In today’s competitive marketplace, organizations are prepared to invest time and resources in protecting their trade secrets as it is estimated that companies in the United States lose $160 to $480 billion each year due to trade secret misappropriation. Recently, there have been legislative efforts at the federal level to enhance the protection of trade secrets, namely by creating a federal civil cause of action for trade secret theft. While many companies support the expansion of legal remedies against misappropriators, organizations must also proactively protect their confidential information by educating their employees and implementing industry best practices.
The CLE program “Latest Developments in Trade Secret and Non-Compete Law” provided attendees with an overview of legislative efforts to enhance the protection of trade secrets at the federal and state levels, highlighted legislative activities and court rulings related to the enforceability of non-compete agreements in various states, discussed legislative developments in the areas of social media and cyber espionage, and described best practices for protecting trade secrets at the corporate level. Robert Milligan, Partner in the Litigation and Labor & Employment Departments of Seyfarth Shaw LLP and Co-Chair of its Trade Secrets, Non-Compete and Computer Fraud group served as the program’s moderator. Katherine Perrelli, Partner and Chair of Seyfarth Shaw’s national Litigation Department; Jerry Cohen, Partner at Burns & Levinson, LLP; and Karen Tompkins, Senior Legal Counsel, Employment at Stryker Corporation shared their insights as panelists.
Federal Legislative Activity
Presently there is no federal civil cause of action for trade secret misappropriation, so plaintiffs are often resigned to vindicating their rights in state courts. However, there are bills pending in the United States Senate and House of Representatives that, if enacted, would provide a federal civil cause of action for trade secret theft. The panelists discussed the merits of these pieces of legislation. For example, the Defend Trade Secrets Act of 2014 would allow a plaintiff to obtain a seizure order, but some have questioned whether this remedy may be subject to abuse and have concerns about implementation. The Trade Secrets Protection Act of 2014, which was introduced in the House of Representatives in July 2014, refines the seizure provisions in the Defend Trade Secrets Act of 2014 and also provides trade secret owners with extensive remedies for trade secret misappropriation. Congress is expected to weigh in on the two trade secret bills after it returns from August recess.
State Legislative Developments
At the state level, there has been increased activity in the trade secrets and non-compete arenas. Texas became the 48th state to adopt the Uniform Trade Secrets Act; New York and Massachusetts are the only states that have not yet adopted a version of the Act. This past legislative session, the Massachusetts legislature considered a bill to adopt the Uniform Trade Secrets Act. Although the legislation failed, panelist Katherine Perrelli noted that it is likely that discussions will continue in the next legislative session.
In terms of non-compete agreements, there are various nuances and differences among states. The legislatures of New Jersey and Maryland proposed bans on enforcing non-compete agreements against employees who claim unemployment, while legislatures in Massachusetts and Minnesota considered restrictions and bans on non-compete agreements. Given the differences in the enforcement of non-compete agreements among states, it is particularly important for multi-state employers to remain abreast of legislative developments. Seyfarth Shaw’s 2014-2015 50 State Desktop Reference: What Employers Need to Know About Non-Compete and Trade Secrets Law is one resource that employers can use to remain informed of the diverse non-compete landscape.
The panel discussed the differences across the nation in how courts have addressed trade secret preemption. While some states permit plaintiffs to bring common law claims, such as breach of duty of loyalty and tortious interference, along with trade secret claims arising out of the misuse of company trade secrets, other states do not permit plaintiffs to bring such claims and preempt common law claims.
Best Practices for Protecting Trade Secrets and Drafting Non-Compete Agreements
In light of the present legal and legislative landscape, the panelists provided attendees with practical tips for protecting trade secrets and drafting non-compete agreements. According to a 2013 Symantec/Ponemon study that surveyed 3,317 employees, half of the employees who left their jobs retained their employers’ confidential information, and forty percent of those individuals planned to use that information in their new roles. Thus, educating employees about the importance of protecting company information is a vital part of an organization’s protection and enforcement process.
In terms of safeguarding proprietary company information, it is recommended that companies:
- conduct entrance and exit interviews with employees;
- educate managers and human resources professionals regarding the company-owned items that employees must return upon their departure;
- transparently communicate the company’s policies regarding the monitoring of employees’ electronic devices and communications to employees;
- disable employees’ access to company and computer networks at the time of departure;
- creature a culture of compliance and confidentiality where employees recognize the value of protecting trade secrets in a supportive and collaborative environment; and
- share best practices within their industries to protect valuable business data.
As to non-compete agreements, express representations and clear drafting are keys to enforcement. Employers should ensure that they research states’ practices on enforcing forum selection clauses, and draft forum specification and choice of law provisions with that information in mind, including provisions concerning personal jurisdiction and representations concerning connections to the forum state. Similarly, employers should ensure that agreements address full-time, part-time, and consultant relationships in recognition of the fact that employees may fluidly shift roles within an organization. Finally, employers should ensure that employees receive sufficient consideration for signing non-compete agreements, which may vary by state; specifically, continued employment is sufficient consideration in many states, but in other venues, employers must give employees additional consideration, such as a bonus, before the non-compete is enforceable.