Friday, January 13, 2017

The Reading List (2017, No. 2)

Non-Compete and Trade Secret News for the week ended January 13, 2017

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Defend Trade Secrets Act

We have the first district court opinion dealing with the relatively new (and highly controversial) ex parte seizure order available under the federal Defend Trade Secrets Act. In OOO Brunswick Rail Mgmt. v. Sultanov, a federal district court denied an application to have a court order the seizure of e-mail information maintained by third-party providers (such as Google), reasoning that the providers would be required to preserve it anyway. The court further denied the ex parte application to the extent it sought to seize the company-issued laptop and mobile phone in the defendant's possession, since the court ordered the defendant to produce them at the injunction hearing.

The order, a copy of which is available here, illustrates that the ex parte seizure order remedy may be more bark than bite, as courts already have at their disposal a number of less intrusive means to preserve data and the integrity of the litigation process. They no doubt will use them before deploying this very unique, and disfavored, remedy.

Hard-Drive Inspections

Writing a blog post on motions to compel is like describing your workout routine to someone else. You immediately sense eyes glazing over. However, at the risk of turning readers away, I'll mention one ruling that I recently read.

A recurring trade-secrets discovery issue seems to be one party's request that an adversary turn over hardware for forensic inspection. Because computers and external devices often are the means to pilfer protected information, it is logical for an aggrieved party to ask for a direct inspection of those devices. However, courts still are reluctant to do so and rely on the traditional discovery process to generate accurate responses, even when computers make the process more cumbersome and opaque. Courts normally won't order the direct production of devices unless there is proof they were used in the act of misappropriation or there is some history of discovery non-compliance. But even then, as Brand Services, LLC v. Irex Corp. illustrates, courts have the discretion to order the production of electronically stored information pursuant to a less intrusive key-word search protocol. Direct production of devices remains the exception rather than the rule.

Ethics

Non-compete disputes raise a lot of interesting conflicts and ethics question. But a very stark and sobering reminder comes from CytImmune Sciences, Inc. v. Paciotti, in which Judge Paul Grimm of the District Court of Maryland disqualified an employee's counsel because he previously worked on the same confidentiality agreement on the plaintiff's behalf many years prior.

Judge Grimm disqualified Alston & Bird since the lawyer's continued representation of the employee was materially limited due to his past representation of the employer. The material limitation apparently crystallized when defense counsel did not advance an argument on the agreement's enforceability (a facial challenge) during injunction briefing. That was particularly problematic for the court since it found the agreement unenforceable on its face and felt another attorney could have made a "full-throated facial challenge to the breadth of the" contract. The ruling is available here. (Not addressed, but perhaps looming, is the possibility the firm will need to disgorge fees from the engagement.)

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From around the web, lots of material on the Defend Trade Secrets Act percolating...

Cozen O'Connor writes that trade secrets litigation will spike in 2017. In Judge Grimm's parlance, I'll lodge a "full-throated" disagreement. It may, but who knows? The post seems to suggest the ex parte seizure order process is the reason, but come on. No one sues based on the slim chance that a court may issue what amounts to a temporary discovery order. What seems likely is an uptick in federal litigation, as practitioners have a full year to assess the DTSA, and employees have a full year of ignoring both common sense and their lawyers' advice on how to leave their jobs.

The Legal Intelligencer has an overview of the DTSA, and it emphasizes remedies. Again, there's a fulsome discussion of the seizure order. Lots of noise about something unlikely to generate much real action.

In a similar vein, Christopher Stief of Fisher & Phillips published this piece on Law.com, also discussing questions looming as courts implement the DTSA.

Somewhat related to DTSA commentary is Perkins Coie's terrific post from January 5 entitled How Will Criminal Trade Secret Prosecutions Fare under President Trump? This article describes the federal criminal statutory framework for trade-secret theft, which was rarely used until the Obama Administration made it a priority. This is well worth a read, even for civil litigators.

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Finally, there's an interesting DTSA case pending in New Jersey called Chubb INA Holdings v. Chang, No. 3:16-cv-02354. Pending before the District Court is a defense motion to dismiss a Computer Fraud and Abuse Act claim and a DTSA claim.

The CFAA motion is premised on a Nosal-style theory that the employee's access to protected computers was not in excess of authorized access, while the DTSA argument presents a more novel issue. It examines the DTSA's applicability to conduct that at least started before the DTSA went into effect. From briefing, it appears the question may hinge on whether the new federal statute would apply to either an inevitable disclosure theory of misappropriation or the continued retention of information after the DTSA's effective date (even if the predicate acts took place beforehand).

The motion to dismiss is available here. The response brief is here.

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