Yesterday, President Obama signed the Defend Trade Secrets Act — a broad federal law designed to give companies added protection.  It does not circumvent state law — indeed, where a state law is more protective of the trade secret, it still applies. Nevertheless, it provides a base level of uniformity nationwide.

My colleagues, Pat Fahey and Lee Duval, prepared this summary a few days ago, which I republish here.  But candidly, there are plenty of such summaries out there by nearly every lawfirm.  You can find a whole host of them on LXBN.  If the subject is of interest to you, it’s worth following up with your attorney to get more information about how this statute is likely to impact your particular company.

congressWith the long-awaited passage of the Defend Trade Secrets Act of 2016 (“DTSA”), which amends the Economic Espionage Act, federal law will now provide a civil cause of action for misappropriation of trade secrets.

Prior to the DTSA, the protection of trade secrets was largely a matter of state law and based primarily on the Uniform Trade Secrets Act (“UTSA”).

Most states have adopted a version of UTSA, but variations between states on essential requirements, such as what qualifies as a trade secret, led to the call for a federal body of law that would be more predictable and uniform.

The DTSA does not preempt state laws governing trade secrets, but will allow civil litigants to pursue an additional claim and to bring those claims in federal court.

Litigants will still be able to pursue state law claims for misappropriation of trade secrets, but by filing in federal court, they will now have access to the broad, nationwide discovery permitted by the Federal Rules of Civil Procedure and the unique remedies afforded by the new law.

Two provisions of DTSA are particularly noteworthy: the allowance of ex parte seizure orders and certain employee protections.

Ex parte seizure orders – essentially an order from the court permitting the seizure of property to prevent the use or dissemination of the stolen trade secret without notice to the accused wrongdoer – would be permitted in “extraordinary circumstances.”

In the event that a wrongful seizure occurs, the victims will be entitled to damages, including punitive damages upon a showing of bad faith, and attorneys’ fees.

It remains to be seen how courts will interpret the ex parte seizure provisions, including what constitutes a wrongful seizure, and whether or not such requests will be made often by the trade secret owner.

The DTSA also provides certain protections for employees, which includes contractors and consultants.

Specifically, the legislation provides protection for certain “whistleblower” employees, and employers are obligated to inform their employees of these new protections.

For example, if an employee discloses a company’s trade secret in confidence “solely for the purpose of reporting or investigating a suspected violation of law,” that employee is immune from liability under DTSA.

Moreover, going forward, employers who fail to provide their employees with notice of the new immunities could lose the ability to recover punitive damages or attorneys’ fees in an action against an employee.

The notice requirement may be satisfied by an employer “provid[ing] a cross-reference to a policy document provided to the employee that sets forth the employer’s reporting policy for a suspected violation of law.”

In addition, the law prohibits a court from “prevent[ing] a person from entering into an employment relationship” and requires that any conditions placed on the new employment “be based on evidence of threatened misappropriation and not merely on the information the person knows”, which is intended to foster employee mobility and to avoid conflict with state law.

Thus, in states that have authorized the “inevitable disclosure” doctrine as being a sufficient basis to justify a misappropriation of trade secrets claim, it will be imperative that the employer bring state law claims in addition to a DTSA claim.

We strongly recommend that employers take notice of the changes the DTSA makes to existing law.  All employers should review any employee agreement that “governs the use of a trade secret or other confidential information” and provide the requisite notice of the new immunities.

Employers also are encouraged to perform a trade secret audit to identify or inventory and document their claimed trade secrets, the steps that have been implemented to protect those trade secrets from disclosure and the economic value associated with the trade secret.

By taking these steps now, an employer will be in a better position if it finds itself in a dispute regarding the misappropriation of the company’s trade secrets.

Busy week here.  So, it’s time to bring back a recurring post of “Quick Hits” of articles you may have missed along the way.  Here are some of my recent favorites:

If that’s not enough, I also recommend reading Jon Hyman’s blog each Friday where he recaps the very best (or worst) in employment law each week.

In my presentations on social media this year, I’ve talked a bit about the Phonedog v. Kravitz case where an employer sued a former employee who continued to use the company Twitter account he had started.

Are Your Accounts Under Lock & Key?

When the employee left, he merely changed the Twitter account’s handle to his own name and took the 17,000 Twitter followers with him. 

The case was just settled this week for undisclosed terms; the Employment Law Daily blog does a good job recapping the lessons learned from that case here. (For another perspective, also check out the Social Media for Law Firm post on the same subject.)

One thing we DO know though is that the employee is keeping the Twitter account, which now has over 27,000 followers. 

What’s the Takeaway for Employers?

Consider requiring employees who use social media as part of their job to agree that the company owns the account.  Employers could, for example, ask for login and password information on specific accounts too.

One practical problem though is that some of these accounts sometimes blend the personal and professional, as the Trading Secrets blog has noted, so its important to have clear rules up front.  The Trade Secret Litigator blog has some more tips as well. 

Earlier this fall, another case, Eagle v. Morgan, also talked about this notion in the LinkedIn context.  The Employee Handbook blog did a nice summary as well.   Expect more suits like this in 2013.

As social media continues to dominate the world — or at least conversations about employment law —  there are a few notable posts that are worth delving into this week that explore the topic further. 

  • Forbes blogger Kashmir Hill (formerly of Above the Law) has a good piece on whether privacy settings matter on Facebook if you sue or get sued.  She compares two cases — one from the East Coast, one from the West  — that reach different conclusions.  What does this mean? It means the law is very unsettled in this area.
     
  • A similar post in Law Technology News explores the effect of the Stored Communications Act has on requests for a litigant’s Facebook postings.  As the post concludes:

While litigants may be able to avoid application of the SCA under some circumstances, courts will continue to struggle with application of the statute to modern forms of electronic communication, such as social networking websites. As observed by the 9th Circuit, "until Congress brings the laws in line with modern technology, protection of the Internet and websites such as [these] will remain a confusing and uncertain area of the law."

  • An excellent post in the Non-Compete & Trade Secrets blog explores the impact that LinkedIn is having on a claim that a company’s customers are confidential.  Is a change of your employment status on LinkedIn — which gets sent to your contacts — sufficient interference with a customer relationship? Who knows, the author says. But there is a proposed solution: A fact-specific social media policy that addresses these situations.  Which is a nice tie in to the next post….

  • Doug Cornelius, from Compliance Building, was kind enough to post his presentation materials on preparing and drafting social media policies.  Read it. 
     
  • Finally, for the lawyers out there, the ABA Division of Bar Services, has an easy-to-understand post on how to get started on Facebook.  It’s a good primer; as the post says — "No More Excuses". 

What’s the recipe for a successful enforcement of a restrictive covenant case? Well, if you missed our webinar yesterday, there’s a case out of Pennsylvania that takes that discussion out of the kitchen and into the real world.

Ever eat Thomas’ English Muffins and wondered how they make all those "nooks and crannies"? Well, the first thing you should know is that Mr. "Thomas" isn’t the owner of the english muffins anymore; a company called Bimbo Bakeries is.  And Bimbo got stirred up quickly when it found out that its secret might be let out of the oven. 

Allegedly, former Bimbo Bakeries executive Chris Botticella knew the key to making the nooks and the crannies.  And, although he allegedly told his employer that he planned to retire, he planned to work for Hostess (makes of such classics such as Twinkies and Ding Dongs). Bimbo thought that was a half-baked idea, and asked a court for an injunction claiming that it was "inevitable" that he would disclose those secrets to Hostess.

According to published reports, Botticella is one of only seven people in the world who knows all the secrets on how to manufacture those muffins.  

The judge gobbled up Bimbo’s arguments and found that even though Botticella had not yet disclosed the secrets, it was inevitable that he would.  Through his attorney, the "muffin man" has said he will appeal.

The doctrine of "inevitable disclosure" in Connecticut has been applied in some cases, though it is by no means a blue-ribbon argument.  Employers who seek to use that argument, should grill their attorneys about the limits of such a doctrine and realize that the doctrine should be sparingly used.

And, if you’re wondering, the lawsuit does not say that Botticella lives on Drury Lane — only that he lives in California.  If you’ve forgotten the words, you can find those lyrics and the song below.  (You’ll thank me when you are still humming the tune hours later.)

 

With companies laying off people in droves, protecting what’s LEFT of the company — namely, it’s company data and trade secrets — becomes that much mmorguefile.comore important.

For that reason, I’ll be speaking at our firm’s Breakfast Roundtable on March 19th at 8:30 a.m. in our Hartford office (sorry, no webinar just yet; it’s coming soon…)  You can find the details here and RSVP to event@pullcom.com

And because just talking about employment law is only one part about protecting company data, Michael Feld of Layer Eight, a technology consulting firm, will also be speaking to provide attendees with practical solutions as well.

As a sneak preview to our roundtable discussion, I’ll bring up one issue that companies sometimes leave out when conducting a reduction in force — and that is locking up data.

An experienced IT department (or just a good office manager) should be able to immediately lock out a departing employee from various electronic files and computers. Getting laptops and BlackBerrys returned immediately as well should also be an important part of any strategy.

I’ll talk more about this issue next week and post some of the highlights from our discussion.

Every so often, it’s nice to hear from people who know what their talking about. Today, we’ve got part of this blog’s "Five Questions" feature. 

I posed five questions for Frank Rudewicz, Managing Director of UHY Advisors FLVS, Inc.  UHY provides forensic litigation and valuation services which are particularly useful for things like electronic discovery, trade secrets and case investigation. 

I’ve worked with Frank for a number of years and those in Connecticut may know Frank from his prior company, Decision Strategies.  Frank spent 14 years with the Hartford Police Department and FBI and has built an impressive resume in the field of trade secrets and investigations.  He also received his J.D. from University of Connecticut.  Thus, his experience both as a police officer and as a lawyer provides a good foundation for the services he and his company offers.

I asked him recently to provide readers of this blog some additional insights into the area of forensic litigation.

1. Intellectual Property Theft seems to be a "hot" issue. If an employer suspects a current employee is stealing data, when should they contact an outside forensic expert?

When one has a reasonable anticipation that intellectual property ("IP") is being compromised, one should begin a dialogue with a data security/forensic expert. This dialogue may touch on topics such as:

  • determining whether one’s suspicions are justified,
  • whether the suspected IP compromise is internal or potentially an external threat masked as an internal compromise (i.e., an external party who obtain an employee’s user name and password),
  • methods to audit, monitor, and document the suspicious activity,
  • develop a timeline documenting the suspicious activity,
  • investigate method of intrusion, if applicable,
  • define triggering events to begin data preservation.

2. From a technical perspective, what are some steps that an employer should take around the time it is terminating an employee to preserve data?

  • Physically secure all computing equipment (including mobile messaging/cellular device) and digital media (USB flash drives, external hard drives, etc.) of terminated employee before termination
  • Secure terminated employee’s network home directory and other network file shares that the terminated employee had access
  • Disable terminated employee’s network user account, verify terminated employee is logged out of any online systems, and notify any third party application/database/website provider to revoke terminated employee’s access.
  • Reset the terminated employee’s access code to voicemail system; consider reviewing/preserving any voicemail messages before system purges the same; configure auto forwarding of new calls either to HR or administrative mailbox.
  • Before re-provisioning any computer equipment that belonged to the terminated employee, consider performing a forensic image of the equipment and wiping the equipment before re-provisioning
  • If terminated employee has administrative access to any corporate computing systems, change all administrator passwords immediately.

3. Is there a common item that employers overlook in trying to capture data when an employee leaves?

Blackberry messages, instant messaging, voice mail captures.  [Employers should consider conducting]  a software inventory and Web browsing history of the terminated employee’s computer to highlight other areas of interest. For example, are there FTP sites that the terminated employee visited, which may indicate potential risk that the employer’s data was compromised.

If the terminated employee is savvy, file extensions may have been renamed to hide relevant information. Absent a file signature analysis, these files may be overlooked.

4. What is the hot item in forensic litigation consulting?

Data Landscape Modeling

5. What types of questions should a company or lawfirm ask when considering hiring a forensic firm like yourselves?

  • Are they licensed?
  • Do they have written policies and procedures to ensure "forensically sound" evidence?
  • How do they charge?
  • Does your staff carry current industry digital forensic certifications such as EnCE?
  • Do you use full time staff to perform forensic analysis or do you use contractors (use of contractors may break chain of custody)?

Watch for more Q&A in the upcoming weeks.