Friday, May 27, 2016

Personal Clients/Firm Clients

In 1999, the New York Court of Appeals decided BDO Seidman v. Hirshberg and said this:

"...it would be unreasonable to extend the covenant to personal clients of defendant who came to the firm solely to avail themselves of his services and only as a result of his own independent recruitment efforts, which BDO neither subsidized nor otherwise financially supported as part of a program of client development."

Which raises the question...

...what's a "personal client" and what's a "firm client"? The particular facts and context of BDO Seidman aren't the point of this post. Rather, the larger issue is the construct of rules in non-compete law that can have unintended consequences for the very parties those rules are intended to aid - employees bound by restrictive covenants.

The difference between a personal client and a firm client is not straightforward. An employer will no doubt contend that an employee's affiliation with it is an extension of its goodwill, branding, reputation in the marketplace, and particular product or service offering. That may be true. Or, as the employee will retort, "I did everything and got no help." That also may be true. The truth may lie somewhere in between.

Rules like that in BDO Seidman are easy to state and hard to apply. Take Marsh USA, Inc. v. Schruhriemen, a New York district court case decided earlier this month. There, Judge Jed Rakoff applied this personal client/firm client rule and entered a limited injunction that basically told the employee "I have no idea, so you're on your own." Of course, Judge Rakoff would never say just that, but he did say that "the Court cannot, without further factual development, provide a definitive ruling on whether [the subject client] falls within the scope of the 'personal clients' exemption" from BDO Seidman so "Mr. Schuhriemen acts at his own peril" if he services the client.

Rules like that announced in BDO Seidman are meant to be objective and place sensible limits on the use of restrictive covenants. But too often, these very rules (expressed objectively) invite further disputes, subject parties to immense litigation risk, and (most noticeably) increase litigation expense on the parties least able to bear them.

The personal clients/firm clients rule from New York is not alone. Disputes about non-compete consideration, the scope of legitimate business interests, and blue-penciling of overbroad agreements all deal with limiting unfair agreements. But only infrequently do these rules solve anything. And in too many cases like Marsh USA, they leave everyone twisting in the wind.

Friday, May 13, 2016

In Wake of Defend Trade Secrets Act Passage, a New Whistleblower Ruling Protects Employees

I cannot begin to wade into the commentary surrounding the passage of the Defend Trade Secrets Act, which officially became the law this week. The summaries of this new federal legislation are so numerous and sweeping that I am already too late to the game.

I would like to discuss, though, one provision of the DTSA which protects whistleblowers - those who may need to use or reveal company confidential information to expose fraud, illegality, or some wrongdoing. Section 7 of the DTSA now immunizes employees from civil and criminal liability if they disclose confidential or trade secret information to the government for reporting suspected violations of the law. I wrote recently about the DTSA's new whistleblower provision and how this obscure provision of the new law may result in employers avoiding federal court (at least for a while) during the law's honeymoon period). Mike Greco of Fisher & Phillips takes a deeper dive into the subject, which is worth a read.

Before the DTSA's enactment, the rub of any whistleblowing activity concerning trade secrets, no matter how legitimate, is the potential for a counterclaim. When whistleblowing activity results in litigation against the company, the company may fire back and claim that the disclosure of confidential documents to counsel or the government violates an existing employment non-disclosure agreement.

Two days before President Obama signed the DTSA into law, a federal district court in the Northern District of Illinois addressed the precise type of whistleblowing activity the DTSA is meant to partially immunize. In United States ex rel. Cieszyski v. LifeWatch Services, Magistrate Judge Schenkier dismissed LifeWatch's counterclaim against an ex-employee, Matt Cieszyski, for breach of a non-disclosure agreement.

Cieszyski took corporate documents as part of his pursuit of what is known as a qui tam suit under the False Claims Act. This type of action enables a private person to bring an action in the name of the government if that person has evidence that another has submitted a false claim to the government.

Judge Schenkier found that LifeWatch did not state a plausible claim for breach of the non-disclosure covenant after balancing the countervailing interests Cieszyski had in pursuing his action (which necessarily depended on the information in the claimed confidential documents). Critically, Cieszyski took what he believed was necessary and did not disclose the corporate information to any LifeWatch competitor. The key passage from Judge Schenkier's ruling reads:

"It is unrealistic to impose on a relator the burden or knowing precisely how much information to provide the government when reporting a claim of fraud, with the penalty for providing what in hindsight the defendant views as more than was needed to be exposure to a claim for damages. Given the strong public policy encouraging persons to report claims of fraud on the government, more is required before subjecting relators to damages claims that could chill their willingness to report suspected fraud."

(A "relator" is someone like Cieszyski who brings a qui tam action.)

Keep in mind that the DTSA's whistleblower provisions do not give employees a free pass to do what Cieszyski did. What Cieszyski did in limiting what he took was obviously smart. But an employer still can maintain a counterclaim against a whistleblower if the scope of his or her taking exceeded what was necessary to maintain the qui tam suit (keeping in mind the ex ante perspective used by Judge Schenkier) or if there was some separate disclosure of the documents outside the suit, such as to a competitor.

Friday, May 6, 2016

New Utah Law Limits Use of Non-Compete Agreements

Every year marks the dawn of legislative efforts to restrict or expand the use of non-compete agreements. This year is no different, and the State of Utah wasted little time drastically restricting the use of restrictive covenants.

The Post-Employment Restrictions Act, known as House Bill 251, accomplishes three major objectives: (1) it limits the use of non-compete agreements to a duration of one year; (2) it exempts non-solicitation covenants from the applicable definition of a non-compete; and (3) it allows employees to recover legal fees if an employer seeks to enforce an unenforceable agreement.

The law takes effect next week, on May 10, 2016.

There is some room for interpretive guidance that surely will come. With regard to the non-solicitation exemption, the law offers no definition. An interesting question will be whether a broad non-solicitation agreement (which restricts any service of an employer's customers, as opposed to affirmative acts of soliciting them) rises to the level of a non-competition agreement.

Several sponsors of House Bill 251 authored a column before Gov. Gary Herbert signed the new law which advocated for its passage. One particularly interesting aspect of that column follows:

"We live in a free country whose prosperity is built on the free market, and as business owners we make choices. The best way for a company to retain its most valuable employees is to treat them well and compensate them sufficiently. Attempts to use legal tools to artificially block the movement of employees leads to a loss of trust and a loss of talent."

What interested me about this comment is that it actually resembles arguments that employees make in court. And that brings to the fore the notion that legislature are best suited to reflect these kinds of normative judgments, even though legislative change happens very slowly.

The state of non-compete law, though, renders courts susceptible to de facto policy making. The very factors courts must consider appear objective, but actually aren't. Those factors tend to lead  judges down the path of making rulings that reflect their personal policy preferences. This may not be a bad thing, ultimately, if the equities of the dispute match the result. But the problem is that the matrix of legal factors and how courts will apply them are highly unpredictable and can't possibly known to litigants or their counsel.

Tuesday, April 19, 2016

Why (Some) Companies Won't Sue Under the Defend Trade Secrets Act

The Senate's unanimous passage of the Defend Trade Secrets Act has resulted in a flood of legal blog posts that have, for the most part, extolled the virtues of having a federal regime covering this fourth branch of intellectual property.

However, there are at least three reasons why the Act, which still must pass the House of Representatives, may not result in an immediate wave of federal litigation.

1. The "Inevitable Disclosure" Doctrine's Inevitable Demise

One of the most prominent - and sensible - features of the DTSA is its implicit rejection of the inevitable disclosure theory of misappropriation. That topic has generated a wave of posts on this blog alone. To be sure, it is highly controversial and enables parties to bring suit without evidence of actual or even threatened misappropriation of trade secrets. In practice, it can amount to an implied non-compete without any objective parameters.

Fortunately, few states (Illinois, Iowa, New Jersey are a few) have adopted this theory and many have expressly rejected it (California and Georgia, for example). But in many states, it's just not clear whether inevitable disclosure is a viable theory on which to proceed. Since the Uniform Trade Secrets Act is the basis for most states' law, this uncertainty is a real head-scratcher.

The DTSA now provides that a federal court may grant a plaintiff an injunction as long as it doesn't "prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows."

Since the DTSA is intended to work in tandem with state law, a company that relies on the inevitable disclosure theory of misappropriation has no factual basis to invoke federal law and must proceed in state court.

2. Protecting the Whistleblower

During the amendment process, the Senate added protections in the DTSA which will protect a whistleblower who must disclose trade-secret information as part of reporting wrongdoing by an ex-employer. As part of these protections, an employer will have certain obligations that require it to notify an employee in a contract or policy statement of the DTSA's immunity provisions. If the employer does not provide notice of whistleblower immunity, it "may not be awarded exemplary damages or attorneys fees...in an action against an employee to whom notice was not provided."

It is somewhat unclear whether this provision applies in all trade-secret cases or only those that concern some whistleblowing activity. From the plain language of the DTSA's notice provision, I have to assume that it applies across the board. This is a somewhat obscure and late addition to the DTSA and it's not clear what the House will end up doing with the proposed legislation. But it's reasonable to assume that many smaller employees with less-sophisticated compliance operations will not have fully compliant agreements or policy statements. In that case, employers that feel they have a strong claim for punitive damages and attorneys' fees may have to resort to state law.

3. Fee-Shifting in Federal Court

The last reason that federal suits may not be as prevalent is related to the inherent weaknesses in many trade-secrets cases. This area of the law produces a large volume of silly, frivolous, and anti-competitive litigation. These weak cases often arise in employment-based trade-secrets suits, rather than those that are driven by intellectual property protection. For plaintiffs who seek to deter competition and invoke trade-secrets law in doing so, the federal system may end up helping defendants because of courts' willingness to sanction discovery abuse, bad-faith conduct by counsel, and spurious claims that lack evidentiary support.

The DTSA adopts the familiar bad-faith fee-shifting language now endorsed by most states. So simply as a textual matter, the opportunity for defendants to recover fees shouldn't be all that enhanced. However, practically speaking, federal courts have the know-how and political cover to award sanctions for frivolous cases.

Friday, February 26, 2016

When Bankruptcy Law Collides with Non-Compete Obligations

Non-compete proceedings for most employees are daunting undertakings. For that reason, most non-compete disputes get litigated in the "shadows," outside of reported court decisions.

And as any attorney representing an employee knows, the possibility of bankruptcy looms should litigation go poorly. Many employees are generally aware that a bankruptcy suit stays (or puts a stop to) other litigation. Although this can alleviate pressure in debt-collection suits, a stay is by no means a safe harbor when it comes to non-compete disputes.

That is because a creditor can file a lift-stay motion in bankruptcy court, which would allow it proceed against an employee for enforcement of the restrictive covenant. Like many other areas of non-compete law, this one too is somewhat opaque and not governed by a clear, bright-line rule. Generally, a bankruptcy court must balance the hardship to a creditor (i.e., employer) if it is not allowed to proceed with the lawsuit against the debtor. It also must consider prejudice to the debtor, the debtor's other creditors, and the bankruptcy estate itself.

A seminal case from 1984, In re Curtis, sets out twelve separate factors that bankruptcy judges must consider when ruling on a lift-stay motion. Those factors are:

(1) Whether relief would result in a partial or complete resolution of the issues;

(2) Lack of any connection with or interference with the bankruptcy case;

(3) Whether the other proceeding involves the debtor as a fiduciary;

(4) Whether a specialized tribunal with the necessary expertise has been established to hear the cause;

(5) Whether the debtor's insurer has assumed responsibility for defending the case;

(6) Whether the action involves primarily third-parties;

(7) Whether litigation in another forum would prejudice other creditors;

(8) Whether the judgment in another action is subject to equitable subordination (!?!);

(9) Whether the movant's success in the other proceeding would result in a judicial lien avoidable by the debtor;

(10) Judicial economy;

(11) Whether the parties in the other proceeding are ready for trial; and

(12) The impact of the stay on the parties and the balance of harms.

***

It is important to remember that ongoing compliance with a non-compete is not dischargeable in and of itself, even if defending against the injunction would be costly. But still, an employer must show "cause" under Curtis to lift the stay and seek an injunction. The best argument for relief is that a denial of relief will moot any contract rights the employer has, because non-competes only last a short period of time (usually 6 months to 2 years). Conversely, an employee normally contends that the enforcement will hamper his ability to perform under a plan of reorganization (assuming a Chapter 13 case).

These are difficult interests to reconcile, and for that reason, bankruptcy courts will look to determine the likelihood an employer will prevail in a separate proceeding, and whether a non-compete injunction proceeding was well underway before the bankruptcy filing. Employees should not assume that bankruptcy court provides a safe have to avoid an injunction proceeding, as even that question is so fact-specific that it is difficult to predict accurately how a lift-stay motion will be resolved.

Monday, February 8, 2016

The "New" Defend Trade Secrets Act Gets an Important Revision

Congress is on the verge of agreeing on something.

While it may not be health care reform, a solution to illegal immigration, or taxes, it is agreement nonetheless. Count the little victories.

So what's the agreement? Landmark legislation affecting trade secret rights. The Defend Trade Secrets Act of 2016 is upon us, now voted favorably out of the Senate Judiciary Committee. There is no word yet on when the House of Representatives may consider the legislation or when a floor vote in the Senate may occur. But getting out of committee was a big deal.

(For my last summary of the DTSA, please click here.)

The Judiciary Committee also approved two amendments to the DTSA, some of which are technical but one of which appears vitally important. In the proposed section on Remedies, the DTSA provides that a court may grant an injunction to prevent any actual or threatened misappropriation of a trade secret, provided that the injunction "does not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows."

The language, offered in the way of a substitute to the original legislation appears to be a firm rebuke of the so-called "inevitable disclosure" doctrine, which has divided courts across the country. Most attorneys feel there is a fine line between threatened disclosure of a trade secret, and "inevitable" disclosure. In all likelihood, that fine line rests on some indicators of bad faith, which could include facts like misleading a former employer about future plans or deleting e-mails outside the ordinary course of business.

The inevitable disclosure doctrine is badly overused and serves a crutch for employers to bring anti-competitive lawsuits. In reality, the contours of the doctrine should be exceedingly narrow to begin with and the doctrine only should apply to a narrow slice of cases. It always should be the exception, not a default theory of misappropriation.

The presence of this limiting, substitute language could have a profound impact on how and whether employers use a federal statute. For those who seek to bring weak claims founded on the shaky inevitable disclosure doctrine, federal courts may not be so welcoming after all.

Wednesday, February 3, 2016

A Tale of Two Non-Competes

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness...

--"A Tale of Two Cities," by Charles Dickens (1859).

Perhaps (er, certainly) this is a little dramatic, but this is what I thought of after reading two recent preliminary injunction rulings in non-compete disputes. One comes from Ohio, the other from Minnesota. And they produce results you might not expect given the facts.

The first is Independent Stave Co. v. Bethel, in which the district court partially enforced a broad non-compete agreement against a log buyer, who made less than $100,000 per year. The agreement contained a geographically unlimited non-compete restriction. The court found the employee inherently credible. There was no evidence the plaintiff lost any business, or that the employee misappropriated anything. Yet, the court issued a broad injunction, even if it was not quite what the employer sought.

The second case is Wells Fargo Ins. Svcs. v. King, where a federal court in Minnesota addresses a narrow customer non-solicitation covenant, finds that the employee solicited all his largest accounts, and determines he was in blatant breach of his contract. And in that case, the court refuses to enforce the restrictive covenant, finding money damages adequate and that an injunction would do nothing to cause the "stolen" clients to revert to the employer.

***

So what to make of this? Non-compete disputes are inherently fact-specific and are not susceptible to easy classification. What may be important to one judge is not necessarily of interest to another. In the King litigation, the judge may have been convinced that the presence of the new employer in the case would provide the plaintiff a deep-pocket in which to satisfy a money judgment. Perhaps in the Bethel case, the court felt it was narrowing the agreement in such a way to craft a middle-ground option for the employee while protecting the ex-employer.

***

Although this list is not complete, here are a number of A-list factors that may influence a court's decision to award an injunction in a non-compete dispute:

1. Witness credibility (and in particular the employee's good-faith conduct apart from the issue of "breach).

2. Constructing a compelling narrative during an evidentiary hearing, so that the presentation is a story rather than an accumulation of evidence.

3. Whether the degree and impact of competition within the relevant market is explained and understood.

4. The ability to describe actual, as opposed to speculative, harm.

I have written on each of these topics many times, and no doubt there are many more. And it also bears repeating that in about 60 percent of cases that go to an evidentiary hearing, the plaintiff ends up prevailing on at least one of the major issues in the case. But at a micro level, as King and Bethel show, reconciling the outcomes can be awfully difficult.

Monday, January 25, 2016

Rule 5.6 and the Indirect Restraint

We lawyers love to make rules for ourselves.

As a regulated profession, lawyers are bound by their state's Code of Ethics. And while many of those provisions have nothing to do with competition, one rule in particular stands out. Model Rule 5.6 is the most widely known public-policy exception that invalidates non-competes. Through its text, Rule 5.6 prohibits a lawyer from entering into an agreement that "restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement." Clients that come to me with a non-compete just love to hear that, legally, I can't even have one.

Despite the relatively clear nature of the rule, courts have not treated it uniformly and its bounds are not well-defined. Without fail, pure non-competition agreements are invalid. Therefore, lawyers cannot be bound by agreements that restrict their practice area or ability to service specific clients.

The more vexing question concerns the indirect restraint, known commonly as forfeiture-for-competition clauses. A typical forfeiture clause provides that an attorney who withdraws from the firm (normally an equity partner) suffers a reduction of what she otherwise is owed if she takes her clients with her. The contract, therefore, does not prohibit competition but amounts to an indirect restraint. It places a financial disincentive on competing directly for firm clients.

Is such an indirect restraint an impermissible restriction on the lawyer's right to practice. New York courts, for instance, have said "yes," that such clauses are unenforceable and against public policy. The state's Court of Appeals has said that a forfeiture-for-competition provision "would functionally and realistically discourages and foreclose a withdrawing partner from serving clients who might wish to continue to be represented by the withdrawing lawyer and would thus interfere with the client's choice of counsel."

One of the law's great anomalies is that the opposite view comes from the Supreme Court of California, where as a matter of policy non-competes are unenforceable in all lines of work. The Court in that case upheld a partnership provision that caused a withdrawing partner to forfeit withdrawal benefits if he practiced insurance defense work in a particular locale. The Court upheld the agreement, focusing on the changing nature of the law practice. In the Court's view, "these agreements address important business interests of law firms that can no longer be ignored." In fairness to this California decision and its seeming incongruity from the rest of non-compete law, the state's broad public policy restriction on non-competes does not apply to partnership contracts. So to this end, the state statute known as Section 16600 cannot provide a collateral source of rights for attorneys to attack forfeiture-for-competition clauses.

For its part, Maine goes further than California and declined to adopt an ethics rule similar to Rule 5.6. Lawyers, therefore, are free to sign non-competes without running afoul of that state's code of conduct. Just recently, a federal court in the District of Columbia - which had not addressed the scope of Rule 5.6 - predicted that it would follow New York's majority rule and bar indirect restraints.

Like many areas of non-compete law, this one is relatively unclear and varies from state to state. However, if lawyers are confused about the types of agreements to which they can be bound, they shouldn't expect sympathy from their clients in the real world. The landscape there is even more unsettled.

Monday, January 18, 2016

Writing Effective Cease-and-Desist Letters

For many business litigators, authoring a "cease-and-desist" letter is the go-to move when their clients face a threat of unfair competition. Although a cease-and-desist letter can be relatively easy in concept to draft, writing an effective one, however, is altogether different task.

The nastiness of a cease-and-desist letter often is inversely proportional to the actual threat posed by a competitor. In many cases, a strongly worded letter looks intimidating but rests on adverb-laden hyperbole, general legal principles, and unfounded assumptions of wrongdoing. These letters may placate a client, but they can do very little to help resolve a dispute. And the letter even can be a source of liability if it is defamatory or interferes with a person's employment opportunities.

So it's essential to write effective letters with a clear purpose. Having written and received many cease-and-desist letters over the years, I have distilled their principal, legitimate functions into three categories:

1. To notify a non-party of contract rights. Even if an ex-employee is clearly violating a non-compete, this does not entitle the enforcing party to seek a claim against the new employer. After all, the new employer may not know of the contract to begin with. In this respect, an employer can use the cease-and-desist letter (really, in this instance a "notification" letter) to establish on the record that the new employer is aware of the ex-employee's underlying breach. The issue of notice is particularly relevant to establishing a claim for contract interference.

2. To assist in making the case for injunctive relief. When an employer has clear evidence of a contract breach or trade secrets theft, a cease-and-desist letter may be an effective tool in helping secure an injunction. An ex-employee's refusal to respond to a clear call to action may prompt a court to understand that its immediate assistance is required. Judges never like hearing emergency injunction petitions, and an attorney who fails to make an attempt to resolve the situation before running into court may face some tough questions from a judge about whether she jumped the gun in filing a lawsuit.

3. To invite constructive follow-up from the recipient to resolve a potential dispute. Since most employers do not seek out litigation, an obvious purpose to a perceived threat is to avoid a dispute in the first place. In this respect, counsel faces a special challenge in drafting a letter in a way that pleases the client while also writing it to yield a constructive, amicable outcome short of a lawsuit.

On this third point, I have noticed that at least four out of every five cease-and-desist letters suffer from the same basic deficiency. They don't invite follow-up and simply generate a vaguely worded, unproductive response.

Something along the lines of this:

"In light of the above facts, Employer demands that you immediately cease and desist from violating the restrictive covenants contained in Paragraphs 1 and 2 of the Agreement, from maintaining any confidential information of Employer, and from interfering with Employer's business relationships. GOVERN YOURSELF ACCORDINGLY!"

Without commenting on the sheer idiocy of lawyers who include phrases like the last one, the call to action in the typical cease-and-desist letter's penultimate paragraph is highly ineffective. Assume the employee provides the letter to his new company. In most cases, corporate counsel will then take the heavy lifting. The cease-and-desist letter invites no response, and a savvy lawyer representing the new employer simply can respond with something as trite as the following:

"We can assure you that NewCo respects and honors its competitors' proprietary information and contract rights. We have assured Employee not to violate any enforceable terms of the Agreement, to disclose any confidential information, or to use any confidential information in working for NewCo. We have communicated your concerns to Employee, and if for any reason we suspect that she has ignored our admonitions, we will contact you promptly."

A more effective cease-and-desist letter follows a two-part format. It first lays out the known facts and the pertinent contract terms. It then reads like a series of specific, written interrogatories that require specific answers.

Examples of the types of questions that employers should ask in this interrogatory format include:

1. Have you contacted for business purposes any Restricted Client (as defined in the Agreement) since leaving Company's employment?

2. If yes to (1), which Restricted Client and what is the name of the key contact person at the client?

3. For each contact with a Restricted Client, what types of services did you sell or offer to sell to them?

4. Have you provided NewCo with any business information belonging to Company and, if yes, to whom?

5. Have you notified NewCo of the terms of the Agreement? If yes, please provide us a copy of that notification and any response NewCo gave to you.

6. Do you contend that any aspect of Company's factual investigation (as outlined above) is inaccurate, and if yes, please describe how.

***

These are illustrative examples. Each employee's situation, of course, is different and will demand some customization. The idea, though, is to write a very specific letter to get a very specific response. That response may necessitate further fact-gathering, further dialogue among the parties, or the filing of a lawsuit.

But if you serve a generic, threatening cease-and-desist letter, expect a crummy response that does nothing for your client.

Monday, January 11, 2016

The Three Categories of Business Information

The Sixth Circuit Court of Appeals recently had the opportunity to assess the three categories of business information that are at the center of nearly all non-compete and trade secrets cases:

(1) Trade secrets;

(2) Confidential information; and

(3) General skills and knowledge.

The question that often appears in lawsuits is to what extent the law protects these three categories of information. As discussed in Orthofix, Inc. v. Hunter (and countless other articles and cases), the law generally answers the question in the following way:

(1) Trade secrets are protected in most states by statutes (and in a few by the common law), irrespective of any contractual agreement. They are protected under the law of property and of confidence.

(2) Confidential information is protected if there is a specific contractual arrangement in place to do so, and information that does not rise to the level of a trade secret still can vest the owner with legal rights based on contract law.

(3) General skills and knowledge are protectable only through a non-competition agreement, which must be limited in time, scope, and duration. Importantly, the skills and knowledge must derive from the employment relationship - not the individual's free-standing experiences.

***

Professor Orly Lobel has written that "[e]mployers have been going after employees for using what many courts have defined as general problem-solving abilities. In response, courts repeatedly struggle with separating trade secrets from employees' aptitude, mental and physical abilities, and skills." Talent Wants to Be Free (Yale Univ. Press), at p. 107. She notes several flash-points in the law, where courts have struggled and taken different views as to the three types of business information:

(1) Training (which some courts use as a justification for enforcing restrictive covenants);

(2) Negative know-how (or, the knowledge of what does not work); and

(3) Memorized or internalized information (the so-called "embedded knowledge" problem).

Coming up with a way to differentiate trade secrets and confidential information is not an easy task, but as a shorthand approach, trade secrets typically are used continuously in the operation of a business while confidential information tends to be more ephemeral and have a shorter shelf life.Though this question is difficult in its own right, the harder question may be coming up with an intelligible standard to divide confidential information from general skills and knowledge.

And it becomes more difficult when the subject "skills and knowledge" were developed on the job (as opposed to some pre-existing job experience). The Restatement (Third) of Unfair Competition provides only the following general guidance:

(1) Separating out general skills and knowledge from protectable business information is intensely fact-specific.

(2) Trade secret rights are recognized only in specialized information.

(3) Courts will assess whether the employee took some "physical embodiment of the information" with her.

Ultimately, the Restatement (and common sense) seems to suggest that if what the employer is trying to protect is central to the employee's marketability in general, then the information likely falls within general skills and knowledge. If, however, the employer is trying to protect something unique that others have been unsuccessful in developing, then legitimate trade secrets and confidential concerns arise.

In the Sixth Circuit's Orthofix case, the court addressed a common plus-factor that allowed the employer to retain rights to certain confidential information (without concluding the same was a trade secret). The employee who left took that information with him and apparently conceded that it would take months to recreate it. The value of this specific information to the employer, coupled with a physical taking, therefore removed it from the general-skills-and-knowledge category.