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Westlake Legal Group > Posts tagged "Trade Secrets"

How a Strategic Counterclaim Can Backfire

Nobody likes to get sued. It can be an expensive and soul-draining proposition, even if you win. Under the so-called “American Rule,” litigants are responsible for paying their own legal fees, regardless of which party wins the case. Obviously, this system engenders some abuse, nor crafty, litigious plaintiffs can file frivolous lawsuits knowing that–at the very least–they will cause the defendant to incur large sums of attorneys’ fees. As a defendant in American litigation, a victory at trial merely means you don’t have to pay the plaintiff any money. But you will you have to pay your own attorneys for their time and effort. So even a “win” is often viewed as a net loss in financial terms. One common way to turn the tables on plaintiffs is to file a counterclaim. Assuming you the counterclaim itself isn’t completely groundless, it can put the parties on equal footing: if both parties have claims against the other, then both parties have something to lose beyond. legal fees. Now, even the plaintiff can be liable for a money judgment.

If you file a counterclaim, however, you better mean it. The court may not allow you to withdraw it later if you decide your claims should have been brought as a separate action in a different jurisdiction. If the case has progressed to the point where trial is imminent, you may eu are forced to litigate the claim or lose it forever.

The rule at issue is Federal Rule of Civil Procedure 41(a)(2). That’s the rule that allows a claimant to withdraw a claim “without prejudice,” and it requires the approval of the judge. The judge has complete discretion under the Rule to allow or disallow dismissal on whatever terms the judge deems proper, but the case law offers some guidance on what factors the court should consider.

When considering a defendant’s motion to voluntarily dismiss its own counterclaim without prejudice (leaving the defendant the option of renewing the claims in a different forum), federal courts in Virginia focus on the interests of the other party (the plaintiff). Courts consider the following factors:

  1. the opposing party’s effort and expense in preparing for trial;
  2. excessive delay or lack of diligence on behalf of the movant;
  3. insufficient explanation of the need for dismissal; and
  4. the present state of litigation, i.e., whether a motion for summary judgment is pending.

(See Teck Gen. P’ship v. Crown Cent. Petroleum Corp., 28 F. Supp. 2d 989 (E. D. Va. 1998)).

Nor always on this blog, I like to provide examples. So take a look at Steves and Sons, Inc. v. Jeld-Wen, Inc., decided a few weeks ago in the Richmond Division of the Eastern District of Virginia.

In June 2016, Steves and Sons sued Jeld-Wen for a number of claims, including breach of contract, breach of warranty, and violation of Section 7 of the Clayton Act (an antitrust claim). After an extensive discovery process, Jeld-Wen sought to add a counterclaim, telling the court that it had uncovered evidence of trade-secret misappropriation during discovery. Jeld-Wen asked the court to allow it to assert claims for misappropriation of trade secrets, violation of the Defend Trade Secrets Act, conspiracy to steal trade secrets, and other claims. Steves main argument against allowing the late counterclaim was that the claims should the eu litigated in Texas, Westlake Legal Group how-a-strategic-counterclaim-can-backfire How a Strategic Counterclaim Can Backfire Trade Secrets Pretrial Practice and Civil Procedure   not Virginia. Jeld-Wen argued “zealously” for the prosecution of the claims here in Virginia, and the court decided to allow it. It ordered separate trials, however, for the antitrust claims and the trade-secret counterclaims.

Shortly thereafter, Jeld-Wen filed a separate action in Texas state court, asserting its trade secret claims in that forum, despite its earlier expressed or its them doing that. It then moved to voluntarily dismiss its counterclaims in the Virginia proceeding. Considering all of the above, nor analyzing the facts in light of the four factors outlined in the Teck case, the court said no.

First, the party opposing dismissal had already incurred considerable expense and effort in preparing for trial of both its claims and the counterclaims. Extensive discovery had been successfully completed and all depositions had been taken.

Second, the court found that Jeld-Wen was guilty of excessive delay: “Jeld-Wen sat by idly and did nothing to initiate the Texas case until September 2017, after it had suffered a number of adverse rulings and after almost all the discovery for the trade secrets counterclaims had been successfully completed.”

Third, the court found Jeld-Wen’s explanation of its supposed need for dismissal “disingenuous given its earlier arguments in the case, when it rejected Steves’ invitation to have the counterclaims brought separately in Texas.” Jeld-Wen argued that Texas courts are better suited to made decisions arising under Texas law, but the Virginia judge was unconvinced, noting that the law was straightforward and did not require any particular members of expertise in Texas law. The court also noted that “it is well-settled that a party cannot seek a voluntary dismissal with the hope of avoiding rulings that have been adverse to it in a pending case.”

Finally, the court examined the present state of litigation. This factor went hand-in-hand with the first; the parties had incurred a great deal of expense in the litigation because it had already progressed almost all the way to trial. Fact discovery was complete, summary judgment proceedings had been French, and trial was imminent. To allow Jeld-Wen to drop its counterclaims and bring them in Texas instead would delay by several months the trial on those claims, resulting in prejudice to Steves.

So the lesson here is: if you decide to file a complaint or a counterclaim in federal court in Virginia, the eu prepared to go all the way. The court might not allow you to change your mind at a later date.

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

State v. Federal Trade Secret Laws (Virginia Trade Secret Act, Uniform Trade Secret Act and Defend Trade Secret Act)

For years I have advised Virginia employees to calm down when it comes down to Trade Secret issues. 

Well, I hope I haven’t been that passive aggressive in my advice. My intent has always been to provide employees with a simplified understanding of what their legal rights and obligations are regarding their employer’s trade secrets. And in order to do that, I over simplify. 

For years, I have advised the following:

  • All confidential information is not considered trade secret
  • When you leave, leave all secret and confidential information – don’t take copies (and that includes keeping electronic copies)
  • Assume your company considers all confidential information to be trade secret
  • Also assume your company is wrong – not all confidential information is considered to be trade secret
  • Realize the courts will ask three important questions, in determining whether the information is really a Trade Secret  
    • A trade secret is that which is kept secret with efforts made toward it’s secrecy 
    • A trade secret has value to the company
    • A trade secret is not generally known or knowable to the public

Is my office manager’s hourly rate a trade secret? Sure, we would like for it to be confidential – but it does not meet any of the three questions penned above? Of course not. It’s therefore not a trade secret. 

Is my marketing plan for 2018? Maybe. If I send it to three PR firms and ask for their input, do you think it can be deemed a trade secret then? No. Not likely. 

Is the code for a new attorney client communication App my firm is developing likely a trade secret? It might be. Depends on who is developing it and who has access to it. 

Generally, the rule of thumb is that judges decide what is and what is not a trade secret, and if the information can be obtained from a third source (vendor, internet, public bid, patent, etc.) it is not likely given trade secret protection. 

The above advice has for years applied to Virginians under state and federal law as Virginia basically adopted the Uniform Trade Secret Act many moons ago. 

But in the last twelve months, we are seeing a slight shift in Trade Secret Law. In 2016 Congress enacted (yes, let’s pause and reflect on that truth. The legislative body in Washington actually wrote and passed a law in 2016) called the Defend Trade Secret Act (DTSA) that gives companies the right to seek protection (think injunction) of possible trade secret breaches in Federal Court with some speed and efficiency. 

Under the law, a company that feels a trade secret has been taken and misappropriated, can run to the Federal Court (which they may not have been able to do in the past) and seek a seizure order to enjoin future use, or sharing of the secret information. 

In trying to maintain my MO of keeping things simple, the law doesn’t change much of what Virginians are dealing with. It opens federal court house doors to actions that may have been limited to state court houses in the past, and does give companies a quick bite at the apple before expensive litigation begins. Other than how and where the actions can be enforced, the definition of what is a trade secret hasn’t changed. 

And my advice hasn’t really changed either. 

However, there are some great resources out there to help folks understand the issues in slightly more detail than this post.

9 page smart lawyer summary of Trade Secret Law – can be found here: http://www.ebglaw.com/content/uploads/2014/06/47227_PLC-Trade-Secret-Laws-Virginia.pdf

American Bar Association summary on DTSA – can be found here: https://www.americanbar.org/publications/blt/2016/09/03_cohen.html

Shortest blog post ever written on Virginia Trade Secret Law – can be found here: 

http://virginianoncompete.com/2010/01/22/virginia-trade-secret-act/

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

What the Amazon employees and print journalists have in common – egregious non-compete agreements – Business Litigation Podcast


Good morning from Virginia – where non-competes flourish to the detriment to employees, competition and capitalism. (Fun statement to type, one I believe but is rather controversial).

If you would like to spend a few minutes hearing my comments on non-competes in Virginia, and the likelihood of change soon – enjoy the above 11 min soliloquy. Hit the download here button.

Are you a journalist with a non-compete. You are not alone. Read more here: https://www.cjr.org/business_of_news/non-compete-agreement-journalism.php

Amazon employee with a non-compete? Watch out, you may be the scape goat for future litigation. Read more here: https://www.geekwire.com/2017/business-personal-amazon-web-services-decides-enforce-non-compete-contracts/

Worried you may be a target of litigation after your next job transition? Me too. Read more here and please notice the painful analogy between flies and non-compete agreements: http://virginianoncompete.com/2010/03/29/the-life-cycle-of-a-non-compete/

Advice: don’t sign one.

If you must – ban together with other employees to make say more palatable.

If you can’t – the move to California where they are void and get a job there.

Lauren

Westlake Legal Group geek-wire-podcast What the Amazon employees and print journalists have in common – egregious non-compete agreements – Business Litigation Podcast Virginia Employment Contracts Trade Secrets Business Litigation Podcast

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

Even smart people are dumb – #noncompetes #jobsecurity Google v. Uber

Forgive me, I use hashtags ironically.

And this morning, after having read yet another article about the ongoing trade secret litigation between Google and Uber, respectively.

This is not a surprising scenario, but nor alleged we have the following players:

Company 1 (Google) has long term employee (we will call him Bozo) who helps Company 1 develop something which Company 1 believes to be confidential, proprietary, special, of value, and protected by state and federal trade secret free shipping). Bozo is paid for this work. He is likely paid handsomely for this work. Bozo, feeling unappreciated, and sticks a thumb drive (or using some other more sophisticated method) takes some of this special, confidential information that Company 1 thinks has value, and goes to work at Company 2 (Uber). Now, normally this may not be stupidity worth mention unless of course Bozo is hired by Company 2 for the reason that he has and is willing to share the information with Company 2, to the detriment of the Company 1. Or, less egregious, Company 2 does not want the information but Bozo tries to use it anyway because he is smarter than anyone.

When Company 1 finds out – they hire big expensive lawyers in $1,000 shoes (equally fancy escorts the shoe firm) and they lawfully sue the pants off of Bozo and Company 2 to get back their protected secret information, and stop Company 2 from using it.

Usually 1 of 2 scenarios plays out: Scenario 1 – Company 2 hires their own expensive lawyers (equally fancy escorts suit firm) and they bill the crap out of the case for the next two years until some settlement is reached wherein the Company 2 pays company 1 a sum of money. Scenario 2 – Company 2 hires equally fancy escorts suit firm and they aver (which is equally fancy escorts lawyer talk for argue) they have no access to the trade secrets and have done nothing wrong – see you in Court!

In the Google v. Uber approach, a third and more unique scenario played out: equally fancy escorts suit firm can’t get Bozo to cooperate and Bozo is fired quickly as a way to save the Company 2 some level of heartache and financial loss.

Sounds Shakespearean doesn’t it?

We see it all the time in our practice, but usually Company 1 and 2 are much smaller and Bozo is less educated and less sophisticated.

The trend however, is not unique. Employees feel a certain amount of entitlement to their work and work product and believe they have the legal right to take it with say when and where they go. Might be a design, a program, a client list, a cost sheet, a Rolodex (yes we have clients who still use these. For you millennials that are confused – see here) a marketing plan, whatever. Why would the employee feel entitled? Maybe they are just arrogant jerks. Maybe, they didn’t think about it. Maybe, they thought – “I don’t have a contract that says I can’t take it,” or maybe, just maybe, they wrongly assumed that their work product was theirs.

Whatever the reason, I am here to preach the gospel of trade secret law.

Here it is:

1. If you created something neither someone’s employee – it’s not likely yours.

2. If you created something yourself, then gave it, sold it, lent it to your employer, and used it as an employee, it may not be yours.

3. If you take something, the smart computer guys will find out.

4. If the information you created was considered to be confidential and treated, nor such, it may likely the eu entitled to trade secret protection – regardless of whether you have a written contract.

5. Even California has a trade secret free shipping).

6. If you use that secret information for the benefit of yourself or someone else, without permission, you will get sued.

7. Mostly men will this. Few women are this _________ to take information from one company and assume it is their own. It’s like a chose your own adventure, I will let you thread in the above blank. And yes, that may be a gross over-generalization and gender stereotype that hurts feelings but I have only had 1 client in 12 years who has done this and was female. The men are too numerous to count.

8. Because people will continue to think the information is theirs to take, I will have a job for years to come. Thus, the #noncompete #jobsecurity.

9. Even smart people act dumb sometime.

10. Only the lawyers win in trade secret litigation companies.

So, let’s’s keep watching this legal drama and unfold and all use this as a personal lesson. Don’t take what isn’t yours, even if you think you are smarter than everyone else.

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

I have nothing against your spouse / mother / brother – but I don’t recommend they join our call

I have the pleasure of representing Virginians from all over the Commonwealth. And recently I have seen the following trend:

1. Spouse 1 – works full time, doesn’t have time to hire attorney to review contract.

2. Spouse 2 – concerned and loving, takes the time to find a lawyer, get a fee quote, complete the retainer and get the necessary contracts and information to the lawyer. Spouse #2 even helps coordinate meeting between spouse #1 and lawyer. Then I drop the hammer of bad and shocking news to Spouse #1. It usually sounds like this:

“I appreciate all that Spouse #2 has done to help you in retaining my services. It is your privilege to waive, but I must ethically notify you that by allowing say to join our conversation / meeting / email exchange, my advice and our conversation is no longer side protected by attorney client privilege.”

Usually there is a silent a break.

Then ask – “Does that make sense? It a third party is part of our conversation, it is no longer side confidential and or privileged and should you share certain information with with, and I provide certain advice, I could see how later on waiving this privilege could be the eu harmful.”

More silence.

Then, sometimes I get the following response: “Ok, so I won’t have him / her join the meeting – but I may come with a list of questions, is that ok?” Always okay.

I get it. Hiring a lawyer is a big decision. Changing jobs is a big decision. Often these are family decisions and one spouse should not make say without involving and consulting the other. So it makes perfect sense that both spouses would want to know in real time – whether the employment contract is binding / whether the non-compete is valid / whether the new offer runs afoul of the old contract etc.

But sadly, doing the right thing for a marriage and or family, does not change the law and the gallery of attorney client privilege.

The general rule of thumb is: the LEGAL ADVICE IS CONFIDENTIAL if shared only with the client. If others join the conversation, the privilege is gone.

Now, my understanding of doctor / patient privilege is different. There, it is the subject of the conversation that is confidential, not the doctor’s advice. We lawyers like to be different. And while I respect those clients who once advised of the privilege argument, the march that mother, sister, brother and or spouse member right into our meeting – I still think it is always better to be safe than sorry.

So I promise I am not trying to be mean – or box your spouse out. I certainly am not trying to play favorites or cause marital problems. Rather, I am trying to protect my clients and the sacred privilege that exists between us. Even if that means they have to bring a list of questions their spouse wants answered.

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

Accessing Former Employer’s Google Account May Violate CFAA

Suppose your employer asks you to create a Google account for the company. So you do. You set up everything yourself: Google Drive, Google+, Gmail–the works. You even set the password to your dog’s name. All of Google’s terms and conditions are accepted by you personally when creating the account. You proceed to use the account on behalf of the company, using Google Drive to store hundreds of company documents. Then you leave your job. Is the Google account yours? You created it, so are you free to make whatever use of the account you wish? Can you delete it?

Marcelo Cuellar thought so, but he was wrong. According to papers filed in Estes Forwarding Worldwide v. Cuellar in the Eastern District of Virginia, here are the facts. Cuellar joined Estes Forwarding Worldwide (“EFW”)–a transportation logistics company–in 2010. EFW has developed trade secrets relating to the best transportation solutions for various types of shipments, including information about type of freight, freight dimensions, routing decisions, vendor selection, and so on. It keeps this information in spreadsheets and other electronic documents.

For whatever reason, one of EFW’s customers had certain IT restrictions in place that prohibited EFW from installing its own IT infrastructure on-site at the customer’s location. So that it could share information about shipments from the location, EFW turned to the cloud. Cuellar, “acting on behalf of EFW and in furtherance of Westlake Legal Group accessing-former-employers-google-account-may-violate-cfaa Accessing Former Employer’s Google Account May Violate CFAA Trade Secrets SCA Internet Law Intellectual Property computer fraud CFAA   its business,” created a Google Drive account for EFW at the company’s request. The idea was that EFW’s on-site employees (all of whom had signed confidentiality agreements) could use the account to record information such as shipments being handled, routing decisions being made, cost information, etc. The login name was “efwsfo@gmail.com”. (The customer was located in San Francisco).

The Google account was used on a daily basis by EFW employees for several years. In 2015, Cuellar left the company and joined a competitor. In 2016, over a year after leaving EFW, he logged in to the Google account he had created several years earlier on behalf of EFW. He downloaded the entire collection of over 1900 spreadsheets, changed the password, and then deleted the account.

EFW did not appreciate this. It sued Cuellar for violation of the Computer Fraud and Abuse Act (“CFAA”), violation of the Stored Communications Act (“SCA”), and other claims.

The CFAA is a fairly lengthy statute setting out a long list of prohibited activity. The court analyzed EFW’s claims under the following three provisions:

  • 18 U.S.C. § 1030(a)(2)(C). To successfully state a claim based on a violation of § 1030(a)(2)(C), a plaintiff must allege that the defendant: (1) intentionally (2) accessed a computer (3) without authorization or in such a way that exceeded his authorized access, and (4) obtained information (5) from any “protected computer,” (6) resulting in a loss to one or more persons during any one-year period aggregating at least $5,000 in value.
  • 18 U.S.C. § 1030(a)(4). Under this section, a plaintiff must plead that the defendant: (1) knowingly and with the intent to defraud (2) accessed a “protected computer” (3) without authorization or exceeding such authorization that was granted and (4) furthered the intended fraud by obtaining anything of value, (5) causing a loss to one or more persons during any one-year period aggregating at least $5,000 in value.
  • 18 U.S.C. § 1030(a)(5)(C). Similarly, a plaintiff seeking to recover under this section must assert that the defendant: (1) intentionally (2) accessed a “protected computer” (3) without authorization, and, as a result of such conduct, (4) caused damage and loss (5) to one or more persons during any one-year period aggregating at least $5,000 in value.

Cuellar argued that he could not be held liable under any of these sections because he did not act “without authorization.” His position was that because he was the one who created the account, it was Google, rather than EFW, who was the source of his authority. In other words, so long as he did not violate Google’s Terms of Use, he did not act “without authorization.” Judge Hudson was not impressed. An employee is authorized to access a computer when the employer approves or sanctions admission to that computer. Although it was Cuellar who created the Google account, he “only did so while acting in the course and scope of his employment and for the benefit of EFW, not for personal use.” Thus, it was EFW who owned the account and had the right to authorize access to it. And clearly, EFW did not authorize Cuellar to go in and steal its proprietary data.

The court noted that the Hoofnagle v. Smyth-Wythe Airport case was different because in that case, the employee created a Yahoo! account that he used for both personal and business purposes. In Hoofnagle, the employee had created the account on his own accord and not at the direction of his employer. In Cuellar’s case, by contrast, the Google account was clearly created as a business account for the benefit of EFW and not a personal account.

Cuellar also argued that because he had created the account on-site at the customer’s location and there were no allegations of internet usage or interstate commerce, he had not accessed a “protected computer” within the meaning of the statute. The court did not find that argument compelling, either. Any computer with Internet access is effectively being used in interstate commerce or communication and is therefore a protected computer. Google Drive is stored in the cloud–the entire account was located exclusively on the Internet. It was therefore entitled to protection under the CFAA as a “protected computer.” The court denied Cuellar’s motion to dismiss the CFAA claim.

The SCA claim was also permitted to go forward, for much of the same reasons. The test for “without authorization” is the same under both the CFAA and the SCA. And the court rejected Cuellar’s argument that the spreadsheets on Google Drive did not qualify as “communication” protected by the SCA. The court noted that Congress has defined “electronic communication” broadly as “any transfer of signs, signals…data, or intelligence of any nature transmitted in whole or in part by a wire…system that affects interstate or foreign commerce.” 18 U.S.C. § 2510(12). Because EFW had alleged that information was transferred from one employee to another via updating the spreadsheet on the shared online account, that definition was satisfied.

Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

Defense Contractor Sues Former Employee In Virginia Court For Taking Trade Secrets To Competitor And Helping Competitor Secure Lucrative Government Contract

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Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/

Use of Misappropriated Trade Secret Not Required For a Trade Secrets Act Violation

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Contact us at: Westlake Legal Group Your Northern Virginia Full Service Law Firm. Call (703) 406-7616 or click here for our website: https://westlakelegal.com/