Defend Trade Secrets Act

May 18, 2023

Absence of Competitive Advantage – The First Line of Defense to Trade Secret Lawsuits

The touchstone of a trade secret is that it provides the owner of the information with a competitive advantage in their market.
Courts look at the cost of development, the difficulty in duplicating and measurable benefits to ascertain whether a bona fide trade secret exists.
The first step in the defense of a trade secret is to examine whether there is real economic value to keeping the information secret.

Trade secret laws, much like other types of intellectual property law, always have the potential to limit competition and restrict employee mobility. The result is that trade secret law can be used as a means to try to carve out a market space. Those cases, however, may involve benign information that is difficult to classify as a trade secret.

Trade Secret Lawyer New Jersey | New York

Photo by Andrey Oskirko

The first issue in the defense of any claim for misappropriation of a trade secret is to figure out if there is really a trade secret at issue, whether the claim is brought under the federal Defend Trade Secrets Act (DTSA), a state Uniform Trade Secrets Act (UTSA) (from which the DTSA was derived) or state common law.

The UTSA has now been enacted every state except New York and Virginia, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Continue reading

February 17, 2021

United Health Care Rebuffed on Injunction Request

by Jay R. McDaniel, Esq.

Although a former executive was bound by a restrictive covenant, the fact that his duties after joining a competitor were directed to a different market made the scope of the restrictions unreasonable.
A restrictive covenant that is not narrowly tailored to protecting specific interests of the former employer at stake in a lawsuit is less likely to be enforced with a preliminary injunction.
A company that relies on the inevitable disclosure doctrine faces a high hurdle to show the certain use of a trade secret in a competitive manner.

An attempt by United Health Care to block an executive from joining a competitor failed when a federal judge found the medical insurance and services company had failed to establish it was likely to succeed when the case goes to trial. The dispute identifies some of the steps that a new employer take to prevent its just-hired employee from running afoul of a restrictive covenant.

The defendant Carlos Louro in this this case, United Health Care v. Louro, was an executive supervising the underwriting of national accounts at United. He had recently been promoted to vice president and served on a high-level, national accounts strategy group. He had also received stock options and restricted stock awards, which contained restrictive covenants and non-disclosure provisions..

The trial court construed Louros agreements with United that and restricted him from:“[e]ngag[ing] in or participat[ing] in any activity that competes, directly or indirectly, with any Company activity, product, or service that [Louro] engaged in, participated in, or had Confidential Information about during [Louro’s] last 36 months of employment with the Company” or assist anyone in any of those activities for one year after Louro’s termination of employment.” Continue reading

February 12, 2021

District Court Enjoins Former Executive from Competition

by Jay R. McDaniel, Esq.

An executive with national responsibilities may be subjected to a broad geographic restriction in an employment restrictive covenant.
Courts can and will enjoin a former executive from working for a competitor to prevent irreparable harm to the executive’s former employer when the restriction is reasonable.
Misappropriation and use of a company’s trade secrets by a former employee may also prevent an employee who has copied information from working for a competitor

A federal district court judge in New Jersey imposed a preliminary injunction that will prohibit a former executive from working for a competitor for at least a year. The decision was based on both the existence of a restrictive covenant and the departing executive’s having copied data from his prior employer at the time of his departure. sunbelt

Resignation by Executive to Work for Competitor

The case, Sunbelt Rentals, Inc. v. Love (opinion here) is particularly notable as a lesson in how not to resign a high-level position. Because even if the trial judge had not enforced the restrictive covenant in the executive’s employment contract, the fact that he copied proprietary information by emailing customer lists and other data to his brother before his resignation doomed any defense to the preliminary injunction. Continue reading

The touchstone of a trade secret is that it provides the owner of the information with a competitive advantage in their market.

Courts look at the cost of development, the difficulty in duplicating and measurable benefits to ascertain whether a bona fide trade secret exists.

The first step in the defense of a trade secret is to examine whether there is real economic value to keeping the information secret.

Although a former executive was bound by a restrictive covenant, the fact that his duties after joining a competitor were directed to a different market made the scope of the restrictions unreasonable.

A restrictive covenant that is not narrowly tailored to protecting specific interests of the former employer at stake in a lawsuit is less likely to be enforced with a preliminary injunction.

A company that relies on the inevitable disclosure doctrine faces a high hurdle to show the certain use of a trade secret in a competitive manner.

An executive with national responsibilities may be subjected to a broad geographic restriction in an employment restrictive covenant.

Courts can and will enjoin a former executive from working for a competitor to prevent irreparable harm to the executive’s former employer when the restriction is reasonable.

Misappropriation and use of a company’s trade secrets by a former employee may also prevent an employee who has copied information from working for a competitor

Resignation by Executive to Work for Competitor