Trade Secret | Noncompete – Issues and Cases in the News – March 2016

extras_03Below are the latest issues and cases making trade secrets | noncompete news since our last update …

Georgia: In February, the Georgia State Senate focused on the intersection between publics records acts requests and trade secrets, introducing a bill to expand the scope of Georgia’s definition of trade secrets, albeit in a very narrow respect. Specifically, the operative text of the bill (Senate Bill 321) provides, “Neither the state nor any local government shall publicize or otherwise make available 24 to the public any financial, operational, or consumption data related to a person’s use of 25 public utilities, water, or wastewater in any way which identifies such person’s use of 26 public utilities, water, or wastewater without the express consent of such person.” For additional information, see Senate Bill in Georgia Seeks to Expand the Scope of Trade Secret Protection.

Utah: In the ongoing debates over the proposed legislation in Utah to ban the use of employee noncompetes, following passage of the bill by the Utah House of Representatives, the bill was introduced to the Senate standing committee on March 1, 2016. On March 4, the Senate Business and Labor Committee took extensive testimony, pro and con, and issued a favorable recommendation for a substituted billSee Employee noncompete bill stirs a hornet’s nest in Utah business communityThe bill will be heard by the Utah Senate this coming weekThe legislature adjourns on March 10 (at midnight), leaving little time for resolution of the hotly-contested bill.

Other noteworthy news…

  • Noncompetes and Bankruptcy: An issue that occasionally arises is how a company can protect the interests otherwise protectable by a noncompete agreement (typically, trade secrets, other confidential information, and goodwill – though others exist as well) when its former employee who is subject to a noncompete has filed for bankruptcy. Ken Vanko wrote an excellent summary of the issues and analysis in his blog post, When Bankruptcy Law Collides with Non-Compete Obligations.
  • Consideration for Noncompetes: One of the issues that regularly arises in noncompete litigation is whether the noncompete is supported by (sufficient) consideration. As reflected in our 50 State Trade Secrets Chart, one of the key areas of disagreement among the states is whether continued employment of the employee is sufficient consideration to support a noncompete. A recent case worth noting is NBTY, Inc. v. Vigliante, 2015 WL 7694865 (Sup. Ct. Nov. 24, 2015), a New York Supreme Court (i.e., the NY trial court) case (applying Delaware noncompete law). In that case, the court held that unexercised stock options were insufficient consideration for the restrictive covenant under Delaware law. Lisa Skruck of Outten & Golden LLP provides a nice analysis in Noncompetes Require Real Consideration to be Enforceable
  • Tortious Interference: Another issue that frequently arises in noncompete litigation is whether a former employer can be liable (typically, on a theory of tortious interference) for a new employer’s decision to terminate an employee in the face of a threat of enforcement of the noncompete. The issue is complicated, but John Paul Neflen of Burr & Forman provides a nice summary in Better Think Twice About Enforcing A Non-Compete.