• Protecting Critical Company Assets - New Federal Initiatives
  • July 28, 2016 | Author: W. David Paxton
  • Law Firm: Gentry Locke, LLP - Roanoke Office
  • In 1986, Virginia adopted a version of the Uniform Trade Secrets Act (VUTSA),[1] and employers have relied upon the VUTSA for years to protect some of their most important and sensitive intellectual property and know-how. As business operations have expanded outside of Virginia and the United States, differences in how trade secret laws have been applied have often resulted in an ineffective patchwork of protections.[2] As a result, many employers have continued to rely on written employment agreements that not only protect confidential information and trade secrets, but also limit the solicitation of customers and co-workers, and in some cases, impose non-competition restrictions. These agreements are designed to give businesses a measure of stability and afford some uniformity in their approach to protecting their intellectual property and assets against disloyal employees.

    As the workforce has become increasingly mobile, and hand-held or wearable devices make it easy to abscond with large amounts of confidential information, employers of all sizes have begun to look for effective ways to prevent unfair competition and theft and for good reason. A recent study revealed that more than 50% of employees who left or lost their positions kept confidential corporate data without permission, and 40% planned to use it in their new job. More startlingly, 56% of the individuals surveyed did not believe it was a crime to use a competitor’s trade secrets.[3] So, it should not be surprising that a recent White House report indicated that nearly 30 million American workers are currently covered by non-compete agreements,[4] or that a 2013 Wall Street Journal survey reported that there had been a significant rise in the prevalence of non-compete litigation.[5] Given all of this attention, it is little wonder that the federal government has decided to weigh into this important, yet complex area with several new initiatives.

    On May 5, 2016, the White House released a 16-page report that is critical of the use of non-compete agreements based on an earlier U.S. Treasury Department’s report (March 2016) that discussed the adverse economic effects of the use of non-compete agreements. The White House suggests that there is widespread misuse of non-competes, and it is hurting the economy. This is a clear signal from the current Administration (and others who are aligned with it) that there is a plan to attack the use of non-compete agreements in a broad range of jobs.[6] Then, on May 11, 2016, President Obama signed the Defense of Trade Secrets Act of 2016 (DTSA) which created, for the first time, a new federal court claim that affords civil remedies for the misappropriation of trade secrets.

    In a series of articles to be published over the next two months, we will examine these recent federal actions, and explore their likely impact on Virginia employers. We will focus first on the DTSA and its counterpart, the Virginia Uniform Trade Secrets Act. We will then examine the White House’s critiques of the use of non-compete agreements, and look at how these issues have played out in several recent Virginia cases.

    [1] Va. Code §§ 59.1-336, et. seq. All but two states (New York and Massachusetts) have adopted some version of the Uniform Trade Secrets Act.

    [2] For example, the 4th Circuit upheld the dismissal of claims brought against former employees and a competitor who were alleged to have downloaded the company’s proprietary information before resigning at the direction of the competitor, and then used the information to solicit the business of a customer successfully. WEC Carolina Energy Solutions, LLC v. Miller, 687 F.3d 1999 (4th Cir. 2012).

    [3] Press Release: Symantec Study Shows Employees Steal Corporate Data and Don’t Believe It’s Wrong (Feb. 6, 2013).

    [4] Non-Compete Agreements: Analysis of Usage, Potential Issues and State Responses, White House, May 5, 2016.

    [5] Litigation Over Noncompete Clauses is Rising, Wall Street Journal (Aug. 14, 2013).

    [6] Earlier this week, on June 8, 2016, the Illinois Attorney General filed suit against Jimmy John’s challenging the company’s use of non-compete agreements that seek to prevent store workers from working at another sandwich shop if it is located within three miles of a Jimmy John’s store. The Attorney General argues there is no legitimate business interest to be protected and the agreements are unenforceable as a matter of public policy under Illinois law. See People of the State of Illinois, ex rel Lisa Madigan v. Jimmy John’s Enterprises, LLC, et al, Case No. 2016-CH-07746, Circuit Court of Cook County, Illinois.