Spoliation by Self-Driving Startup Leads to Terminating Sanctions

During the course of a trade secrets litigation, neglecting to preserve electronically stored information (“ESI”) may result in a finding of spoliation. In a recent Order issued by Judge Edward Davila (United States District Court, Northern District of California), two startups in the autonomous vehicle industry, WeRide and AllRide, learned that failure to adequately preserve ESI can also lead to terminating sanctions. READ MORE

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

Does the Inevitable Disclosure Doctrine Apply Under the DTSA? It Depends on the State.

The Defend Trade Secrets Act (“DTSA”) went into effect in May 2016. Since then, federal courts have largely adhered to existing law in their respective states to determine whether the inevitable disclosure doctrine applies to DTSA claims. This article provides a sampling of existing opinions that have either permitted or rejected the inevitable disclosure doctrine under DTSA claims, broken down by state.[1]  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

In Pursuit of Chinese Trade Secret Theft: Fresh Allegations Against Huawei and Chinese Military Grabs 145 Million SSNs

Loyal readers are familiar with the DOJ’s “China Initiative,” launched in November 2018 to prosecute the theft of U.S. trade secrets by or for Chinese interests. Attorney General Barr reaffirmed the DOJ’s commitment “to combat the threat posed by theft directed and encouraged by the PRC” in an address at the China Initiative Conference last month. The DOJ’s campaign recently intensified with two new, gripping indictments. 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.

Indirect Competition Enough to Enforce Non-Compete Against Former CEO in Pennsylvania

In the midst of nationwide efforts to reform the use of non-compete restrictions, a recent decision from the Eastern District of Pennsylvania illustrates the broad approach courts may take when enforcing restrictive covenants against high-level executives. READ MORE

In a Blockbuster Economic Espionage Act Prosecution, an Attempt by the Government to Hide the Ball?

An ongoing, headline-grabbing trade secret theft prosecution against a Chinese spy is also quietly presenting a, say, disquieting attempt by prosecutors to stretch the law on what it is required to plead and prove.  On the civil side, when a plaintiff sues for trade secret theft, there’s almost always a hotly contested point of proof on whether the alleged stolen material is really a trade secret.  It’s well-established, though, that when the government charges a defendant criminally with the inchoate forms of trade secret theft—attempt or conspiracy being the two spelled out under the Economic Espionage Act—the government has no burden to prove that the underlying information was actually a trade secret.  (Loyal readers will recall our recent post on United States v. O’Rourke, where the defendant tried to argue otherwise at sentencing.)  Now, in a brief filed just last week, the government seems to be taking this one step further and arguing that it has no duty even to identify the trade secrets at issue. READ MORE