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1 Under the Gun: A Primer on Preliminary Injunctive Relief in Non-Compete and Trade Secret Cases Thursday, November 29, 2012 Presented By the IADC Business Litigation Committee Welcome! The Webinar will begin promptly at 12:00 pm CST. Please read and follow the below instructions: 1. If you have not already done so, please join the conference call. 2. Mute your phone line. If you do not have a mute button or are on a cell phone, press *1 to mute your phone. 3. If you are on a conference phone, please move all cellular or wireless devices away from the conference phone to avoid audio interference. 4. If you have questions during the presentation, you may utilize the Q&A function at the top of your screen. You may type questions here and it will be sent to the presenter for response. If your question is not answered during the presentation, our presenter will answer questions at the end of the webinar. 5. Visit the Handouts section in the upper-right-hand corner of the screen if you would like to download a copy of this PowerPoint presentation.

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4 Presenters Marion Walker Of Counsel Fisher & Phillips LLP Birmingham, AL Christopher Major Meister, Seelig & Fein LLP New York, NY

5 Introduction Overview of Non-compete and trade secret law Initial client contact Assessment of costs and client approval Document preservation Experts? Cease and desist letter Analysis of TRO / preliminary injunction Bond Pleadings Hearing considerations

6 Non-Compete Covenants Asset Purchase Agreement Asset Purchase Agreement (part and parcel of the sale of the business) The buyer pays to be free of competition from the seller for a specific period of time. The purchase price is consideration for the covenant Employment Agreements Restricts departing employee from working in the same field of endeavor and geographical area Will be scrutinized by courts to ensure they protect legitimate interests and are reasonable in scope

7 Non-Competes As Restraints On Trade Many states have statutes prohibiting the restraint of trade. For example, Section 8-1-1, Alabama Code (1975); Section Florida Statutes (1996); Ariz. Code These statutes may be used as a defense to the alleged breach of contract where a contractual restraint of trade is void, unless it falls within an exception. A statutory defense is that the buyer or former employer is no longer in the business. This is a fact intensive inquiry that will likely avoid preliminary relief, except in compelling circumstances.

8 Trade Secret Law All but a few states have enacted the Uniform Trade Secrets Act ( UTSA ), with variations. Those that have not adopted the UTSA, enforce trade secret protections with the common law.

9 Uniform Trade Secrets Act In general terms, UTSA accomplishes the following: 1. Defines what constitutes a trade secret; 2. Provides for injunctive relief in the case of misappropriation; 3. Provides for punitive damages in the event of malicious misappropriation; 4. Attorneys fees; 5. Protection of Trade Secrets by the Court.

10 Excerpts from Connecticut s UTSA Conn. Gen. Stat , et seq. Trade secret means information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

11 Excerpts from Connecticut s UTSA Misappropriation means: (1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (i) derived from or through a person who had utilized improper means to acquire it; (ii) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use... ; or (iii) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

12 Excerpts from Connecticut s UTSA Sec Injunctive relief. (a) Actual or threatened misappropriation may be enjoined upon application to any court of competent jurisdiction. An injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation. (b) If the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited.

13 Trade Secrets - Inevitable Disclosure (in some states) No matter how good an employee s intentions, it is impossible for an employee to compartmentalize the knowledge or experience gained from prior employment. Thus, he or she will inevitably disclose that information if he or she performs similar work for a competitor.

14 Components of The Action Plan Initial Client Contacts Assessment of Costs Document Preservation Fact Gathering Consideration of Experts Consider viability of TRO Cease and desist letter Bond considerations Pleadings Hearing

15 Initial Client Contacts Key to understanding the scope of the problem Identify the business goals the client seeks to achieve Identify key players Identify location of documents and other physical evidence Evaluate timing Evaluate commitment and resolve of client Evaluate staffing needs

16 Assessment of Costs and Client Approval Critical to estimate the likely costs Legal Fees Expert Fees Travel, data collection, and other vendor charges These matters are particularly fluid Bond Ongoing discussion with the client The prospects, work load, and the client s resolve are all subject to evolve as the matter progresses, and it can all happen in a matter of days. Client time opportunity costs Fact development Data collection Witness time (affiants and live witnesses) Signed Engagement letter

17 Document Preservation Your client s documents Ensure that your client is taking adequate steps to preserve documents Suspend ordinary course purging of servers, etc. Issue a detailed written litigation hold memorandum Ensure that the directive reaches the correct employees within the client The adversary s documents Deliver a litigation hold demand letter to the adversary Be Specific Time stamps the claim Foundation for a spoliation claim At a minimum, it requires a generic description of the claim

18 Fact Gathering Hub & Spoke Method Identify fact witnesses and client contact(s) Public domain Document collection Manual document collection Electronically Stored Information ESI ESI searches and code words Consider a consultant

19 Fact Gathering - Confidential Information The plaintiff must evaluate whether the plaintiff s information is truly confidential. It is not enough these days to check the plaintiff s protocols for protecting confidential information and analyze the manner in which the information/formula/code/etc. was developed. Rather, the plaintiff must also check public sources, like the internet, to ensure that the allegedly confidential information is unique and secret.

20 Fact Gathering - Document Review Immediate 1. Personnel file 2. Payroll information 3. Computer hard drive 4. All of employee s relatively on the server 5. PDA, IM and other e-device data 6. Look at social media sites to see if there are any postings 7. Inventory employee s desk contents ESI Be realistic in light of the timing Key word searches

21 Cease and Desist Letter Valuable even where it is unlikely that the defendant will back down Allows the plaintiff to go on record asserting its IP rights without a public broadcast Draws out potential defenses if a response is served Include demands for confidentiality and document preservation Sometimes leads to limited agreements on the placement of the former employee and/or stipulated restrictions on client contact

22 Expert Consultant / Witness More applicable in trade secret cases The expert consultant can assist on everything from identifying and describing the trade secret, to analyzing the evidence of misappropriation or threatened misappropriation By engaging the expert early, you can mitigate against taking positions at the TRO stage that will contradict positions later taken by the expert It may also be necessary to consult with the client s patent expert/counsel

23 Consider viability of TRO Federal Rules of Civil Procedure, Rule 65 (b) Temporary Restraining Order (1) Issued without notice. The court may issue a temporary restraining order without written or oral notice to the adverse party or its attorney only if: (A) specific facts in an affidavit or a verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant s attorney certifies in writing any efforts made to give notice and the reason why it should not be required.

24 Consider viability of TRO Immediacy of the threat can you still stop the disclosure? Is there an agreement in place, such as a non-compete, NDA, or employment agreement, which explicitly states that equitable relief is an available remedy? Can you prove irreparable harm? Are damages calculable? Does your state give you a presumption? Will the TRO you can reasonably expect be better than a settlement or damages claim? How damaging will it be if the motion fails?

25 Expedited Trial Considerations Cost Potential stand still in the interim Allows for permanent injunction trial Efficient, and allows time to develop facts Requires willing judge and adversary.

26 Bond Considerations Most jurisdictions require the party obtaining the injunction to post a bond to secure the enjoined party for damages it will suffer from the injunction. Stopping business operations can result in immediate loss of profit or market share. The bond amount will be evaluated with these considerations. Be prepared to procure and file the bond at the time of filing or within a very short time of securing a TRO. Expect the TRO / Preliminary Injunction to be conditioned on the filing of the bond. How does one obtain a bond?

27 Pleadings The affidavit is the key document. A successful TRO application will contain the facts setting forth the obligation and threatened breach Consider filing under seal Consider motion for expedited discovery The plaintiff must be prepared to disclose with particularity the confidential or trade secret information alleged to have been misappropriated. Craft a proposed order that accomplishes your client s achievable business goals

28 Hearing Considerations Limited/no discovery Direct case should track the affidavit prove the ownership of confidential information or trade secret information. prove that the information is valuable and not generally known. prove that the ex-employee or business partner was given access to the information in a manner that reasonably protected the information. prove that the company generally uses reasonable measures to protect its IP. The cross-examination is more free-wheeling than a typical trial (use the internet to close the knowledge gap)

29 Questions for Presenters? Marion Walker Of Counsel Fisher & Phillips LLP Birmingham, AL Christopher Major Meister, Seelig & Fein LLP New York, NY

30 Under the Gun: A Primer on Preliminary Injunctive Relief in Non-Compete and Trade Secret Cases Thursday, November 29, 2012 Thank you for Participating! To access the PowerPoint presentation from this or any other IADC Webinar, visit our website under the Members Only page (you must be signed in) and click on Past Webinar Materials, or contact Melisa Maisel at mmaisel@iadclaw.org.

Gottschlich & Portune, LLP

Defense of Trade Secrets Act of 2016 Martin A. Foos June 9, 2017 Gottschlich & Portune, LLP 1 Defense of Trade Secrets Act of 2016 Effective May 11, 2016 Previous attempts to pass the Act in 2013, 2014,