Tag Archives: Misappropriation

Federal Court Denies Expedited Discovery In Defend Trade Secret Act Case

February 28, 2017 By in Advice, Case Summary, Defend Trade Secrets Act, Florida Non-Compete Lawyer, Trade secrets, Uncategorized Tags: , , , , , , , , Leave a comment

Trade-secret-misappropriation cases can move fast. Often, the plaintiff files a motion for temporary restraining order alongside its complaint. Sometimes, the plaintiff has enough evidence already to justify a TRO. Other times, the plaintiff needs to take discovery before the TRO hearing.

But the typical discovery deadlines in the rules of civil procedure are not well suited for these TRO proceedings. Thus, plaintiffs regularly seek expedited discovery. In my experience, the parties are often able to agree to an expedited discovery schedule, since defendants usually want to take discovery as well. But when the parties cannot agree, the court needs to get involved. A recent case out of the Middle District of Florida shows the importance of narrowly tailoring expedited discovery requests, particularly when asking a judge to permit this type of discovery.

In Digital Assurance Certification, LLC v. Pendolino, the plaintiff works with municipal bond issuers to comply with various SEC regulations. The plaintiff alleges that the defendant, a former employee, left to work for a competitor. And in his final week of work, according to the plaintiff, the defendant used a USB drive to access every document on the plaintiff’s shared drive. Thus, the plaintiff brought claims for violations of the Defend Trade Secret Act and the Florida Uniform Trade Secrets Act, among others, and filed a motion for a TRO.

In advance of the TRO hearing, the plaintiff filed a motion for expedited discovery. The court denied the motion. A copy of the order can be downloaded below.

The court first set forth the standard for determining whether the plaintiff had demonstrated good cause for expedited discovery:

Factors the Court considers in deciding whether a party has shown good cause include: (1) whether a motion for preliminary injunction is pending; (2) the breadth of the requested discovery; (3) the reason(s) for requesting expedited discovery; (4) the burden on the opponent to comply with the request for discovery; and (5) how far in advance of the typical discovery process the request is made.

Here, the court focused on the second factor, the breadth of the plaintiff’s requests. The court took issue with the scope of the plaintiff’s requests, noting that “while these matters may be relevant to the issues raised in DAC’s complaint, they go far beyond what is needed for the hearing on the motion for a temporary restraining order.”

Take away: When bringing a motion for a TRO, the plaintiff’s lawyers need to figure out quickly whether the parties will be able to agree to an expedited discovery schedule. If not, the plaintiff needs to draft discovery requests that are laser focused on the issues relevant to the TRO hearing. In my experience, judges will allow this type of discovery, as long as the requests are reasonable. Conversely, judges will protect defendants from overbroad discovery.

Digital Assurance Certification, LLC v. Pendolino

Shark Tank and College Football Non-Competes

December 17, 2015 By in Florida Non-Compete Lawyer, Noncompete, Trade Secrets In the News, Uncategorized Tags: , , , , , , , , , , , , Leave a comment

Two recent stories show why all companies should at least consider implementing non-compete agreements or other restrictive covenants.

First, here’s a link to a short interview with Shark Tank’s Robert Herjavec, talking about his first company. Unbeknown to Robert, his sales manager had set up a side business, to which he funneled half of Robert’s customers. Robert only found out because another employee broke down and told him during her exit interview.

Robert finishes the interview with good advice: “The minute you hire the first employee, you have to be careful.”

We don’t know if the sales manager had signed a non-compete or non-solicitation agreement. Such an agreement could have given Robert far better legal options.

Also, Robert trusted that his employees would be loyal. While it’s obviously good to trust your employees, it’s far better to trust and also have them sign appropriate restrictive covenants.

I also read about how an assistant coach of the Arkansas Razorbacks football team left for the University of Georgia. Bret Bielema, Arkansas’ head coach, was not happy. Apparently, his recently hired coaches signed non-compete agreements that prohibited them for coaching for other SEC schools. But the coach who had left had been hired earlier, and he did not have a non-compete.

Of course, Arkansas should have had its coaches sign non-competes from the outset. And once they decided to require new coaches to sign one, they should have at least attempted to have the older coaches sign as well.

These stories show how non-compete agreements can have value across diverse industries. It’s worth speaking with an attorney to figure out whether your company can benefit from implementing restrictive covenants, or improving existing agreements.

 

Florida Loves Non-Compete Agreements

December 3, 2015 By in Advice, Case Summary, Noncompete, Trade secrets, Uncategorized Tags: , , , , , , , , , , , , , , Leave a comment

Florida’s restrictive-covenant statute, Section 542.335, is one of the most employer-friendly in the country. A recent case from Florida’s Fourth District Court of Appeal, Transunion Risk and Alternative Data Solutions, Inc. v. Reilly, shows how this statute favors an employer trying to enforce a restrictive covenant against a former employee. A copy of the opinion can be downloaded below.

This opinion is short on facts, but the plaintiff sued the defendant for violating a non-compete agreement and sought a temporary injunction. At the injunction hearing, the trial court ruled in the defendant’s favor after the plaintiff finished its case in chief, before the defendant put on any evidence.

The appellate court reversed. First, it looked at the likelihood of irreparable injury, citing the statute’s presumption of irreparable injury that arises when the plaintiff shows a violation of an enforceable restrictive covenant. Here, the appellate court reversed because the defendant did not present evidence:

As the trial court’s ruling was issued before Reilly presented any evidence, Reilly could not have met his burden of presenting evidence overcoming the presumption.

This doesn’t sound right. A defendant should have the right to rebut this presumption simply by cross-examining the plaintiff’s witnesses. That’s what the trial court apparently thought happened here. But the presumption so strongly favors the plaintiff that this appellate court was unwilling to allow the defendant to rebut it without putting on affirmative evidence.

The trial court also concluded that the plaintiff had an adequate remedy at law. But the appellate court reversed this finding, noting that even when a plaintiff has suffered actual money damages,

the continued breach of a non-compete agreement threatens a former employer’s goodwill and relationships with its customers, and nothing short of an injunction would prevent this loss.

This finding essentially eliminates the adequate-remedy-at-law prong of the injunction analysis in restrictive-covenant cases.

Finally, the appellate court reversed the trial court’s finding that the plaintiff had not demonstrated a substantial likelihood of success on the merits. On this point, the appellate court relied on the trial court’s “implied finding” that the defendant violated a restrictive covenant. So once a court finds that the defendant breached, the plaintiff has automatically shown a substantial likelihood of success.

This case shows how Florida’s restrictive-covenant statute provides employers with the upper hand in litigation. As a result, these agreements are a very effective tool for protecting proprietary information and trade secrets. All Florida companies should consult with an attorney to determine whether to implement these types of agreements.

Transunion Risk and Alternative Data Solutions, Inc. v. Reilly

“Just Doin Blow and Erasing Evidence”

November 20, 2015 By in Case Summary, Noncompete, Trade secrets, Trade Secrets In the News, Uncategorized Tags: , , , , , , , , , , , , , , Leave a comment

As the Defend Trade Secrets Act—which would create a federal cause of action for trade-secrets theft—makes its way through Congress, critics have focused on the proposed statute’s ex parte seizure provision. In a nutshell, the statute would allow for the entry of ex parte orders to seize specifically identified repositories of evidence that are at risk of destruction.

I’ve responded to these criticisms multiple times before (see here, here, and here). The statutory protections (e.g., the party subject to the order is entitled to a hearing within 7 days) combined with federal judges’ reluctance to issue ex parte orders are, in my view, sufficient to prevent abuse.

Meanwhile, the threat of evidence destruction is real. A recent case shows how far defendants can go to allegedly destroy evidence of trade-secrets theft.

As described in Law360, a radio-controlled-vehicle company sued several former employees for violating restrictive covenants and misappropriating trade secrets, among other claims. The plaintiff filed a motion seeking sanctions against the defendants for destroying evidence.

According to the plaintiff, the defendants destroyed “scores of emails, texts, and documents that described their scheme to start at least one rival toy car and boat business.”

One of the defendants—who sounds like a real winner—apparently sent a text message talking about how he expected to get served with the complaint, saying “That’s what I’m trying to deal with now so I can’t go out, just doin blow and erasing evidence.”

In misappropriation cases, the evidence is almost always in electronic form. And it’s way too easy for defendants to destroy this evidence. While a plaintiff could seek sanctions (as the plaintiff here is seeking against the guy “doin blow”), a plaintiff would almost always rather have the actual smoking gun proving misappropriation.

The ex parte seizure provision is a powerful tool that may allow companies to preserve critical evidence.

What’s Worse Than Having Trade Secrets Stolen? Waiting Too Long to Do Something About It.

October 16, 2015 By in Advice, Case Summary, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , Leave a comment

If you discover that your trade secrets have been stolen, you must act immediately. That’s the lesson from a recent case in the Middle District of Florida, Dyncorp International LLC v. AAR Airlift Group, Inc. A copy of the order can be downloaded below.

The Plaintiff, Dyncorp, has been providing aviation services to the State Department under a contract going back more than 20 years. Apparently, the State Department is now re-bidding that contract. The Defendant, AAR, is one of the bidders. Dyncorp alleges that AAR hired former Dyncorp employees and “coerced” those employees into disclosing Dyncorp’s trade secrets, which AAR used in its bid.

Dyncorp filed suit for, among other things, violating the Florida Uniform Trade Secrets Act. About three weeks later, Dyncorp filed a motion for preliminary injunction that sought to enjoin AAR from using Dyncorp’s trade secrets.

The district court denied the motion, finding that Dyncorp did not satisfy any of the injunction prerequisites. Of particular note, the court found that Dyncorp’s delay in filing suit showed that it had not suffered irreparable injury:

Dyncorp admits that it was notified of AAR’s alleged misappropriation of trade secrets in April 2015 but let more than four months pass without filing suit. Dyncorp attempts to explain the delay away by arguing that it complained to the State Department and AAR and conducted its own investigation during this time, but offers no explanation as to why those undertakings and this suit could not proceed simultaneously – particularly if, as Dyncorp asserts, it was facing the prospect of irreparable injury.

This case shows that once you discover—or even suspect—that your trade secrets are being improperly used, you must act fast. Any delay can be cited by a defendant as a reason for denying injunctive relief, just as AAR did here. While not every case will demand the immediate filing of a lawsuit, you need to at least consult with an attorney right away. Then, your attorney can advise you of your various legal options, and the risks and benefits of each.

Dyncorp v. AAR — Order Denying Preliminary Injunction

Can Periscope Broadcast Your Trade Secrets to the World?

May 30, 2015 By in Advice, Trade secrets Tags: , , , , , , , 1 Comment

Periscope is an app that allows users to broadcast live video using their smart phone. This technology has the power to transform the delivery of media and information. Essentially, every person can now effortlessly create live video content, whether it’s sharing a family event with those who can’t attend or witnessing a newsworthy event.

I keep hearing more and more about Periscope. For example, I’ve seen media members use it to share press conferences or behind-the-scenes info. At first blush, this may seem irrelevant to your company’s trade secrets. But that may not be the case.

Right now, through Periscope and similar apps, every one of your employees can instantaneously broadcast live video to the world. It’s much easier to share exactly what’s going on, in real time, at your company.

This raises multiple levels of concern. To start, employees may inadvertently transmit proprietary information. For example, an employee could be sharing a broadcast from work intended for his friends and family, while other employees discuss proprietary information within earshot. Even though there was no intent, this information was still shared outside the company.

Even worse, Periscope is a powerful tool in the hands of someone with malicious intent. There has long been a risk that malicious actors can easily capture video. But now, that video can be shared live. For example, an employee could surreptitiously broadcast a company meeting. Or live video of a proprietary process or system.

Periscope is another example of how rapidly evolving technology is constantly creating new risks to your trade secrets. Your trade-secrets policy needs periodic review to make sure it addresses new technology. Depending on the nature of your business, it may make sense to ban live broadcasts completely. Most importantly, you should discuss these issues with an attorney who can help you decide what protections are appropriate for your business.

 

 

The DOJ Announced Another Trade-Secrets Prosecution. What Does That Mean For Your Company?

May 22, 2015 By in Advice, Trade secrets, Trade Secrets Best Practices, Trade Secrets In the News Tags: , , , , , , , , Leave a comment

There has been a lot of news coverage of the DOJ’s charges against Chinese professors for trade-secrets theft and violations of the Economic Espionage Act. Stories like this have become more common, as the DOJ has increased its focus on prosecuting trade-secrets theft. Often, these cases involve defendants with connections to foreign governments, and China in particular. As these cases have become more prevalent, the federal government has dedicated more resources to combating them.

Unfortunately, this will have little effect on most companies that fall victim to trade-secrets theft. The DOJ appears to have little interest in prosecuting run-of-the-mill trade-secrets theft, even though there may have been violations of a federal statute like the Economic Espionage Act. The DOJ simply does not have the resources to deal with the huge number of these cases. Thus, the vast majority of trade-secret misappropriation cases will be handled through civil lawsuits.

So what should you do if you believe your company has been the victim of trade-secrets theft? The answer is simple: you need to consult with an attorney specializing in this area of the law as soon as possible. Time is of the essence, and even a delay of a day or two could cause serious problems. Your attorney can advise you of your options. If your case is a good candidate for federal prosecution, your attorney should let you know. More likely, your options will involve civil remedies. Either way, you will need to make important decisions very quickly.

When It Comes to Trade Secrets, Ignorance Is Not Bliss

April 24, 2015 By in Advice, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , Leave a comment

Trade-secret misappropriation cases often involve bad actors who deliberately steal trade secrets. But perhaps just as frequently, trade-secrets are misappropriated by people who simply don’t know better. Many don’t even understand what a trade secret is, let alone that there are laws or other obligations prohibiting inappropriate use or disclosure of trade secrets.

I’ve personally seen this happen over and over. An employee leaves one company to join another in the same industry. He takes many of the documents he created at his old job. These documents contain trade secrets. In his mind, they are his documents. He created them, after all! And at his new job, he uses those documents on behalf of his new employer.

Now both companies have a problem. The former employer’s trade secrets are in a competitor’s hands. And the new employer has unwittingly exposed itself to significant liability.

Both companies are to blame for their problems. The first company did not educate its employees about their responsibilities and legal obligations regarding trade secrets and proprietary information, both while working for the company and after they leave. The second company failed to make sure that the new employee did not bring his prior employer’s trade secrets with him.

There are three primary tools for preventing this situation: contracts, training, and exit/intake interviews. Employees with access to proprietary information should sign a non-disclosure agreement that requires them to keep the information confidential. The agreement should provide that all information belongs to the company even if created by the employee, and must be returned upon termination of employment. And the contract should acknowledge that the employee is not bringing any proprietary info or trade secrets from her prior job.

But employees too often don’t read contracts before signing them. That’s where training comes in. During the on-boarding process, and periodically thereafter, use training sessions to reiterate your trade-secret policy.

Finally, use exit interviews to again instruct the departing employee about his post-employment obligations. Consider having him sign an acknowledgement that he has returned all info and is aware of these obligations. When hiring a new employee, talk with them up front about what info they have from their prior employer. Be sure to consult with an attorney if that discussion raises concerns.

I really believe that many misappropriation cases can be avoided by simply making sure that employees understand these issues. Too often, they do not.

 

Professors Invent Threat of “Trade Secret Trolls”

January 29, 2015 By in General, Trade secrets, Trade Secrets In the News Tags: , , , , , , , , , 8 Comments

I’ve written several times in the past about the proposed legislation to create a federal cause of action for trade-secrets misappropriation (see here, here, and here). I also wrote a response to a letter signed by a number of professors who opposed this legislation. Now, Professors David S. Levine and Sharon K. Sandeen have written a law review article titled “Here Come the Trade Secret Trolls.” This article misses the mark by a mile.

Here is the article’s core argument:

The [proposed federal] Acts are most likely to spawn a new intellectual property predator: the heretofore unknown “trade secret troll,” an alleged trade secret owning entity that uses broad trade secret law to exact rents via dubious threats of litigation directed at unsuspecting defendants.

The use of the term “troll” is meant to evoke patent trolls, who have been the subject of much scorn. But the so-called “trade secret troll” is far different than a patent troll. The latter actually own patent rights, which they wield to seek licensing fees. The article’s mythical trade-secret troll is simply someone willing to bring a frivolous lawsuit to extort an undeserved settlement. I suspect the authors chose this term to piggyback on the negative attention heaped on patent trolls, thereby arming the legislation’s opponents with a pejorative term that may scare legislators or their constituents.

Putting titles aside, the article can’t reconcile its core argument with the fact that, as the authors acknowledge, “trade secrecy has been generally free of similar trolling behavior.” In other words, there is no epidemic of frivolous trade-secret lawsuits under the current state-law framework. (Certainly, there are weak misappropriation cases, just like with any cause of action. But I haven’t seen any evidence to suggest that such cases are disproportionately filed.)

The authors try to make the point that the proposed federal acts would transform trade-secrets law such that threatening and filing frivolous lawsuits would become commonplace. Yet the article does not really explain why this is so. It gets closest when discussing the proposed ex parte seizure provisions. But as I mentioned in my response to the professors’ letter, this risk is highly overblown. Convincing a federal judge to enter ex parte relief is no simple matter. And the defendant will have the right to challenge any seizure order very soon after its entry. Federal judges will not be amused if they have been manipulated into entering unnecessary ex parte orders.

The article fears that “trolls” will be able to threaten an ex parte seizure, which will be sufficient to scare a defendant into paying up before the suit is filed. Yet any innocent defendant will know that the likelihood of such an order being entered is slim. Further, simply sending the letter would undermine an attempt to get an ex parte seizure order. If the plaintiff was able to send a demand letter, thereby putting the defendant on notice of the possible claim, then a judge would be highly skeptical of a claimed need for an ex parte order.

The article also argues that unsettled interpretative questions relating to the acts will fuel frivolous lawsuits. But the article forgets that creating a federal cause of action will quickly lead to a much more robust body of published caselaw interpreting the statute. While there are very few published trial-court-level decisions in state courts, U.S. district court orders are widely available.

Frankly, state courts are much more susceptible to frivolous trade-secrets suits than federal courts. Take Florida, for example. Here, state court judges have to deal with remarkably bloated dockets. In fact, I’ve had multiple cases where it took months to get an emergency injunction hearing. State-court judges generally don’t have law clerks. And in Florida, judges often rotate between civil, criminal, family, and dependency divisions. This latter point is critical: judges often don’t spend enough time in the civil division to develop a familiarity with trade-secrets law. All of these issues lead to uncertainty, which would seemingly aid the unscrupulous litigant looking to extort a settlement. Yet, as the authors themselves acknowledge, we simply have not seen this so-called trolling.

There’s no question that frivolous lawsuits would be filed under the proposed federal legislation, just as like every other cause of action. But there is absolutely no credible reason to believe that such suits can’t be remedied with the typical mechanisms deigned to ferret out meritless claims, like Rule 11 motions.

As I’ve argued in the past, the proposed legislation has tangible benefits that aid trade-secrets owners in protecting their critical proprietary information. The arguments lobbed up in opposition—including the manufactured risk of “trolling”—don’t hold up to careful scrutiny.

2-Minute Jimmy Kimmel Clip Shows Our Cybersecurity Culture Crisis

January 16, 2015 By in Advice, Trade secrets, Trade Secrets In the News Tags: , , , , , , Leave a comment

This video speaks volumes about our country’s attitudes towards cybersecurity:

Last week, I wrote about the importance of creating a culture that makes protection of trade secrets a top-line priority. This video shows why this culture is so important. Your employees need to be constantly aware of surreptitious attempts to get passwords. Spear phishing attacks are becoming more and more sophisticated; your employees need to be immediately suspicious of any attempt to get personal information, particularly passwords.

In the real world, bad actors are far more subtle than a Jimmy Kimmel reporter with a microphone and a video camera. The fact that people are willing to turn over their passwords on TV shows—particularly now, when cybersecurity issues have never been more visible—is depressing. Make sure your employees know better.

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