The Defend Trade Secrets Act (DTSA) provides an important tool for protecting trade secrets from misappropriation by affording owners a federal right of action for misappropriation of trade secrets related to a product or service used, or intended for use in interstate or foreign commerce. The DTSA provides a variety of remedies that track those available under state uniform trade secret statutes, such as actual damages, damages for unjust enrichment, royalties, injunctive and exemplary relief, and attorney fees.
However, the DTSA differs from uniform state laws in some significant respects. The DTSA provides, in extraordinary circumstances, for the ex parte seizure of property to prevent the propagation or dissemination of the trade secret. The DTSA further expands trade secret protection by enabling trade secret owners to seek nationwide relief, without preempting state law remedies. Another significant feature of the DTSA is the immunity from criminal and civil liability it provides to whistleblowers who comply with the Act's reporting provisions.
Employers are required to notify employees and contractors who are subject to confidentiality agreements of the DTSA's immunity provisions. An employer may comply by including the notice in the confidentiality agreement, or by including a cross-reference to a policy document provided to the employee that sets forth the employer's reporting policy for suspected violations of the law. An employer that fails to comply with the notice requirement may not be awarded exemplary damages or attorney fees in an action under the DTSA. The statute applies to contracts governing confidentiality entered into on or after May 11, 2016.
Confidentiality provisions are commonly included in employment and independent contractor agreements, confidentiality/proprietary rights agreements, noncompete and nonsolicitation agreements, and in separation/release agreements, among other employment documents. Employers who have written contracts with employees or contractors entered into on or after May 11, 2016, containing confidentiality obligations should consider adding the DTSA disclosure and perhaps also reviewing their handbook.
Employers may contact Ater Wynne's employment group for assistance with DTSA compliance.
Nearly 50 years ago, the United States Supreme Court held in Brulotte v. Thys Co. that a patent holder may not collect royalty payments from a licensee after the date on which the patent expires. Since that time, the so-called Brulotte rule has survived despite criticism and attacks by lower federal courts.
In 2013, the Ninth Circuit begrudgingly applied the Brulotte rule in Kimble v. Marvel Enterprises, Inc., to void an agreement between a patent holder and Marvel. In that case, the court held that the agreement was unlawful because it required Marvel to pay royalties for patents and other know-how without a reduction in price after expiration of the patent. According to the court, "a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate." However, at the same, the court complained that the Brulotte rule is "counterintuitive" and "its rationale is arguably unconvincing."
The Supreme Court then granted review, and on Tuesday the Court affirmed, declining to abrogate a half century of case law. Accordingly, Brulotte is alive and well, and patent holders may not receive royalties for patent rights that have expired. When licensing hybrid intellectual property rights, such as a combination of patent rights and trade secrets or know-how, the parties must agree to a reduction of royalty payments at the end of the patent term.
Under Oregon law, a noncompetition agreement is "voidable," as opposed to void, if the employer fails to give notice two weeks before an employee starts work that the agreement is a condition of employment. In Bernard v. S.B., Inc., the Oregon Court of Appeals last week examined whether a demand letter based on a voidable noncompetition agreement constitutes tortious interference with economic relations.
In Bernard, plaintiff's former employer sent the noncompetition agreement to plaintiff's new employer with a demand that plaintiff stop working. Plaintiff sued the former employer for tortious interference, contending that because the noncompetition agreement was voidable, the former employer acted tortiously when it attempted to invoke the agreement. The Court held that the agreement was in fact valid at the time the employer attempted to enforce it because plaintiff took no steps to void it. Invoking the express terms of a valid contract cannot constitute tortious interference, and as a result the Court concluded that the employer was not liable in tort for sending the demand letter.
An Oregon Supreme Court opinion that received signficant media attention this week has implications for the litigation of trade secret cases in the state. The opinion focused on the Open Courts provision of the Oregon Constitution, and the immediate issue addressed by the Court was whether decades' worth of internal Boy Scout sex abuse files would be made public.
The files had been produced in discovery by the Boy Scouts in a case in which plaintiffs claimed abuse by a scouting volunteer. The files were maintained as confidential during discovery pursuant to a protective order. The files were later admitted into evidence in a Multnomah County trial in which the Boy Scouts were found liable. After the trial, news organizations including The Oregonian, the Associated Press and The New York Times, sought to view the files, citing Article I, Section 10 of the state Constitution, which provides that "No court shall be secret, but justice shall be administered, openly and without purchase, completely and without delay." The trial court judge ordered the files released, but with the names of victims and the people who reported the abuse redacted.
Both the media parties and the Boy Scounts sought mandamus review by the Oregon Supreme Court, with the media parties advocating for an absolute right of the public to view evidence admitted at trial, in particular in this case without redactions.
The Court rejected the media parties' view, confirming that the Open Courts clause does not create an individual right to observe court proceedings, but rather dictates how the institution of the courts operate. The principle of open justice allows the public to attend and view the administration of justice by the courts. Justice Robert Durham, writing for the Court, concluded that limiting post-trial access to evidence admitted at trial is not in violation of that principle.
The Court nonetheless held that the trial court had the power to make public evidence admitted at trial, including evidence that had been produced subject to a protective order. In particular, a court may conclude that granting a request to inspect evidence after the completion of a trial will foster public understanding of the administration of justice. In this case the judge did not abuse his discretion in ordering the files released with names redacted.
The Court's rejection of an absolute right of access to trial evidence means that courts can continue to protect the interests of parties to trade secret litigation. The result is consistent with the position of TechAmerica, which filed an amicus brief in the case. TechAmerica, the leading trade association for the electronics industry, argued that trial courts must be allowed to limit access to trial evidence in appropriate cases in order, for example, to avoid public disclosure of trade secrets in appropriate cases. Ater Wynne attorney Lori Irish Bauman filed the brief on behalf of TechAmerica.
The federal Computer Fraud and Abuse Act ("CFAA") creates a civil remedy against those who access information on a computer without authorization, or in a manner that exceeds authorized access. The Ninth Circuit last week gave a narrow reading to CFAA, limiting its use as a tool to punish disloyal employees.
In LVRC Holdings, LLC v. Brekka, defendant was a former employee of plaintiff who, during his employment, emailed company documents to his personal account. After defendant left his employment with plaintiff, plaintiff discovered that defendant had retained the documents and used them in connection with a competing business. Plaintiff claimed a violation of CFAA along with various state law tort claims.
The Ninth Circuit affirmed the District Court's summary judgment for defendant, and dismissed the CFAA claim. The court held that, because defendant was authorized to access the documents on plaintiff's computer system during his employment, and nothing in company policy prohibited emailing documents to employees' personal accounts, plaintiff could not claim that his access was "without authorization" under CFAA.
While an employer's ability to rely on CFAA is constrained by the result in Brekka, a rogue employee may still be subject to a trade secret claim under state law.
Most states have either adopted the Uniform Trade Secret Act, or enacted statutes that are very similar to the Act, which makes the misappropriation of trade secrets unlawful. Misappropriation can occur by improper use, disclosure, or acquisition of a trade secret. A court recently held that improper use of a trade secret may happen even where the alleged perpetrator does not know the trade secret.
In Cognis Corp. v. ChemCentral Corp., No. 05-C-6344 (N.D.Ill. 2006), a developer of a chemical used as a curing agent for adhesive sued a distributor of chemical products for misappropriation. The defendant distributor had previously distributed products for plaintiff and now distributed a curing agent from a former employee of plaintiff who was alleged to have misappropriated plaintiff's secret formula for its curing agent. In another state, Plaintiff had sued the former employee for misappropriation. Although the distributor did not know the secret formula of the curing agent, it knew that plaintiff had sued the former employee for misappropriation of the secret formula, and the distributor priced the product alleged to have been developed from the secret formula 10% below plaintiff's price to attract plaintiff's customers. The court held that these alleged facts were sufficient to state a claim for misappropriation of trade secrets against the distributor.
The Computer Fraud and Abuse Act prohibits the transmission of a program, information, code or command, which as a result, intentionally causes damage to a protected computer. The Act was designed to address, for example, attacks by virus and worm writers, as well as disgruntled programmers who intentionally damage an employer’s data system. An employer sued its former employee under the Act for deleting data and evidence of improper conduct during employment from a laptop computer furnished by the employer. The former employee argued that no claim could be stated because he merely deleted data on his laptop and did not engage in “transmission” of a program or command, which is an essential element under the Act.
The appellate court rejected the former employee’s argument and allowed the employer’s lawsuit to proceed. Specifically, the court found that “transmission” does not require a program or command to be sent remotely, as opposed to from the drive of the computer where the data or information was deleted. Furthermore, after the employee engaged in misconduct and decided to quit employment, his actions to destroy files on the laptop violated his duty of loyalty which then terminated his agency relationship with his employer and his authority to access the laptop. By accessing a computer without authorization to destroy files, the employee could also be liable for violating another provision of the Act that prohibits unauthorized access that causes damage. International Airport Centers, LLC v. Citrin, (7th Cir. 2006)