Thursday, July 17, 2014

NYT Article Adds Grist to the Mill Over Non-Compete Debate

Camp counselors. Hair stylists. Yoga instructors.

These are not the occupations lawyers usually think of when the topic of non-compete enforcement comes up. We normally envision a dispute concerning the mobility of an executive sales manager, a software engineer, or a seasoned product developer.

But many employees in retail professions have to confront non-competes as well. The June 8 New York Times article, "Noncompete Clauses Increasingly Pop Up In Array of Jobs," addresses the ever-expanding use of non-compete agreements and its impact on mid-level professionals.

In fact, the illustration of the 19 year-old camp counselor bound to a non-compete in her summer employment agreement is ridiculous. The owner's justification for such a restriction is laughable:

"Our intellectual property is the training and fostering of our counselors, which makes for our unique environment. It's much like a tech firm with designers who developed chips."

Um, no it's not.

This type of reasoning would, of course, justify the use of non-compete clauses for any employee in any work environment. But the summer camp proprietor's comment illustrates the problem with an employee's ability to challenge the enforceability of that agreement. She would need to show the lack of a legitimate business interest worthy of protection. And the rub is this: that's awfully expensive to prove.

Business owners always will provide some rationale for why their business is unique or how it invests significantly in human capital. And these flimsy, self-serving assertions of a legitimate business interest often carry the day with judges who simply don't have the time to take a deeper dive into what exactly it is the employer is trying to protect. An employee trying to fence with her ex-employer on this issue is hamstrung by the cost of litigation.

The ubiquity now surrounding non-competes, particularly as they are applied to mid-level retail-oriented employees, ultimately could produce a boomerang effect. If non-competes become too widespread, policymakers will search for legislative solutions. Courts will question how the pervasive use of covenants squares with the widespread rule that they should protect only against unfair, not ordinary, competition.

There can, in fact, be too much of a good thing.

Monday, June 23, 2014

Supreme Court of Kentucky Finds Continued Employment Is Insufficient Consideration for Non-Compete

The enforcement of non-competes is most troublesome in the at-will employment context. This is a recurring topic on this blog, and countless others. Courts have taken divergent approaches to analyzing the consideration issue.

Generally, the rules concerning enforcement of covenants for at-will employees fall into one of three categories:

(1) Continued employment is sufficient to enforce a covenant not to compete against an at-will employee if she signs it after the start of employment. This may be the majority rule, although I haven't broken it down state-by-state.

(2) Continued employment is insufficient to bind an at-will employee to a newly presented covenant not to compete unless the employee receives some true, real advantage in connection with signing the contract. A substantial minority of states, including Minnesota, adopt some variant of this rule.

(3) Even if an at-will employee signs a non-compete at the start of her employment, continued employment is insufficient unless the employment continues for a substantial period of time. This is Illinois' outlier Fifield rule.

Recently, the Wisconsin Court of Appeals certified a legal question to the state supreme court for review, concluding that existing case law relating to consideration was hopelessly in conflict. And just last week, the Supreme Court of Kentucky weighed in on the "continued employment" rule - with an opinion that seems to be of little value.

The Court held that continued employment was insufficient consideration to enforce a covenant not to compete that an at-will employee signed. The case is Charles T. Creech, Inc. v. Brown. Ultimately, though, the opinion does not seem to provide any rules. Instead, the Court simply found that given the particular facts of the case, the relatively broad non-compete lacked consideration. That in and of itself seemed odd, since the parties didn't conduct must discovery.

Although the opinion has flaws, it's still useful for what the Court determined to be significant in regards to the consideration inquiry. It honed in on the following factors:

(1) The employer undertook no new obligations in the contract.
(2) The contract lacked any indicia of an employment agreement, such as provisions relating to salary, benefits, and conditions of discharge.
(3) Brown, the employee, was a 16-year employee with pre-existing experience in the industry, meaning he didn't receive specialized training in response to signing the non-compete.
(4) Brown was not promoted and did not sign the agreement in connection with any real new advantages, such as a bump in pay or some access to new training or new information. The employer seemed to demote him.
(5) Most unusually, the employer did not threaten Brown with termination if he refused to sign the agreement. (It's hard to see how a counterfactual would be more persuasive evidence of consideration.)

While the result in the employee's favor may be appropriate given the other problems with the non-compete, the opinion does nothing more than leave a murky area of the law even cloudier. The Court gave no rule - and only hinted at a standard. Therefore, employers still don't have clarification on what they would need to provide at-will employees in the way of proper consideration to support a non-compete covenant.

The best practice still is to afford an at-will employee with some real, tangible advantage that a court will be able to grasp. The concept of continued employment is somewhat nebulous and in certain circumstances illusory. It makes enforcement difficult, particularly with long-term employees. Potential benefits could include:

(1) A raise, bonus, or promotion.
(2) The ability to terminate only for cause.
(3) Severance if the employer must terminate without cause.

In many states, any one of these would vest a non-compete with consideration. In my view, it also is beneficial to include the covenants in a more robust contract of employment, as opposed to a stand-alone document.

Monday, June 16, 2014

Anti-SLAPP Motions and Private Contract Disputes

One of the burgeoning issues in employee competition disputes is the applicability (or inapplicability) of state Anti-SLAPP statutes.

These statutes generally provide an expedited mechanism for an individual who is sued for petitioning the government or exercising her free speech rights to dismiss a retaliatory suit and obtain damages or attorneys' fees. Increasingly, individuals are using Anti-SLAPP statutes in the context of competition claims that employers bring.

I previously have discussed special problems that arise in the context of so-called "whistleblowers" and the intersection of trade secret law. Although this may provide a compelling factual scenario for the application of Anti-SLAPP motions, individual defendants generally have met with a fair amount of resistance in their efforts to use this statutory mechanism to cut off trade secrets claims.

By and large, Anti-SLAPP laws require a petitioning defendant (assumed here to be an ex-employee sued on some competition-related claim) to show that his or her activity involved a matter of public concern or public interest. For instance, the Court of Appeals of Washington recently found that an ex-employee's post to a job board that warned potential employees about his ex-employer's security practices did not involve a matter of sufficient public concern to invoke that state's Anti-SLAPP law. Alaska Structures, Inc. v. Hedlund, 2014 Wash. App. LEXIS 933 (Wash. Ct. App. Apr. 21, 2014).

Generally speaking, courts seem adverse to applying Anti-SLAPP laws to matters that involve private contract disputes, such as a claim for breach of a non-disclosure agreement. This is not to say fact patterns that overlap with a competition claim can't arise, but the employee's conduct generally must implicate some or all of the following:

  • The matter must be of interest of concern to a substantial number of people. An example would be a disclosure about an issue concerning consumer product safety;
  • There must be a close tie between the employee's statements, disclosures, or conduct and the public interest itself. For instance, an employee's disclosure of material must be directed towards the public good and not purely for some personal gain.
  • The individual's conduct should not be mere ammunition-gathering in a fight with her ex-employer. There must be some objective indication the employee is pursuing a matter of larger public concern.
I am not totally unsympathetic towards individuals' efforts to use Anti-SLAPP laws, but there is a disturbing overuse of these laws in private competition disputes. While an aggressive counterattack can shift the narrative of the case, it also has the potential to backfire and force parties to double-down in litigation. I do believe there is a greater role courts should play in scrutinizing competition cases that appear to be motivated out of pure spite or for no justifiable effort to recover something of value (that is, something that clearly outweighs the costs of litigation itself). But the Anti-SLAPP laws should be a rarely invoked tool in the judicial toolkit.

Thursday, June 12, 2014

Unreasonable Settlement Demands Illustrate Bad Faith In Trade Secrets Cases

Most attorneys believe everything said in a settlement letter is privileged through the Rules of Evidence.

This is decidedly not so.

The purpose of the evidentiary privilege is to preclude a jury from concluding that an offer to resolve a case suggests liability (on the part of the defendant) or weakness (on the part of the plaintiff). In trade secrets disputes, though, settlement statements that rise to the level of specious demands are not protected because they don't pose a risk of prejudicing a jury.

Trade secrets cases can go south in a hurry unless a plaintiff has done serious homework. And even if there has been a misappropriation, many times the plaintiff will have no shot at proving damages. That, however, does not preclude a plaintiff from making an outrageous demand. There are a number of courts that have assessed unreasonable settlement positions in the context of bad faith fee petitions for prevailing defendants.

An interesting, though non-precedential, decision from the Court of Appeal of California in Aerotek, Inc. v. The Johnson Group Staffing Co., Inc., affirmed a bad faith fee award of over $700,000. The court specifically looked at unreasonable settlement demands the plaintiff made, including a demand following a loss at trial, as evidence of bad faith.

Also of interest to the court:

  • An expert's apparent unawareness that one of the customers on which he based his lost profits calculation was no longer in business; and
  • A third-party witness's testimony that a plaintiff representative talked about the plaintiff's deep pockets and intent to shut the defendant's business down.
The interesting part of the case was the fact that the plaintiff actually won at the first trial, and the defendant stipulated that the customer list at issue was in fact a trade secret. Under such facts, its unusual to see a court find bad faith on the part of the plaintiff in bringing the case.

However, in California, there already is a strong public policy favoring open competition. Judges tend to view these cases more skeptically to begin with, and a case that might appear somewhat close still can yield a bad faith finding in California. Ultimately, it was clear that the plaintiff in Aerotek had a foundering case and doubled down. Maintaining a bad case will not endear any plaintiff's lawyer to the judge.

Monday, June 9, 2014

What Happens In Bankruptcy...Does Not Necessarily Stay in Bankruptcy.

The unfortunate reality of many non-compete lawsuits is that the parties face a vast asymmetry in legal resources. While individuals suing companies in court is hardly a novel concept, an individual usually stands something to gain - money - if she wins. A non-compete defendant is in no such similar position.

As a result, bankruptcy looms as a potential "option" for defendants in a good percentage of non-compete cases. Most defendants don't realize that there's a significant chance that a damages award may not even be dischargeable, though this depends on a host of factors. Blanket statements or conclusions can't be made.

Another vexing issue is a company's ability to pursue injunctive relief to protect customer goodwill or confidential information, even if a non-compete defendant has filed a bankruptcy petition. The most obvious step for companies to take is to file a lift-stay motion. This refers to the fact that all litigation against a debtor is "stayed" (or halted) once he or she files a petition.

Bankruptcy laws serve to relieve an honest debtor from the weight of his financial obligations and give him a fresh start in business life. Injunctive relief, though, is not a matter that impacts the administration of a bankruptcy estate, so courts often confront a company's attempt to lift the stay so that it may seek to pursue an injunction and protect against the loss of customers or trade secrets. Because damages are difficult to prove, injunctive relief still is the preferred remedy for most non-compete plaintiffs.

Since bankruptcy laws do not give a debtor a shield to misappropriate assets or customer relationships, under what circumstances will a court grant an employer's lift-stay motion and allow it to proceed forward with its case outside of bankruptcy?

There are several factors courts have examined in the past, though there is no uniform set of rules:

(1) Likelihood of success - This seems rather obvious, but it poses serious challenges for bankruptcy judges. If a bankruptcy judge weighs in on the merits (even if it's not a decision or judgment), then there is a substantial risk that the court hearing the underlying dispute will be influenced by another judge's thoughts. This is a particularly acute concern when the non-compete case is in state court.

(2) Prejudice to debtor - The most obvious hardship is the cost of litigation. However, in the past, bankruptcy courts haven't found that this practical reality is a significant prejudice factor that would justify a denial of relief.

(3) Prejudice to the estate - In a garden-variety employee matter, the bankruptcy estate rarely has an interest in the non-competition covenant. Put another way, the contract is not an estate asset.

(4) Harm to the moving party - In the decisions addressing lift-stay motions, most courts find that the potential harm to the ex-employer (i.e., loss of customers or impairment of trade secret rights) is the most important factor to consider. Courts seem receptive to the notion that it is impermissible to use the bankruptcy laws offensively to continue violating unexpired restrictive covenants.

It also is important to keep in mind that considerations of lifting a stay are different in Chapter 11 or 13 cases when enforcement of a covenant not to compete may affect a debtor's ability to reorganize and earn income. However, in a typical Chapter 7 case, a bankruptcy court is unconcerned with a debtor's ability to generate post-petition earnings because those earnings are not estate property.

Wednesday, June 4, 2014

An Illinois Federal Court Now Pivots Towards Supporting Fifield

I wrote previously about the hostile reception Fifield v. Premier Dealer Services, Inc. had received in Illinois federal courts, which is set forth in my March 6 post "Fifield, Federal Style." Since that time, I have presented at two seminars in which I predicted that a fissure between how state and federal courts perceived the Fifield consideration rule may encourage the Supreme Court of Illinois to take the issue up when it inevitably resurfaces.

Perhaps, I am wrong.

One federal judge in Chicago has disagreed with his federal court counterparts and endorsed Fifield. The case is Instant Technology, LLC v. DeFazio, No. 12-cv-491. Judge Holderman declined to follow the lead of Chief Judge Castillo in Montel Aetnastak, Inc. v. Miessen (and Judge Feinerman in another case) and found that the Supreme Court of Illinois would, indeed, follow the two-year consideration rule from Fifield.

As readers of this blog know all too well by now, Fifield holds that for at-will employees new or continued employment must last at least two years for the employment to serve as consideration supporting a non-compete agreement. It's clear from Fifield that this two-year rule applies to both non-compete and non-solicit covenants, but it almost certainly does not extend to confidentiality restrictions.

Judge Holderman relied on Judge Posner's opinion in Curtis 1000, Inc. v. Suess to justify why Fifield represents the law in Illinois. That case discussed the fact that employment in the at-will context often is illusory because the employer retains full discretion to take away the consideration without fear of liability. Also important to Judge Holderman's analysis were two recent Illinois circuit court decisions that appeared to endorse Fifield. It's rather unusual to see a federal court rely on and cite to unreported trial court cases as support for a ruling. But such is the terra (in)firma that Fifield graced us with.

As I recently wrote, the Supreme Court of Wisconsin is addressing an important question of law concerning consideration for non-competes in the at-will employee context.

Monday, May 19, 2014

Supreme Court of Wisconsin to Address Key Consideration Issue

The Court of Appeals of Wisconsin certified an important question to the state Supreme Court concerning restrictive covenant law:

Is consideration in addition to continued employment required to support a covenant not to compete entered into by an at-will employee?

The case is Runzheimer Int'l Ltd. v. Friedlin, 2014 Wisc. App. LEXIS 342 (Ct. App. Apr. 15, 2014). The question, to be sure, is a recurring one across the states. This is for a few reasons.

The policy rationales for and against a consideration rule lie in tension with one another. On the enforcement side, employers say that because they can terminate at-will employees without liability, there's no true distinction between a covenant signed at the start of employment and those signed mid-stream (or, as an afterthought). Conversely, employees legitimately can argue they face a disparity in bargaining power and feel serious economic pressure to sign a contract just to keep their job.

Wisconsin courts haven't really addressed this issue head-on, which is surprising given that state's volume of non-compete disputes and its well-known pro-employee bent. The few cases - none directly on point - push courts in opposite directions, which is reflective of the policy tension I just discussed. Decisions from other states aren't helpful, because there's no uniform rule. The pro-employee cases make just as much sense as the pro-employer cases. (Not surprisingly, the Court of Appeals did not discuss the analysis from Illinois' much-maligned Fifield decision, probably since there is no analysis in that case to rely on.)

From my perspective, it's a bit myopic to say no consideration is required simply because the at-will relationship is fluid and starts anew each day. This is a theoretical argument and ignores a couple of realities.

First, it assumes freely terminate people when they view them as valuable. There's no empirical support for this. I am not aware of employers firing employees en masse only to rehire them with a non-compete. Not only would such a practice impair goodwill, but it actually would raise the specter of liability for unemployment costs. The pro-employer theory neglects to consider marketplace realities and the intangible harm to reputation that could arise.

Second, an employee may accept a job with Company X in reliance on the fact X never asked him to sign a restrictive covenant. Presumably, that impacted his decision to forego other jobs. Those lost (irretrievably) opportunities should be accounted for at least to the same degree as the theoretical "fire-rehire" justification.

In the final analysis, I'm not a huge fan of "continued employment" as a consideration theory. It seems wishy to me, and employers ought to come up with something better - a promotion, a new commission opportunity, a bonus - to justify binding an employee to a significant work restriction.

Tuesday, April 22, 2014

Supreme Court of Wyoming Issues Important Trade Secrets Decision Related to Fracking

One of the hot new frontiers in trade secrets law involves an industry, not a legal question. There is no question the fracking industry is controversial. On the one hand, state legislatures view hydraulic fracturing as a potential boon to local economies. On the other, the very nature of this process causes much hand-wringing and cause for concern among environmental advocacy groups.

Hydraulic fracturing occurs when operators inject pressurized fluids into rock layers to release petroleum or natural gas. Fracking companies often believe the chemical compounds used in the fluid injection process are trade secrets. This causes a natural tension when public interest groups seek to discover what kind of chemicals are being inserted into local aquifers.

The case law applying trade secrets concepts to fracking is new and largely undeveloped. In the most significant decision to date, the Supreme Court of Wyoming addressed what trade secret definition should apply to a request for disclosure of an operator's chemical compounds. In Powder River Basin Resource Council v. Wyoming Oil and Gas Conser. Comm'n, the Court held that the most stringent trade secrets definition should apply. (The opinion is contained below.)

It considered three alternatives:

(1) The Uniform Trade Secrets Act definition, with its now ubiquitous two-part formulation;

(2) The Restatement (Third) of Unfair Competition definition, found in Section 39, which generally is viewed as less rigorous than the UTSA standard; and

(3) The federal Freedom of Information Act definition.

The Court ultimately chose the FOIA definition. It defines trade secret as "[a] secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort."

The italicized clause limits trade secrets to the productive process and would exclude a wide range of commercially valuable information that often times is at issue in competitive disputes. The Court's justification makes some sense. The broader UTSA and Restatement definitions are geared towards providing a remedy for unfair competition in private disputes. And a more definition would render meaningless the protection FOIA affords "commercially valuable" information.

The FOIA definition, which should lead to more disclosure, is meant to balance ownership of a true trade secret with the public's right to access documents affecting matters of public interest. In those states with fracking laws and regulations, operators normally have the chance to show administrative agencies that their chemical compounds or formulas are trade secrets. The decision in Powder River Basin will provide appropriate guidance to other courts that are called upon to evaluate a challenge to any administrative decision that favors fracking operators.

Friday, April 18, 2014

Contention Interrogatories In Trade Secret Cases Demand Strict Compliance

Yesterday, I gave a lengthy presentation to the American Intellectual Property Law Association's Trade Secrets Committee. The bulk of my presentation dealt with the knotty issue of properly identifying trade secrets in litigation.

Many trade secrets cases stall out due to deficient identifications. Since trade secrets are unlike other forms of intellectual property in that they are not listed in the public record, a plaintiff controls the identification of its property. In litigation between competitors, a plaintiff frequently will attempt to hide its secrets - yes, the crux of the claim itself - from the defendant. This leads to many disputes over whether the plaintiff properly is identifying its trade secrets in discovery. Sometimes the dispute occurs quite early, but other times it can take months or years before the identification issue reaches an inflection point.

As I was preparing for my presentation yesterday, I took a scan through some recent cases on the identification question. If you're looking for a fertile area of legal research, this is it. The federal district courts seem inundated with questions about whether a plaintiff is properly identifying its trade secrets during litigation. And the cases yield few hard-and-fast rules.

But, as I am sometimes prone to do, I found a case on the identification question that I hadn't seen before. The case, Safety Today, Inc. v. Roy, 2014 U.S. Dist. LEXIS 17116 (S.D. Ohio Feb. 11, 2014), addressed a plaintiff's attempt to answer a customer trade secrets identification interrogatory by referencing documents produced in the case. This sometimes is permitted under Federal Rule of Civil Procedure 33(d).

But the Safety Today court said no, a plaintiff could not use the Rule 33(d) mechanism to "identify" its trade secrets in response to a contention interrogatory. It did say that in some unusual cases a court could permit this approach. For instance, if the trade secret is entirely contained within a document - say a customer list, or an engineering drawing - then a Rule 33(d) reference may be appropriate. The secret, though, would have to be really narrow.

The case dealt with an entirely different factual matrix that did not lend itself to a bald document reference. In fact, the court called it a "typical case" involving ex-employees and stated specifically:

"Only the employer will know what portion of that myriad information known to its employees can legitimately be claimed as a trade secret, and no amount of record production can provide the appropriate answer to the question."

The court examined a largely undifferentiated set of documents the parties produced and noted that it was not at all apparent from the production what was secret and what was not. In other words, the defendant still would have to guess at what bits of information the plaintiff claimed as trade secrets. It was, indeed, the typical case where the trade secrets are not evident to anyone from the face of a particular document.

This illustrates the burden a plainitff in a trade secrets case usually will face. When answering an interrogatory, it is essential to take that obligation seriously and not reflexively punt to documents the parties otherwise produce. This approach may just raise more questions and do more harm than good.

Ultimately, a plaintiff ought to be under a strict burden to do its homework and prepare its case for trial. If it cannot grasp its own trade secrets and is not willing to put the time in to do so, that usually portends a much larger, strategic problem.

Friday, March 21, 2014

"Embedded Knowledge" and the Trade Secret Gap

For anyone (lawyer or otherwise) interested in the tensions associated with employee mobility, a truly must-read is Talent Wants to Be Free, by Orly Lobel.

Professor Lobel discusses a wide range of issues associated with talent and knowledge flows, and she incorporates thoughts that transcend the law and devolve into economics and sociology. The book is, to say the least, thought-provoking even for those who may choose to disagree with some of her conclusions. There's a particular issue that Professor Lobel discusses that touches upon one of competition law's great tensions.

In my judgment, one of the most difficult areas of the law for lawyers, judges, and clients is drawing a distinction between two concepts: general skill and knowledge (which is not protectable) and a trade secret (which is). Consider the following from an Illinois decision some twenty years ago:

"General skills and knowledge acquired in the course of employment...are things an employee is free to take and to use in later pursuits, especially if they do not take the form of written records, compilations or analyses." Passage quoted from Colson Co. v. Wittel, 569 N.E.2d 1082, 1087 (4th Dist. 1991).

This is somewhat (largely?) unhelpful for two reasons. First, it's so obvious that we shouldn't feel the need to use it as a guidepost or legal marker. Second, the notion of "general skills and knowledge" suggests a disconnect from experiential information or data the employee may have obtained by reason of his or her employment with a business. Put another way, GSK sounds like information an employee may acquire just by virtue of being in a particular field and that generally may be available to anyone, but not of any real use to people who are engaged in other occupations.

This disconnect is troubling when trying to parse out what kinds of information a business can protect by contract or through assertion of a trade secret right. A passage in Chapter 4 of Professor Lobel's book gets closer to solving the disconnect and bridging the ideas of general skill and knowledge, on the one hand, and trade secrets, on the other.

She talks of "embedded knowledge." Here's how she puts it in context:

"Knowledge that is embedded comes from experience, from learning by doing or observing; this kind of knowledge is difficult to codify and write down. Embedded knowledge (also known as tacit knowledge) is learned informally through direct and repeated contacts."

This formulation actually gets us closer to determining what is protectable and what is not, but only if we say embedded knowledge is something only an enforceable non-compete can safeguard. In other words, we should be careful not to lump in embedded knowledge with the amorphous (some might say rudderless) definition of a trade secret.

Examples of embedded knowledge likely include a person's familiarity with key contacts and customer requirements or buying habits. It also may include the odd concept of "negative know-how" (that which isn't effective). It certainly includes pricing patterns or strategies. Perhaps, too, it encompasses knowledge of which particular vendors are reliable or can lead to efficient sales distribution. To be sure, this will be company-specific data; they're not "general" in the fair sense of the word.

Professor Lobel also makes the point that "embedded knowledge" doesn't spread with great accuracy. Again, from Chapter 4:

"As you can imagine by now, the way tacit knowledge spreads depends on the shape of the network and the complexity of the information being diffused. When knowedge is transmitted, it usually does not diffuse accurately and flawlessly across companies."

This is another way of saying that embedded knowledge can be (and likely is) fleeting or ephemeral; it changes, in other words.

Consider this example. An employee is charged with developing a new product and has his hands in various business units that may impact the development of the good before it's rolled out publicly. If that employee leaves, he may have knowledge that his former company still is rolling out the product. But much likely has changed since his departure. Perhaps the company switched vendors, changed chemicals that go into the product formulation, or had to purchase new equipment (thereby decreasing the amount of months it would take to generate a positive return on investment).

It is entirely reasonable that the employee would not know anything about these developments, even if he had day-to-day involvement in the product for a long time while he was there. To Professor Lobel's point, if he then used his prior information about the product (his embedded knowledge) in a new position with a new company, it's likely to be inaccurate. That is to say, the passage of time and fluidity of useful information reshapes the employee's knowledge in such a way as to render it less valuable and even counterproductive to a competitor.

A trade secret, by contrast, shouldn't face the diffusion problem. The central point of a trade secret is that it's a patent substitute. An owner achieves an economic advantage (possibly in perpetuity) by keeping the information secret, rather than gaining a limited monopoly through the patent system. If that's the case, then the trade secret should be something the firm can monetize. Embedded knowledge, by contrast, is that which shifts and is not capable of monetization.

An alternative way for lawyers and judges to look at whether something meets the definition of a trade secret may be to get away from the mutli-factored standard that yields more questions than answers and determine whether, in Professor Lobel's words, it can "diffuse accurately and flawlessly across companies."