United States: 2018 Non-Compete And Trade Secrets Law Preview

With 2018 well underway, it's time to look ahead to what are likely to be some of the key issues/stories relating to non-competition agreements and trade secrets this year:

1. Continued Push in State Legislatures for Non-Compete Reform

Last year saw the enactment of a number of state laws relating to non-competition agreements. See, e.g., Cal. Lab. Code § 925 (setting conditions on requiring employees who primarily reside and work in California to sign agreements containing a mandatory non-California choice of law clause or a mandatory forum selection clause outside of California); 820 Ill. Comp. Stat. 90/1 through 90/10 (prohibiting covenants not to compete between Illinois employers and their low-wage employees, i.e., those who earn no more than "the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, State, or local minimum wage law or (2) $13.00 per hour."); Nev. Rev. Stat. Ann. § AB 276, § 1 (setting forth new standard for Nevada courts to analyze non-competition agreements and reversing Nevada Supreme Court's 2016 Golden Road decision to restore Nevada to a "blue pencil" state).

This year is likely to see a continued push in state legislatures for the enactment of laws relating to non-competition agreements. Legislators in New Jersey, Pennsylvania, New Hampshire and Vermont have all recently introduced bills that would limit enforcement of non-competition agreements. Pennsylvania's bill (House Bill No. 1938), if enacted, would ban covenants not to compete entered into after the effective date of the legislation, except those involving the sale of a business or the dissolution or disassociation of a partnership or a limited liability company. If enacted, the bill would also entitle an employee who prevails in a suit against an employer related to the enforcement of a covenant not to compete to recover attorneys' fees and punitive damages, and would require any dispute arising out of or related to a covenant not to compete involving a Pennsylvania resident to be exclusively decided by a Pennsylvania state court applying Pennsylvania law.

2. Further Development of Case Law in Connection with the Defend Trade Secrets Act

The Defend Trade Secrets Act ("DTSA") was signed into law on May 11, 2016. Thus far, the case law interpreting the DTSA has focused primarily on a few discrete issues:

  • The requirement that the trade secret at issue must be "related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b)(1). See, e.g., Hydrogen Master Rights Ltd. v. Weston, 228 F. Supp. 3d 320, 338 (D. Del. 2017) (dismissing DTSA claim where complaint "fail[ed] to allege any nexus between interstate or foreign commerce and [the alleged trade secrets]");
  • Whether the statute applies to a claim, based on the date of the alleged misappropriation. See, e.g., Cave Consulting Group, Inc. v. Truven Health Analytics Inc., No. 5-02177, 2017 WL 1436044, at *5 (N.D. Cal. Apr. 24, 2017) (dismissing DTSA claim where the plaintiff alleged that the defendant acquired, used, and shared the trade secrets at issue pre-enactment, but did not include any specific allegations that defendant used the alleged trade secrets after the DTSA's enactment, nor any allegation that the "information disclosed [post-enactment] was new or somehow different from the prior misappropriation.");
  • Whether a movant can satisfy the ex parte seizure requirement under the statute. 18 U.S.C. § 1836(b)(2). See, e.g., Axis Steel Detailing Inc., v. Prilex Detailing LLC, No. 2:17-00428 , at Docket 11 (D. Utah, May 23, 2017), available at: https://ecf.utd.uscourts.gov/cgi-bin/DktRpt.pl?16812395492277-L_1_0-1 (granting DTSA ex parte seizure order, explaining that defendants would likely evade, avoid, or otherwise not comply with a Rule 65 order or other equitable remedy because at least some of the defendants had a high level of computer technical proficiency, and there had been attempts by the defendants in the past to delete information from computers, including emails and other data).

As we near the two-year mark since the passage of the DTSA, the number of cases interpreting the Act are likely to increase.

3. Shifting Standards in Non-Compete Case Law

Last year saw a number of cases that will likely impact the landscape in non-compete cases in the jurisdictions where those cases were decided. See, e.g., Reilly v. City of Harrisburg, 858 F.3d 173, 179 (3d Cir. 2017), as amended (June 26, 2017) (clarifying the standard for obtaining a preliminary injunction, holding that the movant must initially satisfy the two "most critical" factors of the traditional four factor test for injunctive relief – likelihood of success on the merits and irreparable harm – and that to demonstrate a likelihood of success on the merits, the movant need only show that its odds of success are significantly better than negligible); Ag Spectrum Co. v. Elder, 865 F.3d 1088, 1093 (8th Cir. 2017) (applying Iowa law, declining to hold an independent contractor's non-compete provision as per se unenforceable); White v. Mederi Caretenders Visiting Servs. of Se. Florida, LLC, 226 So.3d 774, 786 (Fla. 2017) (holding that "legitimate business interests" as defined by Florida non-compete statute may include referral sources).

What key decisions will 2018 bring? Stay tuned.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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