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Courage or Folly? Superior Court Awards Significant Attorney’s Fees Against a Defeated Trade Secret Plaintiff

By Charles Post on Posted in Protecting Trade Secrets and Other Business Information

It is sometimes difficult to distinguish arrogance or hubris from their close cousin, courage and perseverance. When a Court looks back over a plaintiff’s unsuccessful prosecution of a trade secret case for purposes of determining an award of attorney’s fees, that postmortem evaluation of the plaintiff’s case can make for some disturbing reading.

Recently, in Aerotek v. The Johnson Group Staffing Co., the Sacramento Superior Court awarded a successful defendant in a trade secret misappropriation and unfair competition case more than $730,000 in attorney’s fees. In doing so, the Court increased the fees incurred by Defendant by 33%. While that is notable by itself, just as notable is the Court’s analysis that resulted in the award.

In cases brought under the California Uniform Trade Secret Act (“CUTSA”) a Court may award reasonable attorney’s fees and costs to a prevailing defendant “if a claim of misappropriation [of trade secrets] is made in bad faith.” (Cal. Civil Code Section 3426.4) In deciding that the bad faith standard had been met, the trial court examined the plaintiff’s motivations as evidenced by the procedural history of the case, the conduct of plaintiff’s counsel, and the settlement discussions between the parties. The decision (which is very recent and may still be appealed) provides a useful insight into how a party’s litigation tactics may be viewed by a court at the termination of a case.

Aerotek is a staffing agency that recruits and places employees and contract workers with businesses. Michael Ponce (“Ponce”) was an Aerotek employee who served as both a recruiter and a sales person. In the course of his employment, Ponce signed a noncompete agreement where he agreed that he would not divulge Aerotek’s trade secrets which were defined to include Aerotek’s customer list (a section of the Business and Professions Code defines customers of such staffing agencies as trade secrets) and to not solicit any of those customers following the termination of his employment at Aerotek. Chris Johnson was also a former Aerotek employee but had left sometime before the lawsuit was filed to start his own personnel recruiting and placement company, The Johnson Group (“TJG”). Ponce left the employ of Aerotek and eventually went to work for TJG as a recruiter and sales person charged with generating new employer accounts.

Aerotek sued both Ponce and TJG. The case was tried twice. The first jury found misappropriation of Aerotek’s trade secrets but determined that defendants had not caused plaintiff to suffer any damages. It also found that Ponce had breached his contract with Aerotek. All parties filed new trial motions. At the second trial, the jury found no misappropriation of any Aerotek trade secrets. The defendants moved the Court for an award of attorney’s fees under CUTSA.

The “bad faith standard” imposed by CUTSA to award attorney’s fees is a high one. In deciding the motion, the Court relied on a 2009 court of appeals case, FLIR Systems, Inc. v. Parish, 174 Cal.App.4th 1270, 1275-1278 to understand and apply that standard. Citing FLIR, the trial court held that bad faith requires not only that the claim be “objectively specious” but also that the plaintiff brought or maintained the claim in subjective bad faith — that is with an improper motive.

In deciding that the plaintiff’s misappropriation claim was brought in bad faith, the Court noted, among other things, the following:

(1) Aerotek’s failure to seek injunctive relief at the outset of the litigation. In what may usefully serve as a lesson to plaintiffs in trade secret cases, the Court concluded, “if the trade secrets had any significant value, or if [Aerotek] believed such were in imminent danger of loss, Aerotek should have sought immediate protection.”

(2) Lack of customer loss. The Court found it notable that neither Aerotek management nor its counsel sought out the customers in question to inquire as to the exact nature of the contact by defendant Ponce by conducting official interviews, obtaining affidavits, or taking depositions.

(3) Aerotek’s settlement conduct. The Court characterized Aerotek’s settlement conduct as unreasonable. “As Aerotek’s case got weaker, either due to the failure to find favorable evidence or the appearance of adverse evidence, including losing against TJG at the first trial, its settlement demands got larger not smaller.” The Court also found notable Aerotek’s demand to include a “hands off” list as a part of settlement which listed customers that Aerotek had either never done business with or had done business with only distantly, or were TJG’s existing customers.

(4) Maintaining the lawsuit well after Aerotek knew or should have known that the customers it was attempting to exclude from defendants had little or no business of any economic consequence to either Aerotek or TJG – meaning that its damages, assuming it could prove liability, would be insignificant.

(5) The Court concluded that both the merits of the case and the settlement history evidenced that Aerotek had an anti-competitive motive in filing the lawsuit. This conclusion was, in the Court’s view, supported by the lack of the objective merits to the case and Aerotek’s settlement demands. In determining that Aerotek had acted in subjective bad faith, the Court looked at the amount of attorney’s fees incurred in the case, the relative simplicity of the case when considered in light of the litigation history of the case which included “vast numbers of motions brought both in law and motion and in the trial court” largely for “nonsubstantive issues.” The Court concluded that that litigation history “in the absence of the kind of meaningful discovery or other helpful fact gathering, speaks further to a pattern of conducting expensive proceedings for their own sake, without a commensurate effort to pursue productive preparation of the case.”

The Court then applied a lodestar analysis, taking the base amount of attorney’s fees claimed by defendants of more than $553,000 and determined whether or not a multiplier was appropriately applied to that number. The Court applied the multifactor test common to a lodestar analysis which includes, among other things, the novelty and difficulty of the questions involved; the skill displayed in presenting them; the extent to which the nature of the litigation precluded other employment by the attorney; and any risk, contingency or delay in payment of attorney’s fees. These factors weighed against plaintiff. The Court also noted that the fact that one law firm had agreed to take the case on a contingency basis when its client had run out of money was a notable factor in justifying its decision to award a 33% increase in defendants’ attorney’s fees.

It appears that Aerotek has appealed the underlying judgment.

Uncertain Future: Are Agreements Not to Solicit Employees Still Enforceable?

By Alden J. Parker on Posted in Covenants Not to Compete in Other Jurisdictions, Hiring a Competitor’s Employees

California courts have long held that agreements that prohibit a former employee from hiring a former co-worker are void.  These decisions are based on California’s fundamental public policy (which is codified in Business & Professions Code section 16600) protecting workers’ rights to pursue any lawful trade or profession.  With only a few narrow exceptions, California law prohibits such limitations on employment opportunities.  Simply put, when two
parties agree that they will not hire a particular group of workers, they limit the opportunities of those workers in an impermissible way.

In 1985 however, a California Court of Appeal drew a distinction between agreeing not hire someone and agreeing not to solicit that same worker. In Loral v. Moyes the Court upheld an agreement by a departing employee not to recruit or solicit his former coworkers.  The Court upheld the agreement because, among other things, it restricted only the contracting party’s conduct and did not limit the prospects or employment opportunities of the former co-workers.  While the former employee could not solicit any of his former co-workers to come to work for him or her, any of them were free to seek out the former employee for employment.  The Loral decision has been criticized for improperly drawing a distinction where none was needed.

Flawed or not, the Loral court’s reasoning led to the widespread use of employee non solicitation agreements in California. In 2009, however, in Edwards v. Arthur Andersen, the California Supreme Court unsettled the Loral case when it held — without overruling Loral — that customer non-solicitation agreements violate Business and Professions Code section 16600. The Edwards decision has led many to forecast the demise of Loral, but so far at least, the rule expressed in Loral remains the law.   Where future courts will go on this question remains uncertain.

Loral concerns the enforceability of agreements between an employer and its employees, but what about agreements between competitors that they will not solicit one another’s employees? Recent class action lawsuits alleging that Apple, Inc. and Google, Inc. (among others) violated the law by agreeing not to recruit one another’s employees may answer that question. These lawsuits were filed shortly after the U.S. Department of Justice settled a claim with Google and Apple that agreements not to cold call one another’s workers violated federal anti-trust law.  That settlement does not admit wrongdoing, but does commit the companies to not enter into such agreements in the future.  The civil complaints (which have yet to be certified as class actions) have been consolidated before in the U.S. District Court in San Jose.

Stay tuned.

 

 

Is An Online Rolodex a Trade Secret?

By Scott Plamondon on Posted in Protecting Trade Secrets and Other Business Information

Probably not.  The case law of many states is littered with what are sometimes referred to as “rolodex” cases.  These cases typically involve a departing employee who takes a rolodex (or other collection of customer or vendor information) that was created while on the former employer’s payroll.  The former employer claims the rolodex is company property.  Customer lists or compilations of customer information (such as rolodexes) have long been recognized as potential trade secrets.  But what happens to those same contacts if they are listed on an individual employee’s LinkedIn or similar website?  Can a recruited employee (who would not be permitted to take their rolodex) rightly consider contacts listed on their LinkedIn page to be theirs rather than their employer’s?  This scenario has been the source of litigation.  (See, for example, TEK Systems, Inc. v. Hammernick, CV00819, filed March 2010, which has since settled.) 

The argument is fairly simple.  Is anything listed on a LinkedIn or similar social media website secret or is it now part of the public domain?  Many companies have responded to this possibility by seeking to prevent employee’s use of LinkedIn or restricting the identification of company customers on the website.  Many commentators fear that such restrictive policies may result in babies going out with the bath water.  Effective sales professionals need to network and barring them from use of evolving social media may hamstring those professionals in doing what they were hired to do – making and establishing a network of contacts that are willing to do business with them.

In Sausko Group, Inc. v. Courtney (WL *3613855), a federal judge in New York found a defendant could not be sued for taking client lists because the information could be collected in just a few minutes on Facebook or LinkedIn.  Information that is readily obtainable through an internet search is, by definition, not secret.  Given the existence of the large volume of customer identity and contact information that is now available on the internet, the idea that lists of customer identity and contact information are trade secret may be obsolete.  Of course, a particular determination that specific customer information constitutes a trade secret will depend on the circumstances.  Where social media messaging systems have been used as part of company policy or where information is linked to more than customer identity and contact information, the claim that the information constitutes a trade secret may be stronger.

LAWSUIT ALERT: Groupon Sues Departing Employees for Taking Trade Secrets

By James Kachmar on Posted in Protecting Trade Secrets and Other Business Information

On October 21 2011, Groupon, Inc. sued two former sales managers who left their employment with Groupon to join a competing venture, Google Offers, which was allegedly started by Google after its unsuccessful attempt to buy Groupon. The lawsuit, which was filed in Chicago, Illinois, accuses the two former employees of breaching their employment agreements and alleges that the former employees took and will be called on to divulge Groupon’s trade secrets and confidential business information in the course of their new employment with Google. The lawsuit also alleges that the two former employees breached a non-compete provision in their employment agreements by going to work for a direct competitor within 24 months of the termination of their employment with Groupon. 

One of the former employees is alleged to have emailed Groupon customer and business information to a personal email account on the day he resigned. The lawsuit requests the Court to enjoin the defendants from, among other things, using this information in their new employment.  Further details about this lawsuit can be found at here.

One thing to remember is that the applicable state law is key in a lawsuit such as this one.  Under Illinois law, a court can enforce a restrictive non-compete agreement if its terms are reasonable to protect a legitimate business interest of the employer.  This is not the case in California.  Under California law, a non-compete provision is almost always unenforceable in an employment agreement. Had this lawsuit been filed in California, it is almost certain that the court would dismiss the breach of contract claims arising out of the employment agreement’s non-compete provisions.   (See “Often But Not Always Void” in this blog.)

Also, neither Google nor Google Offers are named as defendants in this lawsuit (yet).  There may be several strategic reasons for this.  First, any injunction issued by a court against the two former Groupon employees will likely contain language enjoining not only them, but “any person acting in concert with them.”  This could bind Google (or at least restrict its ability to employ the two former Groupon employees) without Groupon having to litigate directly against Google.  Second, Groupon could be using the case against its two former employees to conduct discovery to determine whether Google has any potential liability before suing Google.

This lawsuit highlights the pitfalls that can arise when hiring employees from a direct competitor.

A House Afire: Preliminary Injunctions and Requests for Expedited Discovery in Employee Defection Cases

By Charles Post on Posted in Injunctions

It is common in employee defection and trade secret cases for the plaintiff company to rush into court screaming that a robbery is underway that must be halted by the court.  The plaintiff cries that, absent the immediate intervention of the court, it will be stripped of any effective ability to compete and may be destroyed or pushed to the very brink of destruction.  Courts often respond to such cries.  When a business claims that the entirety or a significant portion of a critical business unit has been “stolen” along with critical business information and know how, courts will often take the claims seriously.  While it is a truism that “preliminary injunctions are rarely granted,” the truth in that statement more likely lies in grants of preliminary injunction as a percentage of all civil cases filed, rather than as a percentage of preliminary injunctions granted from the population of such applications that are filed.  My sense is that most well prepared preliminary injunctions in these cases are granted.  When properly supported by declarations from computer experts, business managers, and others who can demonstrate that: (1) that the defendant’s conduct is improper; and (2) that the plaintiff company business operations will be seriously disrupted, courts are often inclined to grant the motions, at least as to a temporary restraining order.

In cases where there has been an exportation of employer information or where a large number of employees have departed one employer to join another, a temporary restraining order or preliminary injunction may not be particularly difficult to obtain.  While such applications require great energy by the moving party to prepare a compelling application, the application for such injunctive relief is sometimes the defendant’s first notice that a lawsuit has been filed, and can come as something as a surprise attack.  Defendants are almost always at an immediate disadvantage.  Within a very short time, responding counsel must promptly identify potential conflicts, organize a defense, effectively investigate the facts, and organize and articulate a response to the plaintiff’s application.

 These applications are often accompanied by a request to the court for expedited discovery.  When granted, these applications, plus the short response deadlines to respond to a preliminary injunction application, can keep the defendants on the defense and may slow, and on occasion even prevent, a defendant from timely articulating counter claims or developing a sufficient factual understanding to aggressively defend the complaint.  If it is true that “speed is the essence of attack” then it is certainly true that speed often assists an applicant for a preliminary injunction in these cases.  Nor is speed wholly tactical.  Delay can often work against a preliminary injunction application.  If weeks or months pass from the alleged misconduct, a court is less inclined to find that there is immediate irreparable injury that must be enjoined.

Often But Not Always Void: Covenants Not to Compete in California

By Charles Post on Posted in Covenants Not to Compete in California

California’s prohibition on covenants not to compete is well established.  The statute that reflects this public policy, Business and Professions Code §16600 generally permits such covenants only in narrowly prescribed circumstances.  Those exceptions are all identified by statute at Business and Professions Code §§16601, 16602 and 16602.5.  These exceptions permit covenants not to compete when the owners of a corporation, partnership or LLC  agree to such restrictive covenants upon the occurrence of certain events.  Except for such ownership related transactions, California law makes covenants not to compete unenforceable.  

Except in the narrow circumstance where an employee is utilizing confidential or trade secret information to solicit a former employer’s customers, covenants not to solicit customers generally fall under the same prohibition; they are void.  Sometimes referred to as the “trade secret” exception, I don’t view it as an exception to the rule at all.  California law imposes an independent obligation on current and former employees (or for that matter anybody) not to use their employer’s, former employer’s or anybody else’s trade secret information in a way that violates the provisions of the California Uniform Trade Secrets Act.  

But there is a set of circumstances that can arise that will allow a California court to enforce otherwise impermissible covenants not to compete. This “exception” arises as a result of differing law between the states and the federal overlay of constitutional principles that require each state to respect the judgments and law of sister states.  There are circumstances where a California court may find itself helpless to enforce California’s prohibition against covenants not to compete.  This situation can arise when an employer executes agreements with its workers containing choice of law and forum selection provisions requiring any dispute under the employment agreement (and the determination of the enforceability of a covenant not to compete against a California resident) be decided under the law and in the courts of another jurisdiction.  

A chain of state and federal cases shows the struggle over this issue.  In Advanced Bionics v. Medtronics (2002) 29 Cal.4th 297, the California Supreme Court reversed lower courts, which had enjoined a court proceeding in another state, on the grounds that that state’s law was offensive to California’s fundamental public policy prohibiting covenants not to compete.  Several federal courts are in accord.  Google v. MicroSoft and Swanson v. T Mobile USA, both demonstrate the willingness of federal courts to find that choice of law and choice of forum provisions do not offend a fundamental California public policy.  

In Swanson v. T Mobile, a former employer sought to enjoin competing conduct by a former employee by injunction issued by a Washington State Court.  The former employee sought an injunction in California (where he was resident) based on the invalidity of the covenant.  The former employer removed to federal court and the federal court found that the forum selection provisions were enforceable and inoffensive to California public policy.  Although the Court noted that the former employee could urge the Washington Court to apply California law, there was no basis to enjoin the proceeding in the Washington Court.  At least as to employers with the reach and the resources to litigate in forums outside of California, the choice of law/forum “exception” can, at least practically speaking, swallow the no enforcement of covenants not to compete rule. 

Recently, the California legislative fixes to this “exception” have been proposed.  AB 267 (Swanson) would have made void an unenforceable as against public policy, any provision in an employment contract that requires an employee, as a condition of obtaining or continuing employment, to use a forum other than California, or to agree to a choice of law other than California law to resolve any dispute with an employer regarding employment related issues that arise in California.  While proposed, it appears that bill remains in committee in the California Legislature. 

Provisions of this kind continue to be a significant source of litigation.  Recently the brewers of Sam Adams beer sued a former employee and his new employer.  Both the former employee and the new employer (the Brewers of Anchor Steam Beer) are residents and operate in California.  The lawsuit was filed in Massachusetts and is based on an agreement containing a covenant not to compete and provisions that require that Massachusetts law be applied and that any litigation concerning it take place in Massachusetts.

California Employers: When Should I Think About Protecting My Business Trade Secrets?

By Charles Post and James Kachmar on Posted in Protecting Trade Secrets and Other Business Information

Now. 

Trade secrets (especially those relating to customers, pricing, costs and employees) can be a little like love taken for granted:  You don’t notice it until its gone. 

California law often protects such information (sometimes called “soft” trade secrets to distinguish them from product formulas and other “hard” trade secrets) from misuse by former employees or competitors.  But those protections can be forfeited by an employer’s neglect. 

What to Do Before Your Employees Give Notice. 

•  Make clear to your employees what information belongs to the company and specifically, what information you consider to be confidential, proprietary or trade secret. California law protects employers who designate and take reasonable steps to secure their business information as trade secret, confidential and/or proprietary. 

•  Establish a system of reasonable practices to protect this information. Those practices can include proprietary information agreements and other policies that make clear to employees that customer information, customer preferences and indeed the customer relationship itself is the property of the employer. These policies must be carefully drafted so as to not run afoul of California laws protecting employees. You should also take additional security steps such as computer passwords and limiting access, labeling restricted access, utilizing locked file cabinets, etc.

                                                                                                                            

 Portions of this article first appeared in the January/February 2009 issue of Sacramento Lawyer, the bimonthly publication of the Sacramento County Bar Association. Weintraub Genshlea Chediak thanks Sacramento Lawyer for the right to publish the article, in its entirety, on our website. The article is the copyrighted property of the Sacramento County Bar Association.

California: 5 Things to Know Before You Hire or Recruit Your Competitor’s Employees

By Charles Post and James Kachmar on Posted in Employee Raids, Hiring a Competitor’s Employees, Protecting Trade Secrets and Other Business Information

You Hire A Top Performing Employee From Your Competitor And Then She Brings Along “Her Team.”

You’ve been working for months to recruit a competitor’s star employee. She arrives at your office telling you that she resisted counteroffers and is now on board.

Almost immediately, her cell phone begins to ring. Subordinates and co-workers from her former employer (your competitor) want to know if there is a place for them at your company. She explains that she can do the most for your company if she’s got her “team.”

You start making deals.

You make hurried estimates as to the cash flow that might be realized from this sudden acquisition of 20 skilled employees with established customer relationships. You do not consider the effect this exodus will have on your competitor, nor whether it would have been better if the new employees had given advanced notice.

 The new employees bring files and equipment and get their offices set up – everyone seems to be operating as a team.

Then you receive a cease and desist letter from your competitor’s lawyer. The lawyer notifies you that your competitor will be appearing in court Monday morning to seek an injunction against your alleged unfair business practices and to enjoin any further hiring of his/her employees or solicitation of customers.

You call your lawyer.

B. 5 Things to Know and Do When Hiring Your Competitor’s Employees.

1. Beware of “team.” When a manager, officer or employee of another company speaks on behalf of other employees of that company, i.e., “my team,” “my group,” “my office,” he/she may be breaching a fiduciary or other duty to their current employer. An officer breaches a fiduciary duty to his current employer if he solicits his current employer’s employees to go to work for a competitor. In most cases, these duties end when the employment ends. Barring the most unusual circumstances, an employee does not breach any duty to his employer in discussing his or her own future plans for employment.

2. Determine whether employees-to-be are “at-will” or have a contract with their existing employer. Make sure you understand any limitations on the employee’s ability to work for a competitor. Enforceable restrictions can include a contract for a specified term. A company that interferes with another company’s employment contracts with its employees can be exposed to civil liability. Sellers of “good will” or an equity interest in a company may also be prohibited from working for competitors. California courts will also act to prevent a former employee from utilizing a former employer’s trade secrets to the disadvantage of the former employer.

3. Make employment offers in writing. The offer should include a statement that the employee bring nothing with them from any former employer and that everything they need to perform their job will be provided by the new employer. Require the employee to represent and warrant that he or she is free to accept the employment with your company and that he/she has not taken anything from his/her former employer.

4. Employees who wish to “follow.” Recruit for open positions from multiple sources. Avoid “targeting” only employees of a competitor. Advertise positions, get applications and resumes, interview and conduct salary negotiations directly with individual applicants. Document all of these steps.

5. Announce the news. California law permits former employees of a company to announce that they are no longer with their former company and are with a new place of business. In some circumstances, however, an employee may be prohibited from soliciting customers of his former employer.  Announcements of employee acquisitions should bear this legal distinction in mind and should be reviewed by legal counsel prior to making such arrangements.

                                                                                                                            

 Portions of this article first appeared in the January/February 2009 issue of Sacramento Lawyer, the bimonthly publication of the Sacramento County Bar Association. Weintraub Genshlea Chediak thanks Sacramento Lawyer for the right to publish the article, in its entirety, on our website. The article is the copyrighted property of the Sacramento County Bar Association.

California: 5 Things to Know When a Competitor Hires Your Employees

By Charles Post and James Kachmar on Posted in Employee Raids, Protecting Trade Secrets and Other Business Information

You Lose A Key Employee; And Then Another And Another …   

One of the company’s highest paid employees has decided to look for greener pastures or even start her own company. She is an “at will” employee without a specific written agreement for a set term. She knows your customers and how to handle and manage operations.

She offers to stay for a couple of weeks to help with the transition. You thank her, but make Friday her last day. You leave work slightly depressed, but no one is indispensable.

The next morning, she packs her personal belongings and returns the company laptop, cell phone and keys. You hand the employee her final paychecks and accompany her on a bittersweet farewell.

Then, things change for the worse. Your key employee’s second-in-command resigns, effective that afternoon. Three profitable sales people and their support staff submit resignations, effective that day. You check your email and discover six more employees have also resigned, effective immediately. Over the next four days, ten more employees give notice.

You call your lawyer.

A. 5 Things to Do When Your Competitor Hires Your Employees.

1. Move Fast. Unless a contract states otherwise, employers are not required to let a departing employee work out a notice period. When an employee has announced an intention to compete, there may be little advantage to having them stay for the duration of the notice period. Use caution to insure you are not “financing” the employee’s transition to a competitor.

2. Conduct an Exit Interview. If you have reason to believe the employee will compete, an exit interview may be even more important than usual.

  • Remind the employee of post-employment obligations concerning confidential or trade secret information. Provide copies of any signed non-solicitation or confidentiality agreements. In the case of former owners or those falling within Business & Professions Code section 16601 (Sale of Good Will), discuss and confirm in writing the details of any non-compete obligations.
  • Inventory all returned company information and property, including copies of any original documents.
  • Advise the departing employee not to download, copy, transfer, forward, or manipulate company information or data on any computer or other electronic device. Document an averment to that effect.
  • Determine a mechanism for the deletion of “duplicate” confidential information on home computers, laptops, cell phones and PDAs.
  • As for a description of the employee’s new position, job duties, nature of business, and address and phone number of the new employer. Be polite, the departing employee may not be obligated to give you this information.

3. Investigate. If a high value employee who poses a significant threat to the operation of the company leaves, conduct an investigation to determine what information the employee may have taken or copied prior to departing. Conduct the investigation within the confines of the company’s policies and procedures. Most companies have polices that make clear that an employee does not have a right to privacy in any company information, including emails, computer files, computer usage, histories, voice mails and the like.

Consider immediately limiting or terminating the departing employee’s access to company offices and information networks and equipment.

Absent a valid contractual provision preventing it, employees have a right to work for the competition. While it is fair and appropriate for the company to protect its business’ confidential and proprietary information, it should not unnecessarily offend a departing employee.

 4. Be Careful What You Say, But Say a Lot. Be sure your customers know that service will not decline as a result of the employee’s departure. Waiting to contact customers may compound the effect of a departure. Don’t bad mouth the departing employee but immediately notify customers that the employee no longer has authority to act on behalf of your company. If you hear from customers or prospects about an employee violating an employment obligation, take action quickly.

5. Prompt Legal Action. If you determine that a former employee has acted wrongfully you have several options, including:

  • Send a Cease and Desist Demand Letter
  • File a Lawsuit
  • Seek a Temporary Restraining Order/Preliminary Injunction

A single employee taking customer lists or other information related to his former employer’s business is a common cause for litigation. California law protects the rights of employees to sell their services in a free marketplace, and protects employers against unfair competition and the misuse of proprietary, confidential or trade secret information by competitors or former employees. While California law makes clear that employees can lawfully “prepare to compete” against their current employer, it is less clear when those lawful preparations cross over into a breach of the employee’s duty to his/her current employer.

Claims against a former employee (and possibly their new employer) for misappropriation of trade secrets must be brought within three years of the date a plaintiff has reason to suspect the factual basis of a claim of misappropriation of trade secrets.

                                                                                                                            

 Portions of this article first appeared in the January/February 2009 issue of Sacramento Lawyer, the bimonthly publication of the Sacramento County Bar Association. Weintraub Genshlea Chediak thanks Sacramento Lawyer for the right to publish the article, in its entirety, on our website. The article is the copyrighted property of the Sacramento County Bar Association.

VERDICT ALERT: DuPont Awarded Nearly $1 Billion in Trade Secret Misappropriation Case

By James Kachmar on Posted in Protecting Trade Secrets and Other Business Information

 In September 2011, a federal jury in Virginia awarded DuPont $919.9 Million in a trade secret misappropriation case.  DuPont brought the case against Kolon Industries, a South Korean competitor, claiming that Kolon misappropriated 149 of its trade secrets relating to its aramid fiber technology, which is used in products such as Kevlar body armor.  The case arose when a former employee of DuPont began working with Kolon to develop a competing aramid fiber technology.  The jury will now be asked to consider awarding DuPont punitive damages against Kolon as a result of the misappropriation.  Further details about this case can be found at here.