Restrictive Covenants, Confidentiality and IP

This Law Firm Publication by Epstein Becker & Green, P.C. discusses a California Court of Appeal's recent decision in Wanke, Industrial, Commercial, Residential, Inc. v. Superior Court, upholding a stipulated injunction that prohibited employees from soliciting specific customers from their former employer. Wanke sued two former employees and their new company for misappropriation of trade secrets. As part of a settlement agreement, the parties entered into a stipulated injunction that prohibited the former employees from soliciting specific customers identified in a customer list. In response to Wanke's later motion to find the employees in contempt for having contacted a customer on that list, the district court held the stipulated injunction was invalid under California law as an unlawful restraint of trade. The Court of Appeal reversed, holding the stipulated injunction was enforceable as the district court properly had jurisdiction and the injunction was facially valid.

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."

This Law Firm Publication by Epstein Becker & Green, P.C. discusses 21st Century Systems, Inc. v. Perot Systems Government Services, Inc., in which Perot Systems alleged that 21st Century Systems conspired to steal trade secrets. Perot Systems was awarded monetary damages for loss of goodwill, but the Virginia Supreme Court overturned this award because of insufficient evidence to establish value. Perot Systems relied solely on its actual sale to Dell, Inc., rather than comparing its loss of goodwill to the loss experienced by comparable businesses at the time they were sold.

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 Jackson Lewis LLP memorandum discusses the US Court of Appeals for the First Circuit's ruling in OfficeMax, Inc. v. Levesque. Analyzing the case under Maine law, the court held that a one year non-compete clause had expired by the time the employer tried to enforce it more than a year after its predecessor in interest acquired the company that had initially obtained the non-compete agreement. The court reversed the grant of preliminary injunction and remanded the case.

Colorado recently enacted House Bill 13-1046, which prohibits an employer from requesting, requiring or causing employees or applicants to disclose social media user names or passwords.

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.

Utah recently enacted the Internet Employment Privacy Act (IEPA), which bans employers from asking employees and job applicants to provide login information for their personal internet accounts. 

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.

This Law Firm Publication by Ogletree Deakins discusses Indiana's blacklisting statute in the context of the Indiana Supreme Court's decision in Loparex v. MPI Release Technologies, LLC, et al. In Loparex, the court for the first time offered a definition of blacklisting under the statute. Applying this definition, the court concluded that the statute does not cover suits brought by former employers to enforce noncompetes or protect alleged trade secrets.

This Law Firm Publication by Ogletree, Deakins, Nash, Smoak & Stewart, P.C., discusses HB 1270, a new law effective July 14, 2012, which requires New Hampshire employers to provide job applicants with non-compete and non-piracy agreements either before or at the time they offer them a job or a change in their job classification. The law voids any agreements that are not entered into in compliance with the law. It is intended to protect employees from discovering after accepting a job or a promotion that they must sign restrictive covenants.

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.