Tuesday, March 6, 2018

"Solicit," in a Non-Solicit, May Not Mean First to Solicit


Didn't think so.

Much ink has been spilled over the term "solicit," since it's obviously a flash-point in non-compete litigation. That is, not all non-competes are true non-competes. Some restrict customer, or employee, solicitation. This is especially true for salespersons, who often have more limited restrictive covenant agreements concerned only with client contact.

For 20 years, I've dealt with clients who come to me with some variation of this question: What if the customer calls me first?

In other words, is that a "solicitation" that violates a restrictive covenant?

(Short digression.

The first layer of analysis is to look at the contract itself. Many non-solicitation covenants actually are broader, despite their customer-centric focus. They may prohibit an ex-employee from working with or accepting business from a group of clients. If that's the case, then an employee who wants to work with former customers needs to shift her focus away from the breach question to either contract formation or reasonableness.

Now back to the main point of this post.)

The meaning of "solicit" is pretty fact-specific. If a client contacts the employee about a project or ongoing work, then the employee likely hasn't solicited anything and may be free to work with the client on competitive business. But what if the client's initial contact is preliminary, vague, and just a precursor to eventual work? What if the discussions, in other words, contemplate that something else will happen?

There are a fair number of cases that give some color to the type of conduct that qualifies as "solicitation." But I haven't seen one quite like Quality Transportation Services, Inc. v. Mark Thompson Trucking, Inc., 2017 IL App (3d) 160761, which effectively answers my rhetorical questions.

The court there found that the client's initial contact was not dispositive of the solicitation question, and that the court needed to evaluate other circumstances. In particular, the factual question concerned the "large gaps of time that followed [the client's] initial phone call." Since the restrained party--it was a corporation, not an employee--appears to have made "multiple and arguably separate contacts" with the client, the "solicitation" question was not clear-cut. The case is definitely worth a read for anyone who wants to deconstruct the meaning of solicitation and get a sense of how courts look at customer contact.

A copy of the opinion is available here.

So what to draw from this. Employees bound by a true non-solicitation covenant, and who claim they didn't initiate client contact, need to keep detailed records of text messages, e-mails, and phone calls received. Those also should describe the nature of the conversation and whether the contact was preliminary or concrete enough to protect further communications as incidental follow-ups, and not renewed efforts to win business.

Remember: when an employer has a non-solicitation covenant, it has no real means of assessing who called whom. These clauses are ripe for litigation because the movement of business itself will trigger a reasonable assumption that the employee made first contact, not the client. But that isn't always the case. Proving that, however, is often really, really hard.

Monday, February 19, 2018

No One Owns Anyone: Orly Lobel's New Book and Thoughts on Knowledge as a Transferable Property Right

Few scholars or commentators have advanced the study of non-compete agreements more than Professor Orly Lobel.

I've referenced her 2013 book, Talent Wants to Be Free, numerous times on this blog and even managed to cite it in a legal brief or two. Professor Lobel is a strong advocate of what she calls "knowledge flows." This is the idea that the migration of people from one firm to another, or to their own firm, can lead to a net societal gain in terms of innovation and technological development.

Her latest book, You Don't Own Me: How Mattel v. MGA Entertainment Exposed Barbie's Dark Side, is a much different read. But it is utterly fantastic, and you don't need to be an IP nerd like me to enjoy it.

The setting for the book is the biggest intellectual property dispute over the past 20 years (sorry, Waymo, you settled): Mattel's war on MGA Entertainment for its development of Bratz dolls to compete with long-time market leader, Barbie. The impetus for the legal battle centered on product developer Carter Bryant, who conceived the idea of the competing Bratz toys while on hiatus from his job at Mattel.

I will leave to the side the copyright and trademark issues that permeate the book, though by no means do I wish to discount them. The legal issues are fascinating. Mattel's claim over Bryant's creative work stemmed largely from the interplay of contract and intellectual property law, a narrow branch that doesn't receive nearly as much attention in the reported decisions: an invention assignment clause. Strictly as a matter of intellectual property law, there's no doubt Bryant would own his own ideas or conceptions related to Bratz. But to what effect did a contractual assignment of those inventions allow Mattel to claim them as its own?

We know how this story turns out. Mattel won the first trial, but lost in the Ninth Circuit. One of the tenets of the Ninth Circuit's opinion was decently simple: Mattel's invention assignment clause never mentioned "ideas," and the concept of Bratz was an idea Bryant had. The jury got bad instructions on his contract. On re-trial, MGA won. Eventually it recovered attorneys' fees. And a line in Judge David Carter's fee opinion (the Copyright Act permits a court to award fees to the winner) nicely sums up the case and its lasting impact:

"Mattel's claim posed a serious threat to the public's access to free and competitive expression; the possibility that Mattel ignored decades-old principles about the unprotectability of ideas in good faith is not an excuse and does not diminish the benefits society will reap as a result of MGA's successful defense."


Much can be written about this book, but it's a great page-turner and a courtroom drama of the highest order, not to mention a wonderful application of some difficult principles to some easily digestible facts. We all know Barbie dolls. And who among us hasn't had a great idea--whether explored or not--while off the clock?

But I want to focus on three points I took from the book.

First, lawyers.

Professor Lobel describes how MGA switched horses mid-stream in the case. Shortly before the second trial, MGA hired Jennifer Keller, who was not an intellectual property law expert and appears not to have commanded a whole lot of respect from Mattel. But it's clear she knew her stuff and knew how to command a courtroom. The book gives great examples of how she was able to connect with the jury in a way Mattel couldn't. It's not a stretch to say she was one of the deciding factors in swinging the resolution in MGA's favor.

This is a huge point for clients to consider. If a client is reading this, don't blindly hire a non-compete lawyer to represent you in a non-compete case. Hire a lawyer who is smart, relatable, and who has courtroom chops. She can learn non-compete law (it's not hard). But some pencil-neck who can recite cases poses a grave risk of losing a judge or jury. In fact, one of the worst courtroom attorneys I have seen is a self-described national thought leader in this field.

I tell this to clients. I know I can do a great job, because I am very comfortable in a courtroom, speak plainly, and have the testimonials from judges to prove I'm good. Being a strong advocate is far more than citing case law or applying some rules. It's knowing the facts and weaving them into a clean, clear story. Keller obviously did that way better than her counterparts.

Second, attorneys' fees.

The best part of You Don't Own Me is Chapter 11, where Professor Lobel recounts the aftermath of the long litigation battle. Reading this was somewhat like a trip down memory lane for me, though on a much grander and dramatic scale. Litigation like this almost never produces winners. Except, in many instances, the attorneys. At page 239, Professor Lobel suggests that Mattel's legal expenses topped $450 million and then she states "[i]t is possible that the litigators...were the ones who gained the most from the decade long battles." My only quibble with the book: she should have swapped the phrase "virtually certain" in lieu of "possible."

I am often skeptical that claims my clients face are driven by lawyers who gin up disputes with the idea that the litigation will enable them to meet some punishing billable hour requirement. They seize on their clients' raw feelings that they've lost people who are disloyal. And cases fueled by emotion lead to terrible decisions, not the least of which is the crucial decision to start a case.

Most disputes, on their face, aren't worth even the initial bills from counsel. Until we have a sounder fee-shifting mechanism in place, the specter of litigation cost will continue to smother these disputes. To give my readers an idea of what full-scale litigation war can cost, MGA's successful fee petition in the District Court resulted in an award of $105,668,073 in legal fees and $31,677,104 in costs.

Third, knowledge.

And by that I mean, knowledge as a property right. The central theme in You Don't Own Me concerns the ownership of ideas, specifically Carter Bryant's conception of the Bratz dolls. Non-compete cases are related, but different. They often concern the ownership of knowledge and collective work experience. To what extent is that an interest that can be restrained by contract?

To me, this seems slightly more esoteric than the ideas question that You Don't Own Me deconstructs. Ideas can be divorced entirely from one's day-to-day work, and jurors can grasp that because it's easily relatable (as long as a good lawyer is telling the story). Work experience is harder to disaggregate because it's, well, work. But the logic behind walling off that experience for its sake alone, and then restricting it through court, is really hard to justify.

The collective wisdom of work experience is, in my view, a natural right that is inalienable. A non-compete bolstered in its application only by this experience (and the inevitable use of that experience to benefit someone else) seems flimsy. Courts still seem to struggle to separate the notion of trade secrets from embedded knowledge. Even strong plaintiff's testimony is loaded with hypotheticals like "she might be able to..." It can play well or fall totally flat. The line between protected and unprotected knowledge may not be easy to draw. But we have to do a better job of at least trying to draw it.

Wednesday, February 14, 2018

Diversity Hiring as a...."Protectable Business Interest"

Just when I think there are few unexplored topics on here, I check my Google news alerts to see what new interesting non-compete stories pop up. And sure enough, we get a real doozy.

IBM has sued its former Chief Diversity Officer, Lindsay Rae McIntyre, who left to join Microsoft. The fulcrum of IBM's suit is plainly stated in its brief seeking a temporary restraining order:

"By taking the identical job at Microsoft, and bringing the highly confidential and competitively sensitive information she knows about IBM's diversity data, strategies, and innovations, McIntyre threatens to disclose and use IBM's valuable business secrets for the benefit of one of IBM's most significant competitors."

The TRO brief goes on--for fifty pages--to say basically the same thing. Workplace diversity is important. IBM is a leader. Microsoft is behind. Customers want diversity in employment. And that diversity leads to greater innovation.

Fair enough.

But is this really a business interest that a company can protect through a broad non-compete?

The concept of workplace diversity is no doubt important (and IBM is apparently very good at it), but wouldn't firms who are successful at recruiting and retaining diverse workforces want to publicize that fact? And wouldn't tech titans want to promote not only top talent that it brought into the fold, but how it was able to get them to the company in the first place?

The IBM filing also reveals a problem in non-compete suits that festers incessantly. It's one thing to identify a broad strategy (here, hiring and retention of diverse candidates) as "confidential." But it's then quite another to introduce evidence that disaggregates something specific from that which is in the public domain already.

This seems especially difficult when the claimed protectable interest concerns broadly stated hiring goals or achievements, at least some of which certainly get into the public domain. The position IBM asserts necessarily assumes a corporate culture that is on par with Microsoft (which its filing suggests is not the case at all) and assumes that the workforces are susceptible to having one crossover employee implement or replicate the same hiring tactics on diversity. And it further assumes that Microsoft will want to copy IBM altogether.

It is relatively unusual to see (sustainable) non-compete cases that involve a protectable interest you cannot directly monetize. Most involve sales executives or managers, or those who create and develop intellectual property or other consumable products. The interest in those actions has a direct nexus to sales and customer goodwill. In IBM's current suit against McIntyre, however, the reference to goodwill is starkly indirect--that is, good hiring practices create a good culture which ultimately strengthens the corporation's overall position in the market.

The interest IBM asserts also invokes the notion of "embedded knowledge"--the collective experience an employee brings to the new job simply by being an employee. That is, knowledge at a very high level is a transferable, natural right that a non-compete shouldn't be able to protect. Many corporations do, to be sure, and a great many attorneys feel right at home arguing that knowledge barriers are just fine and dandy. When those suits arise, and the case becomes one about embedded knowledge, it becomes awfully difficult for a court to deconstruct that abstract or collective knowledge gained from concrete secrets deployable somewhere else.

When that happens, sometimes it is easiest for courts just to pivot back to the most obvious, natural theme--one plainly obvious from the first five pages of IBM's own case. Do we really want to restrict an employee from leaving to help other organizations diversify their workforces? This one is a real head-scratcher.

Friday, January 26, 2018

Trade Secret Litigation Statistics Revisited

Thank God for firms like Skadden Arps.

Unlike some terrible "national" law firms that attempt to blog and end up shoveling out worthless drivel, Skadden regularly publishes great content (not to mention high-quality lawyering).

This January 23 post is no different and provides very helpful, practical information for trade secrets attorneys and litigants. Though the article is titled "The Rise of Trade Secret Litigation in the Digital Age," some of its most interesting tidbits focus on statistical measures.

For instance, Skadden notes the following:

  • Trade secrets cases increased 14 percent per year from 2001 to 2012. This runs against the grain, as civil litigation statistics confirm a steady downward trend of filings.
  • Trade secrets holders have a recent success rate of 69 percent at trial.
  • Trade secrets cases are dismissed at a lower rate (22 percent) than other types of complex civil litigation actions.
  • In recent trade secrets cases, only 2 percent resulted in preliminary injunctions -  a surprising trend, given that historically the rate is 10 percent.
Data on litigation outcomes is not easy to come by. Federal court statistics generally can present a skewed picture, given the high percentage of prisoner 1983 actions. So data aggregated on a macro basis is not reflective of all litigation. A high percentage of cases settle very early, so we don't know how meritorious all filings are.

But generally, the public literature shows a few general points to keep in mind, which dovetail nicely with what Skadden summarized:

  • Contract claims usually fare better than tort claims. Trade secrets actions are more akin to tort suits.
  • Federal court jury verdicts tend to be a bit higher.
  • Tort actions involving products liability and medical malpractice fare worse than other civil actions, somewhat skewing the tort number downward. This is even more pronounced in federal court.
  • In trade secrets cases where the employee was the alleged misappropriating party, the plaintiff was nearly twice as likely to obtain a preliminary injunction as when the claimed wrongdoer was a former business partner.
The bible, if you will, on statistical analysis of trade secret litigation comes from David Almeling, and his article is available here.

Generally, my rules of thumb are as follows. And bear in mind that these are grounded less in statistics and more in anecdotal experience and general kibitzing with other nerds:

  • A court will dismiss a trade secrets case on the pleadings less than 10 percent of the time (assuming no abject incompetence on the plaintiff's part).
  • Preliminary injunctions are successful at a rate of 20 and 30 percent.
  • Of those, at least 75 percent are partially successful and deny the plaintiff part of what it seeks.
  • Summary judgments motions are 50/50 propositions at best, but in trade secrets cases the legal standards push that down closer to 40 percent. Non-compete claims are more amenable to summary judgments.
  • At trial, plaintiffs in commercial actions win some material claim at a 60 to 65 percent clip.
  • In 85 percent of jury cases, a trade secrets lawyer will put at least two jurors asleep.
  • In 100 percent of cases, judges beg the parties to try and settle.

Wednesday, January 24, 2018

Wisconsin Supreme Court: No-Hire Provision is a Covenant Not to Compete

When they're not suing each other, the Wisconsin Supreme Court justices actually have some interesting stuff to say and some interesting cases to decide.

This past week, the Court held in Manitowoc Company v. Lanning that an employee non-solicitation clause is a covenant not to compete for purposes of the State's relatively strict non-compete statute, Wis. Stat. § 103.465.

To recap, an employee non-solicitation covenant (or no-hire clause) bars employees from inducing former co-workers to quit or join another company, usually a competitor. They are not litigated all that much, except when pied pipers try to build out sales teams beneath them.

The Court held that it has taken a flexible view of the term "restraint on trade" and that no-hire clauses fit within that term, given that they restrict an employee's "ability to engage in the ordinary competition attendant to a free market," specifically with respect to recruiting the "best talent in the labor pool."

What's the significance? The applicable Wisconsin statute requires an employer to clear a number of different hurdles to establish the validity of a restraint of trade. And just as importantly, the statute provides that any covenant that is unreasonable is void and illegal, even if some remaining portion of the restraint would be valid.

It is an all or nothing proposition.

Which is why Manitowoc Company lost on the merits of its claim, after the Court found that the governing statute applied.

What was wrong? Basically, the no-hire clause said the employee could not, for two years, solicit or encourage any company employee to leave. It's actually broader than that, but I'm trying to be brief.

The Court concluded that Manitowoc Company had no protectable interest in maintaining its entire workforce. The employee it sued had no knowledge of the 13,000+ employees the company had worldwide. The covenant, to be sure, was so broad that no protectable interest could support it. Under the statute, it was void. Plain and simple.

This is yet another opportunity to offer a lesson in contract drafting. Many non-competes get tossed out because counsel salivate at the mouth and want to appease their client. Drafting is not an exercise in chest-thumping, in which counsel gets to boast about how tough he was in writing a restrictive covenant. It's actually much more nuanced than that. Part of being a lawyer is being objective, knowing what makes sense, and then communicating that to the client.

Maybe I'm a dying breed.

Tuesday, January 9, 2018

The Trade Secret Status of Football Game Plans

For the second day in a row, The Wall Street Journal identified interesting questions concerning the law of trade secrets. Today's article comes in the wake of the Alabama-Georgia national title game, which Alabama won in dramatic fashion.

The question the article raises is pretty simple and quaintly summarized: are football game plans trade secrets?

The article explores this question rather indirectly, given WSJ's apparent effort to use Freedom of Information laws to seek these game plans from public universities. My readers will be stunned to learn that the recipients of these FOI letters were less than forthcoming.

One of the traditional exceptions to disclosure of public documents is that information's trade secret status. For their part, FOI laws contain slightly different definitions of trade secrets than do federal and statutes designed to guard against misappropriation. For example, the so-called Exemption 4 under federal law allows for the protection of trade secrets and "commercial or financial information obtained from a person [that is] privileged and confidential." The Supreme Court never has interpreted Exemption 4.

So let's look at Alabama, whose flagship school's football game plans were the subject of the WSJ article today. Alabama's Open Records Act contains no exemption for trade secret material, which is odd but no more odd than sending Roy Moore twice to the state Supreme Court. Though I haven't researched any other statutory basis the University of Alabama may have to withhold game plans under a records request, the Open Records Act does not appear to do so.

Aside from this, the larger question is quite intriguing. Are game plans actually trade secrets?

The best analogy I can come up with is the scripts for popular television serials, a subject I wrote on several years ago in the lead-up to the final Breaking Bad episodes. I've since changed my conclusion and do not believe those scripts are trade secrets, though they can be protected contractually. Why do I say that?

The answer comes straight from the statutory definition of a trade secret. We'll use the 1979 Uniform Trade Secrets Act, whose definition is most in use. The term "trade secret" means that the information must:

(1) derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(2) be the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

While much of the text would suggest popular television scripts are protectable, the highlighted part illustrates why they're not. How, for instance, would any other production company, studio, or network gain from knowing what the plot lines of a series finale are? They wouldn't. In all likelihood, the only remedy that the script owner has is contractual. That is to say, the owner could claim that improper disclosure by an insider bound to a confidentiality clause reduced the economic impact of a television run, such as through lost advertising fees.

My rationale, though, supports giving game plans trade secret status.

Let's start with the basics. Those game plans are valuable, in that they reveal compilations of plays, schemes, coverages, and strategies for a variety of in-game scenarios. So too, there are economic interests at stake, as college football is a business. Universities stand to gain in myriad ways from successful football programs.

And game plans, unlike television scripts, are useful to competitors - even if only to the competitor whose being schemed against in the game plan. So assume that the University of Georgia has a copy of Alabama's game plan. It should know the preferred set of plays for 3rd-and-short. It would know how Alabama's blitz patterns. And it may know whether Alabama wants to deploy a trick play on special teams. That would provide it economic value in the form of a marginally better chance of winning a game, which in turn could yield significant economic gains for the university.

The oft-used defense of reverse engineering likely would not be a good one as applied to game plans. Those plans change week to week based on a variety of factors, including newly obtained personnel, injuries to key players, past performance, competition level, and even the weather. Knowing what Alabama did on 3rd-and-short against Fresno State in September is only marginally helpful when it faces a different defensive scheme, and totally different personnel, against Georgia the following January.

The rather unique aspect of game plans, though, is that they likely have a very short useful life as a trade secret-even for a matter of days. That is to say, anyone can watch tape of last night's game and deduce what Alabama's preferred blitz coverages looked like. They could, in theory, reconstruct a game plan in large part. And again, obtaining a game plan for Georgia would prove marginally helpful, if at all, next season when Alabama opens its season with new players and new schemes.

Today's WSJ article is a fun read and even notes that the paper reviewed Alabama's defensive game plan for its first-round playoff win against Clemson. No one from Alabama seems too worked up about that, suggesting that game plans aren't a trade secret for very long. As one of the Alabama assistants even said, "There's some good information in there, but I don't understand it."

Most people, even other college coaches, wouldn't either. The idea of game plans as trade secrets is academically interesting and challenges us to apply timeless concepts to unique situations. But the debate is still largely theoretical.

Monday, January 8, 2018

Sinovel Wind Turbine Case Heads to Trial

The Wall Street Journal reported today that the Wisconsin trade secrets case of United States v. Sinovel Wind Group Co. is scheduled to begin trial this week. The criminal case highlights the growing problem of intellectual property theft by state-sponsored organizations in China. And it further illustrates that multi-national organizations often target vulnerable inside employees to aid and abet in brazen acts of theft.

The Department of Justice back in 2013 issued a Press Release detailing the charges against Sinovel Wind and several individuals, including a former employee of American Superconductor, the victim of alleged trade secret theft. According to the indictment, American Superconductor developed software that controlled the flow of electricity from wind turbines to electrical grids. This software source code is at the heart of the indictment for trade secret theft. The allegation of misappropriation centers on Sinovel's apparent acquisition, through an ex-employee, of the software to produce wind turbines that it previously agreed to buy from American Superconductor.

The charging documents outline a familiar, if not sloppy, pattern of insider theft. The FBI, for instance, was able to discover that the rogue American Superconductor employee used Skype to communicate with Sinovel regarding the stolen source code. He also e-mailed Sinovel to discuss the source code and to send repairs to the source code. Of note, the ex-insider frequently traveled to China to work on Sinovel, which at one time constituted 80 percent of American Superconductor's business. The alleged theft resulted in a drop in American Superconductor's market value from roughly $1.6 billion to approximately $200 million.

For those interested to see what a real trade-secrets theft investigation looks like, and the level of detail undertaken with respect to a forensic analysis, I highly recommend a read through the key charging affidavit, embedded below.

Finally, a topic that frequently comes up in trade secrets cases is closure of the courtroom. On December 28, the court stated that "the trial of this case will be conducted in open court, unless a strong showing is made that some evidence must be kept from public disclosure." The court allowed for limited courtroom protections for trade secrets that were the subject of the government's indictment, but denied any corresponding protection to Sinovel on the basis that it had not made the appropriate showings to gain such protection.

Thursday, January 4, 2018

It's Just Business as Usual for the Year 10 Kick-Off

The more things change, the more they stay the same.

If I had to make three predictions for 2018, they would have been as follows:

(1) Legislators across the U.S. will introduce non-compete bills, which will advance at a glacial pace with incredibly unimpressive results.

(2) Frivolous non-compete and trade secrets suits will continue unabated, and I will break three keyboards writing about them.

(3) Waymo and Uber will end up going to trial, and the court will render a mixed verdict. At some point, Paul Clement will sign an appellate brief for one of the parties.


It is January 5, and we seem to have checked the box on numbers 1 and 2.

Representatives in the Vermont General Assembly have introduced a bill that would establish a categorical ban on non-compete agreements, much in the mold of the North Dakota and California statutes. The proposed legislation contains the usual carve-outs for negotiated sale-of-business and partnership-style non-competes. A copy of the bill is available here. This may be the last we hear of it.

Move a stone's throw to the East, and a gaggle of New Hampshire senators have introduced Senate Bill 423, which would ban non-competes for low-wage workers. Similar to the Illinois Freedom to Work Act, the term "low-wage worker" includes those earning the greater of the federal minimum wage or $15 per hour. This is a common-sense reform that probably stands a decent chance of passage. The Senate Bill is available here.


The State of Ohio, and people with some connection to the Buckeye State, have produced some pretty terrible trade secrets and non-compete litigation. Which saddens me, because I went to Ohio State.

Well, the trend seems to continue with a company in the business of producing something called "precision braided textiles" filing what appears to be a really crappy suit against a former employee. A&P Technology sued a terminated Phil Lariviere on the theory of inevitable disclosure of trade secrets. Lariviere, a former engineer, sat out his broad, two-year non-compete before obtaining subsequent employment through a recruiter with one of A&P's competitors.

A&P then filed suit claiming that Lariviere's intimate knowledge of everything A&P placed its trade secrets at risk, as if time stood still during the two-plus years Lariviere was gone. The Southern District of Ohio mercifully denied this injunction against Lariviere, despite his relatively hostile attitude to his former employer. The injunction briefing contained some rather amusing exhibits about Lariviere's social media posts, texts, and e-mails. Why? A&P felt that anger and hostility suggested an intent to steal trade secrets.

No reason for this theory appears to be offered, and the court saw through it. According to Judge Black, "Lariviere's mockery of the former employer who terminated him and then sued him is not demonstrative of any actual effort or inclination to violate his contractual obligation to protect the confidentiality of A&P's trade secrets." Maybe this was an unfortunate choice, but I sympathize here with Lariviere. He should be pissed about getting sued on a specious claim after abiding by his non-compete.

An equally interesting aspect of the opinion concerns Lariviere's smart move to force A&P to identify its trade secrets with specificity. The shotgun nature of A&P's claim all but forced Lariviere's hand to proceed this way. And the court was persuaded, ordering A&P to list out its "suspected misappropriated trade secrets" before demanding the same of Lariviere and his new employer. The main impetus for the discovery ruling appears to have been the substantive weakness of A&P's case.

You can review the order and opinion at the end of this post. A further link is available here. It is well worth a read for lawyers and litigants, as the discussion spans a number of substantive and procedural topics likely to recur.


In the Waymo v. Uber litigation, the so-called Jacobs letter has received a great deal of attention. The letter was originally part of a dispute between Jacobs and Uber. But it has been interjected into the trade-secrets trial of the century, centered on the conduct of former engineer Anthony Levandowski. The most salacious part of the Jacobs letter was the allegation that former CEO Travis Kalanick had sanctioned trade secrets theft. To be sure, the Jacobs story will be a featured part of the upcoming trial. And to that end, Judge William Alsup, who is overseeing the case, issued a recent Order unlike any I've ever seen.


Wednesday, December 27, 2017

Year-End Post: A Completely Random Screed, Addressing Topics Near and Dear

Last night, as Christmas '17 drew to a close, my wife and I imbibed with a (very small) glass of Pappy Van Winkle, which, if you know anything about bourbon, is totally epic shit and absolutely the right way to finish off a holiday. As I let the cordial burn the inside of my mouth (and I do mean burn), I thought about a year that was completely random in so many ways. I'll leave aside the declining discourse of our civic life and translate this to the content of this blog, which is non-compete and trade secret litigation.

I thought of the great successes my clients and I have had this year. I began the year arguing in the Third District Appellate Court, site of the Lincoln-Douglas debates, on a non-compete judgment entered in favor of my client, a former staffing industry sales employee, after a bench trial. Work then pivoted to a monster appeal in the Second District, which recently affirmed a bench trial judgment in our favor and affirmed a nearly $1.5 million fee award under corporate indemnification procedures. We now have pending, again in the Third District, a discretionary, interlocutory appeal on an issue of contract interpretation concerning non-competes. We are hopeful that this case, too, will establish precedent and continue to move the ball down the field of rationality.

In the trial courts, my work was no less significant. And again, our results--for awesome clients--continued to be great. We successfully dismissed an inevitable disclosure action in Illinois state court, with a factual and procedural context so utterly inane and bereft of competence that I cannot do it justice. But I tried, in my blog post "38 Minutes of Hell," which garnered a lot of classic feedback.

June and July were consumed with one of the truly weirdest cases I'll ever see, a replevin claim in Cook County Circuit Court, where we prevailed in a bench trial. Next, we headed to the East Coast and defeated a preliminary injunction in the Delaware Court of Chancery, following a failed business acquisition. This time, too, the merits were a real head-scratcher, with the plaintiff pursuing a claim based on a no-hiring clause that limited our ability to hire employees of the potential target company. Problem: we hired an independent contractor. Once again, we see litigation as an ex post attempt to strike a business deal that the parties never adopted. That lawsuit's in the ditch now.

Then we stepped into a federal non-compete and trade secrets case that had been pending for several months. After getting subbed in for defense counsel, I read the file and concluded rather quickly that this case, too, was purely abusive. We then immediately contacted non-party witnesses, obtained statements that undermined the plaintiff's claim of breach (and trade secrets theft) in toto, and served our initial evidence disclosures. You could almost hear the plaintiff back-pedal, as it filed a motion to dismiss the case with prejudice, conditioned of course on the "with each party to bear its own costs and fees." Ain't that easy, partner. We moving for fees. May not get 'em. But we tryin'.


We're now in yet another one of these cases, with similarly weak facts from the plaintiff's perspective. And as I'm litigating that one, I can't help but feel we're reaching an inflection point on non-compete cases. What I continue to see is canned pleadings and complaints, invoking the same shop-worn phrases about what it is the plaintiff is trying to protect through covenants both broad and narrow. What is missing from many such cases is a deconstructed analysis of these interests and how the enforcement action is designed to protect them from an unfair competitive threat.

In the main, these business interests sound reasonable and decent. Customer relationships and confidential information, though, are interests only protectable if the facts justify market-distorting protections. I believe that, in opaque industries not intuitively familiar to the average person, the notion of "customer relationships" can be awfully difficult to deconstruct and analyze. Put another way, the term (or the asserted interest girding the restrictive covenants) quickly gets disaggregated from the actual, relevant facts.

Business-to-business relationships, which are what most non-competes are designed to protect, are complex. The question, for instance, of who a customer even is can be iterative, not obvious. Furthermore, we live in an era (call it the post-Industrial era, since no one knows what else to call it) where businesses are becoming more and more fragmented and specialized. This is what I wrote on LinkedIn last week:

...Extreme market fragmentation within industries means that companies once deemed "rivals" now operate in a manner adjacent to, not competitive with, each other. Contractual restrictions on competing in the "same or similar line of business," once thought acceptable, now fail to account for this macroeconomic shift towards hyper-specialization....

I stand by that and think that we need to keep this in mind when assessing whether to file suit and how to defend a suit.

What I see in non-compete cases is this. Plaintiff recycles a complaint with a very nice series of allegations about customer relationships. Those allegations have no fit whatsoever to the industry they happen to be litigating. A trial judge operates under a familiar framework, constrained by time and resources, all the while failing to grasp the nuances of the business that is the subject of the dispute during an emergency hearing. The allegations may be enough to get a plaintiff a few first downs. But ultimately they get three holding penalties in a row, the punter fumbles the ball, and the team is totally blown out by halftime. (As a Chicago Bears fan, the analogy seemed obvious and temporally appropriate.)

So what is my point? The protectable interest question is really, really important. It is not nearly enough to rest on the laurels of past pleadings that survived a motion to dismiss and that invoke the black-letter principles we all now know. What is demanded is a strong look at just how the defendant, who signed a restrictive covenant, can move business in a manner that deprives his ex-employer of a fair chance to compete for the business on an even playing field. After hashing out a number of different tests, standards, or formulations, I think this is the inquiry for whether enforcement of a reasonably drafted non-compete is permissible to protect customer relationships. Anything broader restrains fair competition in the market, despite what the contract says.

To be sure, some industries are more susceptible to allowing enforcement. But many come nowhere close. I guess what I'm saying is this: I'm not tired of non-compete lawsuits. I'm tired of crappy non-compete lawsuits. And I'm absolutely done with lazy lawyering.


As I often do, I checked out Russell Beck's Fair Competition Law and learned Pennsylvania legislators have proposed a California-style ban on non-competes. The text of House Bill No. 1938 is available here. Of more interest, candidly, was Russell's hat-tip to a recent article published by Norm Bishara and Evan Starr, The Incomplete Noncompete Picture. Bishara and Starr conclude that some basic questions are left unanswered by empirical research. One area that seems to be problematic for researchers is the ability to track employees over time, in terms of their job advancement and wage rates. And if you think about it, incentives for these employees may change.

For early-stage employees, they are very likely to change jobs and face advancement constraints posed by non-competes that they are unable to litigate. They have, and should have, very coarse feelings about them. But over time, they may change their mind, particularly if they are entrepreneurial and can benefit from restrictive covenants imposed on others.


Finally, for this year, I thought the Sixth Circuit's opinion in Hall v. Edgewood Partners Ins. Center, Inc., No. 17-3744, is well worth a read for practitioners and laypersons alike. It addresses a rather common question I face regarding assignability of employee restrictive covenants following an asset sale. I will not deconstruct or case-summarize here, but I do provide a link to Judge Thapar's eminently readable opinion on an issue that is often misunderstood and extremely important to get right.


With that, I bow out for 2017. See you in a week or so. And thanks again for reading!

Friday, December 15, 2017

The Reading List (2017, No. 30): Ex Parte Seizure Orders, North Dakota Non-Competes, and 9 Years of Blogging

Non-Compete and Trade Secrets News for the week ended December 15, 2017


Ex Parte Seizures of Trade Secrets

The Defend Trade Secrets Act's provision for ex parte seizures of property has generated considerable buzz and commentary, much more so than the remedy's narrow application seems to be worth. I am interested in it only in the academic sense, not the pragmatic one.

If you want nuts and bolts as to how it works, look elsewhere. I'm not covering it here. (Though if you're truly jonesing for stuff, e-mail me and I'll send you a white paper on it.) The gist is simple: if a plaintiff feels a defendant has stolen trade secrets, it can petition the court for an order to retrieve the property containing those secrets.

The case law applying the ex parte seizure order is understandably thin, given how new the DTSA is. Still, there's more on this remedy than more conventional ones, simply because it takes longer to try a case to judgment than it does to pursue an emergency interim order. So we have some helpful cases.

The most interesting one so far is Blue Star Land Services, LLC v. Coleman, No. 17-931, a case pending in the Western District of Oklahoma. Of course, it involves an employee departure that appears to have gone completely haywire. And even less surprisingly given the venue, it involves the oil and gas industry.

I am showing at the bottom of this post the district court's original ex parte seizure order. This one is pretty interesting since it involves an application for electronic storage devices and a Dropbox account (really, credentials to get into that account). Misappropriation tools tend to be digital, presenting sticky issues for law-enforcement seizure efforts. Put another way, it's easier to seize a bag of dope than it is a cloud-based folder of PDFs.

The Order below is a bit broad, but perhaps necessarily so. That is, it orders the seizure of "[a]ny computers, computer hard drives, or memory devices in Defendants' possession that may contain [trade secret information]." It further extends to seizure of usernames and passwords, information even less apt to forcible retrieval but obviously related to the instrumentalities needed to facilitate the alleged theft. All in all, I think counsel did a good job proposing this quirky remedy, and the court did a nice job entering it given the difficult aspects of seizing digital assets.

North Dakota Non-Compete Decision

We now move upwards to North Dakota, awash in fracking material but mercifully bereft of non-compete litigation. Tell that, though, to one Dawn Osborne, an office supply house sales representative who signed a two-year non-compete with Brown & Saenger.

The problem for Osborne is that even though she worked in Fargo, her employer was a South Dakota company. And the non-compete agreement contained a South Dakota choice-of-law/choice-of-forum clause. But North Dakota prohibits non-compete agreements along the same lines that California does. The Supreme Court of North Dakota held the forum-selection clause invalid, stating "one may not contract for application of another state's law or forum if the natural result is to allow enforcement of a non-compete agreement in violation of North Dakota's long-standing and strong public policy against non-compete agreements." This shows the importance in non-enforcement states of establishing venue through a declaratory judgment action to challenge a forum-selection clause. Litigants in California and Georgia know this tactic well.

A link to Osborne v. Brown & Saenger, Inc. is available here.

My 9-Year (Blogging) Anniversary

I've been blogging about non-competes longer than I've been married.

If my wife is reading this, it feels like I just got married yesterday and I'm still in the throes of wedded bliss! I can't say the same about blogging, but it has been a fun journey to share my thoughts and ideas on here. When I originally started this, my goal was simply to provide helpful, informative content.

My style has changed a great deal from those first timid days when I wasn't sure what my voice would be. I suspect that's true for most people who provide commentary in this format. I was interested, after 9 years, to see which posts (out of more than 600) were read the most, figuring that there would be some sort of logical pattern.

Nope. Some of the most widely-read posts were fairly predictable, like my attack on one of the worst, if not the worst, non-compete I've seen. Then there were my twin posts (here and here) on Tradesman Int'l v. Black, which discussed an important Seventh Circuit case I litigated on bad faith in trade secrets cases. Among the more popular posts was a discussion on pursuing declaratory judgment actions (much like Ms. Osborne did in North Dakota) and ensuring you have a sufficiently ripe controversy. I get tons of e-mails, messages, and calls on that from other attorneys and potential clients.

By far my most popular post, though, was an assessment of what exactly a "solicitation" is in the context of restrictive covenant litigation. I figured it would be a good one, but the numbers were staggering. But even some really obscure, pedantic posts generated an abnormal number of hits, such as about using contention interrogatories. Or this one involving the mootness rule on appeal. Or for God's sakes this one, with the almost intoxicating title "Some Thoughts on Pursuing Expedited Discovery." Turns out, y'all are civil procedure nerds.

The future of legal blogging is a bit uncertain. In this particular area, it's easy to get drowned out by blogs that are manufactured and designed to attract viewers. Many are unhelpful, uninteresting, and apparently undertaken solely as part of a poorly conceived executive committee marketing endeavor. Still, there are many excellent sources of information online which add context and color to the discussion.

I don't where this, my blog, ends, but I know it does end. And I will know when the time is right. So God willing, it may have started before my marriage, but it won't outlast it. For now, thanks for reading.