Trade Secrets Law is Now Stronger Than Ever. Will This Lead More States To Invalidate the Less Useful, But More Pernicious, Employee Non-Compete Agreement?

The “Defend Trade Secrets Act of 2016” was signed into law yesterday by President Obama. It creates a new federal private civil action against trade secret thieves. This is a useful alternative to the pre-existing state private civil actions by trade secret owners, because it 1) provides access to federal courts nationwide, 2) allows a federal judge to order the nationwide seizure of property violating a trade secret, and 3) allows the judge to protect the related secret from disclosure, including through encryption.

The judge’s order cannot be used to enforce an employee non-compete agreement. It also cannot serve an equivalent purpose by being based only on an employee’s knowledge of a trade secret, without an actual threat of its misappropriation by the employee. The new law also allows extra civil damages for willful and malicious trade secret theft.

California has always viewed state law trade secret protection as the appropriate approach to protecting valuable business information (except for patent, trademark and copyright protections), rather than employee non-compete agreements. Non-competes have been widely criticized as harmful to employee mobility and new business development. Now that stronger federal law trade secret protection is available nationwide, it makes sense for more states to restrict or invalidate employee non-compete agreements under state law.

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In the Season 2 finale of Silicon Valley, Pied Piper’s survival depends on a noncompete clause!

I just watched the final episode of Season 2 of HBO’s “Silicon Valley”. Guess what! The survival of the hot startup “Pied Piper” depends on an arbitration of a claim that the startup belongs to a former employer, because the founder used the employer’s resources to create it. But, the arbitration decision depends on an interpretation of our old nemesis, the “noncompete clause” of the founder’s employment contract! Great show.

Photo: HBO

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[The CEO of a fast-growing tech company explains why he eliminated almost all noncompete agreements for his employees.]

None of us would tolerate limitations on where we choose to travel or live, yet there is passive acceptance of restricting where we can work….(Click link for full article)

Source: Onshape CEO John McEleney: Noncompetes hurt workers and their employers — The Boston Globe

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Were Duke University and the University of North Carolina wrong to agree to not solicit each other’s employees, or, as this article suggests, did they just do it the wrong way? Unlike California, North Carolina does not have a ban on employee noncompete agreements.

Source: Locke Lord QuickStudy: Duke Hit with Antitrust Suit for Non-Poaching Agreement with UNC | Locke Lord LLP — JDSupra

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Charles H. Martin

Author-Every1's Guide to Electronic Contracts, Lawyerball.,

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