February 2013 was an active month in the world of non-competes and trade secrets, and if we read the tea leaves, it looks like things are only going to get busier.  Before I recap some of February's highlights and direct you to some of the best resources out there on the web, let's briefly discuss one reason I think non-compete issues are likely to be pushed to the forefront over the coming months and year -- Warren Buffet.  Warren Buffet?  That's right, Warren Buffet, and people like him.

It was widely reported in February that Warren Buffet's Berkshire Hathaway teamed up with 3G Capital Management to acquire H.J. Heinz.  Buffett said Berkshire is contributing "something between" $12 and $13 billion to the deal.  Of greater interest, however, Buffet said that Berkshire is sitting on another $47 billion in cash and he joked, "I'm ready for another elephant. Please, if you see any walking by, just call me."  What does this have to do with non-competes and trade secrets?  A lot.  Over the past few years with all of the economic and political uncertainty, a lot of private equity has built up and remained on the sidelines, but like Warren Buffet's $47 billion, that cash is sitting there waiting for the right elephant to walk by.  But private equity investors aren't foolish.  After investment committees decide to pursue a target acquisition candidate and deal professionals succesfully submit an offer to the seller, it is time to get the lawyers involed in the due diligence phase. Due diligence includes more than just validating management's stated operational and financial figures. Due diligence is the point at which it is critical to determine who has a non-compete and who does not.  Just as important, the agreements need to be examined to ensure they are appropriately tailored to protect the target company's legitimate interests, and to ensure they will remain enforceable after the acquisition.  If key employees lack restrictive covenants, due diligence is the time to address the issues.  Then, of course, someday, if and/or when employees leave, litigation becomes a distinct possibility. In short, mergers and acquisitions precipitate non-compete and trade secret contracting and litigation.  Without a doubt,  the month of February told us this issue is going to be hot well into the 2010's.  

What else did we learn in February?  Let's look around the web.

• Forum selection clauses were a hot button issue in February.  We saw that they may be enforced even if they require employees to fly over 8,000 miles just to appear in Court. Robert Milligan does a great job dissecting an opinion from the U.S. Eastern District of Missouri and credibly wonders what one has to prove in Missouri in order to demonstrate that a forum selection clause satisfies the judicially required "gravely incovenient" standard to invalidate such a clause.
• Jonathan Pollard reminded us that the race to the courthouse does not always work in California when a forum selection clause suggests that the lawsuit should proceed elsewhere, even if the new employer was not a party to the contract containing the forum selection clause.
•  The Obama Administration announced its five point initiative, "Strategy on Mitigating the Theft of U.S. Trade Secrets," to combat the threat imposed by international trade secret misappropriation.  Care to know what it says, what's good about it, and what's not?  John Marsh does a great job laying it out in his bog, The Trade Secret Litigator.
• Want to know what's happening with pending non-compete legislation?  Check out what Kenneth Vanko has to say about Michigan's proposed statute.
• While we are talking about statutes, Russell Beck can fill you in on the status of things in Massachusetts where the legislature is making another run at non-compete legislation this term.

Finally, for those of you who have taken my advice to pay a visit to the blogs written by John Marsh, Russell Beck and Kenneth Vanko, I'm sure you share my opinion they are top notch.  If you enjoy them as much as I do, consider listening to one of their podcasts.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

Yahoo! recently named longtime Google executive, Marissa Mayer, as its new CEO.  Since the announcement, Twitter has been aflutter with comments about how this could happen.  One Tweeter remarked: “Whoa. Either Marissa Mayer didn't have a non-compete or no one at Google thinks Yahoo qualifies as competition.”  Another tweet speculates that she must have at least signed a confidentiality agreement. 

These Tweeters are not alone in their curiosity.  Over the past twenty-four hours I have been asked many questions by friends and family alike about this move.  Here's my take.

Didn’t she have a non-compete?  Probably not.  Of course, I can’t say for sure as I am not privy to her employment arrangements with Google, but my strong guess is that she does not have a non-compete that facially forbids her from accepting employment with a competitor.  Such an agreement would be unenforceable in California where section 16600 of the Business and Professions Code prohibits non-compete agreements, except in limited circumstances that do not apply here.  That being said, she most likely executed some sort of confidentiality agreement along the way, and she has a statutory obligation not to misappropriate Google’s trade secrets.  (For more on the difference between non-competes, confidentiality agreements, and trade secrets, click here).

Can Google stop her from going to Yahoo!?  That's a tough one.  The odds makers in Vegas would surely bet against it for multiple reasons.  As noted above, Mayer likely does not have a non-compete agreement, and if she does, it likely runs afoul of California law.  Moreover, California courts have unequivocally rejected the inevitable disclosure doctrine, a judicial doctrine by which courts will stop an ex-employee from working for a competitor if the employee's new job will inevitably lead to the disclosure of the former employer's trade secrets.  See Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443 (2002).  If you ask Google, I am sure they believe that Mayer cannot possibly assume her new role at Yahoo! without inevitably drawing upon her knowledge of Google's trade secrets.  Hewlett-Packard surely felt this way when its former CEO Mark Hurd left to assume control at Oracle. 

Despite California's rejection of the inevitable disclosure doctrine, a careful read of California case law suggests the issue may not be as clear cut as it seems.  In Whyte v. Schlage, the court emphasized that it was considering (and rejecting) the inevitable disclosure doctrine “as an alternative to proof of actual or threatened misappropriation [pursuant to the California Uniform Trade Secrets Act]….”  Implicit in the appellate court’s opinion is that under California law, there is a difference between “threatened misappropriation” under the CUTSA, on the one hand, and inevitable disclosure, on the other hand.  The lower court could have found a threatened misappropriation and issued relief pursuant to the CUTSA.  So there seems to be a legitimate question as to what remedy a California court can employ to enjoin threatened misappropriation.  Safe money bets that Google's lawyers have already analyzed this issue and identified it as a possible grounds for future litigation if they uncover any conduct suggesting that Mayer intends to utilize her knowledge of Google's trade secrets. 

Should Google be concerned?  Absolutely.  On the outside, Google has been calm and collected (at least, so far).  Google's CEO graciously commented that Mayer made many contributions to Google and that her talents will be missed.  Of course, this statement is not at all inconsistent with future litigation.  But, yes, Google should be concerned.  In addition to losing an extremely talented and long tenured employee, that same employee has walked straight across the proverbial street to the top of one of Google's fiercist competitors, and she has done so with a head full of knowledge about the secrets to Google's success.  To make matters worse, Mayer is widely regarded as charismatic and inspiring.  Surely, numerous Google employees will be reaching out to see if she has any interest in hiring them.

If Google can’t stop her from going to Yahoo!, what can Google do?  For starters, Google will take a long hard look at the California Uniform Trade Secrets Act and the numerous cases interpreting and applying the statute.  Any legal action by Google is certain to include a claim for threatened misappropriation described above.  Next, Google will have to consider claims for unfair competition, breach of duty of loyalty, civil conspiracy, and possibly a claim under the Computer Fraud & Abuse Act (although a CFAA claim seems unlikely unless Mayer did something unbefitting the level of intellect widely attributed to her).  (For a melange of posts discussing the CFAA, click here.)

Did her looks play a role in her career success? (Yes, someone actually asked me this ridiculous question!)  Gimme a break!  Despite the litany of idiotic articles denominating Mayer as a "sexy geek," the reality is that she is an incredibly intelligent and talented woman.  If you doubt it, listen to her talk about her work and her career.  She graduated with honors from Stanford University with a B.S. in symbolic systems and an M.S. in computer science.  She joined Google as its twentieth employee in 1999, turning down more than a dozen offers from other companies.  In my humble opinion, her meteoric rise is attributable to her passion for her work.  Of equal importance is her vision.  Like other successful executives, Mayer believes that her work can change the world.  She may be right.  I wrote this article with the assistance of products from Google that Mayer helped to design.  Surely, she can thank Google for her success, but Google owes her a measure of gratitude as well.  That gratitude may not be readily apparent, however, in court papers should Google decide to file suit.  Stayed tuned.  We haven't heard the last of Marissa Mayer. 

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed

In an eye opening decision, the United States District Court for the Northern District of California recently granted a temporary restraining order partially enforcing a non-compete agreement.  In Richmond Technologies v. Aumtech Business Solutions (copy available below), the Plaintiff provides software for financial services firms.  The Plaintiff entered into a “Teaming Agreement” with the Defendant, pursuant to which the Defendant developed software for the Plaintiff.  In the agreement, the Defendant promised not to (1) use or disclose the Plaintiff’s confidential information; (2) initiate contact with or solicit the Plaintiff’s clients; and (3) compete with the Plaintiff by using its technology.  Requesting a temporary restraining order, the Plaintiff alleged a breach of each of these three provisions.

The District Court began its legal analysis by observing that the “California Supreme Court ‘generally condemns noncompetition agreements.’”  The Court explained that this condemnation is rooted in California Business and Professions Code § 16600.  Despite California’s antipathy toward restrictive covenants, the Court also noted that “[a]n equally lengthy line of cases” have protected parties against the misuse of trade secrets to unfairly compete.  The Court noted that these cases fall into two camps.  Namely, some cases observe a “trade secret exception” to § 16600 and enforce restrictive covenants that are necessary to protect trade secrets, while others cases simply view the use of trade secrets as an independent wrong.   The Court then proceeded to follow the former group of cases, and found that the various covenants at issue in this case were likely enforceable to varying extents.

For example, in analyzing the non-compete provision, the Court stated “if the clause is construed to bar only the use of confidential source code, software, or techniques developed for [the Plaintiff], it is likely enforceable as necessary to protect [the Plaintiff’s] trade secrets.”  “Similarly, the clause prohibiting use of confidential information is likely enforceable to the extent that the claimed confidential information is protectable as a trade secret.”  Against this logical underpinning, the Court determined that the key was to ensure that any injunction “imposed by the Court would be narrowly tailored to prohibit only the misuse of trade secrets and would permit Defendants to compete, in a lawful manner, with Plaintiff.”  The way in which the Court struck this balance was eye opening.  Namely, the Court enjoined the Defendants from, among other things:

• Initiating contact with the Plaintiff’s clients regarding competitive software unless none of the Defendants had knowledge of or contact with those clients during the term of their employment with the Plaintiff.

• Using the Plaintiff’s information about its clients' technical and business requirements, or other confidential client information, to solicit or obtain agreements with those clients.  “However, Defendants may enter into agreements with [the Plaintiff’s] customers if the customer initiates the contact and none of [the Plaintiff’s] confidential information will be used in negotiating, executing, or performing the agreement.”

Don’t look twice, but it seems like the Northern District of California just enforced a non-compete agreement. 

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

Richmond Technologies v. Aumtech.pdf (165.03 kb)

Distinguishing Stengart v. Loving Care Agency, a California Appellate Court Holds That An Employee's E-mails With Her Personal Attorney Sent Through The Employer’s Workplace Computer Are Not Protected By The Attorney-Client Privilege

In a widely discussed decision issued last year, Stengart v. Loving Care Agency, the New Jersey Supreme Court held that an employee had a reasonable expectation of privacy in her e-mail communications exchanged with her personal attorney through her web-based, password-protected, Yahoo! e-mail account using her employer's computer.  

Recently, in Holmes v. Petrovich Development Co., LLC, a California appellate court ruled that e-mails sent by an employee to her attorney from a company computer were not privileged.  According to the appellate court’s opinion, plaintiff Gina Holmes started working for Petrovich Development Company in June 2004.  Ms. Holmes later told her supervisor, Paul Petrovich, that she was pregnant.  Ms. Holmes' subsequent communications with Mr. Petrovich regarding her pregnancy left her feeling as though her position was in jeopardy.  Mr. Petrovich shared his communications with Ms. Holmes with his colleagues, and when Ms. Holmes learned this she felt as though her rights were violated.  

Ms. Holmes then e-mailed her personal attorney using her employer’s email system and computer.  After sending these emails, she deleted them from her work computer.  She then quit her job and sued the company, alleging claims for hostile work environment harassment, constructive discharge, violation of her privacy rights, retaliation and intentional infliction of emotional distress.  The trial court granted the company’s motion for summary adjudication against the claims for hostile work environment, retaliation and constructive discharge.

The trial addressed whether Petrovich invaded Ms. Holmes' privacy rights and constituted intentional infliction of emotional distress.  Petrovich offered the e-mails between Ms. Holmes and her attorney to show she had not suffered emotional distress and, instead, filed the lawsuit on her attorney’s advice. 

The jury returned a defense verdict, which was affirmed by the appellate court.  It rejected several arguments made by Ms. Holmes that the e-mails should not have been allowed into evidence because they were privileged communications.  First, Ms. Holmes argued that she believed that she protected her communications by deleting the e-mails after they were sent.  Second, even though Petrovich had policies stating that (1) company computers were for company business only, (2) the company would periodically monitor its computers to make sure users were complying with the policy; and (3) employees had “no right of privacy ” with respect to any personal use of company computers, Ms. Holmes argued that Petrovich did not access or audit employee use.

In rejecting these arguments, the appellate court held that Ms. Holmes’ “belief was unreasonable because she was warned that Petrovich would monitor e-mail to ensure employees were complying with Petrovich’s policies, which informed Ms. Holmes she had no expectation of privacy in any messages she sent through Petrovich’s computer.”  Distinguishing Stengart v. Loving Care, the appellate court held : 

When Holmes e-mailed her attorney, she did not use her home computer to which some unknown persons involved in the delivery, facilitation, or storage may have access. Had she done so, that would have been a privileged communication unless Holmes allowed others to have access to her e-mails and disclosed their content. Instead, she used defendants' computer, after being expressly advised this was a means that was not private and was accessible by Petrovich, the very person about whom Holmes contacted her lawyer and whom Holmes sued. This is akin to consulting her attorney in one of defendants' conference rooms, in a loud voice, with the door open, yet unreasonably expecting that the conversation overheard by Petrovich would be privileged. 

The conclusion in Holmes can be harmonized with Stengart, which is good news for employers.  The key difference between these two cases is that Stengart involved the employee’s personal, internet-based and password protected e-mail account.  In contrast, the e-mail account at issue here was the employer’s e-mail account and system.  Consequently, while there may arguably be a greater expectation of privacy in the use of a personal e-mail account, there is a lesser expectation of privacy where the employee uses the employer’s e-mail account.  

When employees resign to join competitors, it is not uncommon for employers to review the former employees' workplace computers to determine whether trade secrets have been taken, restrictive covenants have been breached, or whether statutes like the Computer Fraud & Abuse Act have been violated.  Although these issues were not squarely reviewed by the the California Appellate Court, the decision is notable with these issues in mind.

Brent Cossrow is a member of Fisher & Phillips' Employee Defection & Trade Secrets Practice Group.  Mr. Cossrow's practice focuses on e-discovery and other electronically stored information issues.  As always, please feel free to share your thoughts and questions in the comment space below.

Much has been written about Hewlett-Packard’s recently filed case against its former CEO Mark Hurd following his acceptance of a job as president of Oracle.  At first blush, observers seem quick to assume that HP is dead in the water because California has unequivocally rejected the inevitable disclosure doctrine.  See Whyte v. Schlage Lock Company, 101 Cal.App.4th 1443 (2002).  And if you read HP’s complaint, it sounds an awfully lot like an inevitable disclosure case: “[Hurd] cannot perform his job at Oracle without disclosing or utilizing HP’s trade secrets and confidential information.”  Complaint ¶ 46. (For a copy of the Complaint click on the pdf at the bottom of this post.)

But a careful read of the California Court of Appeal decision in Whyte v. Schlage, which is where California first rejected the inevitable disclosure doctrine, suggests the case may not be as clear cut as it seems.  In Schlage, the court made clear that it was considering (and rejecting) the inevitable disclosure doctrine “as an alternative to proof of actual or threatened misappropriation [pursuant to the California Uniform Trade Secrets Act]….”  Schlage first argued that it had presented enough evidence from which the court could infer “actual or threatened misappropriation,” but the appellate court heavily emphasized that it was constrained by an appellate standard of review to view the facts favorably in support of the lower court’s decision denying an injunction.  The court next turned to and rejected Schlage’s inevitable disclosure argument.  Implicit in the appellate court’s opinion is that under California law, there is a difference between “threatened misappropriation” under the CUTSA, on the one hand, and inevitable disclosure, on the other hand.  The lower court could have found a threatened misappropriation and issued relief pursuant to the CUTSA.  So the question becomes, what remedy can a California court employ to enjoin threatened misappropriation? 

A close review of the prayer for relief in HP’s complaint indicates that HP did not ask the court for an injunction precluding Hurd from accepting any employment at Oracle.  Rather, HP asked for an injunction to preclude Hurd from “holding a position with a competitor in which he will utilize or disclose HP’s trade secrets and confidential information.”  In this case, that may be a distinction without a difference, but the choice of words does not appear to be unintentional. 

HP’s objective at this point has to be getting to discovery.  In California, a trade secret plaintiff must identify its trade secrets with “reasonable particularity” before it can commence discovery on a trade secret misappropriation claim.  (See Section 2019.210 of the Code of Civil Procedure) If HP survives a motion to dismiss and gets an opportunity to conduct discovery, they’ll need to look for conduct indicating untrustworthiness – so far they have simply alleged that Hurd failed to comply with his agreement to notify HP if he accepts employment with a competitor.  According to HP, “Hurd’s failure to provide such notice before it was publicly announced by Oracle, gives rise to a reasonable inference that he is violating his trade secret protection agreements with HP….”  – and that may be enough to survive a motion to dismiss and get to discovery.

HP v Hurd.pdf (3.05 mb)