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.
Trial and Error Under the China Initiative
If you have seen any of our prior articles concerning the China Initiative, you know the U.S. Department of Justice (“DOJ”) is still focused on actively investigating individuals with ties to China who are suspected of trade secrets theft. However, the failure of recent China Initiative prosecutions raises an issue as to which companies involved in academic and scientific research may be targeted going forward.
Ajaxo v. E*Trade: How (Not) to Prove a Reasonable Royalty for Trade Secret Misappropriation
The latest appellate decision in the nearly 20-year legal battle between Ajaxo and E*Trade highlights the importance of expert discovery and a well-developed trial court record for a plaintiff attempting to claim reasonable royalties for trade secret misappropriation.
The saga between Ajaxo and E*Trade began back in the late 1990s, with Ajaxo, a six-person company, approaching E*Trade, seeking to support its wireless access and trading business. In response, E*Trade asked Ajaxo for a technical paper and live demonstrations, during which E*Trade’s engineers peppered Ajaxo with questions. One E*Trade senior engineer, Dan Baca, made a copy of Ajaxo’s technical binder. After E*Trade sent Ajaxo a draft letter of intent—with everything but the dollar amount filled in—E*Trade had a change of heart and told Ajaxo it was simply too small to be an E*Trade partner. Instead, E*Trade acquired these services a short time later from Everypath, a company that it had been meeting with simultaneously, and where Dan Baca started to work shortly after attending the Ajaxo meetings. READ MORE
Joint Ventures & COVID-19: How to Protect Trade Secrets when Partnering with Competitors to Meet PPE and Ventilator Demand
COVID-19 has presented countless challenges, among them, the extraordinary need—and conversely, extreme shortages—of basic protective gear, ventilators, and personal protective equipment (“PPEs”) for healthcare professionals and essential businesses. With these challenges come a myriad of opportunities for companies to develop, engineer, and deploy novel ways to address the shortage. Possible solutions have included the federal government ordering, under the Defense Production Act, manufacturers to prioritize the manufacturing of essential medical products. As a result of high demand and a compelling need, manufacturers are stepping outside their established businesses and joining with new partners to quickly manufacture necessary products. READ MORE
FTC Holds Workshop Examining Potential for Regulation of Non-Compete Agreements
After a busy year for non-compete regulation at the state level, the Federal Trade Commission (FTC) held a public workshop last Thursday in Washington D.C. to examine the legal basis and economic support for a contemplated FTC rule restricting the use of non-compete clauses in employment agreements. A link to the FTC’s webpage with details about the workshop is located here: https://www.ftc.gov/news-events/events-calendar/.
The workshop brought together experts from academia, organized labor and the private sector to discuss the impact of non-competes on the American workforce and overall economy. Multiple panels involved presentations of academic studies taking the position that non-competes negatively impact workers and the labor market. In particular, there appeared to be broad consensus among panel presenters that non-competes restrict worker mobility, limit the exchange of information, and cause a suppression of wages. One study estimated that an outright ban on non-competes clauses would cause wages of workers in the U.S. to increase, on average, by approximately 7%.
There was also discussion about the potentially positive impact of non-compete agreements for certain categories of employees, such as physicians and CEOS. In particular, one study found that physician groups that utilized non-competes saw doctors make significantly more patient referrals within the physician group and led to higher overall earnings. Moreover, the study found CEOs bound by non-compete clauses tend to be more accountable and typically receive higher compensation.
There was also significant discussion regarding the FTC’s authority to promulgate a rule regulating the use of non-compete agreements. Several participants noted that the FTC has broad statutory authority to regulate unfair competition. Non-competes could theoretically fall within the FTC’s authority pursuant to the FTC’s view that non-compete agreements are anti-competitive and an unfair restraint on the ability of employers to compete for labor.
Overall, workshop participants agreed that more empirical evidence is needed before there can be meaningful discussion about an outright ban of non-compete agreements. Other proposals for an FTC rule included setting a nationwide minimum earnings threshold for workers against whom a non-compete may be enforced and requiring employers to disclose the terms of a non-compete with an offer of employment (not after an offer has been accepted).
To aid its continuing analysis of non-competes, the FTC is seeking public comments on several questions aimed to determine how the Commission should focus its rulemaking efforts. Public comments are due by February 20, 2020. More information about submitting a public comment to the FTC can be found at the link above. Trade Secrets Watch will continue to monitor developments from the FTC.
Professor’s Prosecution Shows Importance of Disclosing All Foreign Ties
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
Key Trends from a Summer of Non-compete Reform
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.”
Two Wrongs Don’t Make a Right – Trade Secrets Saga Concludes With No Damages Awarded
On Wednesday, a federal jury in the Eastern District of Texas declined to award any damages to Huawei Technologies Co., the world’s largest telecommunications company, stemming from its allegations of trade secret theft, employee poaching, and restrictive covenant violations against former employee Yiren Ronnie Huang (“Huang”) and startup CNEX Labs, Inc. (“CNEX”). Huang and CNEX, in turn, asserted counterclaims of trade secret theft against Huawei. Although the jury found Huang violated his post-employment obligations to Huawei and that Huawei misappropriated CNEX’s trade secrets, the jury did not award damages to either party. The verdict came after a contentious three-week trial before Judge Amos Mazzant on the parties’ dueling trade secret claims.
A 2018 Trade Secrets Year in Review
With the holidays behind us and our calendars flipped over to 2019, we’re taking a look back at some key trade secrets developments of the past year. Here are some of the big cases and legislative developments from 2018. READ MORE
USPTO’s Second Trade Secrets Symposium Looks Back on First Year of DTSA and Ahead Toward Challenges of International Trade Secrets Protection
On May 8, 2017, the United States Patent and Trademark Office hosted its second event on trade secrets. When we covered the USPTO’s inaugural trade secrets symposium held in January 2015, there was a palpable sense among DC insiders that, at long last, federal trade secrets legislation was imminent.
Readers of this blog of course know the rest of that story: obviously the biggest change in the landscape since the last event was the passage of the Defend Trade Secrets Act of 2016. In fact, the USPTO intentionally timed this event to fall near the one-year anniversary of the DTSA’s passage.
What else had changed in the last two years? To answer that question, I once again traveled to USPTO headquarters in Alexandria, VA to attend the symposium and provide TSW readers with the following report. READ MORE