Idaho Updates: trade secrets, non-compete agreements and more Cynthia A. Melillo and Andrea J. Rosholt SHRM Idaho Employment Law Conference September 30, 2016 www.moffatt.com CYNTHIA A. MELILLO Cynthia A. Melillo has over 15 years of experience providing legal assistance to real estate developers, small businesses, and telecommunications providers. Cynthia specializes in real estate development matters, and she is also skilled in the development of fractional ownership programs and condominiums. Cynthia also serves as primary outside counsel for many businesses, both small and large. She is experienced in assisting in the purchase and sale of businesses including complex asset and stock transactions. ANDREA J. ROSHOLT Andrea Rosholt is an Idaho native whose multi-faceted practice focuses on both litigation and business law matters. In addition to experience in both the public and private sectors, Ms. Rosholt holds a Master’s degree inTaxation from the University of Washington. When she is not litigating commercial matters, Ms. Rosholt’s practice focuses on state and local as well as federal tax and ERISA issues facing companies and their executives. She was recently elected asTreasurer to the Idaho State Bar Litigation Section’s Governing Council. 1
The current landscape of trade secret law 09/30/16 4 Enactment of the Defend Trade Secrets Act On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016, Pub. L. 114-153, May 11, 2016, 130 Stat. 376 (to be codified at 18 U.S.C. § 1836) (“DTSA”). • The creates a federal cause of action for alleged trade secret misappropriations and provides plaintiffs with the choice between litigating in state or federal court. • The DTSA is not intended to preempt an employer’s rights under the Idaho Trade Secrets Act. • The DTSA includes three key provisions of the DTSA that have a direct impact on Idaho employers. 09/30/16 5 Three key provisions of the DTSA that have a direct impact on Idaho employers . • First , the DTSA provides aggrieved employers with the right of “seizure” of a misappropriated trade secrets in certain circumstances. • Second, the DTSA creates statutory immunity to employees and independent contractors under both state and federal law. • Third, the DTSA requires employers to provide notice of the statutory immunity to employees and independent contractors in any contract or agreement with an employee / independent contractor. 09/30/16 6 2
Comparison of ITSA vs. DTSA Idaho Trade Secrets Act Federal Defend Trade Secrets Act Effective Date N/A enacted in 1981 Any act covered under the statute that occurs on or after May 11, 2016. Where can I bring Must file lawsuit in state court unless you can Can file in state or federal court. See suit or be sued establish diversity of citizenship. 18 U.S.C. § 1836 (c). (Jurisdiction) Preemption Yes; see I DAHO C ODE § 48-806. An action Limited; see 18 U.S.C. § 1838 Displacement under the ITSA preempts / displaces any Except as provided in § 1833(b), this conflicting tort, restitutionary and other law chapter shall not be construed to of the state providing civil remedies for preempt or displace any other misappropriation of a trade secret. remedies . . . for the misappropriation of a trade secret. 09/30/16 7 Idaho Trade Secrets Act Federal Defend Trade Secrets Act What is and information, including a formula, pattern, compilation, all forms and types of financial, business, scientific, program, computer program, device, method, technical, economic, or engineering information, including is not a trade technique, or process, that: patterns, plans, compilations, program devices, formulas, secret? designs, prototypes, methods, techniques, processes, (a) Derives independent economic value, procedures, programs, or codes, whether tangible or actual or potential, from not being generally intangible, and whether or how stored, compiled, or known to, and not being readily memorialized physically, electronically, graphically, ascertainable by proper means by, other photographically, or in writing if— persons who can obtain economic value from its disclosure or use; and (A) the owner thereof has taken reasonable measures to keep such information secret; and (b) Is the subject of efforts that are reasonable under the circumstances to (B) the information derives independent economic maintain its secrecy. Trade secrets as value, actual or potential, from not being generally defined in this subsection are subject to known to, and not being readily ascertainable disclosure by a public agency according to through proper means by, another person who can chapter 1, title 74, Idaho Code. obtain economic value from the disclosure or use of the information. I DAHO C ODE § 48-801(5) See 18 U.S.C. § 1839(3). 09/30/16 8 AvailableRemedies Idaho Trade Secrets Act Defend Trade Secrets Act Injunctive relief available? Yes; I DAHO C ODE § 48-802(1) Yes; 18 U.S.C. § 1836(b)(3) What must employer prove Actual or threatened misappropriation Actual or threatened misappropriation may to get injunctive relief? may be enjoined. be enjoined. Scope of injunctive relief (1) Injunction will last until the trade (1) On such terms as the court deems available secret ceases to exist or for a reasonable reasonable time (2) In exceptional circumstances the court (2) In exceptional cases the court may may condition future use on payment of condition use on payment of reasonable royalty reasonably royalty (3) The court may impose affirmative acts (3) The court may impose affirmative to protect the trade secret acts to protect the trade secret. 09/30/16 9 3
Limitation on injunctive relief Limitation of Idaho Trade Secret Act Defend Trade Secrets Act Idaho’s Supreme Court has rejected the The DTSA provides the same result. An “inevitable disclosure” doctrine. See, e.g., injunction under federal law cannot: Northwest Bec-Corp v. Home Living Serv., Inc ., 136 Idaho 835, 839, 41 P.3d 263, 267 (2002), providing • (I) prevent a person from entering into an in pertinent part: employment relationship, and that “[T]he legislature did not intend the [ITSA] to be read so conditions placed on such employment broadly as to preclude the hiring of an employee from a shall be based on evidence of threatened competitor; the legislature also did not intend that merely hiring a competitor’s employee constitutes misappropriation and not merely on the acquiring a trade secret.” Instead, “[a]n employee will information the person knows; or naturally take with her to a new company the skills, training, and knowledge she has acquired from her time with her previous employer. This basic transfer of • (II) otherwise conflict with an applicable information cannot be stopped, unless an employee is State law prohibiting restraints on the not allowed to pursue her livelihood by changing employers.” practice of a lawful profession, trade, or business; 09/30/16 10 First Major provision DTSA: Civil Seizure The recently enacted Defend Trade Secrets Act of 2016 (“DTSA”), 18 U.S.C. § 1836, permits a party to file an ex parte application, supported by affidavit or verified complaint, for an “order requiring seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” 18 U.S.C. § 1836(b)(2)(A)(i). 09/30/16 11 What must an employer / competitor do to establish a right to civil seizure? Applicant must submit a sworn statement: i.e., affidavit or verified complaint, that establishes the following: 1. Injunctive relief would be inadequate; 2. Immediate and irreparable injury will occur if seizure is not ordered; 3. The harm to the applicant in denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered; 09/30/16 12 4
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