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.
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
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.”
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.
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
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
The Waymo v. Uber trade secrets litigation has been underway for less than two months but the case has already hit quite few speed bumps with multiple discovery battles, Waymo’s efforts to obtain a preliminary injunction from Judge William Alsup of Northern District of California, a fight over arbitration, assertions of 5th Amendment rights, and now an appeal to the Federal Circuit that has temporarily halted a portion of the district court proceedings.
As a quick recap of how we got here, Waymo alleges that one of its former key managers in charge of Waymo’s driverless car business, Anthony Levandowski, downloaded more than 14,000 files to start a competing company—Otto—that Uber later purchased. The key technology relates to a LiDAR system, which is mounted on top of the car and gives the driverless car the ability to “see” other cars and obstacles. Waymo is seeking a preliminary injunction enjoining Uber from using or disclosing any of Waymo’s trade secrets and from selling any devices based on Waymo’s patents. In aid of the PI hearing on May 3, 2017, the parties are engaging in expedited discovery. Since this case started, the docket has been quite active and full of interesting, thorny legal issues. READ MORE
In little under a year after its enactment, a Federal Court jury in the Eastern District of Pennsylvania issued the first verdict under the Defend Trade Secrets Act in favor of the Plaintiff Dalmatia Import Group, Inc. The jury awarded Dalmatia $2.5 Million in total damages for all claims, with $500,000 attributed to its DTSA and Pennsylvania Uniform Trade Secrets Act claim. Just this week, Dalmatia filed a motion for judgement on the verdict, seeking treble damages for its related trademark and counterfeiting claims. If the court awards treble damages, total damages could exceed $5 Million.
Within days of each other, your clothing company―Free Country Ltd.―loses two employees who decamp to a rival to set up a competing apparel line. You discover that just before leaving, they transferred some 50,000 documents to a personal account—customer orders, your master contact list, and product design information. Incensed, you file a trade secrets lawsuit and seek an injunction prohibiting the thieves from soliciting your customers. Their defense amounts to, “so what if we took the documents―it’s a free country!” Easy win, right? Wrong. These are the facts of a recent trade secrets lawsuit in the Southern District of New York, in which the court denied the plaintiff’s request that its former employee defendants be prohibited from soliciting plaintiff’s customers. READ MORE
If you are a regular reader of TSW, you know we have been monitoring developments relating to the Defend Trade Secrets Act of 2016 (DTSA). While the Northern District of California was the first court to enter a written opinion under the DTSA, case law is continuing to develop across the country, including in the First Circuit. READ MORE