Trade Secrets & Employee Mobility

Most lawyers learn during their first year in law school that courts won't inquire into the adequacy of consideration for a contract and that, as a result, a "mere peppercorn" can constitute consideration. It's important to remember, though, that in many states, restrictive covenants are an exception to that rule.

Federal district judges in Chicago are now split over whether to follow the Illinois appellate court's landmark non-compete decision, Fifield v. Premier Dealer Services, Inc., 373 Ill. Dec. 379, 993 N.E. 2d 938 (Ill. App. 1st Dist. 2013).

A threshold tactical decision in virtually every non-compete and trade secret case is where to file the suit. This decision is particularly important when a non-compete dispute has a California angle, because non-compete agreements are generally void as against public policy in California.

When an employee leaves his or her employment in California, under what circumstances may a former employee solicit his former employer's customers? Can non-solicitation agreements ever be enforceable under California law?

On April 29, 2014, Senators Chris Coons (D-Del.) and Orrin Hatch (R-Utah) introduced a bill which seeks to create a private right of action under federal law for theft of trade secrets. As noted in the press release accompanying the bill, the so-called "Defend Trade Secrets Act would empower companies to protect their trade secrets in federal court."

In what turned out to be a disastrous result for defendants, a Massachusetts Court issued a default judgment against certain salespeople who left their former company to form the new competing company. The default judgment was based on the defendants' conduct during the discovery phase of the case, in which they failed to follow the terms of the Court's Preliminary Injunction, including misrepresenting their compliance to the Court, destroying evidence, and using confidential information to sell products to certain businesses, all of which was specifically barred by the terms of the Court's Order.

Judge Ruben Castillo, the Chief Judge for the United States District Court for the Northern District of Illinois, recently declined to follow a widely publicized Illinois Appellate Court decision in which the Appellate Court held that, absent other consideration, two years of employment is required consideration for a restrictive covenant in Illinois.

In a March 5, 2014 verdict, the U.S. Attorney's Office in San Francisco secured the first-ever federal jury conviction on charges brought under the Economic Espionage Act of 1996.

The high profile lawsuit filed on February 11, 2014 by Anschutz Entertainment Group against Shervin Mirhashemi and his new employer, Legends Hospitality, LLC, again raises the question of when a California Court of Appeal will decide whether employee non-solicits are enforceable in California.