Employee non-compete agreements have long played an important role in employers’ ability to protect confidential and trade secret information. However, recognizing the distinct advantage employers often enjoy in negotiating such agreements, there has been a well-documented trend in recent years toward greater scrutiny of—and even hostility toward—employee non-competes.
Supreme Court Narrows Scope of the Computer Fraud and Abuse Act
The U.S. Supreme Court recently resolved a circuit split regarding the federal Computer Fraud and Abuse Act (CFAA), specifically weighing in on the “exceeds authorized access” provision of the statute. The CFAA subjects to criminal liability anyone who “intentionally accesses a computer without authorization or exceeds authorized access.” READ MORE
Protecting IP in a COVID-19 Remote-Work-World
Even before the COVID-19 pandemic, many employers offered remote work options. Now employers all over the world are encouraging or requiring their employees to work remote from home. This means employees are accessing, maintaining, and sharing proprietary information outside of the office more frequently than ever before, thereby increasing the risk of employee and third-party IP theft. READ MORE
Use of Out-of-State Restrictive Covenants Ending Quickly in California
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.
Global Reach: U.S. Federal Rules Provide Assistance for Discovery in Foreign Matters
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
Texas Jury Rejects Digital Marketing Company’s $50 Million Trade Secret Misappropriation Claim
After a weeklong June trial, a Texas federal jury awarded Six Dimensions, Inc. (“Six Dimensions”), a digital marketing firm, $287,000 for its breach-of-contract claim against its former employee but rejected its behemoth $50 million claim for trade secret misappropriation against its competitor, Perficient Inc. (“Perficient”). READ MORE
Spring Cleaning: Tidying Up Your “Reasonable Efforts” to Maintain Trade Secrets
It’s among an in-house counsel’s worst nightmares. A former business partner, ex-employee, consultant, or competitor has stolen your company’s trade secret information. Company management demands swift action. You hire outside counsel who, after reviewing your company policies and interviewing stakeholders, tells you that he or she is concerned about being able to establish that your company took “reasonable efforts” to protect the information. Listening to the feedback, you realize with a sinking feeling that these were steps that you, as in-house counsel, may have been able to implement if you had only thought about the issue sooner. READ MORE
Race to the Finish: Autonomous Vehicle Technology at the Forefront of Alleged Trade Secrets Theft
The stakes couldn’t be higher in the race amongst Silicon Valley self-driving companies vying to be the first to bring the industry-changing technology to market. With competition so steep, and the potential value counted in the trillions, the efforts to protect this technology have given rise to frequent trade secrets theft disputes.
In the most recent instance of alleged autonomous vehicle technology trade secret theft, a federal district court judge ordered the former director of hardware of WeRide Corp., Kun Huang, to return all files he allegedly downloaded from WeRide before his departure in 2018. WeRide formerly credited Huang with its success in becoming the fastest autonomous vehicle company to complete its first public road test. Now, WeRide alleges Huang copied confidential information from a company shared-laptop, deleted files from the laptop, cleared its web browsing history, and then erased the hard drive on his WeRide-issued personal MacBook. Shortly thereafter, Huang began working at Zhong Zhi Xing Technology Co., Ltd. (ZZX), another defendant in the case, which WeRide alleges was founded by its former CEO, Jing Wang, also named as a defendant.
Based on these allegations, the Court granted WeRide a preliminary injunction against Huang and his new companies, ZZX and a related entity AllRide.AI, Inc., barring these parties from using or sharing WeRide’s trade secrets and requiring them to return all WeRide materials within four days of the order.
This case is but one of many recent trade secret disputes amongst Silicon Valley autonomous vehicle technology companies. And with autonomous vehicle employee turnover high and trillions of dollars at stake, we expect to see many more trade secret disputes arise.
Third Circuit: Spying on Former Employee’s Social Media Account Does Not Constitute “Unclean Hands” to Bar Trade Secret Misappropriation Claim
Consider this: a former employee has just left his or her employer and may have taken trade secrets to a competitor. Can the employer log in to that former employee’s personal social media account to search for potentially incriminating evidence? For most employers, the answer may be “no,” as doing so may be unlawful or at a minimum, may constitute “unclean hands” (a doctrine barring equitable relief when the party seeking the relief has committed misconduct related to the claims at issue) possibly jeopardizing the employer’s trade secret misappropriation (and other claims) against the former employee. READ MORE
Intent to Use is Sticking “Pointe” In Denial of Preliminary Injunction
On October 25, the U.S. District Court for the District of Massachusetts denied motions for injunctive relief in a case involving trade secrets allegedly stolen by a departing consultant using his personal computer to sync with the company’s Dropbox. This case established (1) Massachusetts’ newly enacted Uniform Trade Secrets Act (“UTSA”) does not apply retroactively even if the violation is continuing; and (2) intent to use a trade secret is a hurdle which Plaintiffs can struggle to show where there is not evidence of actual use and the defendant takes steps at remediation. READ MORE