Employment Law Alert : Gibbons P.C.: Labor Relations, Employment Contracts, Employee Benefits, & Wrongful Discharge Lawyers & Attorneys

A Federal District Court recently refused to dismiss a complaint for lack of subject matter jurisdiction because, among several state law claims, the plaintiff – the individual defendant’s former employer – also asserted a claim under the Federal Computer Fraud and Abuse Act (CFAA).

In NouvEON Tech. Partners, Inc. v. McClure, No. 3:12-CV-633-FDW-DCK, 2013 U.S. Dist. LEXIS 29208 (March 5, 2013), a North Carolina Federal District Court denied defendants’ Rule 12(b)(1) motion to dismiss, for lack of subject matter jurisdiction, a myriad of state law claims filed by NouvEON against its former employee (McClure) and her new employer (Smarter Systems). Defendants argued that the state law claims did not belong in Federal Court because the complaint only contained a single federal claim – alleging violation of the CFAA – and pled it only against McClure. The Court was persuaded, however, that because NouvEON alleged Smarter Systems was vicariously liable for McClure’s conduct in violating the CFAA, and because the complaint specifically incorporated by reference into the state law claims all of the factual allegations supporting the federal claim, all the claims should be resolved in one federal judicial proceeding.

Factual Background

One week after resigning from NouvEON, McClure began working for Smarter Systems. NouvEON alleged that McClure’s duties at Smarter Systems violated a non-compete agreement she entered into with NouvEON prior to leaving the company, and that McClure misappropriated confidential information by accessing NouvEON’s database after she left NouvEON. NouvEON further alleged that McClure accessed the confidential information at the direction of Smarter Systems, in order for her new employer to gain a competitive advantage over NouvEON.

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The federal government continues to take aim at those who violate trade secrets rights. On December 28, 2012, the Theft of Trade Secrets Clarification Act of 2012 (S. 3642) became law, expanding the definition of trade secrets under the Economic Espionage Act (EEA). In addition, as previously reported in a Gibbons IP Law Alert blog, the President is expected to sign legislation recently passed by Congress that triples the damages for a violation of trade secrets protection laws and provides technical changes to patent applications and protections. Also worthy of note is an 82-page report from the U.S. Department of Justice issued last month detailing federal enforcement efforts concerning trade secrets theft.

Theft of Trade Secrets Clarification Act of 2012

The broadened definition of trade secrets as defined by the Theft of Trade Secrets Clarification Act of 2012 (“TTSCA”) makes clear that trade secrets protected by the EEA may be those merely “related to” a product or service used in or intended for use in interstate or foreign commerce, even if the trade secret itself is not used directly in such a product or service. In other words, protected trade secrets now encompass technical know-how that need not become part of a product or service. The TTSCA is Congress’ answer to a Second Circuit decision in United States v. Aleynikov on February 16, 2012, as previously reported in a Gibbons IP Law Alert blog. There, in reversing a jury verdict for the United States, the Court held that, although the defendant, a computer programmer, breached his confidentiality agreement with his employer, Goldman Sachs, when he misappropriated a proprietary computer code for the employer’s high-frequency trading system, he should have never faced criminal charges for his conduct under either the EEA or the National Stolen Property Act (“NSPA”). Specifically with regard to the EEA, the Court ruled that the defendant had not stolen trade secrets related to “a product made for the purposes of interstate or foreign commerce.” The Court similarly found that the defendant had not stolen a “good,” i.e.  tangible property, as defined by the NSPA. Critical to the Court’s ruling was that Goldman Sachs’ trading system supported by the stolen computer code was used internally and not in a product or service sold commercially. That the computer code was used by Goldman Sachs to generate trades in interstate and foreign commerce did not afford it protection under the EEA. As a result of the TTSCA, however, a theft such as the one that occurred in Aleynikov would violate the EEA.

Justice Department’s Summary of the Major U.S. Export Enforcement, Economic Espionage, Trade Secret and Embargo-Related Criminal Cases

The above-noted Justice Department report details the more significant and recent enforcement actions by Federal Government agencies against private individuals and companies. The report, called the “Summary of the Major U.S. Export Enforcement, Economic Espionage, Trade Secret and Embargo-Related Criminal Cases,” summarizes “cases resulted from investigations by the Department of Homeland Security’s U.S. Immigration and Customs Enforcement, the Federal Bureau of Investigation, the Department of Commerce’s Bureau of Industry and Security, the Pentagon’s Defense Criminal Investigative Service and other law enforcement agencies.” Many of these cases resulted in criminal penalties, probation and/or monetary fees. More of these cases are likely in light of the recent litigation.

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In a case to be noted by financial services entities that are signatories to the “Protocol for Broker Recruiting,” a New Jersey District Court issued a preliminary injunction to a financial services employer, Ameriprise Financial Services, Inc. (“plaintiff”) to prevent a former financial advisor employee from retaining certain client information that he downloaded from his computer prior to his departure from plaintiff. Plaintiff was a party to the “Protocol for Broker Recruiting” that prescribes a method for a departing employee to retain certain client information when leaving for another financial services institution. To grant the injunction, the Court found that plaintiff showed it likely would succeed on its underlying breach of contract claim, it would suffer immediate irreparable harm absent the injunction, defendant would not suffer harm if enjoined, and the injunction favors the public’s interest. The Court essentially decided that if the Protocol is not followed in the first instance, a departing financial representative’s subsequent compliance is tainted and insufficient to withstand subsequent legal challenge.

Factual Background

In Ameriprise Financial Services, Inc. v. Paul Koenig, defendant, had access to confidential information which included customer lists, contact information, financial information and new client prospects. Plaintiff adopted “The Protocol for Broker Recruiting” (“Protocol”) which prescribes a method for a financial services employee to retain certain customer information when departing to join a new financial services employer and permits the employee to solicit clients after joining the new firm, absent some other contractual or common law limitation on solicitation. The Protocol further provides that if the steps in the Protocol are followed, the departing employee and the new employer will not be liable for damages for retaining the information. When defendant began employment, he signed a Financial Advisor Agreement (“FA”) agreeing not to reveal certain confidential information of plaintiff.

Plaintiff terminated defendant for insubordination because he refused to attend a mandatory meeting. Defendant then attempted to resign by complying with the Protocol, which plaintiff refused to accept. However, after the termination, plaintiff found several client paper files missing, and it forensically determined that before his termination, defendant sent emails to his personal email with client contact information. Plaintiff also found that certain contact information and client meeting information had been deleted from its client contact database. Plaintiff filed a lawsuit for breach of contract, tortious interfrence with contract, misappropriation of trade secrets and unfair competition. Plaintiff also made a motion for a temporary restraining order.

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New Jersey employers should be aware that yesterday Governor Chris Christie signed into law the New Jersey Trade Secrets Act (“the Act”), which for the first time codifies the law in New Jersey concerning the misappropriation of trade secrets. The new law is derived largely from, although is not identical to, the Uniform Trade Secrets Act, variations of which have been adopted in the great majority of states. New Jersey companies who are concerned about potential trade secret misappropriation by current or former employees should study the new law carefully.

Key Definitions:
The Act makes unlawful the “misappropriation” of “trade secrets” by “improper means.” The Act broadly defines “trade secrets” as:
information, held by one or more people, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that:

1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

“Misappropriation” is defined as:

1. Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
2. Disclosure or use of a trade secret of another without express or implied consent of the trade secret owner by a person who:

(a) used improper means to acquire knowledge of the trade secret; or

(b) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was derived or acquired through improper means; or

(c) before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired through improper means.

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