Non-compete law varies drastically by state. Some states broadly favor non-competes. Other states virtually ban them. Some states impose highly specific limitations across the board. Others take a more flexible, case-by-case approach. Courts in some states will reform or strike out portions of an overly broad agreement to make it enforceable. Others will refuse to enforce an overly broad agreement at all. And this is just the beginning. Each state has distinct rules governing the reasonable scope of a non-compete, the business interests that may be protected by a non-compete, the consideration required to support a non-compete, and the showing needed to obtain an injunction, among other things.
Bottom line: A non-compete agreement that is enforceable under one state's laws may not be enforceable under another's. Consequently, "choice of law"—the rules that determine which state's laws apply in a dispute—is often a crucial consideration in the non-compete context.
A recent case from the Sixth Circuit Court of Appeals drives this point home. In Stone Surgical, LLC v. Stryker Corp., the medical device company Stryker sued a top sales representative for going to work for a competitor in violation of his non-compete agreement. Stryker is headquartered in Michigan. The sales rep lived in Louisiana and received products, delivered products to doctors and hospitals, and conducted sales meetings in Louisiana.
[This post originally appeared on Patently-O.]
Last week I wrote about the doctrine of “inevitable disclosure” as it relates to the Defend Trade Secrets Act of 2016 (DTSA), the statute that created a general, private cause of action for trade secret misappropriation under federal law. Because inevitable disclosure is of continuing importance and controversy, I wanted to unpack the issues further here. As discussed below, the DTSA leaves room for trade secret plaintiffs to assert inevitable disclosure.
Trade secret plaintiffs frequently face problems of proof. Gathering evidence that a suspected individual or company has actually misappropriated trade secrets, or legitimately threatens to misappropriate trade secrets, can be a substantial hurdle to getting a lawsuit off the ground.
Take a typical scenario where an employee of company A goes to work for company B, and A alleges that the employee is using its trade secrets on behalf of B. In some cases, company A will have evidence that the employee swiped its secrets before leaving, perhaps by emailing himself a customer list or downloading technical specifications onto a flash drive. Company A might even have evidence that company B is now using the secrets, perhaps because it is soliciting A’s customers or has launched a product based on A’s specifications. In many cases, though, the activities of the employee and the new employer are a black box. The employee was exposed to trade secrets at Company A, and is now working for Company B, but Company A has not uncovered evidence of specific disclosures to Company B. Company A may have reason to believe the employee must be disclosing secrets to B, or threatens to do so, but has no way to confirm this directly prior to filing suit and obtaining discovery—a catch-22. Is company A without recourse?
Non-Compete law is complicated and fraught with uncertainty. Employers sometimes exploit this uncertainty to exact compliance. For departing employees and the companies that hire them, the good news is that non-competes are often harder to enforce than it may first appear.
Non-compete agreements are different from other agreements. They are subject to closer judicial scrutiny than most other types of contract. To be sure, some states are tougher on non-competes than others. But even in the most pro-non-compete jurisdictions, a court will refuse to enforce a non-compete if certain exacting criteria are not met. Why is that?
I recently had the opportunity to present a talk titled, "Protecting Your Creative Assets," a guide to intellectual property for creative entrepreneurs. I always enjoy speaking on IP Iaw, and the attendees were a fun group.
The presentation offered a practical overview of trademark, copyright, patent, trade secret, and internet law, along with strategies for securing one's own creative assets while steering clear of costly conflicts with others. As I said in the introduction, nobody wants to be the guy or gal who:
With intellectual property, an ounce of prevention is worth a pound of cure. After a number of attendees asked for a copy of the slides, I thought it might be useful to distribute them more widely. A condensed version of the slides can be found here.
I am excited to announce that I will be speaking at Detroit Startup Week, "a new type of conference that builds momentum and opportunity around entrepreneurship, led by entrepreneurs and hosted in the entrepreneurial spaces you love." The roster of speakers is amazing, and registration is free.
My talk, titled "Getting the Competitive Edge . . . and Keeping It," is Wednesday, May 24, at 10:00 a.m. Here's the description:
I wrote an article in the Michigan Business Law Journal titled, "Choice of Law in Noncompetition Law and Litigation. Because non-compete law differs sharply from one state to the next, choice of law takes on a magnified importance in the non-compete arena.
The article discusses several notable cases and concludes with these lessons for litigators:
When Can a Company That Hires its Competitor’s Former Employee Be Sued in Federal Court?
[This post originally appeared on Patently-O.]
The Defend Trade Secrets Act (DTSA) was enacted a year ago, on May 11, 2016. One of the most sweeping changes in intellectual property law in recent years, the statute creates a private cause of action for trade secret misappropriation under federal law.
For trade secret owners, the advantages of the DTSA include access to nationwide discovery and enhanced remedies such as ex parte seizure of property to prevent propagation of stolen trade secrets. For those accused of trade secret theft, the DTSA provides substantial protections including strict limitations on the injunctive relief available and entitlement to a hearing no later than seven days after a property seizure.
An open question has been the status of the controversial “inevitable disclosure” doctrine under the DTSA. Under state law in some jurisdictions, courts will enjoin a company’s former employee from working for a competitor if the company establishes that the employee would “inevitably” use its trade secrets in his or her new position. Trade secret owners like the doctrine of inevitable disclosure because actual misappropriation can be hard to prove. At the same time, the doctrine has been criticized as effectively allowing courts to impose a non-compete on someone who never signed a non-compete agreement.
Law and the Creative Economy is the blog of lawyer Maxwell Goss. This blog is for informational purposes only.