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'.

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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.

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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.

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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.

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

Year-End Extravaganza (Part 4): Top 10 Books (Non-Compete) Lawyers Should Read

As the son of an English teacher and a school superintendent, there never was much doubt that I'd be a reader - either by volition or conscription. I was the kid who had "summer reading lists," which admittedly at the time seemed oppressive and unreasonable. However, I got over it. I took to reading books at an early age, a habit I'm sure steered me to choose law as a career. I've never gotten over it, and doubt I ever will.

I'd thought I'd end this crap-show of a year on a somewhat lighter note. I decided to list ten books that I think lawyers should read. This is nothing more than a catharsis, a way to divert us from the everyday grind of what we do. I appreciate those who read my blog and hope I've provided some interesting content for you. The year-end post, the last post, gets to be mine. Pardon the self-indulgence.

The first half of this list is geared (however slightly) to non-compete lawyers, and I explain why below. The second half of this list is not at all specific to my practice of law, but the books (both fiction and non-fiction) provide valuable lessons for attorneys of all stripes. Think of this as my gift to you. You're welcome...

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10. Flash Boys (Michael Lewis, 2014). Anyone who has followed trade secrets law knows the plight of ex-Goldman Sachs programmer Sergey Aleynikov. His use of Goldman's proprietary computer code (many call it "stealing") sparked two criminal prosecutions and a separate civil suit. Along the way, Aleynikov almost single-handedly managed to cause Congress to change how federal law deals with the theft of products that affect interstate commerce. Flash Boys is not my favorite Michael Lewis book (try, Boomerang). But Aleynikov inspired Lewis to delve into the largely opaque world of high-frequency trading, which itself is punishingly secretive. And Lewis has an uncanny ability to deconstruct technical, difficult subjects and break them down into understandable terms that a layperson can understand. That's a gift lawyers should try to emulate in their oral and written presentations.

9. Worse than the Devil (Dean Strang, 2013). Dean Strang is one of the legal stars of the Netflix series, Making a Murderer. Before that series exploded, Strang published this concise study of the 1917 bombing of the Milwaukee Police Station and the ensuing trial of several Italian anarchists. The story in its own right is quite interesting, if for nothing more than the quick rush to judgment of a class of immigrants seems all too real in today's world. But principally, I recommend the book for its 6-page Preface. It's perhaps the best example of persuasive legal writing I have ever read. Non-compete lawyers must be good writers, because so much of our most critical work is done on written submissions to the court. If you want a legal writing primer, read this short passage.

8. Point Made: How to Write Like the Nation's Top Advocates (Ross Guberman, 2011). On the subject of legal writing, I veer into the technical with this selection. Legal writing books and blogs are ubiquitous now. But with apologies to Bryan Garner, I think Ross Guberman has the most bang for the buck with Point Made. The format of this book is really effective. He breaks down all the components of effective legal writing - structure, thematic elements, persuasion, language - with specific examples from top advocates' briefs. Lawyers earn their living by being effective writers. Too many fall well short. Guberman's book is a fantastic nuts-and-bolts of how to write well.

7. Talent Wants to be Free (Orly Lobel, 2013). Professor Lobel's book has received mention on this blog and is well-known to lawyers who practice in the field of restrictive covenants and trade secrets. Talent Wants to be Free is valuable for how accessible it is and for how it challenges much of the conventional wisdom that girds this area of the law. It is useful for anyone who practices in this field simply because lawyers will gain a better, macro understanding of economic and labor-market forces that create so much tension between the freedom to contract and the freedom to compete. This book forces the reader to think big, which is a quality lawyers too often lose in the heat of a particular battle.

6. Wonder (R.J. Palacio, 2012). Speaking of qualities many lawyers lack...empathy. This is the reason I chose Wonder - one of my all-time favorite books. It's a children's novel based around the story of Auggie Pullman - a 10 year-old boy with a severe facial deformity who for the first time is headed off to school. It's very rare that I read a book and think "everyone should read this." Wonder, however, is one of those books. Remember: children's books are not just for children. Back to empathy (which is the obvious theme of the book), it's a particularly important quality for lawyers to have in the field of non-competes and trade secrets. Many who pursue spurious and vindictive claims simply fail to understand the damage their conduct has on peoples' careers. I'll chalk it up to the never-ending quest to aggrandize legal fees, a shameless part of our profession.

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5.  Fahrenheit 451 (Ray Bradbury, 1953). My mom - the English teacher - hates this book. I mean, really hates it. Dystopian novels are not for everyone, but I chose Fahrenheit 451 because it embraces a rejection of conformity. Our profession is undergoing a sea-change in the attorney-client relationship, the way in which we communicate, obtain fees for our work, and deliver services to our clients. Lawyers who blindly accept things the way are and always have been are doomed to fall behind in a declining profession. Fahrenheit 451 reminds lawyers they should embrace change and reject the fealty to tradition.

4. Sex, Drugs and Cocoa Puffs: A Low-Culture Manifesto (Chuck Klosterman, 2003). Because lawyers are uptight and need to laugh. This book will do it. Enough said.

3. Reflections on Judging (Richard A. Posner, 2013). I'm pissed off at Judge Posner. I think he has taken some unnecessarily gratuitous shots at judges and lawyers over the past year. His questioning at oral argument can be over the top. But, he still is the most influential judge in my lifetime not named Scalia. What he says is important, even if it's not how I would like to see him express it. I have read several of his books, and many I find to be inaccessible and unnecessarily dense (such as How Judges Think). However, Reflections on Judging is the one I recommend the most. He explores practical problems, such as the impact of technology on judging, as well as the theoretical, such as the flaws in the Scalia/Garner interpretive model. He also discusses problems that are less obvious, such as judges' reluctance to grapple with facts. Overall, this is a good read by a really important jurist. I wouldn't recommend this book to everyone. But lawyers? A definite must read.

2. Zeitoun (Dave Eggers, 2009). The aftermath of Hurricane Katrina is still one of the most disturbing events I can recall and one which I fear is still largely untold. Zeitoun explores this through the eyes of a Syrian Muslim, a businessman who stayed in New Orleans and toured the city in his canoe. Many themes of criminal and civil justice permeate this wonderful non-fiction account, including anti-Islam sentiment and the authoritarian governmental response to human suffering. This book exposes how Americans easily can lose their cherished civil liberties, ones that many of us take for granted.

1. The Fountainhead (Ayn Rand, 1943). Since this is my list, I get to pick my favorite book as one I think all lawyers should read. This novel about individualism certainly has great appeal to lawyers (Roark, the protagonist, is an architect). It is particularly appealing for attorneys who do not always embrace popular causes or represent popular clients. To me, the novel always has stood for its theme of individual self-determination. I can think of few greater lessons for lawyers to take than to stand up for one's beliefs (or her belief in her client), even at risk of public condemnation.

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I hope this detour (or left-turn) has been interesting. I'll be thrilled if one of you decides to read one of these books simply upon my mere suggestion.You won't be disappointed.

In the meantime, get the hell out of here 2016. You really sucked.

Year-End Extravaganza (Part 3): Top 10 Developments in Non-Compete and Trade Secrets Law for 2016

The first two installments of my year-end review were designed to be pragmatic, to offer my perceptions of the most common mistakes made in employee competition disputes. The third installment is more traditional and recaps the year's top legal developments throughout the country concerning non-compete and trade secrets law.

10. California amends Labor Code provision affecting non-competes. Advising clients on non-compete issues is much more involved than just analyzing the restriction's scope. It's also about assessing clauses that are secondary to the agreement, namely provisions governing arbitration, fee-shifting, choice-of-law, and choice-of-venue. These clauses take on added importance when non-compete issues arise for California residents because that state bans non-compete contracts. Some courts have allowed non-competes against California residents when the underlying contract contains both a forum-selection clause mandating venue outside California and a provision requiring application of another state's laws. Seeking to close this rather narrow but significant loophole, California's legislature has tightened the Labor Code and will give employees the option to void these important contract provisions. For more, read my October 18 post on this development.

9. States limit enforcement of physician non-competes. States have a patchwork of exceptions to their general statutory or common-law rules governing non-competes. Lawyers are exempted, but there's no real rhyme or reason to other industry-based exemptions. This year was full of legislative activity, once again, including categorical bans on non-competes for workers in specific industries. Both Connecticut and Rhode Island limited the enforcement of non-competes against physicians. My July 11 summary on the Connecticut law can be found here, and the discussion concerning Rhode Island's legislative change is available here.

8. Utah changes non-compete law. Aside from categorical bans, other states limited the circumstances in which companies could enforce non-competes. Utah enacted the Post-Employment Restrictions Act, limiting non-competes to a duration of one year. Employees also have the right to seek legal fees for defending an enforcement action if the agreement is found to be unreasonable. The development is particularly noteworthy, since Utah is the reddest of red states politically. However, unlike dysfunctional state legislatures in North Carolina and Illinois, Utah's actually works quite well and develops legislative compromises on even the most difficult areas of public policy. Please read my May 6 post for a more detailed discussion of the new state non-compete law.

7. Ninth Circuit closes the book on Nosal computer fraud dispute. The most well-known case brought under the Computer Fraud and Abuse Act, to date, has been United States v. Nosal. The Ninth Circuit now has issued two significant appellate rulings, which interpret key provisions of the CFAA. In the first go-around, Nosal scored a win, prevailing on a narrow interpretation of the statutory term that one can be held liable when he "exceeds authorized access" to a protected computer. The second time around, Nosal was not as fortunate. The Ninth Circuit in Nosal II found that the former Korn Ferry executive violated the CFAA's proscription on accessing a computer "without authorization" when he obtained an employee's password to access a database containing information on executive search candidates. The lengthy opinion (which features a strong dissent) has produced a lot of commentary and even a revised opinion. My thoughts on the case can be found in my July 25 post here.

6. Feds seek to limit "no-poach" agreements. In October, the Department of Justice and the Federal Trade Commission issued its Antitrust Guidance for Human Resource Professionals concerning a topic that is well-known to large technology companies: horizontal employee "no-poaching" agreements. The DOJ and FTC have pledged to criminally investigate these arrangements, which serve to restrict labor markets even in employee-friendly jurisdictions in California. Whether this initiative changes with a new administration is a question that would yield rank speculation. The incoming president has been fairly vocal about investigating antitrust complaints, and he has no love for Silicon Valley. My November 14 post on this topic can be found here.

5. NLRB continues to scrutinize non-disclosure contracts. One of the more unforeseen developments over the past couple of years has been the interest the National Labor Relations Board has taken in policies and contracts that limit union organizing activity. Some sources of the friction between private companies and the NLRB are handbook policies, employment contracts, and severance arrangements. This year, in Quicken Loans, Inc. v. NLRB, the United States Court of Appeals for the District of Columbia enforced an NLRB order that struck down overbroad non-disclosure clauses and non-disparagement covenants. Private enforcement actions, such as the recent John Doe v. Google case, may be the next litigation frontier in this arena. My August 22 summary of the Quicken Loans opinion is available here.

4. Nevada rejects blue-pencil doctrine. The most significant state court ruling on non-compete law came from a state that rarely has waded into the fray: Nevada. In a thoughtful opinion, the Supreme Court of Nevada soundly rejected the blue-pencil doctrine (a judicially-created doctrine of equity used to modify or rewrite overbroad non-compete agreements). This ruling places Nevada squarely in the minority, but it's indeed a vocal and persuasive minority. The case is Golden Road Motor Inn, Inc. v. Islam. You can read my July 28 post on the decision by clicking here.

3. Attorneys General step up scrutiny on oppressive non-compete contracts. This could be called the Year of Jimmy John's...and not just because my daughter begs to go there all the time. The sandwich chain thrust itself into non-compete law by requiring low-level employees to sign broad restrictive covenants. This profoundly silly policy was a public-relations disaster and caused state attorneys general to intervene. Ultimately, Jimmy John's had to pay the State of Illinois a $100,000 settlement. Attorneys General in New York and Illinois have pledged to investigate other firms' misuse of broad non-competes into the coming year. Presumably, they will target companies that require broad restrictions throughout the corporate hierarchy, irrespective of employees' ability to cause any harm. My August 30 blog post discusses enforcement actions in Illinois.

2. White House issues non-compete "Call to Action." In October, the White House released its Call to Action and urged state lawmakers to adopt significant reforms to non-compete law. The proposal generally implores states to do three things: (a) ban non-competes for low-wage workers, those who do not have access to trade secrets, and those are who are laid off; (b) require upfront disclosure about non-competes and additional tangible consideration (beyond mere employment itself) for employees who sign them; and (c) adopt a strict red-pencil doctrine that would eliminate a court's discretion to rewrite overbroad agreements. My discussion from October 28 on the White House's Call to Action can be found here.

1. Defend Trade Secrets Act becomes law. Well, at least number one this year was easy. The Defend Trade Secrets Act, long in the works, amends Title 18 of the criminal code and creates a private right of action in federal court for trade secret misappropriation if the trade secret is related to a product or service used in interstate commerce. The DTSA largely tracks existing state law, but it provides the federal muscle that sometimes is necessary in cases of theft. Of the unique statutory provisions in the DTSA, the ones likely to garner the most attention are its express rejection of the inevitable disclosure theory of misappropriation (still a viable theory in some states), the provision enabling ex parte seizures of items (such as laptops) used to commit trade secrets theft, and a clause protecting whistleblowers. As of time of this post, we have one Colorado case that discusses the scope of available injunctive relief and one from Massachusetts that involved the whistleblower provision. 2017 should yield a trove of cases addressing key aspects of the law.

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So, yeah. Pretty big year. In a few days, the final installment on my year-end extravaganza.

Year-End Extravaganza (Part 2): Top 10 Mistakes Employers Make in Competition Lawsuits

Last Thursday, I wrote the first of my four-part year-end review column. The focus was on mistakes employees make when they leave to join a competitor. This week, I look at the flip-side: mistakes, fumbles, and foibles that employers make when pursuing competition claims.

1. Litigating based on emotion rather than outcome. Competition claims against ex-employees tend to have a great deal of emotion simmering beneath the surface. Those stem from feelings of loyalty and betrayal. Although the first inclination may be to sue, exact revenge, and send a message, employers that pursue litigation for this purpose inevitably set themselves up for failure. Mistakes often reveal themselves through angry deposition testimony and even outright dissembling about key facts. Employers who let emotion guide their decision-making fail to recognize case weaknesses and end up making poor tactical decisions throughout the case.
2. Focusing too late on damages. Judge Richard Posner - in one of his seemingly never-ending criticisms of lawyers - believes attorneys in patent cases focus too much on liability and not enough on damages. This time, I agree with him. The same conundrum is true of counsel representing companies in non-compete and trade secret litigation. The fascination with obtaining liability facts devolves from the insatiable appetite lawyers have to load up on the low-hanging fruit and avoid tackling tough issues. Damage theories can be quite tough, and the specter of proving damages is outside many lawyers' comfort zone. Oddly enough, damages rules are flexible enough to give plaintiffs' counsel ample room to be creative, particularly in trade secrets cases. But my experience has been that most of the time, plaintiffs get a start way too late in the game.  
3. Declining to have a litigation point-person. Representing employees has its many challenges, but it usually is easy to get information from them. A lawyer has one client and one person to keep under control. Representing an organization, though, is tough. Many different people in the company could have access to important documents and knowledge of key facts. Outside counsel can feel as though they are herding cats trying to marshal those diffuse resources. That's why it's key for attorneys to have one point-person within the company, who is preferably not a lawyer, to serve as the point-person for litigation. That individual must have authority, have a vested interest in the outcome, retain organizational credibility, and be responsive. In many cases, however, it is apparent counsel is running the show and simply has no one to coordinate the fact-gathering and strategic effort within the company.
4. Overlooking lower-level employees. One problem that stems from a company's failure to appoint a non-lawyer point-person is that mid- and entry-tier employees may possess vital information that somehow goes undetected until it's too late. This person could have vital knowledge concerning trade-secret security measures, customer contacts, or dealings with the ex-employee. But my experience has been that companies who litigate competition cases poorly rely too much on executive-level employees and ignore those who have a better pulse as to what actually happens in the trenches.
5. Ignoring third-party impact. Since competition suits should be about loss of business, it stands to reason that third-parties - those who supply that lost business - will play a vital role. Employers who sue ex-employees may not realize where the loyalties of these third-parties lie. When credibility issues are paramount, courts will often make decisions based on which of the non-interested witnesses (i.e., third-parties) are more credible. If they are not aligned with or even hostile to an employer, then this can redound throughout the entire case. Relatedly, companies may not realize the impact that mere litigation will have. Even if customers were inclined to remain with the employer, the litigation itself may be so upsetting or costly that it causes them to leave altogether.
6. Failing to follow basic exit procedures. A company's mistake in litigation may stem from prophylactic steps it could have taken before the lawsuit to avert a costly suit. Those include: (a) sending effective, call-to-action reminder letters to the departing employee; (b) conducting a simple exit interview; (c) disabling a departing employee's access to sensitive database material; and (d) examining Outlook items or dedicated work computers for information the employee may have taken. Even if a suit eventually arises, a company's sloppy handling of departure procedures can feed into a damaging narrative at trial - that the company was unconcerned about keeping information confidential.
7. Short-cutting discovery answers. Employees usually do a pretty good job of taking discovery seriously. Employers? Not so. They tend to revel in boilerplate objections and offer answers that simply may get the job done. Those short-cuts inevitably come back to hurt later in the case. To be blunt, companies want to use litigation to their advantage but do not want to bear the burdens that come with litigation. I saw this earlier this year, when a plaintiff gave a half-hearted, misleading answer to a damages interrogatory. It clearly thought it could get by with doing the bare minimum, and in doing so undermined its credibility. This ultimately hurt the company badly in settlement talks, resulting in a resolution far less favorable than it could have been.
8. Not telling a story. Trials - like elections - are really no more than telling a story. Abraham Lincoln used to remind young lawyers to be be storytellers. A lawyer should be striving to presents a more compelling story than her adversary. Without a common unifying theme, a plot really, then a trial just devolves into a disorganized and clumsy presentation of facts with no cohesion. Employment competition cases usually have a lot of facts. But employers frequently make the mistake of trying to dump too many disparate facts into a trial, even if they have no connection to the dispute.
9. Oversimplifying the claimed trade secrets. A lot of frivolous competition cases have at their heart a broad, generalized description of stolen trade secrets. Many times, this is easy to spot. Here are the tell-tale signs: (a) active resistance to disclosing the information allegedly stolen; (b) broad, unintelligible descriptions of the trade secrets at issue; (c) hedging and qualifying as to what the information at issue actually is; and (d) outright speculation as to how anything was stolen. Lawsuits that have any of these features are doomed to fail, usually during discovery when courts intervene and demand the plaintiff do more.
10. Discounting contract defects. Little-known fact about non-compete disputes. Um, sometimes the contract's not enforceable. You may have heard this. The case reporters are full of such cases. Non-compete suits that go bad for companies often have a defective contract - whether on consideration, reasonableness of the terms, or some other drafting problem. Many employers, however, double-down on their contracts, sure that they must be fine and that a judge will understand this. Not so. A bad contract can ruin a lawsuit, even if the employee doesn't entirely have clean hands.

Next week on the year-end review, the top 10 developments in non-compete and trade secrets law during 2016.

Year-End Extravaganza (Part 1): Top 10 Mistakes Employees Make When Leaving to Compete

This year, I'm going out with a bang.

The end of each calendar year presents bloggers like me with an opportunity to go big and to avoid being too...meta. I've traditionally featured Year-End Top 10 lists each year since 2008 when I first started writing this blog.

No different, this time around. Let's face it, 2016 sucked in a lot of ways. So to try and get a running start for 2017, I thought I'd do four year-end columns. Think of it as sprinting the last mile of a 10k or buying your spouse a really expensive stocking stuffer. Some of my posts will be in the mold of what I've done in the past, and one is something different that I thought of while driving home last night that adds a bit of a twist to my year-end tradition.

The first installment of this year-end review tries to summarize a lot of what I write and what I observe in my day-to-day practice: common mistakes that employees make when jumping ship. Here are the top 10:

1. Getting legal advice from a friend. I've heard some variation of this many times: "I coach basketball with this guy, and he told me that Illinois is a right-to-work state and that noncompetes aren't enforceable." There are about ten things that irk me in that sentence, but the big picture is this. Your pal, even if he draws up brilliant in-bounds plays during timeouts, shouldn't be giving you legal advice on a difficult area of the law. He may be shrewd when it comes to how to get out of a traffic ticket, but not so much when figuring out noncompetes. Virtually any street-lawyer advice is sure to be misguided, incomplete, and flippant.
2. Seeking legal advice too late. This mistake is related to the first one. The individual clients I've been able to help the most come to me early, often when they're exploring whether to take a new job or even whether to interview for a new job. An attorney hardly can mitigate risk (and cost) when his or her client already has done eight bad things on the way out the door.
3. Forwarding e-mails to personal accounts. Speaking of bad things, the timeless practice of forwarding work e-mails to a personal web-based account has fostered more litigation and more disputes than just about anything I know. By now, one would think that either technological innovation or common-sense would have kicked in, but apparently we're all too lazy. In any event, this short-cut to a competitive edge (a) harms an employee's credibility, (b) is easy for a court to understand, (c) pisses off the employer, (d) is never easy to explain, and (e) requires virtually no effort on the employer's part to discover (even deleted Outlook items can be recovered without hiring a forensic expert).
4. Making assumptions about "personal" information. Related to the e-mail thing. Employees often want to download or copy personal information from a work computer to a separate device. It's amazing to me how many employees keep their tax returns, little league stats, and kids' pictures on their work computer. Why? But anyway, those who do often decide they'll just transfer data without informing management. The problem is that, even when innocent, the employer may not know what data the employee is moving to a personal device. In a notorious competition case, an employee hid his employer's trade secrets in a file called "chocolate chip cookie recipe" and downloaded those for his own use. So employers are not just going to look at file names and assume that nothing bad happened. Just as problematically, employees may start out with the intent to move some personal information but they often blur the line between personal and professional. Simply because you worked on that spreadsheet doesn't mean its yours. But often there's an insatiable desire to take this information, particularly since it's so easy to do so. Regardless, any sort of data transfer or personal device plug-in is going to look suspicious. Here's an idea: just ask human resources to watch or help you with getting personal information off the work computer. Not hard.
5. Failing to obtain agreements. This one often shocks me. Many employees never keep agreements they sign, even though they know of them and know they're important. And many never request their agreements upon departure. Employees have a right to access their personnel file (in Illinois, if not in other states) and need to know their legal obligations. Fear of tipping off an employer about post-departure plans is really a crummy excuse for not understanding those obligations.
6. Trusting new employer's advice. We've established that employees often seek legal advice from their non-attorney friends. Just as often, they vet their non-compete only with the new employer. Here's a newsflash. That employer may not be any more informed than the buddy you coach basketball with. It may not have sophisticated legal counsel. It may not even have legal counsel. And it certainly is not going to look at all the relevant legal, economic, and practical issues from the employee's perspective. The employer may, after all, make a calculated risk that the employee can bring in new clients, and if legal action results, well, then, it could decide to just cut the cord and fire the new worker it assured had nothing to worry about.
7. Telling clients of future plans. This is a very common problem with sales employees. Clients tend to view their sales person as a key point of contact. That's why, in fact, courts will enforce reasonable restrictive covenants. Employees often find that it's harmless to tell contacts of an impending departure. Many times, they go beyond merely informing them of the departure and want to ensure that the relationship continues. Not only does this type of communication provide an employer with much-needed evidence of competition, but it also could be a breach of the duty of loyalty (which exists independent of any contract). After all, an employee owes a strict duty of loyalty through her last day of employment. Pre-termination planning often is viewed as disloyal under the law.
8. Lying about departure plans. I would estimate that at least 40 percent of competition disputes have this as a common fact. Employee tells employer during an exit interview something along these lines: "No,  I'm not going to stay in the industry. My brother-in-law and I are starting a real estate company." Not. Good. That may have the short-term benefit of throwing the employer off the employee's scent for a week or two, but inevitably the employer will find out what's happening. And, even if there are legitimate challenges to a non-compete, this type of dissembling will hurt an employee's credibility very badly.
9. Burning bridges on the way out. The time period between notice and departure is particularly harrowing. For many employees, it's not a period to ensure the company has a smooth transition of accounts or projects in the pipeline. It's about settling scores and airing dirty linens. It's a time to tell the boss she's incompetent and lazy. It's a time to complain about the holiday party, the expense reimbursement program, the crappy health insurance plan, and how no one knows just what the hell Bill in accounting does every day. Though perhaps it seems petty and trite, this type of score-settling behavior only encourages an employer to seek a pound of flesh when it can.
10. Not telling counsel the "bad" facts. Even in strong cases, bad facts exist. Every one. Employees, who often have no experience with legal counsel, have a perverse sense of counsel's role. We're not cheerleaders. We're advocates, but our job is to provide counsel. If an employee hides bad facts or provides an explanation that is unreasonably dismissive (or, just as often, incomplete), we can't counsel. When those bad facts come out (as they always do), then the relationship between lawyer and client can suffer immeasurably. The best clients put all the facts on the table, explain them to their lawyer, and work with their lawyer to counterbalance those bad facts with ones more material to the dispute.

Next up on the year-end review, you guessed it...Top 10 Mistakes Employers Make in Competition Lawsuits.

End of the Year Post: Why I Support the Defend Trade Secrets Act

This year, I am taking a different approach for my end of the year post. Instead of recapping the year's highlights, I would like to give my perspective on the most significant development in the law of trade secrets and non-competes we're likely to see in some time: the likely passage of the Defend Trade Secrets Act of 2015. Here's my take:

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On December 1, 2015, I added my name to a Trade Secrets Practitioners' Letter, which was sent to the U.S. House and Senate sponsors of the Defend Trade Secrets Act of 2015 (a copy of the proposed legislation can be found here).

The legislation, which is likely to pass with robust bi-partisan support, creates a federal civil cause of action for trade secrets misappropriation. If passed, federal law will protect all four branches of intellectual property rights - trade secrets, patents, trademarks, and copyright. It is no secret that trade secrets are an increasingly important component of our knowledge economy, and federal courts already are adept at handling these cases under their diversity jurisdiction call or as part of a case featuring a federal claim.

I was at first reluctant at supporting the DTSA, and I believed that state courts' traditional role at handling trade secrets and non-compete litigation was one that we lawyers should continue to honor. However, proponents of the DTSA have persuaded me to the merits of a federal cause of action. My rationale is different, though, than my counterparts. And although my specific reasons for supporting the bill are not contained in the Practitioners' Letter (my background is far to modest to even suggest offering changes), that's not essential to my endorsement of this potential new law.

So why do I support the DTSA? My reasons are two-fold. First, I believe federal courts have the muscle to parse out spurious claims of misappropriation and hold plaintiffs accountable for bad-faith filings. To this end, I think the existence of a federal cause of action will deter counsel from filing claims with a questionable factual basis, since federal district courts have a strong record of imposing fees for claims filed in bad-faith. State courts simply don't have this interest or capacity. The bench is often very close to the bar in state courts, meaning that judges understandably are reluctant to impose sanctions for frivolous claims. State judges also do not have the support of law clerks to conduct the necessary legal and factual research. They do not have the bandwidth to watch cases closely and are unable to engage in the type of analysis that is required to determine whether defense fee-shifting is appropriate.

Second, the changes to the Federal Rules of Civil Procedure (which went into effect today) are likely to reduce the cost of litigation and bring suits to trial more quickly than in state court. Federal courts, particularly with engaged and knowledgeable magistrates, have much greater capacity to monitor discovery for proportionality. The new rules are designed to achieve this end and should allow smaller litigants to defend cases more efficiently. State courts largely count on the cooperation of counsel to self-police discovery. Teeing up discovery disputes rarely leads to positive outcomes in state court, absent active judicial engagement. And unfortunately, many state courts lack this capacity. Therefore, I believe that the federal rules changes will cause counsel to try cases through the discovery phase more efficiently.

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On November 15, a group of law professors wrote a lengthy letter opposing the DTSA. I do not believe their concerns are sufficient to override the DTSA's benefits at reducing litigation cost and remediating bad-faith claims. These are the concerns:

1. The DTSA's Ex Parte Seizure Provision May Harm Small Businesses, Startups and Other Innovators.

The DTSA contains a controversial provision that allows for the seizure (on an ex parte basis) of the instrumentalities of trade secrets theft. This is not the law's most outstanding feature, to be sure. But it's not an independent reason to defeat the law. For starters, I have a hard time believing that federal courts will warm to the idea of this remedy. It will be deployed sparingly. And the professors give judges short shrift. Judges are competent enough to snuff out abuses and impose damages for an wrongful seizure of property. This remedy potentially is a paper tiger, and it will work itself out in practice.

2. The DTSA Appears to Implicitly Recognize the Inevitable Disclosure Doctrine.

This argument stems from the provision of the DTSA that says a court may impose injunctive relief to prevent actual or threatened misappropriation, "provided the order does not prevent a person from accepting an offer of employment under conditions that avoid actual or threatened misappropriation."

How the professors conclude this endorses the "inevitable disclosure" rule is simply beyond me. No canons of statutory construction allow for this rather extraordinary position. Given the robust debate around the "inevitable disclosure" doctrine, the DTSA easily could have expanded the rights associated with seeking injunctive relief to bring the doctrine within the statutory language. It does not do so. To read some implicit endorsement of the doctrine is simply unreasonable.

3. The DTSA Likely Will Increase the Length and Cost of Trade Secret Litigation.

As discussed above, the opposite will occur - particularly given the change to the Federal Rules of Civil Procedure.

Separately, the Professors rely on a study showing that the cost of IP litigation ranges from $250,000 (for cases worth less than $1 million) to $1.6 million (for cases where over $25 million is at stake). However, this statistical evidence does not necessarily mean that trade secrets cases in federal court are more expensive. For starters, many of those cases are high-stakes patent cases. A lot of trade secrets claims are in the mold of employment (as opposed to IP disputes). Too, the Professors' reliance on this study assumes that the cost is lower in state court. I am not so sure about this, since state courts are more apt to grant continuances - the biggest cause of increased legal fees. With federal courts, you have some assurance that judges will enforce deadlines strictly.

4. The DTSA Will Likely Result in Less Uniformity in Trade Secret Law.

This justification also seems insufficient. The states have developed rules under the Uniform Trade Secrets Act, and with some exceptions, the law is indeed predictable. There are some differences in the Uniform Act concerning attorneys' fees availability and the statute of limitations. To this end, a federal law certainly will help bridge any differences.

It will take time for courts to resolve some areas of the law - like the "inevitable disclosure" doctrine - but it is very likely that courts will look to the laws in their states until such time as the circuit courts step in. That is a fairly long process that must play out, but it won't hurt parties and won't confuse lawyers. The permutations in trade secrets law among the states simply aren't that great that we will need to worry about having to cite to new law and new cases.

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I realize that the arguments on both sides of this debate are well thought-out and well-intentioned. But having absorbed this debate now for a couple of years, I remain convinced that trade secrets lawsuit in federal court will weed-out weak, spurious claims and will result in a quicker disposition of cases by judges who have the staff to handle them.

2014: The Annual Year-In-Review Column

I read many law blogs, and inevitably at the end of the year I come across posts that say what a monumental year it has been for legal developments in this area or that. Usually, that's an exaggeration.

And it would be misleading to say that 2014 was significant for non-compete law. Because it wasn't in the slightest.

Still, there were noteworthy cases and developments that draw the attention of practitioners, and which are worth a brief recap. So, in the tradition of this blog, I present my annual Year-In-Review for 2014 with the top five developments over the past twelve months:

5. Texas Supreme Court Weighs In on Forfeiture-for-Competition Clauses. Although I did not write about Exxon Mobil Corp. v. Drennen, it is nonetheless a significant state supreme court case worth reading. The Supreme Court of Texas usually produces interesting opinions on non-compete law, but we haven't seen any for a couple of years. This year, Drennen was the most notable decision from state supreme courts, and it didn't disappoint. The case involved the enforcement of a forfeiture provision in an employee incentive compensation plan. The Court found the provision was not contrary to Texas public policy and did not constitute a covenant not to compete. Accordingly, it allowed for Exxon to apply New York law. That state's well-developed "employee choice" doctrine allows for enforcement of a forfeiture provision without regard to a reasonableness analysis. The case brings into play many procedural issues that counsel must know, particularly choice-of-law clauses and the proper construction of what many believe to be indirect non-compete provisions that deter (but don't prohibit) competition. A copy of the case is available here.

4. Aleynikov Loses in the Third Circuit. Sergey Aleynikov is a mainstay on my end-of-the-year column, which is somewhat hard to believe. His legal troubles began with his departure from Goldman Sachs for Teza Technologies in June of 2009. Allegedly, Aleynikov misappropriated part of Goldman's high-frequency trading source code by placing it on a remote server (in Germany, which doesn't sound good but is actually quite meaningless). That led to a criminal conviction (overturned by the Second Circuit), a near-unanimous amendment to the federal Economic Espionage Act (think about getting Congress to agree on anything), a subsequent indictment by the Manhattan District Attorney (for which Aleynikov is not likely to serve any time), and a parallel lawsuit Aleynikov filed to have Goldman advance his legal expenses in the state criminal case. Aleynikov originally prevailed at summary judgment on his advancement suit (critically important, since he could have Goldman pay for his defense). That last piece of his litigation odyssey was the subject of a Third Circuit opinion, which I discussed on October 16. Aleynikov had his advancement victory overturned in a decision that I found poorly reasoned and inconsistent with the summary nature of advancement rights. I expect that a year from now we may have Mr. Aleynikov in our year-end list again, and I anticipate discussing what happened with his state criminal case for computer crimes. Aleynikov also made his way into popular culture, as his legal troubles inspired Michael Lewis's fantastic book Flash Boys.

3. DuPont's Trade Secret Verdict Overturned on Appeal. One of the largest verdicts of the past several years involved a trade secrets case. The dispute involved trade secrets DuPont owned with regard to Kevlar, a para-aramid fiber found in a variety of materials including tires, body armor, and cell phone cases. DuPont filed a trade secrets claim against Kolon Industries that resulted in a $920 million verdict and a 20-year production injunction against Kevlar. The civil case prompted criminal charges against Kolon and some of its employees. The Fourth Circuit, in reversing the jury verdict, questioned some of the evidentiary rulings the district court made concerning DuPont's purported public disclosure of materials related to the trade secrets. (Lesson on appeal: it probably doesn't hurt to have Paul Clement represent you on appeal. Whatever Kolon paid him, he earned it.)

2. Federal Trade Secrets Legislation Looms. I am required to include this in my list. Congress considered two separate pieces of federal legislation. The Defend Trade Secrets Act of 2014, which originated in the Senate, and the Trade Secrets Protection Act of 2014, which originated in the House of Representatives. For years, commentators and legislators have been pushing for a federal trade secrets remedy, perhaps because it's the only branch of intellectual property law that lacks a true federal legislative framework. Trade secrets also are increasingly important to the economy, a fact crystallized by patent decisions the Supreme Court has issued recently. I am not a wild proponent of federal legislation in this area, but I've come to accept it as inevitable. For a recent recap, see Russell Beck's excellent post from December 13, which summarizes the bipartisan efforts to federalize trade secret law and which also reports on recent House action on the Trade Secrets Protection Act of 2014. This time next year you can expect I'll discuss actual legislation that passed Congress.

1. State Courts Take Up Consideration Issue in Non-Compete Agreements. In my 500th Blog Post, I wrote that the future of non-competes would pivot towards the issue of consideration and away from reasonableness. Many non-compete disputes involve at-will employees, and courts are beginning to grapple with what exactly qualifies as legal consideration to support a restraint of trade - particularly when an employee can be let go at any time. I believe this issue will continue to vex courts and legislatures. I have been a notable critic of Fifield v. Premier Dealer Services, an Illinois appellate case that seemed to legislate a bright-line, two-year rule for employment serving as consideration for at-will employees' non-compete agreements. The decision is clearly bad in the judicial sense, but perhaps not awful from the policy perspective. And since the court decided it, other states have taken up similar (though not identical) consideration issues for at-will employees. The Pennsylvania Supreme Court will hear an appeal in Socko v. Mid-Atlantic Systems of CPA, Inc. and decide whether continued employment can serve as consideration for an at-will employee's non-compete. Earlier this year, the Wisconsin Court of Appeals certified the same question to the state supreme court in Runzheimer Int'l Ltd. v. Friedlin, which was the subject of my May blog post. And, the Supreme Court of Kentucky in Charles T. Creech, Inc. v. Brown issued an employee-friendly ruling this year, finding continued employment was insufficient to support an employee's non-compete agreement. The decision was poorly reasoned and confusing for employers to apply, since the Court seemed to indicate it was a fairly fact-specific decision. Regardless, it is now clear that many states are interested in just what consideration at-will employees must receive to be bound by post-termination non-competes. This issue will filter through the courts next year.

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Finally, many thanks to all who continue to follow me and offer their words of encouragement. In 2015, I will try to post once per week - every Friday. This year, I did not post as frequently as I would like, but I am going to try and keep this going at least through the end of next year. Aiming for one post every week will be ambitious, but I am sure I can find enough material to keep the content fresh and insightful.

2013: The Top 10 List (Part I)

And so ends Year 5, my fifth full year writing this blog. Sometime during the first quarter of next year, I will be penning my 500th post. I guess that qualifies as a milestone, but I'm not exactly sure how to celebrate. Perhaps a guest column? We'll cross that bridge later.

For now, we'll have to make do with what has become an annual tradition - a countdown to the Top 10 most significant developments for the past year. Some on this list will be familiar, some perhaps not. And as usual, I have my own reasons (which I'll try to explain) for why I think a development is signficant.

This year, I am breaking the post into two parts. Not so much to speed-up the countdown to Post No. 500, but to continue on with the suspense-building tradition of bifurcating Top 10 lists (see Pitchfork's Top Albums list, for instance).

So here goes Part I, in which I'll summarize 10 through 6. Tomorrow, we'll conclude the year with Part II, in which I outline the five most important developments of 2013.

10. State Legislatures Continue Examining Non-Compete Agreements. Every January we see legislatures consider a host of new bills - many of which are unpassable sops to constituents. It has become commonplace to see the introduction of bills regulating non-compete agreements. This year was no different, as legislatures in Minnesota, Illinois, New Jersey, Connecticut, and Oklahoma all considered regulating various aspects of non-compete law. For a take on the Oklahoma bill, read my post from June 10.

9. First Circuit Addresses Scope of "Solicitation." One of the year's more interesting circuit opinions comes from Massachusetts and the always-reliable Judge Selya. The case of Corporate Techs. v. Hartnett addressed a frequent problem posed by non-solicitation covenants: just what is a "solicitation" anyway? The case pragmatically concludes that there is no real viability to a "first contact" rule, and that business realities must play some role in assessing whether an employee has impermissibly solicited a client in violation of a contractual restriction. For a summary of Hartnett, read my October 17 post.

8. Fracking Bills Intersect Public Policy with Trade Secret Rights. For those of you interested in our country's continuing debate over energy independence, the very word "fracking" can invoke a visceral reaction. It is beyond dispute, however, that the renewed interest in fracking as a means of energy production has led to job creation, particularly in areas hard-hit by the recession (including my state of Illinois). As a result, state legislatures are considering or enacting bills to allow (and heavily regulate) this method of energy production. But in doing so, states are having to consider how to protect the trade secret rights of oil and gas producers. Understandably, many environmental groups want to know what kinds of chemicals the producers are using in their fluid compositions (which is critical to the fracking method). And this leads to an explosive intersection of public policy and private ordering of trade secret rights. For my take on the issues likely to come up time and again in fracking cases, read my May 2 post.

7. Supreme Court Validates Use of Forum Selection Clauses. It is near-sacrilege on this blog to discuss matters related to venue and jurisdiction, if only to prevent internet-induced boredom. But there is no doubt for practitioners that these issues are important to understand. For the second straight year, the Supreme Court has issued an opinion that will be critical for those attorneys who deal with the enforceability of non-compete agreements. While last year's decision dealt with arbitrability, this year, the Court reaffirmed the notion that forum selection clauses are presumptively enforceable. As it stands right now, the only real method of shifting venue when the underlying contract contains a forum selection clause is to argue third-party inconvenience. For my summary of the Atlantic Marine case, read my post from last week.

6. Courts of Appeal Affirm EEA Convictions. The Economic Espionage Act continues to generate much discussion among commentators, particular given the importance of trade secrets in our economy. This year, we saw two courts of appeal affirm EEA convictions arising out of theft of trade secrets. In one case, the Seventh Circuit affirmed Hanjuan Jin's conviction arising from her misappropriation of technology from Motorola (though the technology is now somewhat dated). In the more interesting case, the Sixth Circuit affirmed the convictions of Clark Roberts and Sean Howley for misappropriating Goodyear's tire-assembly machine technology. But it reversed the sentences the district court imposed, particularly given Goodyear's inability to describe adequately the economic loss it incurred from the theft. For my discussion of the Goodyear case, read my February 6 discussion in USA v. Roberts.

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Stay tuned for Part II (5 through 1) tomorrow afternoon, featuring proposed federal legislation, criminal convictions under the Computer Fraud and Abuse Act, and developments in Illinois.

2012: Year-End Review and Top 10 List

And so concludes my fourth full year of writing non-competes.com.

I've now written over 400 articles on this site. I strive to provide fresh, interesting commentary on a range of practical, legal, and economic issues relating to non-compete and trade secrets law.

What was new to this site in 2012? Three major changes.

First, while I had intended at the start of the year to provide everyone with a weekly "Reading List", I discovered Twitter along the way. I had long avoided Twitter, for fear that the last thing my life needed was one more informational tool. Boy, was I wrong about Twitter. This is where I am increasingly getting the best content, and I encourage my viewers to follow me on Twitter to see what I am reading and who I'm following.

Second, I have started embedding files into certain posts, so that my readers can read and downloand important opinions or filings (such as the U.S. v. EBay, Inc. Complaint). I have a couple of bar journal (i.e., "old" media" publications) coming out in 2013 and look forward to sharing those files on this site as well.

Third, I waded into the world of legal podcasting with Non-Compete Radio. All of those podcasts are available on iTunes and can be accessed here as well. More on podcasting in the next few weeks...

My year-end column is my favorite because it gives me an opportunity to look at what I've read and written about for the past 52 weeks and figure out what this year really was like in my corner of the legal universe.

So here are my Top 10 Developments for 2012:

10. New Hampshire Enacts "Notice Period" for Non-Competes. Effective July of 2012, New Hampshire state law now requires employers to give two weeks prior notice when an employer asks an employee to sign a non-compete or non-solicit agreement. The law is full of potential loopholes. My earlier post on this legislation is found here.

9. Texas Courts Largely Silent in 2012. The most active state supreme court on non-compete law over the past several years has been Texas. It has completely redefined the concept of acceptable consideration, an issue that befuddled courts and lawyers for a number of years. But 2012 was notable in one respect: not much happened. While I have written often about developments under Texas' Covenants Not to Compete Act, I only had one Texas-related post this year. I am predicting 2013 to be a lot different.

8. New Jersey Enacts Uniform Trade Secrets Act. At the beginning of 2012, New Jersey became the latest state to adopt a version of the UTSA. The Act is only slightly different than what most states have enacted, and it provides a broader set of remedies for employers looking to combat trade secret theft. At this point, only Texas, Massachusetts, and New York have yet to enact the UTSA. My earlier post on this legislation is found here.

7. Sergei Aleynikov's Wild Journey Continues. Many of us in the blogging community have written extensively about the travails of one Sergei Aleynikov, the ex-Goldman Sachs trader who misappropriated GS's trading source code before departing for Teza Technologies. Aleynikov's legal journey has taken him to: the Illinois Appellate Court, a conviction in New York federal court under the Economic Espionage Act, a reversal by the Second Circuit, subsequent state law criminal charges (for which he's pled not guilty), and a federal civil case in New Jersey against Goldman Sachs in which he has sought indemnification for all of his legal fees - which he just might win. Oh, and in the meantime, he's almost single-handedly responsible for getting Congress to pass the Theft of Trade Secrets Clarification Act that will effectively prevent another result like that in his Second Circuit case from occurring in the future.

6. Illinois Appellate Courts Active in Wake of Reliable Fire. I have written throughout the year about what has occurred in my home state - Illinois - since the Supreme Court's important decision last Fall in Reliable Fire Equipment v. Arredondo. Unfortunately, the results have been mixed at best. The judgments from our appellate court have been published as "non-binding" orders and seem to have conflated and confused what Reliable Fire really meant. This lack of clarity does not serve clients or lawyers well at all.

5. The Loparex Disaster. This is Aleynikov-lite. His joyride through the legal system may be somewhat of an aberration (and for that reason, his ranking on my year-end list is lower). But the nightmare litigation of Loparex, LLC v. MPI Release Technologies, LLC is a stark reminder of a trade secrets suit gone horribly wrong. The suit started in federal district court in Illinois, where Loparex took a dismissal when the court (Judge Lefkow) told Loparex it was not identifying its trade secrets correctly. Loparex then refiled in Indiana federal district court and lost the suit on the merits, along with a bad-faith sanctions award against it and its lawyer to the tune of nearly $500,000. The basis for the award: failure to even identify a misappropriated trade secret, and the complete lack of damages. And along the way, the suit made a detour to the Supreme Court of Indiana, which reversed a decades-old line of cases discussing Indiana's Blacklisting statute. Ultimately, that pro-plaintiff ruling did not impact the defendants' ability to obtain fees given the frivolous nature of the suit.

4. DuPont's Judgment Against Kolon Industries. In one the most important trade secrets cases to go to jury verdict in recent memory, E.I. DuPont prevailed in its claim against Kolon Industries to the tune of over $1 billion in compensatory and punitive damages and a 30-year permanent injunction. The technology related to DuPont's trade secrets - 149 of them - related to the manufacture of Kevlar. My colleague, John Marsh, has written extensively about this case on his blog.

3. The Computer Fraud and Abuse Act Circuit Split Deepens. We had two important decisions this year under my least favorite statute, the Computer Fraud and Abuse Act. In U.S. v. Nosal, the Ninth Circuit limited a CFAA claim premised on an employee who "exceeds authorized access" of a protected computer to "access", not "use." And in the Fourth Circuit, the court followed Nosal and took a narrow view of the CFAA, widening an already deep circuit split. In that case, WEC Carolina Energy Solutions v. Miller, the plaintiff has filed a cert petition in the U.S. Supreme Court to resolve the split among the circuits. Will the Court take the case? It might, and this will be an interesting case to follow in 2013.

2. The Ohio Supreme Court Decides Two Important Competition Cases. The Ohio Supreme Court's decisions in American Chemical Society v. Leadscope and Acordia of Ohio v. Fishel were vitally important. In Leadscope, the Court held that malicious litigation can support a common law unfair competition claim. In the process, it upheld a $26.5 million verdict in favor of Leadscope, another result demonstrating that the court (mis)use of legal process can redound very badly to plaintiffs who underestimate how aggressive of a defense their adversaries will muster. In Fishel, the Court reversed itself and held that non-compete contracts are automatically assignable in the course of statutory mergers. The Court had held in an earlier opinion in the same case that the plain language of covenants concerning assignability would control over statutory law.

1. Supreme Court Rules on Scope of Arbitration Clauses. And in the year's most talked-about non-compete case, the Supreme Court of the United States reversed a decision of the Oklahoma Supreme Court and held that an arbitrator, not a state court, must determine the enforceability of a non-compete agreement if the underlying contract contains an arbitration clause. The case leaves open the possibility that an employee can still petition a court to determine that the underlying arbitration clause is invalid. My discussion of Nitro-Lift Techs. v. Howard is found here.

So that's 2012 for ya'. Thanks again to all my readers for the great feedback and to my fellow blogging colleagues.

I'll be back in a few days to start Year 5!

2011: Year-End Review, Part II

I decided to augment my year-end review this year with a different tone and message. In the past, I have confined my end of the year analysis to a true summary of what legal developments we saw in the area of non-compete law during the prior twelve months.

But upon reflection of the year that is now behind us, I wanted to share some personal thoughts about what I have seen representing clients in lawsuits and non-compete disputes.

In 15 years of practice, I have never been more bothered and disturbed by the role attorneys play in facilitating their clients' grievances, rather than resolving them. Competition disputes are a little bit different - actually, a lot different - than other ordinary suits. More than frequently, they are not about righting a wrong or recovering some liquidated debt. Rather, they are intensely personal, strategic, and improperly pursued. I have written before on the range of legal fees often generated in these cases and what factors go into those ranges. Clients and potential new clients are sometimes shocked to hear this, but it is much better for them to know at the outset.

In 2011, I tried three non-compete cases to final judgment - two victories and one defeat. And on each occasion, the court ultimately got it correct. The attorney I lost to was one of the finest and most honorable attorneys I have met, represented his client well, and worked well with me to get a non-compete case tried to final judgment in a remarkable 35 days. This is what lawyers should aspire to. I left the case sad for my client, but emboldened in my belief in the system and that some attorneys just "get it."

Along the way, however, I witnessed lawyering that was the complete opposite. To sum it up eloquently, the representation I saw this year from a wide range of lawyers was fucking horrendous.

Lawyers seem to forget that they have obligations not only to the clients they represent, but also to the court and opposing counsel. In competition cases, these considerations seem to get swept under the rug all too often. Competition suits have the potential to be strategic - that is, not meant to redress a true grievance, but to gain foothold in the marketplace and to impose litigation costs on a competitor. This in and of itself is wrong. Many lawyers, however, could care less.

The law provides some redress for parties who are the victims of frivolous or strategic lawsuits (and, that term means both suits that were not well-grounded from the start, but also - and especially - those that were filed and maintained for some ulterior purpose), but the avenues to gain just compensation are exceedingly narrow, difficult to prove, and cost inefficient. My experience is that courts are impermissibly hostile to fee-shifting petitions, wary of counterclaims, and unwilling to view the motive behind lawsuits with a jaundiced eye.

Just three illustrations from this year to show what I have experienced firsthand.

I litigated a trade secrets injunction case in state court where the plaintiff, my opponent, had no idea what its trade secret was and ultimately concluded it was his "overall business model." (It was about halfway through a preliminary injunction hearing when the plaintiff finally decided this.) Aside from the fact my client was not even in the same line of business and never took anything from the plaintiff, the plaintiff and its lawyer pursued us anyway and forced a young man to spend $20,000 in personal savings to clear his good name. The court denied our motion for sanctions, which the plaintiff did not even defend.

I also prevailed in a federal court non-compete/trade secrets case where my opponent could not identify how it was ever harmed or injured as a result of what turned out to be business activity in a completely separate market outside the geographic scope of my clients' non-compete agreements. My fee petition for $100,000 is now pending, and my adversary has bitched, whined and lied that I failed to disclose information about my opponent's damages (not sure how this is even possible) and that I confused a deposition witness (is this a compliment or a complaint?).

In another trade secrets case, my opponent filed a claim in a complex industry, claiming that certain technology know-how components (each of which were clearly in the public domain) gave rise to an inevitable disclosure case. The suit, in essence, was a forced hostile takeover of a corporate competitor by virtue of a dubious trade secret claim, and resulted in a large settlement just so the defendant could move on with its business and close its debt financing. At no point did the plaintiff show any interest in what its trade secrets were (its theory changed three times before the first witness was deposed), but the lawyers managed to rack up millions in legal fees.

Victims of lawsuit abuse can always pursue claims for attorneys fees, abuse of process, malicious prosecution, and antitrust violations. But they are hard to prove, perhaps intentionally so. More problematically, lawyers these days seem more interested in charging their clients, building their books of business, and collecting fees, rather than doling out sound advice and pursuing cases to recover compensation.

There are simply too many attorneys chasing too little work, encouraging clients to take on stupid lawsuits for the sole purpose of litigating. Too infrequently, lawyers give little thought to how they will win a case. Litigating is enough until they get their ass handed to them or force their client to settle (usually after most of the fees have been charged and collected) right before trial.

I don't want to give the impression that I won't pursue a case for a client who has been truly wronged. In the past two years, I have been lead counsel for a plaintiff on only five cases - a mere fraction of how many times I defend clients in competition suits. But in those five suits, I know what I am doing and my clients damn well know I investigated the case before I filed it. I don't pretend to know everything, and I have had my share of disappointments. However, I have never used a competition suit for some ulterior purpose. Unlike many of my opponents, I can look myself in the mirror and say that I understand what the profession means.

Faces of Lawsuit Abuse

2011: Year-End Review, Part I

I put a fair amount of effort into this blog, but I try to go the extra mile in my year-end review. I went back and read my material from prior years, and I am proud of the content I have provided my readers as we have turned the page on another year.

So this year, I am going a step further and dividing my column in two parts. This installment features some notable developments in competition law and some links to suggested reading. The second installment will be a lot different, and I hope you find it valuable too.

As I look back on 2011, there were five significant developments (four of which I wrote about) in non-compete and trade secret law.

1. Supreme Court of Illinois "Reaffirms" Reasonableness Test. Courts in Illinois have struggled for 3 or 4 years to determine what test to apply to non-compete agreements. Due to a district split, the Supreme Court had little choice but to take Reliable Fire Equipment v. Arredondo to clarify the law applicable to covenants. As it turns out, the opinion in Reliable Fire was not all that illuminating, but it reaffirmed the tripartite reasonableness test that is common to many states and further held that an employer must demonstrate a protectable interest. The biggest change is that the protectable interest is to be assessed under a "totality of the circumstances" approach - a notable departure from a rigid test that lawyers and courts frequently struggled with. I wrote about this decision earlier this month. The defendants in that case have petitioned the Court for a finding that the ruling applies prospectively only. I will update the blog when the Court rules on (denies) that motion.

2. Texas Supreme Court Expands Permissible Scope of Non-Competes. In July, I wrote about Marsh USA v. Cook, an important Texas Supreme Court case which completed a long revamp of Texas law. Essentially, Texas has now migrated away from an analysis based on whether a covenant was "ancillary" to an employment contract and focused more on whether it is reasonable to protect a legitimate business interest. In Marsh USA, the Court determined that the provision of stock options (as opposed to confidential information) was the type of consideration that could support a non-compete. The best part of the case, though, is Justice Willett's scholarly and beautifully written concurring opinion. It should be required reading for any judge before he or she examines a non-compete case.

3. Georgia's New State Law Takes Effect. After some fits and starts, Georgia's new non-compete statute took effect earlier this year. Though the law only applies to contracts entered into after a certain date, Georgia now goes from being a notoriously employee-friendly state to one more neutral in how it assesses non-competes.

4. Colorado Allows for Continued Employment to Serve as Valid Consideration. The issue of whether continued employment can serve as sufficient consideration for a non-compete is one of my top wedge issues - those that clients often don't grasp and which are the subject of disagreement among states. Earlier this year, Colorado joined a majority of states in concluding that continued employment can constitute sufficient consideration.

5. Massachusetts Courts Expand Trade Secret Proteciton. This is not an issue I wrote about, but it is worth reading Russell Beck's discussion on the Fair Competition Law blog of Specialized Technology Resources v. JPS Elastomerics. Massachusetts has not enacted the Uniform Trade Secrets Act, and Section 93A is its general unfair competition statute. This case appears to give employers some more ammunition for obtaining damages and attorneys' fees against employees who misappropriate trade secret material and use the same after the employment relationship ends. Prior case law had been unclear as to how (or whether) employers could invoke this statute against departing employees.

So that's it for the traditional year-end wrap. Next up, a different and more personal take on 2011.

2010, Yer Outta Here!

It's time to put a wrap on 2010, a very satisfying year for me personally and professionally. On the personal side, I saw something I was convinced I'd never see in my lifetime: a Stanley Cup brought home to the City of Chicago. My parents saw something they never thought they would see in their lifetime: their only son get married.

On the professional side, I've advised many great clients on some very challenging and interesting issues. I won the only trial I had this year and was able to help several clients negotiate their way out of tough situations. Last year at this time, I wrote a post that captured some thoughts and impressions I formed through advising clients, litigating cases and studying other lawsuits and trends. I'd encourage readers to click on the link and read that post, as I think many of the same comments apply.

As for 2010, it was a more interesting year than 2009 for sure in regards to non-competes. A couple of points to highlight:

(1) As Jay Shepard writes, the volume of non-compete cases and disputes continues to rise and shows no signs of slowing down.

(2) Georgia enacted significant non-compete reform that will take effect for contracts entered into after today.

(3) Illinois, my home state, produced a number of significant state and federal court decisions, highlighted by the opinion in Reliable Fire Equipment - discussed at length this month.

(4) The number of cases involving the Computer Fraud and Abuse Act in the context of garden-variety employee unfair competition claims has declined significantly.

(5) And, I saw the absolute dumbest non-compete agreement I've seen in 13 years of practicing law: a non-solicitation restriction buried in a 52-page employee handbook that itself contained a disclaimer that it was not a contract. Hard to believe.

As for 2011, I look forward to the third full year writing this blog. Honestly, I feel like I'm just getting warmed up. I still plan to write 2 to 3 times per week, but I have some ideas to mix up the content a bit. Once per month, I will write a "Spotlight" column, focusing on a state, an industry or a legal topic. It will be a bit more in-depth than my regular columns, kind of like a poor man's bar journal article. I also plan on sharing more of what my blogger colleagues write. I've done that some, but not enough. There are a lot of great law blogs out there, and I plan to highlight and discuss others' posts. Some of the best are listed on my Blog Roll (look to your right...).

I would like to hear from you too. I have been blessed to have more than 45,000 visitors to my site this year, and I always look forward to the thoughtful e-mails my readers send to me. If there is a topic or issue on your mind, please feel free to send it along and I will see if I can work it into a column.

The end of the year always means that it's time for every scribe, professional and amateur alike, to put together a top 10 list of sorts. Throughout the year, I've offered several comments about what employers need to consider when drafting or enforcing non-compete agreements.

It occurred to me, though, that since a fair percentage of my clients are employees, rather than companies, I really ought to put together a list for them. I thought a great deal about what kind of list to draft, and I wanted to do something different and practical.

So I put together this list of ten things employees need to provide their attorneys to receive non-compete advice.

1. Copies of all employment contracts - This may seem self-evident, but I emphasize the word all. I have met with many clients who have non-compete obligations expressed in several different agreements, and it's essential that your lawyer have a full understanding of all contracts and terms.
2. Personnel file - In some states, employees have an automatic right to receive their personnel file. If you live in one of these states, you should always request a copy of your file.
3. Cease and desist or "reminder" letters - It is fairly standard now for any departing employee to receive a not-so-friendly reminder from an ex-employer about the terms of a non-compete agreement. If you have received such a letter, don't sweat it. If you haven't, it could help establish that your ex-employer has not been vigilant about protecting its confidential information.
4. Prior job description or resume - In assessing your non-compete, it is imperative that your attorney have a full understanding of what it is you do and how you could potentially harm your ex-employer's business interest.
5. Company proprietary information - If you left and retained company proprietary documents, your lawyer needs to see them. This could avert a potential claim and allow the employee to walk into court with clean (or cleaner) hands.
6. Prior legal opinions - If you've met with other attorneys about your non-compete and received an opinion letter, bring it with you. It is important for your lawyer to understand what advice - good or bad - you have received previously.
7. Stock or equity option agreements and plans - Participation in a company incentive plan can trigger a whole separate set of agreements (usually called award agreements). Those documents may contain restrictions on competing, though they are more likely tied to paying back income received from exercising options.
8. Employee handbook - Particularly in involuntary termination cases, it is important for your attorney to assess whether you might have some severance, progressive discipline or other right that has not been resolved.
9. New employment documents - This could include a number of documents if you're already employed or have a new opportunity on the horizon: an indemnification agreement, employment agreement, offer letter, and new job description.
10. Questions - Yes, you should list out any questions you have for your attorney. Hiring an attorney is often a new experience for many employees. Unfortunately, it is stressful too and you're bound to forget questions you want to ask. No question is dumb, so write them down and bring that list with you.

Well, that's it. Thank you, again, to each of my readers, colleagues, and especially my clients for another great year!

Some Thoughts As the Year Concludes

Unlike 2008, this year was not particularly interesting for notable developments in non-compete law. IBM got involved in another high-profile dispute, and this time it lost, while Illinois courts have reached an irreconcilable conflict among various districts that will require the Supreme Court (or General Assembly) to step in at some point. Aside from that...well, not much of any real interest or consequence.

I review each reported case throughout the United States, and I still come to the same conclusion. Courts will be inclined to enforce non-compete agreements if any of the following three factors are present: (1) misappropriation or a physical taking of corporate information; (2) direct solicitation of key accounts right after departure; or (3) acts of pretermination competitive activity, deceit or dishonesty in the months leading up to resignation.

How to defend a potential non-compete claim, or avoid it altogether? This is never an easy question, and as a practice, I won't give absolutes to clients when they seek my bottom-line advice. However, I can describe some general parameters and place likelihood of success on a clear continuum. In order, my advice is as follows: (1) find a defect in contract formation; (2) demonstrate the post-termination activity falls outside the non-compete; (3) show the agreement is unreasonable in scope; (4) argue it does not protect any legitimate business interest; or (5) rely on equitable factors or an affirmative defense, such as release, estoppel, involuntary termination, or prior breach. The first two strategies are based on a finding that there was no breach in the first place, where as the other three ask the court to excuse it.

In my own practice this year, I have seen fewer non-compete disputes ripen into actual lawsuits, though the threats are still (and will always be) there. This is hardly a surprise, given the expense associated with pursuing and defending litigation. On the flip side, I don't recall a year when clients have asked me to draft as many non-compete/non-solicit contracts or audit ones currently in place. Given that a substantial part of my practice involves the review of existing contracts, I am amazed - stunned even - at the way contracts are drafted. On occasion, I will see an agreement that I save for future reference because I feel it is particularly well done.

But what I see most is an inadequate, form document that is not at all tailored to an individual employee or totally divorced from the prevailing law of the jurisdiction which governs it. I also see horribly over-lawyered documents that use language straight out of the 15th century or can't seem to express a basic restriction in less than 10 pages. We're not paid by the word, but apparently some firms still don't realize this. None of this looks good when a judge has to examine the reasonableness of the agreement.

In my judgment, employees have started to take their non-compete obligations more seriously. In the past, I used to get more calls after a dispute began and where I can't assist in directing and making the relevant facts. Now more clients call before embarking on a transition decision.

Employees always must be prepared, too. As Rob Radcliff notes in his outstanding (and aptly named) blog, Smooth Transitions, it is vital employees keep contracts, amendments, policy statements, handbooks and any correspondence mentioning their non-compete agreements. We can't advise you properly without this, and even though employees generally have full rights to review their personnel files, any request to do so will raise an immediate red flag. Most of all, it is critical that employees respect their employers' proprietary data, avoid taking any corporate information (digital or paper), and return anything stored on a portable or personal hard-drive. I can't emphasize this enough. Equities rule in these cases.

Well, that's a wrap. Stick a fork in 2009, it's done. For the more than 20,000 people who have visited my blog this year, who have offered me their e-mails and comments, and especially to the many who have become my clients, I offer my sincere thanks and wishes for a safe New Year!