litigating trade secret misappropriation claims post-dtsa...
TRANSCRIPT
Litigating Trade Secret Misappropriation Claims
Post-DTSA: Pursuing Claims Against Former
Employees or New Employers Drafting Continuing Obligations and Cease-and-Desist Letters;
Pursing Ex Parte Seizure Orders, TROs and Litigation Holds
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THURSDAY, MARCH 30, 2017
Presenting a live 90-minute webinar with interactive Q&A
Bradford K. Newman, Partner, Paul Hastings, Palo Alto, Calif.
Jacqueline C. Johnson, Shareholder, Littler Mendelson, Dallas
Greta B. Williams, Esq., Gibson Dunn & Crutcher, Washington, D.C.
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LITIGATING TRADE SECRET
MISAPPROPRIATION CLAIMS POST- DTSA:
PURSUING CLAIMS AGAINST FORMER
EMPLOYEES OR NEW EMPLOYERS
Panelists: Bradford K. Newman, Partner & Chair, Employee Mobility and Trade Secret Practice, Paul Hastings LLP;
Jacqueline C. Johnson, Shareholder and Co-Chair Unfair Competition and Trade Secrets Practice Group, Littler Mendelson P.C.;
Greta B. Williams, Associate, Gibson, Dunn & Crutcher
1:00 PM EDT
Strafford Live CLE Webinars
Thursday, March 30, 2017
5
I. THE DEFEND TRADE SECRETS ACT OF 2016: UPDATE
ONE YEAR LATER
II. STRATEGIES FOR PURSUING TRADE SECRET
MISAPPROPRIATION LITIGATION AGAINST FORMER
EMPLOYEES AND/OR THEIR NEW EMPLOYERS
III. PREVENTING TRADE SECRET MISAPPROPRIATION BY
DEPARTING EMPLOYEES
6
I. THE DEFEND TRADE SECRETS ACT OF 2016:
UPDATE ONE YEAR LATER
7 BACKGROUND OF LEGISLATION AND DIFFERENCES
FROM UNIFORM TRADE SECRET ACT
Federal civil remedy for the misappropriation of trade secrets
Does NOT preempt state trade secret law
8 KEY PROVISIONS OF THE DTSA
Basic requirements for a DTSA complaint:
a civil action may be brought by owner of the trade secret
trade secret has been “misappropriated” and
trade secret is related to a product or service used in, or intended
for use in, interstate or foreign commerce
Key differences from UTSA include:
Federal jurisdiction
Remedies: DTSA prohibits injunction under certain
circumstances; punitive damages, attorney fees not available if
immunity notice requirement not satisfied
9 KEY PROVISIONS OF THE DTSA
Injunctive relief provision – rejects inevitable disclosure
doctrine
10 KEY PROVISIONS OF THE DTSA
Immunity provision
Protects individuals from civil or criminal liability due to
“disclosure of a trade secret” made in confidence to report or
investigate a suspected violation of the law, or filed under seal in
a court proceeding or for use in anti-retaliation lawsuit
11 FEDERAL COURT JURISDICTION IN TRADE SECRETS
CASES: PROS AND CONS
Did federalizing trade secret law require the district courts to
“start from scratch,” leading to uncertainty among the circuit
courts?
Circuit splits?... Not really
To date, courts have been prone to conclude that state law
affords plaintiff the relief necessary
Has potential abuse arisen from the ex parte seizure
provision?
12 GENERAL TREND: INJUNCTIVE RELIEF INSTEAD OF
DTSA SEIZURE PROVISION
OOO Brunswick Rail Mgt., et
al. v. Sultanov, et al., 2017 WL
67119 (N.D. Cal., Jan. 6,
2017)
Magnesita Refractories Co. v.
Mishra, 2017 WL 365619
(N.D. Ind. Jan. 25, 2017)
Panera, LLC v. Nettles, et al.,
2016 WL 4124114 (E.D. Mo.
Aug. 3, 2016)
13 THE FEDERAL TRIAL COURTS’ GENERAL APPROACH
TO SEIZURE REQUESTS
An exceptional circumstance:
Mission Capital Advisors LLC v. Romaka, No. 16-civ-5878
(S.D.N.Y. July 29, 2016): Defendant failed to comply with a
previously issued TRO; the court subsequently agreed to grant a
seizure remedy
14
II. STRATEGIES FOR PURSUING TRADE SECRET
MISAPPROPRIATION LITIGATION AGAINST FORMER
EMPLOYEES/NEW EMPLOYERS
15 A. CONTINUING OBLIGATIONS LETTER TO FORMER
EMPLOYEE
Consider sending reminder letter to every departing employee
as a matter of course
Pros:
Former employees are on notice
Cons:
Weakens effectiveness of letters in urgent circumstances
May cause destruction of evidence
16 B. CEASE-AND-DESIST LETTER TO FORMER
EMPLOYEE & NEW EMPLOYER
May include the following demands:
Evidence preservation
Immediate identification and surrender of all stolen material
Immediate cessation of use of company date and disclosure of
how such data has been accessed and used; and/or
Sworn confirmation that former employee has complied with
company’s demands
17 B. CEASE-AND-DESIST LETTER TO FORMER
EMPLOYEE & NEW EMPLOYER
Tailor according to:
Data at issue
Strength of evidence
Consider how much evidence to disclose
Best prediction of how employee will respond
Categorically deny? Come clean?
18 C. EX PARTE SEIZURE ORDERS
Civil seizure overview
Ex parte application including affidavit or verified complaint
Extraordinary circumstances: seizure of “property” “necessary to
prevent the propagation or dissemination of the trade secret”
19 C. EX PARTE SEIZURE ORDERS
Requirements to invoke seizure provision
Equitable relief/injunction would be inadequate (irreparable
harm)
Balance of harms favors seizure and likelihood of success on the
merits
Target of seizure possesses trade secret and property to be
seized, which have been described with reasonable particularity
Target would destroy property if given notice
Seizure request has not been publicized
20 C. EX PARTE SEIZURE ORDERS
Requirements for seizure order
Findings of fact and conclusions of law
Narrowest seizure necessary
Order protecting the seized property from disclosure
Guidance to law enforcement for seizure
Require security in case of wrongful seizure
21 C. EX PARTE SEIZURE ORDERS
Potential issues regarding seizure orders
Post issuance hearing regarding maintenance, dissolution or
modification of order
Damages action for “wrongful or excessive” seizure
Motion for encryption at any time by any party with an interest in
the seized matter
22 D. PRELIMINARY INJUNCTIONS
General trend: Injunctive relief instead of DTSA seizure
provision (as previously noted)
Potential types of relief:
Evidence preservation, including no use or disclosure
“Give back”
Imaging and inspection of personal computer devices
Sworn certification
Enjoining sale and/or release of product
Restriction of employment
23 E. LITIGATION HOLD NOTICES (AND MORE)
Amendment to Federal Rule of Civil Procedure 37(e)
Old: prohibited sanctions for failing to provide ESI lost as a result
of routine, good faith operations of electronic system
New: states sanctions may be imposed if 3 conditions are met:
(1) ESI that should have been preserved is lost; (2) Party failed
to take reasonable steps to preserve; and (3) Information cannot
be restored or replaced
If conditions are satisfied,
If there is prejudice: court “may order measures no
greater than necessary to cure the prejudice,” or
If there is intent to deprive: sanctions that may be
imposed are: (a) presumption that lost information
was unfavorable, (b) jury instruction that it may
presume the information was unfavorable to the
party, or (c) case dismissal or default judgment.
24 E. LITIGATION HOLD NOTICES (AND MORE)
Courts have set a high bar for imposing sanctions
But…severe sanctions will result from intentional destruction;
for example:
GN Netcom, Inc. v. Plantronics, Inc., No. CV 12-1318-LPS, 2016
WL 3792833 (D. Del. July 12, 2016):
Defendant’s senior executive deleted 40% of his emails and
instructed others to delete
Defendant’s litigation hold and hiring of a forensic firm to
investigate and recover the data was insufficient; additional
steps could have been taken, e.g., searching back-ups
Sanctions imposed: plaintiff’s reasonable fees and costs, $3
million in punitive sanctions, possible evidentiary sanctions,
and jury instruction that the jury may presume that missing
information was unfavorable to defendant
25 E. LITIGATION HOLD NOTICES (AND MORE)
[Cont’d]
Brown Jordan Int'l, Inc. v. Carmicle, No. 0:14-CV-60629, 2016 WL 815827 (S.D. Fla. Mar. 2, 2016), aff'd, 846 F.3d 1167 (11th Cir. 2017):
Involved, inter alia, CFAA claim against defendant for unlawfully accessing other employees’ email accounts
Defendant spoliated evidence on company and personal devices, including last access dates for 2.4 million files on personal laptop
Sanctioned with adverse inferences drawn against defendant
NFL Mgmt. Council v. NFL Players Ass’n., 647 Fed. Appx. 32 (2d Cir. Apr. 25, 2016) (NFL “deflategate” case; not decided under FRCP 37):
After Tom Brady destroyed his cell phone, arbitrator inferred that phone contained evidence unfavorable to him
“Any reasonable litigant would understand that the destruction of evidence, revealed just days before the start of arbitration proceedings, would be an important issue.”
26 OTHER FILING CONSIDERATIONS
When filing a complaint, consider:
Including DTSA and state law claims
Jurisdictional issues
Specific state/federal rules (remember CCP § 2019.210?)
Filing under seal
27
III. PROACTIVE STEPS FOR PREVENTING
MISAPPROPRIATION OF TRADE SECRETS BY
DEPARTING EMPLOYEES
28 CONFIDENTIALITY AND NON-DISCLOSURE
AGREEMENTS
Have carefully drafted confidentiality agreements in place to
protect company trade secrets
Include clear definitions of trade secrets and confidential
information
Have qualified counsel review policies and agreements to
ensure they contain the language required under the DTSA
29 ENCOURAGING CONFIDENTIALITY AMONG
EMPLOYEES
Use onboarding procedures to emphasize the importance of
confidential information
Non-Disclosure Agreements: include language stating that the
employee does not possess and won’t use confidential
information belonging to third parties
Conduct annual (or more frequent) sessions reminding
employees of confidentiality obligations
Take reasonable security measures to protect company trade
secrets
30 RELATIONSHIPS WITH THIRD PARTIES
Closely monitor relationships with vendors and independent
contractors who may have access to company confidential or
trade secret information.
31 EXIT INTERVIEWS
Require employees to sit for exit interview
During interview, require employees to certify in writing they
have returned all company property and information
Have a standard checklist for exit interviews to ensure
consistency
32 HIGH RISK EMPLOYEES
Identify trade secret and confidential information the employee
particularly uses
Review departing employee’s computer and work activities for
unusual activity
Exit Interview and Certification
Inquire where employee is going and the position they will hold
Discretely investigate where necessary
Shut down departing employee’s access to computers
Send reminder letter informing former employee of her
ongoing obligations
Consider notifying new employer, but tread carefully to avoid
accusations of tortious interference
Forensic imaging (where threat appears significant)
33 BRADFORD K. NEWMAN BIO
Bradford Newman founded and leads Paul Hastings’ International Employee Mobility and Trade Secret practice. According to Chambers, he is a recognized “authority on trade secret cases.”
Mr. Newman is the author of Protecting Intellectual Property in the Age of Employee Mobility: Forms and Analysis, a comprehensive treatise published by ALM that offers authoritative guidance on legal risks and practical steps companies can take to protect their IP and remedy IP theft.
Mr. Newman chairs the Firm’s Silicon Valley Employment Law practice. He routinely serves as lead trial counsel in cases with potential eight and nine-figure liability, and has successfully litigated (both prosecuting and defending) a broad spectrum of trade secret and employee mobility cases in state and federal courts throughout the country.
34 JACQUELINE C. JOHNSON BIO
Jacqueline C. Johnson is the Co-Chair of Littler Mendelson’s Unfair Competition and Trade Secrets
Practice Group. Ms. Johnson devotes her practice to employment litigation and counseling, with
particular experience in trade secret and wrongful competition litigation and drafting and enforcement
of multi-state compliant non-competition agreements. She has handled several high-profile "bet the
company" non-competition matters, some of which have garnered national media attention. She also
co-authored Unfair Competition and Intellectual Property Protection in Employment Law - a
comprehensive treatise on noncompete agreements and unfair competition litigation for Bloomberg
BNA. She also conducts employment law and anti-harassment training for her clients, which include
restaurants, staffing companies, and high technology corporations. Jackie served as a law clerk to
the Honorable Harry Lee Hudspeth, United States District Court, Western District of Texas, from 1994
until 1996. In law school, she was a member of the Legal Research Board.
35 GRETA B. WILLIAMS BIO
Greta B. Williams is an associate in the Washington, D.C. office of Gibson Dunn & Crutcher. She is
a member of the firm's Litigation and Labor & Employment Departments. She has represented
clients at the federal and state appellate and trial court levels, including matters involving employment
law, class actions, trade secrets and constitutional law. Ms. Williams has represented clients in a wide
range of employment matters, including those involving non-competition agreements and trade
secrets, executive employment disputes, wage-hour and discrimination laws, and whistleblower
protection laws. She has experience in trial proceedings, including direct examination of a fact
witness in a trade secrets dispute in the Delaware Court of Chancery. Ms. Williams frequently writes
on employment law and trade secret related topics. She is the co-author of the annual "Trade
Secrets Litigation Round-Up" published in BNA's Patent, Trademark & Copyright Journal.
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