Friday, January 27, 2017

The Reading List (2017, No. 4)

Non-Compete and Trade Secrets News for the week ended January 27, 2017

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Illinois Restrictive Covenants

Judge Amy St. Eve is among the very best of the judges on the Northern District of Illinois. In The Carlson Group, Inc. v. Davenport, she denied a preliminary injunction motion brought against former key employees on the basis that they violated non-disclosure and non-solicitation covenants. The opinion is notable for its discussion of a temporally unlimited confidentiality clause with a very broad definition of "confidential information." Since the non-solicitation covenant was tied to customers about which the employees had "confidential information," the overbreadth concerns spilled over onto that covenant as well. As usual, her opinions are very clear and informative. A copy of the injunction ruling is available here.

Aleynikov Conviction Reinstated

Sergey Aleynikov, the ex-Goldman Sachs coder who inspired Michael Lewis' Flash Boys, has had his New York state-law conviction for theft of "secret scientific material" reinstated by the Appellate Division. Aleynikov's legal troubles have been chronicled at length here and elsewhere, but this is the latest sobering chapter in multi-pronged journey through the civil and criminal justice system. After a jury convicted Aleynikov in 2015 on state-law theft charges, a State Supreme Court Justice (in New York, that means a trial court judge) threw out the conviction for failure to prove the material elements of the crime. The details of the appellate court's reasoning are somewhat murky and technical - not at all interesting like the actual back-story of this litigation.

The reinstatement means Aleynikov goes back for sentencing. However, since he already has served one year on a federal charge, which later was overturned by the Second Circuit Court of Appeals, he'll get credit for one year of time served. The state-law theft conviction is a Class E felony, with a sentencing range of 1 to 4 years. This means Aleynikov may not face additional jail time. He shouldn't. No one - no matter what they say - even understands what he took. Aleynikov's counsel, Kevin Marino, vows an appeal.

On a related matter, Goldman and Aleynikov are fighting over whether he is entitled to indemnification for defense-related fees from the invalid federal criminal conviction. The Bloomberg story concerning that separate fight is chronicled here.

Customer Lists as Trade Secrets

A very commonly alleged trade secret, particularly in the employment context, is the customer list. However, customer lists come in many different shapes and sizes so it's hard to make blanket statements about what is and isn't legally protected. A federal district court in Texas addresses this question under Ohio's trade-secret statute. The decision is illustrative in showing what level of detail may be required to vest a customer list with trade-secret status. The customer list in KeyCorp v. Holland contained only names and contact information, and the court held that wasn't enough.

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The Fairfield County Business Journal reports on a new non-compete suit brought by Sun Products and Henkel against a former Chief Technology Officer/Senior Vice-President for Research and Development, Carlos Linares. Judge Eginton signed a temporary restraining order that bars Linares from starting his new position at Church & Dwight. It appears that the parties are set to proceed to a preliminary injunction hearing on February 9. Of interest, one of the claims is brought under the Defend Trade Secrets Act and the Connecticut Uniform Trade Secrets Act. Connecticut courts have expressed a willingness to apply the "inevitable disclosure" doctrine, which is largely disfavored under the DTSA. Given that Linares appears to have a non-compete agreement, the potential divergence of the state and federal trade secrets act might not be a central point of contention in the case. But we shall see. A copy of the Amended Complaint is available here.

In a blog post by Tarter Krinksy & Drogin, the authors note that a New York appeals court decided a "Game-Changer on Enforcement of New York Non-Compete Agreements." The post discusses Buchanan Capital Markets, LLC v. DeLucca, 144 A.D.3d 508 (1st Dep't. 2016), and remarks on the case's comment that non-competes in New York are not enforceable unless the employer demonstrates a "continued willingness to employ the party covenanting not to compete." In reality, this case isn't much of a game-changer given the limited appellate analysis. It does remind us, however, that New York courts have issued many decisions that seem to create a per se rule against enforcement in a termination-without-cause scenario. Why a company would want to enforce in that circumstance, by the way, is beyond me.

South Florida's Daily Business Review reports on a case working its way through the Florida Court of Appeals, which concerns State Farm's efforts to protect as a trade secret certain information about where it's selling homeowners' policies. Insurers like State Farm often need to provide data about underwriting activities to state regulators. Depending on the state insurance codes' exemptions, such public disclosure of company-wide data can materially impact trade-secret claims. Insurers' obligations to disclose are similar to what we're starting to see in the fracking industry, which requires similar public disclosure of information but which also allows for certain narrow trade-secret exemptions. This will be an interesting case to watch when the Court of Appeals rules. The case is Office of Insurance Regulation v. State Farm Florida, No. 1D16-2301.

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