Non-Compete and Trade Secrets News for the week ended March 31, 2017
The Defend Trade Secrets Act and "Continuing" Misappropriations
The Eastern District of Pennsylvania rejected a defense challenge to the Defend Trade Secrets Act, which I must confess I didn't see coming.
In Brand Energy & Infrastructure Svcs., Inc. v. Irex Contracting Group, No. 5:16-cv-2499, the court first noted that the DTSA can apply to continuing acts of misappropriation that began before the law's enactment in May of 2016 if those acts continued later. This would, for instance, capture a continuing improper or unauthorized use of an alleged trade secret.
The court then rejected a constitutional challenge as applied to the facts under the ex post facto clause of the United States Constitution. In a long and interesting passage, the court noted the DTSA's heavy reliance on state versions of the Uniform Trade Secrets Act and described how the DTSA was substantially different in its textual description of the law's effective date. As a result, the court found Congress intended to apply the DTSA to continuing claims of misappropriation and to provide a remedy that dealt not only with the acts occurring after the effective date but before as well.
A copy of the decision is available here.
The Anheuser-Busch Whistleblower Case
Remember James Clark? Yeah, I didn't think so. Clark accused Anheuser-Busch of filing a "strategic lawsuit against public participation" (called a "SLAPP action") when it accused him of misappropriating trade secrets related to A-B's brewing process. Clark allegedly took the information to institute a class action against A-B concerning the supposed mislabeling of alcohol content on its beer products.
A California district court had denied Clark's motion to dismiss the case as an improper SLAPP suit. Clark then appealed, a procedure that many state SLAPP statutes allow (even though the denial of a motion to dismiss is not otherwise appealable). In late 2015, the Ninth Circuit reversed and found the district court incorrectly determined that Clark's efforts to litigate (or share information with class counsel) were not the type of "protected activity" encompassed within California's SLAPP statute. The circuit court then remanded for the district court to determine whether A-B had established some probability of success on its misappropriation claim. That inquiry is a core part of determining whether an anti-SLAPP motion should be granted.
Last week, the district court once again ruled in A-B's favor and found it demonstrated such a probability of success, thereby denying Clark's anti-SLAPP motion for a second time. The court commented briefly on Clark's whistleblower defense, a topic of particular interest given how the Defend Trade Secrets Act contains a specific provision to protect whistleblowers The problem for the court, it appeared, is that assisting in a class action is not at all whistleblowing activity. Under California law, for instance, protected whistleblowing activity involves some complaint to a governmental agency.
A copy of the opinion is available here. Clark, by the way, appealed the adverse ruling once again.
For an extended discussion on the various States' treatment of consideration in non-compete contracts, please see Sheppard Mullin's article in The National Law Review. Not surprisingly, Illinois merits an extended discussion.
GeekWire reports on the passage of a non-compete bill in the Washington House. The bill is generally considered employee-friendly, particularly as to technology workers. Amazon has been fairly aggressive in its use of non-competes.