Trade Secrets & Employee Mobility

A former Technical Director for a painting and coating company who pled guilty to downloading trade secrets from a secure computer system and transferring them to external thumb drives recently was sentenced to 15 months in federal prison to be followed by three years of supervised release.

The Iowa Court of Appeals recently affirmed a jury's conclusion that detailed information about insurance policy holders was a protected trade secret.

On November 2, 2010, by a margin of more than two-to-one, Georgia voters ratified a Constitutional amendment which effectuated the total restructuring of Georgia's restrictive covenant law. Thus, upon certification of the election results, Georgia will have a new restrictive covenant law, which will apply on a going-forward basis to all contracts entered into on and after such effective date.

A bill pending in the Massachusetts legislature (House No. H4607) which would have amended the state's laws on non-compete agreements, has died in committee and will not go forward. The bill's sponsor, however, intends to introduce another bill on the same subject at a later date.

In October 2010, in Xplore Technologies Corp. v. Killion, CV10-5013459S, a Connecticut state court examined whether a non-competition clause that had no specified geographic requirement was enforceable. The Court enforced the clause and held that the geographic area was defined by the uniqueness of the product at issue and the limited potential customers for it.

In October 2009, in Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), an Illinois appellate court reexamined and rejected over thirty years of well-established precedent regarding the enforceability of restrictive covenants. Specifically, it rejected the "legitimate business interest" test long applied as a threshold issue by Illinois courts when deciding the enforceability of a restrictive covenant. Last week, in Steam Sales Corporation v. Brian Summers, the first Illinois Appellate District other than the Fourth District re-visited the issue of whether the "legitimate business interest" still applied.

When drafting employee confidentiality agreements, there is a tendency to think that no restriction can be too tight. However, a recent decision by the Illinois Appellate Court, The Town of Cicero v. Wayne A. Johnson, held that a confidentiality provision in a separation agreement was so onerous that the entire provision was unenforceable.

In the latest example of a significant international trade secret theft resulting in a federal criminal prosecution, chemist David Yen Lee recently pleaded guilty in federal court in Chicago to "knowingly and without authorization" possessing one or more trade secrets of his former employer Valspar Corporation with intent to convert them "to the economic benefit of someone other than the owner."

A July 27, 2010 decision by the United States Court of Appeals for the Third Circuit, in Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, upheld an injunction preventing a senior executive from commencing employment at Hostess Brands, Inc., a bakery rival to the plaintiff Bimbo. The decision is notable in that the Court enjoined Mr. Botticella's employment, in the absence of any non-competition agreement, on the basis that there was a "substantial likelihood," but not an "inevitability," that Mr. Botticella would disclose or use Bimbo's trade secrets in the course of his planned employment at Hostess.

Applying Missouri law, the United States Court of Appeals for the Eighth Circuit recently affirmed an award of $1,369,921 in liquidated damages stemming from the alleged violation of non-solicitation agreements by four former employees of accounting firm Mayer Hoffman McCann.