Anyone who has been running a business for a while knows that January is a high turnover month for employees. And while companies cannot prevent employee turnover, they can take four steps this month to prevent employees from walking out the door with confidential documents…
What distinguishes those companies that are successful in enforcing their non-compete agreements from those that are not? Generally speaking, just three factors: good agreements, evidence of violations, and swift action to enforce.
The Fifth Circuit Court of Appeals recently ruled that: (1) a party must “prevail” before it can recover any attorney’s fees under the Defend Trade Secrets Act and (2) a plaintiff’s dismissal of its claims without prejudice does not confer the “prevailing party” status on defendants.
Many small businesses use Google, Microsoft 360, Dropbox or some other similar systems to maintain and manage company records. All of those systems allow the administrator to (1) set restrictions on which employees can access which information within the company; (2) track what the employees do with that information; (3) set restrictions on whether the employees can print, download, copy or share the information with other employees or people outside the company; (4) periodically change passwords to access the system; and (5) many other features that can help business owners prevent their information being shared outside the company.
Credit card data (including cardholder names, credit or debit card numbers, and corresponding CVVs) were akin to passwords and usernames that provided access to something of value,” i.e. an individual’s line of credit with a financial institution or money in an account with a financial institution, and were not “trade secrets” under the Defend Trade Secrets Act.
Trade secrets only have value as long as they stay secret, so once they come into a competitor’s hands or become publicly available, their value is often destroyed.
Few employees realize that when they take their employers’ trade secrets with them prior to leaving their job they may be exposing themselves to criminal liability under the Economic Espionage Act, which makes it a crime to steal trade secrets when (1) the information relates to a product in interstate or foreign commerce (which is virtually any product now days) or (2) the intended beneficiary is a foreign power.
More and more states are amending their non-compete statutes to make them more employee-friendly. This trend, spurred by the White House report on the effect of non-compete agreements on competition and the revelation that some of the largest employers, like Jimmy John’s and Amazon, were requiring their sandwich-makers and warehouse employees to sign non-compete agreements, has continued into 2018.
A court order prohibiting defendant from using trade secrets must be broad enough to cover all possible circumstances while narrow enough to include only the illegal activities. Where that line lies depends on the circumstances of each particular case.
The business world is littered with the carcasses of companies which, after they shared their confidential information and trade secrets with a non-competitor, such as their client, supplier, or vendor, were undercut by that party, who all of a sudden realized that they could profit from the information by cutting out the middle-man.
The Fifth Circuit recently considered whether the federal copyright and patent laws preempt (trump) Texas common law claim of unfair competition by misappropriation.
The unclean hands defense “allows a court to decline to grant equitable relief, such as an injunction, to a party whose conduct in connection with the same matter or transaction has been unconscientious, unjust, or marked by a want of good faith, or one who has violated the principles of equity and righteous dealing.”