California Case Highlights Need to Look Before You Leap . . . and File Suit

Late last month, the California Court of Appeal upheld a $180,000 award of sanctions against an employer for bringing a baseless trade secret misappropriation suit. While this case arose in California and involved California law, it involves concepts that have been recognized by Massachusetts judges and shows the possible consequences of the common impulse to file a lawsuit quickly and ask questions later.

In the California case, Cypress Semiconductor Corp. v. Maxim Integrated Products, Inc., Cypress sued its competitor, Maxim, for hiring two of its former employees. Cypress argued that this hiring constituted trade secret misappropriation, for two reasons. First,… More

Former Employer Bounced From Court – Forced to Arbitrate Noncompete Claims

A recent decision from Judge Kaplan in the MA Business Litigation Session highlights some interesting issues that arise when a noncompete case is complicated by the existence of an agreement to arbitrate claims. In Tibco Software, Inc. v. Zephyr Health, Inc. and Kevin Willoe,  Kaplan required a plaintiff seeking to enforce restrictive covenants to arbitrate – rather than litigate in court – claims against both the former employee and his new employer. What makes this case interesting is that the new employer was not a party to the former employee’s employment agreement that contained the arbitration clause at issue.

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MA Senate Passes Noncompete Reform Bill

Here is significant news on the MA noncompete reform front.  Yesterday, as the Massachusetts legislature’s Joint Committee on Economic Development and Emerging Technology was hearing testimony on the pros and cons of non-competition agreements, and the Governor’s Secretary of Housing and Economic Development was signalling a willingness to compromise, the Senate somewhat surprisingly passed a recently introduced compromise bill, by a vote of 31 to 7.  This is a significant departure from the outright ban proposed by the Governor and advocated by various groups.  Here is a summary of the bill.  I will post the bill itself soon.

Applies to employee non-competition agreements, which includes… More

Update on Noncompete Legislation

Here is an update on new developments in the few weeks since Governor Patrick introduced legislation that would largely abolish employment-based noncompetes in Massachusetts (described here).

As summarized by Russ Beck here, the MA legislature’s Joint Committee on Labor and Workforce Development has favorably reported out a previously-filed bill very similar to Gov. Patrick’s legislation banning noncompetes.  Interesting, Governor Patrick’s bill is being considered by a different committee, the Joint Committee on Economic Development and Emerging Technologies, apparently because it is part of a larger bill focused on economic development.  The committee has not yet scheduled a hearing of the Governor’s bill.  With the current… More

Is a Federal Trade Secrets Act on the Horizon?

Late last month, Senators Chris Coons (D-Del.) and Orrin Hatch (R-Utah) filed the Defend Trade Secrets Act, a bill that would create a federal trade secrets cause of action for civil litigants.  Currently, trade secrets litigation is a state law matter, meaning that most trade secrets litigation takes place in state courts, with their different statutes and court procedures.  But if this new Act passed, trade secrets protections would be enforced by a uniform law in the federal court system, which has less variations from district to district than the various state courts do.  Federal courts make obtaining discovery easier across state lines… More

MA Governor Pushes to Abolish Noncompetes

In case you missed the news splash over the past 48 hours, MA Governor Patrick this week announced that he is introducing legislation to abolish employee noncompete agreements except in very limited circumstances.  The proposed legislation would have Massachusetts join California as one of the very few states that generally prohibit these post-employment restrictions.   The proposed law is part of a larger bill — the Growth and Opportunity Act of 2014 — focused on economic growth, particularly within the technology sector.  (A description of the various features of the larger bill is here.)

Although the Internet is abuzz with expressions of shock… More

Rare Massachusetts Superior Court Decision Interpreting the CFAA Takes the Narrow View Without Squarely Addressing the Broad

            Judge Peter M. Lauriat of the Massachusetts Superior Court decided late last year that an employee who takes confidential documents from her employer’s electronic document system to use in a discrimination lawsuit against her employer is not liable to the employer under the Computer Fraud and Abuse Act (CFAA), especially when the employer knew about the lawsuit but nonetheless did not restrict the employee’s access to those documents while she was working for the employer.  In so deciding, Judge Lauriat had to grapple with two different interpretations of the CFAA, which generally makes individuals criminally and civilly liable for… More

If You Have a Trade Secret, You Better Protect It

            Late last month, Judge Cornelius J. Moriarty of the Massachusetts Superior Court granted summary judgment for a defendant company and two individual defendants on a trade secret misappropriation claim because the plaintiff company did nothing to protect what it claimed were trade secrets.  One element of a trade secret claim is that the plaintiff must demonstrate that it took sufficient actions to protect its trade secret from unauthorized disclosure.  Among the factors the court considers is (1) whether the plaintiff had agreements with employees and others restricting disclosure, and (2) any security precautions to prevent unauthorized access to the… More

CFAA and Noncompete News

            Over the past two months, several interesting items of Computer Fraud and Abuse Act (CFAA) and noncompete news have crossed my desk.  Below are summaries of the two most important items:

            1. Encryption Can Be a CFAA Violation: In early December, Judge Denise J. Casper of the U.S. District Court in Massachusetts ordered a former employee of a company to, among other things, disclose the password that he put on an important file on the company’s server because the company was likely to prevail on its CFAA claim against the employee under the “preliminary injunction” standard.  In the case, just before the… More

Massachusetts Federal Court Refuses to Dismiss CFAA Claim But Permits the Defendants to Ask Again Later

            Echoing a new theme in the federal district court in Massachusetts, last month Chief Magistrate Judge Leo T. Sorokin refused to dismiss a Computer Fraud and Abuse Act (“CFAA”) claim brought against the former CEO of a company, but did so without prejudice, meaning that the defendants could ask the Court to dismiss the claim again later in the case.  Under the CFAA, “[a] defendant is liable where he or she ‘knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of… More