Restrictive Covenants, Confidentiality and IP

On May 2, 2013, Texas became the 48th state to adopt the Uniform Trade Secrets Act (UTSA). The Texas Uniform Trade Secret Act takes effect on September 1, 2013 and replaces existing Texas law governing trade secrets. 

New Mexico recently enacted the No Social Media Access for Employers Act (SB 371), which prohibits employers from requesting or requiring that a prospective employee provide a password or access to the prospective employee's social networking account.

This Law Firm Publication by Epstein Becker & Green, P.C. discusses a Wisconsin Court of Appeals decision in Engedal v. Menard, Inc., upholding an arbitration provision in an employment agreement that included a non-compete clause. After Menard, Inc. (Menards) terminated Jeffrey Engedal, he sued, requesting a declaratory judgment that the provision was unenforceable. The circuit court held the arbitration provision was unconscionable because the non-compete clause would put Engedal out of a job for two years if he refused to sign it. The Wisconsin Court of Appeals reversed, holding the circuit court's decision conflicted with its own findings that Menards would have offered Engedal a different position in the company if he refused to sign the agreement, his managerial, supervisory and organization skills were transferable outside the industry, and Engedal was subsequently able to find a job as a general manager for a company in another industry. 

This Law Firm Publication by Epstein Becker & Green, P.C. discusses the Ohio Supreme Court's new decision in Acordia of Ohio, L.L.C. v. Fishel. In its first Acordia decision, the court held that a corporate merger triggers the running of a non-compete's restrictive period. Following a motion for reconsideration by the employer, the court recently held that a non-compete agreement transfers to a successor company after a corporate merger. The absorbed company becomes a part of the resulting company following a merger and the successor can enforce the merged company's non-compete agreements.

In U.S. Auto Parts Network, Inc. v. Parts Geek, LLC, the US Court of Appeals for the Ninth Circuit joined other circuits in adopting the Restatement (Second) of Agency's three-prong test for determining whether a copyrightable work is created by an employee within the scope of employment, and therefore a work made for hire owned by the employer.

In WEC Carolina Energy Solutions v. Miller, the US Court of Appeals for the Fourth Circuit held that an employer failed to state a claim against a former employee under the Computer Fraud and Abuse Act (CFAA) where the employee allegedly used confidential information to help the employer's competitor. The employer authorized the employee to access the information, but argued that the employee's unauthorized use of the information violated the CFAA. The Fourth Circuit held that the CFAA only prohibits unauthorized access to information stored on a computer.   

This Law Firm Publication by Epstein Becker & Green, P.C., discusses the Illinois Appellate Court's recent decision in InsureOne Independent Insurance Agency LLC v. Hallberg, reiterating that only a party's material breach of a contract that contains a restrictive covenant excuses the other party from the restriction. James Hallberg hired 29 of his former employer's employees and directly competed with the former employer, breaching the restrictive covenants in his employment agreement with the employer. The court found that although the employer may have breached the employment agreement as well, a partial breach by one party did not justify the other party's failure to perform.

This Law Firm Publication by Epstein Becker & Green, P.C. discusses Acordia of Ohio, L.L.C. v. Fishel, in which the Ohio Supreme Court held that when a company that was the original party to a non-compete merges into another company, unless the non-compete contained a “successors and assigns” clause, the merger is a termination of employment which triggers the running of the non-compete's restrictive period. The court noted that the surviving company could have protected its business interests by requiring employees to sign new non-competes as a condition of their continued at-will employment. The ruling also implied that if the non-compete had included the type of “successors and assigns” language commonly found in non-competes, the outcome may have been different. On October 11, 2012, the Ohio Supreme Court issued a new decision in this case on reconsideration holding that the employer "has the right to enforce the employees' noncompete agreements as if it had stepped into the shoes of the original contracting companies."

On May 2, 2012, Maryland became the first state to bar employers from seeking login information from employees or applicants for personal electronic accounts, including social media accounts, when Governor Martin O'Malley signed the User Name and Password Privacy Protection and Exclusions law. The law also prohibits employees from downloading an employer's proprietary information. The law is scheduled to take effect on October 1, 2012.

This Law Firm Publication by Ogletree, Deakins, Nash, Smoak & Stewart, P.C. discusses the Massachusetts Superior Court decision in Grace Hunt IT Solutions, LLC v. SIS Software holding that a change in compensation is a material change requiring the execution of new non-compete agreements. In Grace Hunt IT Solutions, a successor company asked its new employees to sign new restrictive covenants and offered a new bonus structure. The employees refused to sign the restrictive covenants and left for a competitor software company. The court found it "extremely significant" that the successor offered new agreements, signaling that the old agreements were being replaced by a new arrangement. Furthermore, the court found that the change in compensation was a material change that would void the previous non-compete agreement.

In Aqua Connect, Inc. v. Code Rebel LLC, the US District Court for the Central District of California dismissed a remote-access software company's claim that one of its customers violated the California Trade Secrets Act (CTSA) when it downloaded and reverse engineered a trial version of the company's software. The court emphasized that CTSA's definition of "improper means" trade secret misappropriation specifically states that reverse engineering alone is not an improper means of acquiring trade secret information. The court rejected the software company's argument that the prohibition on reverse engineering in its End User License Agreement (EULA) made the activity an improper means of obtaining the trade secret information. The court also rejected the software company's argument that its EULA created a duty for its customers to maintain the secrecy of company trade secrets.

This Fisher & Phillips LLP memorandum discusses Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C. In this decision, the Montana Supreme Court held that an employer that ended an employment relationship without cause lacked a legitimate business interest in preventing a former employee from competing. This decision marks the first time the Montana Supreme Court has expressly addressed the requirement that an employer demonstrate a legitimate business interest in enforcing a non-compete.

This Ogletree, Deakins, Nash, Smoak & Stewart, P.C. memorandum discusses the Virginia Supreme Court's opinion in Home Paramount Pest Control Companies, Inc. v. Shaffer. In this decision, the Virginia Supreme Court held that a non-compete clause in an employment agreement was overbroad and unenforceable because it prohibited the employee from working for a competitor "in any manner whatsoever." This decision reverses long-standing precedent, under which the Virginia Supreme Court previously held that identical language was enforceable.