LA LAW LIBRARY BUSINESS SERIES: PROTECTING YOUR BUSINESS ADVANTAGES: TRADE SECRETS

AND NONDISCLOSURE AGREEMENTS

May 1, 2018

Disclaimer: Although this presentation may provide information concerning potential legal issues, it is not a substitute for legal

advice from qualified counsel. This presentation is not created nor designed to address the unique facts or circumstances that may

arise in any specific instance. You should not, nor are you authorized to, rely on this content as a source of legal advice. This

material does not create any attorney-client relationship between you and Carothers DiSante & Freudenberger LLP.

Today’s Presenter:

Dan Forman

Partner

dforman@cdflaborlaw.com

(213) 612-6300

Twitter: @dm4man ‏

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CDF Represents California Employers

Exclusively in Labor, Employment &

Immigration Matters

We cover the full spectrum of labor and

employment law - from guiding employers on

policies and training to prevent litigation, to

defeating individual lawsuits and class action

threats with claims from thousands of plaintiffs

Five Offices Throughout California

Sacramento, San Francisco, Los Angeles,

Orange County & San Diego

About CDF

Covenants Not To Compete Overview

Trade Secrets under CUTSA and DTSA

Anti-Trust and Non-Poach Agreements

Litigation

Legal Tension and Related Claims

Remedies and Damages

Duty of Loyalty

Practical Tips

Today’s Agenda

Covenants Not To Compete

Reasonable Restrictions to Protect Legitimate

Trade Secrets

Time

Place

Manner

Each State is Different

Covenants Not To Compete are NOT

Enforceable in California Employment

California Public Policy

Favors Competition

Business and Professions Code

16600 et seq.

Edwards v. Anderson (2008)

Fillpoint v. Maas (2012)

3 year non-compete associated with

sale of company enforceable but

not 1 year post-employment

non-compete

Expansion of California Public Policy

Silguero v. Creteguard, Inc. (2010)

Tortious to honor former

employer’s non-compete

California Employers Need To Protect Trade Secrets

Why Trade Secrets Matter

DTSA & CUTSA - Protecting

Business Secrets

Trade secret theft stifles innovation

and negatively impacts the

economy

Uniform protection and discovery

Pairs With Copyright, Patent &

Computer Fraud and Abuse

Acts

Tombstone Announcements & Non-Solicitation of Employees

Reeves v. Hanlon

Sending tombstone

announcement from

employer’s email is not

trade secret theft

Loral Corp. v. Moyes

Enforcement of

non-solicitation of

employees

California Uniform Trade Secrets Act

Federal Defend Trade Secrets Act of 2016

Own trade secret (and it has to

be a trade secret)

Competitor acquired/disclosed

trade secret through improper

means

Caused damages

Trade Secret Information

Definition of Confidential Information: Non-public

Derives independent economic value by being secret

Business plans and strategies

Manufacturing techniques

Formulae

Processes

Designs

Drawings

Discoveries

Improvements

Ideas

Conceptions

Test data

Compilations of data

Pricing

Profitability

Developments

Personnel information

Recipes

Client information….

Content of Confidentiality Agreements

Employees authorized to utilize Confidential Information only for Company Business.

Personnel and employee information.

Employees agree to protect Confidential Information.

Employees agree to maintain Confidential Information in confidence before and after employment.

Return or shredding of all Confidential Information at severance.

Discipline for misuse or unauthorized disclosure of Confidential Information.

Confidentiality Agreements

Employment Applications

Employment Agreements

Handbooks

Independent Contractors

Severance/Exit Agreements

Vendors and Clients

Agreements

Bids/RFP Responses – Public Agency

Merger/Acquisition Agreements

Protect Yourself

New hires and applicants, especially if

working for competitor

Agreement not to use or bring trade secrets

or confidential information from prior

employers

Don’t encourage employees to solicit former

colleagues

Keep it confidential

Don’t post on your website and later claim it was

confidential

BYOD Dilema – Inspection Rights

Identify and Protect Trade Secrets

Code of Ethics/Handbook

Passwords

Limit access to persons

Website/Internet access

Monitor printing, downloading/offloading–size

Exit Interviews

Departure Agreement

Gardening Leave?

Investigation

Forensic evaluation of

Laptops/Hard drives

Cease & Desist/Demand Letters

Value

Demand for Return of Property and Reminder Not To

Disclose Trade Secrets

Anti-Trust and Non-Poach Agreements

Anti-Trust & Non-Poach Agreements

Hi-Tech Cases

Department of Justice

Investigation/Settlements

(Federal Sherman Act)

$400 million Class Action

settlement (California

Cartright Act)

Anti-Trust & Non-Poach Agreements

2016

DOJ/ FTC Antitrust Guidance for HR Professionals -

Warning

2018

USA v. Knorr-Bremse AG settlement

Litigation

Gonzaga Law Review Article Analyzing over

2,000 cases from 1995-2009:

Approximately ½ of all trade secret cases are

concentrated in 5 states: California, Texas, Ohio, New York

and Georgia

Appellate Court outcomes favor defendants

Two most important measures to protect trade secrets:

Confidentiality Agreements with Employees

Confidentiality Agreements with third parties

Litigation Overview

Legal Tension

Protecting Trade Secrets v.

Mobility of Workforce

Two Conflicting Lines of Cases

Confidential Information, even if not

reduced to writing, should be protected

(Morlife, Reeves v. Hanlon)

Employee permitted to use experience

and learnings, and may prepare to

compete (Bancroft-Whitney)

Inevitable Disclosure v. Threat of

Misappropriation

Federal v. State

Additional Civil Claims

Breach of Contract

Interference With Contract

Breach of Fiduciary Duty

Breach of Duty of Loyalty

Unfair Business Practices

California Penal Code section 502

Federal Computer Fraud and Abuse Act, 8 U.S.C. § 1030

Creative and Untested Claims

Threatened

Misappropriation

Aiding and

Abetting

Misappropriation

DTSA – Whistleblower Defense

Employees May Not Defend Trade

Secret Theft by Giving Stolen

Documents to Their Lawyer

Unum Group (D. Mass, Dec. 6, 2016)

Employer sued under DTSA and sought

preliminary injunction for return of

documents taken by employee

Employee claimed his actions were EXEMPT

under DTSA section 1836(b) provisions for

immunity for disclosures to attorney for

whistleblower protection

DTSA – Whistleblower Defense

Court concluded that there was no evidence that employee took

the documents for such purpose, or that employee actually turned

over all documents to his lawyer

Court ordered:

Defendant, his attorney, or anyone acting on his behalf to return any documents

taken

To destroy any copies, not make additional copies, and not to deliver any copies

to any third party

Defendant and counsel to file affidavits whether any documents had been given to

third parties and under what circumstances

Consistent with California law that employees are not allowed to

self-help outside of discovery. Pillsbury, Madison & Sutro (1997)

DTSA – Concurrent Jurisdiction

DTSA Does Not Expressly Preempt

State Law

VIA Technologies, (N.D. Cal., Feb. 7,

2017)

Allowing amendment of Complaint to add

DTSA claim despite existing CUTSA claim

Syntel Sterling Best Shores Mauritius Ltd.,

Inc., (S.D.N.Y. Sept. 23, 2016)

DTSA – Concurrent Jurisdiction

DTSA Impact on California

Practice No express requirement to identify TS with

reasonable particularity (contra CCP

2019.210)

Some California Federal District Courts’ local

rules require particularized description of TS

Space Data Corp. (N.D. Cal., Feb. 16, 2017)

dismissed DTSA claim for failure to plead TS

with sufficient particularity based on

conclusory allegations, with leave to amend,

finding that DTSA sufficiently similar to CUTSA

pleading requirements

DTSA – Verdict

First DTSA Jury Verdict – Dalmatia Import v. Foodmatch

(E.D. Penn.), jury awarded $500,000 “Jamages” under

DTSA and PUTSA (March 2017)

In addition, successful on claims of breach of NDA, Lanham

Act counterfeiting claims, and conversion arising from

former business partners launch of competing jam, selling

rejects, and using Plaintiff’s trademark jars and labels

without its authorization to sell other jam

In total, plaintiffs expect around $5 million in “jamages”

TRO/Preliminary Injunction

High Evidentiary Standard

Likelihood of success

Irreparable harm

Harm of denying injunction greater than harm of

erroneous objections

TRO can lead to expedited discovery

Federal Seizure Orders

DTSA – Interim Remedies

Courts Are Reluctant to Order Much Vaunted Seizures

Extraordinary

Seizure

Hearing Time

Creative Orders To Protect Evidence

Rule 65 – TRO and PI

Likely success on merits

Likely to suffer irreparable harm

Balance of equities favors injunction

Injunction in public interest

Problem

Defendant usually

controls documents

and other “facts”

Easy to disclose

information

Damages Challenges

Lost Profits

Unjust Enrichment

Actual Market Value/Costs

Willful & Malicious

Punitive Damages = 2x

Attorneys’ Fees

DANGER: Attorneys’ Fees to

Prevailing Defendant

Mattel v. MGA

Trial No. 1

Mattel wins $100 million

Reversed on appeal

Trial No. 2

MGA wins $88 million

Seeks $136 million in

Attorneys’ fees

Over $30 million in costs

Duty of Loyalty

Labor Code § 2860 and 2863

Must give preference to the business of employer over own

business

Everything acquired during employment belongs to the employer

Affirmative Defense to Employee claims

Blackbird Technologies, Inc. v. Joshi (N.D. Cal. Oct. 6,

2015)

Competing against employer while employed, even if not express

breach of contract or trade secret

Mattell v. MGA – No breach of duty of loyalty absent breach of

fiduciary duty

Five Practical Tips

Pre-Employment Protection

Applicants’ agreement not to disclose

or ever use competitor information

Applications

Offer letters

Train interviewers/recruiters to clarify

that applicants are not to disclose

competitor information

Five Practical Tips

Update Employment Agreements

and Confidentiality

Agreements/Policies DTSA Whistleblower protection and anti-retaliation

language

Return of Company property

Conditions for removal of property from Company

premises

Removal of Company property from BYOD (consider

eliminating BYOD)

Preclude work from non-employer devices (home

computers, personal email/texts)

Five Practical Tips

Review Company’s Trade

Secrets and Procedures

California requires taking

reasonable precautions:

Assess protocols and procedures

Locks, Passcodes, and, if appropriate

Take steps to create further limitations

(badges, NDAs for visitors)

Company Devices

Reconsider Cloud storage and

Flashstick usage

Five Practical Tips

Improve Off-Boarding/Exits

Obtain the return of Company property and

devices, as used

Remind employee in exit interview/departure

memo about confidentiality obligations and

return of property

Consider Gardening Leave Agreement

If suspicious – preserve device, do not reissue,

get professional help for forensic images

Escort/security to ensure preservation of evidence

Employee Device Inspections

Follow-up reminders to former employees about

confidentiality obligations

Five Practical Tips

Be Conscientious of Non-Poach

Enforcement

Audit verbal and written

communications to evaluate risk with

counsel

Thank You For Attending

Dan Forman

Partner

dforman@cdflaborlaw.com

(213) 612-6300

Twitter: @dm4man ‏

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