Whether it’s the secret recipe for your gourmet cupcakes or a unique process for manufacturing your best-selling product, trade secrets are valuable company assets. When an employee leaves, there’s a risk they will take your trade secrets with them to a competitor or to start their own business. So what relief is available if you’re a victim of trade secret theft? Hawai‘i companies already can seek relief from the Hawaii Uniform Trade Secrets Act, but now there’s another tool to combat trade secret theft. On May 11, 2016, President Obama signed the Defend Trade Secrets Act (DTSA) into law, which adds a federal layer of protection for trade secrets.
Here are the highlights of the new law:
What does DTSA do? The DTSA creates a new federal remedy for trade secret misappropriation. Prior federal trade secrets law only criminalized certain misappropriations of trade secrets. The DTSA allows victims of trade secret misappropriation to sue in federal court.
Is the DTSA my exclusive remedy? No. The DTSA creates a national standard of trade secret law and gives you more options for seeking relief, but it doesn’t pre-empt state law. You may still take advantage of trade secret protections under state laws like the Hawaii Uniform Trade Secrets Act.
What’s so special about the DTSA? One feature of the DTSA is that it allows a court to grant an “ex parte seizure order.” This new remedy lets trade secret owners seek a court order to seize allegedly stolen trade secret items in the accused wrongdoer’s possession without first giving them notice. Seizure orders are granted only in “extraordinary circumstances.” To safeguard against abuse of seizure orders, the DTSA entitles victims of wrongful seizure to damages, punitive damages in cases of bad faith, and attorneys’ fees. It remains to be seen how courts will apply the ex parte seizure provisions of the DTSA and how often the remedy will be used.
What do employers need to know about the DTSA? Injunctive relief granted under the DTSA may not “prevent a person from entering into an employment relationship” and must be consistent with state law “prohibiting restraints on the practice of a lawful profession, trade, or business.” In other words, the DTSA does not override state law governing non-compete covenants. Claims under state law may need to be included in the lawsuit to enforce non-compete provisions in an employment agreement.
The DTSA also provides immunity for whistleblower employees (which the DTSA defines broadly to include independent contractors and consultants) who disclose trade secrets to any government official solely for the purpose of reporting or investigating a suspected violation of law or in a court filing made under seal. Notice of the whistleblower immunity provisions must be given in every agreement entered into after May 11, 2016 that restricts the employee’s use of a trade secret or other confidential information. The notice requirement may be satisfied by referencing the immunity provisions in a policy document (like an employee manual) rather than inserting the provisions into each employment agreement.
For more specific information on how the DTSA affects you, consult experienced legal counsel.
The New York Times recently reported that Hillary Rodham Clinton used a personal email address for work and personal matters while she served as Secretary of State. Many employees could probably appreciate why Ms. Clinton chose to use a private email address for work purposes. She enjoyed the convenience of carrying one mobile device instead of two. That’s the same reason the Bring Your Own Device movement has been rapidly gaining momentum.
The convenience of commingling professional and personal online accounts comes at a price. One danger is unauthorized disclosure of confidential information. Work-related information stored in an employee’s personal online account is not subject to security measures like firewalls, anti-virus software, and metadata scrubbing programs. Private online accounts may be vulnerable to cyberattacks, putting the confidentiality of their contents at risk. While such records might not concern national security matters as in the Clinton controversy, they could contain personnel information, medical history, or trade secrets, the disclosure of which could violate data privacy laws like HIPAA and the Sarbanes-Oxley Act, not to mention hurting a company’s competitive edge or creating a public relations debacle.
Another risk is noncompliance with recordkeeping policies. Work rules dictating how long work files are kept before they’re disposed help organizations manage the task of responding to information inquiries like discovery requests in litigation. In some jurisdictions, an organization’s failure to produce a document in discovery because it was destroyed in compliance with the organization’s document retention policy generally is not considered unlawful destruction of evidence. (Note: Hawaii’s court rules were amended this year to recognize such a defense). But spotty enforcement of a document retention policy could destroy that defense. Popular ways of transferring work files include forwarding them to a personal email address or uploading them to a personal cloud storage account. Such practices could result in work files being kept beyond their authorized retention period, thus casting doubt on whether an organization actually follows its document retention policy.
Managing these risks begins with adopting a formal policy on use of personal accounts for work purposes and training employees to follow the policy. Without a policy in place, employees might have few qualms about using their personal accounts for work. Consult with a lawyer with data privacy experience to ensure that your policy manages legal risks.
If your company decides to prohibit the transfer of work data to external locations, enforce that policy diligently. Work with your IT department or outside vendors to implement physical and software safeguards against unauthorized transfers. Conduct audits to ensure compliance with the policy.
Another strategy is to offer solutions that allow employees to work outside of the office conveniently without having to use their personal accounts. Consider hosting a private cloud storage site where employees can share files in a secured environment under your control. Also popular is virtual desktop software that allows employees to access their workstation remotely in a controlled environment.
Don’t wait until your employees’ data handling practices make the headlines before taking action to protect the confidentiality of your work files.
It’s time to roundup the bills related to computer technology that the Hawai‘i legislature is considering in its 2014 regular session. Click here for a chart summarizing the proposed legislation. Here are the highlights:
Social Media and Internet Account Passwords: Several bills to prohibit improper requests for access to personal social media accounts of employees and students were introduced in the 2013 session. None of the them passed. This year, HB2415 renews the effort to outlaw improper social media password requests.
Internet Sales Tax: HB1651 would require online companies with arrangements with Hawaii merchants for referral of business to collect use taxes on sales made in Hawaii. This bill would affect online retailers like Amazon, who allows local merchants to sell their products through Amazon Marketplace.
Restrictive Covenants: In an effort to encourage the development of technology business in Hawai‘i, a state with a relatively small geographic area, two bills (HB2617 and SB3126) would prohibit technology businesses from requiring employees to enter into noncompete agreements and restrictive covenants. “Technology business” is defined as “a trade or business that relies on software development, information technology, or both.”
Cybersquatting: SB2958 would put the burden on a cybersquatter to prove that it did not register a domain name in bad faith or with intent to use it in an unlawful manner, provided that the person claiming cybersquatting can demonstrate the potential of immediate and irreparable harm through misuse of the domain name.
Cybersecurity Council: SB2474 would establish the Hawai‘i cybersecurity, economic, education, anfrastructure security council.
Mobile Devices: Three bills (HB1509, HB1896, and SB2729) would make it a State offense to use a mobile electronic device while operating a motor vehicle. Certain counties already have similar laws.
3D Printing: In response to the rising availability of 3D printers, HB1802 would make it a crime to create, possess, sell, trade, or give another person a firearm made with digital manufacturing technology.
Computer crimes: A series of bills criminalizes various kinds of computer activity, including unauthorized access to a computer or network and damage to a “critical infrastructure computer” (HB1640); theft of a computer (HB1644); or personal electronic device for storing or retrieving personal information (HB2080); and revenge porn (SB2319).
No, it’s not an acronym advising you to come to dinner with your favorite vintage of pinot noir. BYOD stands for Bring Your Own Device, a movement that’s changing the landscape of information technology at workplaces across the globe. In the “old days,” companies issued electronic equipment to employees for work use. Today, employees want to use the latest electronics of their own choice for both work and play. Surveys consistently show that companies are giving in to such requests, citing the benefits of increased productivity and morale, as well as cost savings from not having to buy the equipment themselves. However, BYOD programs also create legal risks for companies, including:
- Violation of labor laws like the Fair Labor Standards Act due to the ability of workers to rack up overtime by doing work on personal devices practically anywhere and at any time, whether or not such overtime is authorized by management
- Violation of laws prohibiting disclosure of the private information of customers, clients, or patients, such as the Health Insurance Portability and Accountability Act and the Gramm-Leach-Bliley Act
- Inadvertent disclosure of proprietary company information, which jeopardizes their confidentiality, and as a result, their status as protected trade secrets
- Complicating the e-discovery process, because electronic data that fall within the scope of a discovery request may reside on devices besides those under the direct control of the company
In light of these risks, the knee-jerk response of management might be to forbid BYOD entirely, but that is not necessarily the best approach. BYOD is more prevalent than one might think. A form of BYOD is in play whenever someone stores work data on a personal cloud storage account, uses a personal laptop to draft a memo for work, or forwards work-related word processing files to a private email account for easy access from home. A company need not officially adopt a BYOD program to have one, which is all the reason why management should be proactive about putting BYOD policies in place.
Learn about the specific risks that a BYOD program creates for your company. Develop guidelines on acceptable and unacceptable use of personal devices for work-related purposes. Notify employees of the policies in writing and provide training. Don’t wait until it’s too late!
Want more tips on BYOD? Come to the Advanced Employment Issues Symposium in Las Vegas from November 13-15, where I’ll be giving a presentation on “BYOD Challenges: When Employees Bring Their Own Devices to Work.” Registration information is available at www.aeisonline.com.
Employer sues ex-employee for not updating his LinkedIn profile — Jefferson Audio Visual Systems, Inc. v. Light, 2013 WL 1947625 (W.D. Ky. May 9, 2013).
What would you do if your ex-employee told everybody he still works for you? One company’s response was to sue. In the first case of its kind, the company decided to sue its former employee for fraud for not updating his LinkedIn profile.
Jefferson Audio Visual Systems, Inc. (JAVS) fired its sales director, Gunnar Light, after he mishandled a potentially lucrative deal and made defamatory statements about JAVS to a prospective customer. Shortly afterwards, JAVS filed a lawsuit against Light alleging various claims, including fraud. JAVS argued that Light was fraudulent in failing to update his LinkedIn profile to reflect that he was no longer a JAVS employee. A Kentucky federal court dismissed the fraud claim because JAVS failed to show that it was defrauded by Light’s LinkedIn profile. At most, JAVS alleged that the profile tricked others. Under Kentucky law, a party claiming fraud must itself have relied on the fraudulent statements.
LegalTXTS Lesson: JAVS’ actions against its ex-employee might have been rather extreme, but the case is a reminder that ex-employees can leave behind an electronic wake that is damaging. Because computer technology is an integral part of work life, management needs to be intentional in disengaging ex-employees from the electronic systems and online persona of the organization. Each organization must determine for itself what measures for dealing with such post-termination issues are feasible, effective, and consistent with its objectives, but here are some suggestions:
1. Promptly update the organization’s website, social media profiles, and any other official online presence to reflect that the former employee no longer works for the organization.
2. Specify who owns Internet accounts handled by the ex-employee for the organization’s benefit and the information stored in the accounts. This includes social media accounts and cloud storage accounts (e.g., DropBox, Google Drive, SkyDrive) to the extent they contain proprietary data. As part of this measure, be sure to obtain the information needed to access the accounts, including any updates to login credentials.
3. Restrict the amount of access to which former employees, as well as current employees whose departure is imminent, have to workstations, databases, and networks of the organization. Limiting access helps to prevent theft of trade secrets and proprietary information. Many CFAA lawsuits have been spawned by a failure to take this precaution.
4. Check if the employee left behind anything that would enable him or her to gain unauthorized access to company systems, like malware, viruses, or “back doors.”
5. Enable systems that allow of erasure of the organization’s data from electronic devices used by the ex-employee to remotely access the work network, such as smartphones, laptops, and tablet computers.
6. Establish guidelines on employee use of the company’s intellectual property on personal internet profiles (e.g., Facebook, Twitter, LinkedIn), including trademarks and trade names.