California has passed two new items of legislation, Senate Bill 699 and Assembly Bill 1076, which will further regulate and restrict the enforcement of employment non-compete agreements in California, and expand the scope of remedies for those affected by them. These new laws will become effective on January 1, 2024, and now is the time for employers to assess and revise their employment-related agreements and restrictive covenants accordingly. As detailed below, they also require employers to notify employees and certain former employees by February 15, 2024 that certain non-compete provisions are void. The two new laws are detailed below.Continue Reading California Strengthens Non-Competition Law
On May 25, 2023, the Texas Legislature enacted the biggest structural change to the Texas court system in recent memory. House Bill 19 (“HB 19”)—signed by Governor Greg Abbott in June—creates a new “Business Court” system for the Lone Star State. HB 19’s passage comes after four previous legislative efforts to enact a business court system in Texas failed. Texas’s Business Courts will activate on September 1, 2024, and will handle complex commercial disputes with significant amounts in controversy. The purpose is to create an efficient, specialized court for complex, high-value commercial disputes needing timely resolutions—matters that could otherwise languish in overworked district courts with broad dockets that include, among other things, criminal, personal injury, and family law cases. Ideally, specialized business courts also promote consistent interpretations of commercial laws and contracts, thereby leading to more predictable outcomes. Texas is now the 31st state to adopt a business court system of this kind.Continue Reading Texas Revolution: State Legislature Creates New Business Court System to Handle Significant Commercial Disputes
Courts and state legislatures continue to take aim at post-employment non-competes. In a companion blog, we recently detailed the Federal Trade Commission’s proposed rule banning post-employment non-competes. However, for years (and even under the FTC’s overreaching proposed rule), non-competes in the sale of business context have generally received less scrutiny.Continue Reading Buyer Beware: Delaware Declines to Enforce Sale of Business Non-Compete
On January 5, 2023, the Federal Trade Commission (“FTC”) announced a broad proposed rule that would ban employers from imposing noncompete clauses on their workers. The FTC press release announcing the proposed rule states that noncompete clauses—which apply to about one in five American workers—suppress wages, hamper innovation, block entrepreneurs from starting new businesses and reduce American workers’ earnings between $250 billion and $296 billion per year. The proposed rule would prohibit employers from: (1) entering into or attempting to enter into a noncompete with a worker; (2) maintaining a noncompete with a worker; or (3) representing to a worker, under certain circumstances, that the worker is subject to a noncompete. The term “worker” covers paid staff in addition to independent contractors and unpaid staff. The proposed rule does not apply to noncompete provisions imposed upon 25% owners of a business in transaction documents related to the sale of the business. The proposal is subject to a 60-day public comment period commencing when the Federal Register publishes the proposed rule.Continue Reading FTC Seeks to Ban Noncompete Agreements in Employment Contracts
The recent decision by the U.S. Court of Appeals, Sixth Circuit, Caudill Seed & Warehouse Co. v. Jarrow Formulas, Inc., illustrates the flexible approach taken by courts when considering the calculation of compensatory damages in trade secrets cases. No. 21-5345, 2022 WL 16846585 (6th Cir. Nov. 10, 2022) There, the Sixth Circuit affirmed a jury’s compensatory damages verdict which awarded the plaintiff its research and development costs for its misappropriated trade secret even though the underlying trade secret was not destroyed through disclosure or other means. Id. at *15.
Continue Reading Reap What You Sow – Sixth Circuit Affirms Recovery of Research and Development Costs to Agricultural Company in Trade Secret Case
The tension between encouraging free and fair competition and protecting competitive advantages derived from hard work and ingenuity is at the very heart of trade secrets law. Among other things, this tension manifests itself in the gray areas endemic to any legal analysis of what information may constitute a “trade secret.” In comparison, assessing the behavior of those accused of misappropriating trade secrets can sometimes be a much more straightforward exercise. And it seems that the more egregious (and less “gray”) the behavior, the more likely a court is to exercise its limited discretion to restrain competition at the preliminary relief stage to prevent disclosure and use of misappropriated trade secrets. The 3rd Circuit’s recent decision in Matthews International Corp. v. Lombardi(October 12, 2022) is a timely example of this principle.
Continue Reading One Bad Apple Won’t Spoil the Rest of the Bunch’s Ability to Fairly Compete in Matthews International Corp. v. Lombardi
Should a defendant found liable for stealing trade secrets have to fork over all of the research and development costs it theoretically avoided by misappropriating the secrets? Yes, according to the “avoided costs” theory of unjust enrichment that is gaining traction and resulting in large verdicts in DTSA and UTSA cases around the country.
Continue Reading The Developing “Avoided Costs” Remedy in Trade Secret Litigation
On July 27, 2022, Mayor Muriel Bowser signed into law the Non-Compete Clarification Amendment Act of 2022, scaling back certain aspects of D.C.’s original Ban on Non-Compete Agreements Amendment Act of 2020. As we previously reported, the original ban included some of the most substantial non-compete restrictions in the country, including prohibiting the use of non-compete agreements for nearly all employees working in D.C. and banning anti-moonlighting policies. Here are some key takeaways from the Amendment:
Continue Reading The District of Columbia Revises Ban on Non-Competes
While preliminary injunctions are not uncommon in trade secrets misappropriation cases, a recent Fifth Circuit decision highlighted the importance that the movant put forth colorable evidence of misappropriator “use” of the trade secrets in preliminary injunction cases. In CAE INTEGRATED, L.L.C.; Capital Asset Exchange and Trading, L.L.C. v. MOOV TECHNOLOGIES, INCORPORATED; Nicholas Meissner — F.5th — (2022) 2022 WL 3210358 , the Fifth Circuit affirmed denial of a preliminary injunction for the lack of evidence showing such use. In this case, CAE sued Meissner, a former employee, and MOOV, his subsequent employer, for trade secret misappropriation in the Western District of Texas under the Defend Trade Secrets Act (DTSA) and the Texas Uniform Trade Secrets Act (TUTSA). CAE also moved for a preliminary injunction, which was denied. CAE appealed that denial in the Fifth Circuit.
Continue Reading Insufficient Evidence: Fifth Circuit Affirms Denial of Preliminary Injunction for Trade Secret Misappropriation
The Seventh Circuit recently affirmed summary judgment in favor of a former employee and his new employer on claims for misappropriation of trade secrets relating to a prototype of an actuator created eleven years prior, holding that the inference that the defendant used his knowledge of the prototype more than a decade later was “barely conceivable” and “exceptionally unreasonable.” REXA, Inc. v. Chester, — F.4th —, 2022 WL 2981167, at *6 (7th Cir. 2022) (internal quotation marks omitted).
Continue Reading Unfashionably Late: Seventh Circuit Rejects Misappropriation Claim Premised On Prototype Created Eleven Years Prior
Following a nationwide trend, New Jersey recently joined a growing list of states seeking to limit the use of non-compete and non-solicitation agreements by employers.
Continue Reading What Employers Need to Know About Newly Proposed Non-Compete Legislation in New Jersey