in Maine and Maryland, both of which declare non-compete agreements as “against public policy.”
In January of this year, the DOJ indicted the Chinese telecom giant Huawei on counts of theft of trade secrets conspiracy, attempted theft of trade secrets, wire fraud, and obstruction of justice. On August 1, Huawei moved to dismiss the indictment for “selective prosecution.” Huawei contends that it is the “target of the politically motivated decision, at the highest levels of the U.S. government, to pursue the selective prosecution of Chinese companies and nationals for the alleged misappropriation of intellectual property.” In essence, it argues that the DOJ unconstitutionally seeks to punish Huawei because it is a large, successful Chinese company, not because of illegal behavior by the company or its agents. READ MORE
The Ninth Circuit recently certified a question to the California Supreme Court regarding the scope of California Business & Professions Code Section 16600. As TSW readers are likely aware, Section 16600 states that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” Pursuant to this statute, California courts have struck down a number of restrictive covenants in contracts with employees in California, including non-compete provisions, customer non-solicit provisions, and certain employee non-solicit provisions. The Ninth Circuit now wants to know whether the statute should apply to an agreement between two businesses. The Supreme Court’s answer may have significant effects on business agreements and collaborations in or involving California. READ MORE
Two years ago, TSW reported on several cases in which corporations outside of California successfully enforced non-compete agreements against California employees. They did so by using employment agreements containing foreign choice-of-law provisions and foreign forum-selection provisions.
We also reported that California had taken measures to correct this “loophole” by enacting California Labor Code section 925. Section 925, which went into effect on January 1, 2017, forbids employers from requiring employees to agree to foreign forum-selection and choice-of-law provisions as a condition of employment. It only applies to employees who primarily reside and work in California and who were not represented by counsel in negotiating the forum-selection or choice-of-law provisions. Its application is also restricted to contracts that have been “entered into, modified, or extended on or after January 1, 2017.”
At the time of our prior article, California courts had yet to apply the statute. In light of recent inquiries and requests from TSW readers, however, we’ve decide to provide an update on section 925 and its application.
As expected, courts have refused to apply section 925 when considering older contracts that have not been recently modified. See e.g., Scales v. Badger Daylighting Corp., No. 117CV00222DADJLT, 2017 WL 2379933, at *1 (E.D. Cal. June 1, 2017) (declining to apply section 925 to pre-2017 contract). The statute, by its own terms, does not affect such contracts, and California Courts have specifically rejected an argument that section 925 evidences California Public Policy that should retroactively reach pre-2017 contracts. Ryze Claim Sols. LLC v. Superior Court, 33 Cal. App. 5th 1066, 1072 (2019) (reversing “trial court’s decision to apply the policy expressed in Labor Code section 925 to [the employment agreement at issue], which was not entered into, modified, or extended on or after January 1, 2017.”)
It also comes as no surprise that courts have cited to section 925 in deciding not to enforce foreign forum-selection and choice-of-law provisions. See Depuy Synthes Sales Inc. v. Stryker Corp., No. EDCV181557FMOKKX, 2019 WL 1601384 (C.D. Cal. Feb. 5, 2019) (declining to enforce form-selection and choice-of-law provisions and denying defendant’s motion to transfer action to the District of New Jersey). In other words, the law appears to be working as intended.
Much of the litigation in this area has involved disputes about whether an older contract has been sufficiently “modified” or “extended” after January 1, 2017 such that it falls within the purview of section 925.
In Yates v. Norsk Titanium US, Inc., No. SACV1701089AGSKX, 2017 WL 8232188, at *3 (C.D. Cal. Sept. 20, 2017), the court found that section 925 did not apply to a pre-2017 contract and thus upheld the contract’s forum-selection clause and granted the motion to transfer. The employee argued that section 925 should apply to the contract because it had been modified through an “implied-in-fact” modification after January 1, 2017. The Court rejected this argument because the contract expressly stated that any amendment must be “in a writing signed and dated by both parties.”
Subsequent cases, in contrast, have generally applied section 925 when certain changes to the employee’s employment occurs (e.g., a change in compensation structure). See e.g., Geoffrey Friedman, et al. v. Glob. Payments Inc., et al., No. CV183038FMOFFMX, 2019 WL 1718690, at *3 (C.D. Cal. Feb. 5, 2019) (applying section 925 to a pre-2017 contract because the employer modified the “Sales Policy Manual” after January 1, 2017 thereby affecting the employees compensation); Lyon v. Neustar, Inc., No. 219CV00371KJMKJN, 2019 WL 1978802, at *7 (E.D. Cal. May 3, 2019) (applying section 925 to a pre-2017 employment agreement because the employee signed a separation agreement when he left that modified the prior employment agreement).
Accordingly, while certain older and unmodified contracts may remain effective, the number of such contracts is shrinking quickly. In some cases, the courts appear to be applying section 925 aggressively to sweep in older contracts that have even minor modifications after January 1, 2017.
As anticipated in May, rising trade tensions between the U.S. and China have led to a series of escalating measures including tariffs and trade investigations. In July 2019 testimony to the Senate Judiciary Committee, FBI Director Christopher Wray noted that more than 1,000 active investigations on intellectual property theft “lead back to China.” Against the backdrop of these issues, the Department of Justice announced the “China Initiative” on November 1, 2018. The DOJ explained that the Initiative was launched against the background of prior findings by the Administration regarding China’s trade practices. One of the China Initiative’s key goals is to “[i]dentify priority trade secret cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law.” READ MORE
Imagine the following scenario: Your company has filed several lawsuits around the world, all concerning generally the same subject matter, but against different parties because of jurisdictional limitations. The litigation overseas is subject to discovery rules that are far more limited than those available in the United States. The U.S. litigation has been stayed pending the result of the foreign matter. However, important information and witnesses that are useful in prosecuting the foreign litigation are located in the U.S., outside of the foreign court’s jurisdiction and applicable discovery rules. In this complex situation, is there any way to obtain that critical bit of information? Or can the U.S. witnesses evade all production and testimony because of jurisdictional bounds? READ MORE