Federal Judge Lucy Koh Reportedly Near Approving $415 Million Settlement of Tech Worker Antitrust Suit Against Huge Tech Companies

CashThis case has always been a bit shocking and weird – California-based tech employees sued big tech companies such as Apple, Google, Adobe, Intel and others and accused them in a class-action lawsuit of arranging an “interconnected web” of agreements between 2005 and 2009 not to hire each other’s workers with the illegal but secret plan having the effect of squelching any possibility of a destructive bidding war for talent amongst these employers.

You’ll recall that the plaintiffs were able to obtain in discovery troubling e-mails between Apple’s Steve Jobs and Google’s Eric Schmidt in which the latter apologized to the former for breaking the deal.  There were also reportedly nasty e-mail patent litigation threats made by Mr. Jobs against Palm if Palm did not join the pact.

Intuit and Pixar and Lucasfilm settled early – but Apple, Google, Adobe and Intel failed to settle the civil case and an initial proposed settlement of $325 million for the approximately 60,000 or more covered employees in the class was rejected by Federal District Court Judge Koh in San Francisco.  Judge Koh’s reported reasoning?  Not enough money for the employees.  The defendants then appealed Judge Koh’s rejection of the settlement to the federal Court of Appeals for the Ninth Circuit, arguing that the trial court’s rejection of the settlement on grounds that it was “not within the range of reasonableness” was a reversible legal error.  Judge Koh apparently did the math and learned that the plaintiffs would receive approximately $4000 per worker – and that just didn’t work for her.  She mandated that the case be prepared for trial in April of 2015.  This was, by all accounts, an explicit and implicit judicial slap at the plaintiffs’ attorneys – essentially a message that the judge thought they were giving up too cheaply in a case where they had the defendants on their proverbial knees.

The new number that apparently works for Judge Koh?  $415 million.  But doesn’t this just give each plaintiff approximately another $1500 each?  Yes, seems so.  But reports are also indicating that the plaintiffs’ attorneys themselves are throwing an additional $24 million into the settlement pot (essentially giving up some of their 25% contingency) in order to generate the buy-in being reported from Judge Koh.  There’s an upcoming hearing date for the acceptance of this new figure and arrangements and we’ll report back on that.

Does a Trade Secret Plaintiff in North Carolina Have to Be the Owner of The Trade Secrets to Have Standing to Sue for Misappropriation?

license_agreementAn interesting motion was made in case pending in the North Carolina Business Court that alleged the defendants had stolen trade secrets of the plaintiff.  During the discovery phase of the suit, the defendants learned that the plaintiff was not the “owner” of the purported trade secrets – plaintiff had an exclusive license to use them from the entity that DID own the technology that constituted the trade secrets.

North Carolina’s Trade Secret Protection Act provides that “the owner of a trade secret shall have remedy by civil action for the misappropriation of his trade secret.”  This is different language than that contained in the model for the TSPA – which is the Uniform Trade Secrets Act.  In the uniform act, the action may be brought by a “complainant.”  Did the North Carolina legislature, in adopting the UTSA but modifying this language regarding who could bring a claim, intend that only the “owner” of a trade secret could bring a claim for misappropriation – not a licensee or other legal holder?

Judge Gale, in this case captioned SCR-TECH, LLC v. EVONIK ENERGY SERVICES LLC et al. , denied the motion to dismiss SCR-TECH’s motion on technical grounds that the original judge assigned to the case had already denied this same argument that plaintiff did not have standing.   As such, this rendered Judge Gale powerless to overrule the original ruling and order a different result.   But this outcome puts into direct conflict two legal/jurisprudential principles that are both foundational: (a) one judge of the same court cannot overrule the earlier ruling of another judge based on the same motion; and (b) the subject matter jurisdiction of a court can be challenged at any time, including by the court itself.

The Business Court got this one correct but it seems that this issue should be submitted to the appellate court and the case stayed to determine how the appellate courts interpret the word “owner” in this context.  Should appeal suggest that the word “owner” means that what it says and there is obviously only one “owner” of a trade secret, I await the explanation regarding this language from the same NC TSPA: “The existence of a trade secret shall not be negated merely because the information comprising the trade secret has also been developed, used, or owned independently by more than one person, or licensed to other persons.”

We’ll keep an eye on this one for you.

Jimmy John’s Employees Required to Sign Noncompete – A Legal Absurdity

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When professional colleagues first sent me links to reports that Jimmy John’s requires new employees to sign two-year noncompete agreements, I thought “The Onion is somehow behind this.”  But, according to nationwide reports, this is not a joke.

According to numerous reports, this is the how the covenant reads: “Employee covenants and agrees that, during his or her employment with the Employer and for a period of two (2) years after … he or she will not have any direct or indirect interest in or perform services for … any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located with three (3) miles of either [the Jimmy John’s location in question] or any such other Jimmy John’s Sandwich Shop.”

In most states noncompete agreements are disfavored and only permitted inasmuch as they are drafted to reasonably protect a legitimate interest of the employer.  Those legitimate interests are usually identified as either: (a) the protection of existing customer relationships; or (b) the protection of competitively-sensitive information or trade secrets.

My law firm orders sandwiches from Jimmy John’s on occasion.  Their #9 submarine is pretty good.  But, and this is rarity for yours truly, I will not be spending any money at Jimmy John’s until I hear a good explanation from the company why they felt the need to require sandwich makers and delivery people to sign a noncompete agreement.  I’ll spend my money at Which Which? instead.

In all the reports that I’ve read about this story, which apparently arose because of a class-action lawsuit challenging the manner in which Jimmy John’s treats its workers, I’ve not seen or read any mention of a rather nefarious influence that noncompetes have with employees.  That influence is what we might call the in terrorem effect or the apprehension of possible danger in the event that the covenant is breached.  Not only are employees who signed such covenants fearful of litigation that could be brought against them but new potential employers routinely shut down conversations with candidates who have previously signed noncompetes because the possibility for litigation, even bogus litigation, is too costly to bear.

Another not-routinely-identified impact that noncompetes have is that they impair an employee’s ability to bargain for better wages and benefits.  Management feels emboldened by responding to a wage increase request and sometimes responds: “But where are you going to go?  You signed an agreement with us that locks you down in this market – you’ve literally promised not to work in the marketplace.”

There is a proper role for noncompete covenants in our ever-evolving economy in which customer relationships are increasingly fleeting and sensitive information is often key to future business success.  However, when your customers are able to choose from a panoply of options  for a virtually commoditized sandwich and there’s no real secret how to put the meat on the bread and then add the mayonnaise or follow directions on a GPS to drop the sandwich off, a noncompete covenant is neither needed nor legally defensible.

 

North Carolina Court of Appeals Permits Judicial Revision of Noncompete If Contract Permits It

fortunecookieNorth Carolina’s “blue pencil” rule has historically restricted North Carolina trial courts faced with a noncompete agreement that is overbroad as written.  The traditional rule was that the court could only cross out any severable, unenforceable provisions and then determine if what was left after the “blue pencil” was used would still be enforceable. Continue reading “North Carolina Court of Appeals Permits Judicial Revision of Noncompete If Contract Permits It”

$135 Million Settlement Payment from Eaton to Triumph in Now Legendary Mississippi (and ultimately North Carolina) Trade Secrets Row

Eaton Probably Wishes It Could Go Back in Time . . . .
Eaton Probably Wishes It Could Go Back in Time . . . .

You knew this day would come – you just didn’t know what the contents of the day would unveil.  Eaton Corp. has reportedly agreed to settle for $148 million ($135 million to Triumph Group and $13 million to the former Eaton engineers) what might ultimately prove to be the most screwed-up trade secrets misappropriation case in American jurisprudence.

Eaton originally sued some of its former engineers and their new employer (then called Frisby but now called Triumph after the North Carolina company was acquired by the Triumph Group from Philadelphia) in 2004 in Mississippi state court.  Eaton claimed Frisby hired six Eaton engineers who stole trade secrets used to make aircraft hydraulic pumps and motors and were using them to assist Frisby in competition.  Eaton claimed at one time that the value of the trade secrets approached $1 billion.  Frisby and six former employees aggressively denied the allegations and counter-sued Eaton. Continue reading “$135 Million Settlement Payment from Eaton to Triumph in Now Legendary Mississippi (and ultimately North Carolina) Trade Secrets Row”

United States Indicts Five Chinese Members of China’s People’s Liberation Army for Cyber-theft of American Industrial Trade Secrets

bird-IIII’ve been blogging about reports of alleged Chinese sponsorship of industrial espionage for as long as I’ve been blogging about this topic.  Not only during the last decade have there been numerous successful prosecutions of Chinese nationals who came to America and got caught either stealing or purchasing stolen technology of various industrial interests, but we had Congressional hearings regarding the Economic Espionage Act and its reach and effectiveness and even Congressional vetoes over Chinese technology companies getting access to the American marketplace.  NOW we turn another corner and learn the Justice Department has indicted five Chinese nationals, in absentia, who worked for “Unit 61398” of the PLA and allegedly masterminded the repeated cyber-thefts of lots of American technology and secrets.

The indictment, filed by the US Attorney’s Office for the Western District of Pennsylvania, where many of the US companies who were alleged victims are based, names five Chinese nationals who worked for China’s People’s Liberation Army (PLA) in Unit 61398, a cyber-intelligence-gathering section. It alleges that state-owned companies hired the unit to provide “information technology services” that included economic cyber-espionage.

According to The Christian Science Monitor and the excellent reporting of Mark Clayton “the stolen trade secrets would in some cases give Chinese companies insights into US companies’ pricing, manufacturing techniques, and negotiating positions. In other cases, the five conspirators stole sensitive e-mails and other documents that gave Chinese firms insider knowledge of strategy and vulnerabilities of those US companies, it adds. The US companies attacked are in the steel, solar, nuclear power, and specialty metals industries.”

Mr. Clayton’s piece, quoting from the indictment, goes on to note “The indictment alleges that five defendants – Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu, and Gu Chunhui – are officers of Unit 61398 of the Third Department of the PLA who hacked into the computer networks of five US companies and the United Steelworkers Union. Mr. Huang and Mr. Gu, meanwhile, are said to also have managed computer domain accounts that the hackers used in their attacks.  Once inside, the PLA hackers set up back doors on the companies’ networks so they could maintain their clandestine footholds even if discovered – all the while downloading gigabytes of proprietary data useful to state-owned Chinese companies that compete with the American companies.”

These indicted PLA agents cannot be tried, pursuant to American criminal procedure, in absentia.  As such, these indictments will surely not result in a trial because there is virtually zero chance that the United States will ever be able to bring these indicted men to our shores for a trial.  Nonetheless this represents a shot across China’s bow by the United States that our country is aware of what the PLA and Unit 61398 are doing and where they are doing it.  As expected, the Chinese have responded with allegations of United States based cyber-spying and claims of its own victimization.

To read the Mark Clayton’s excellent piece, click this link: http://www.csmonitor.com/World/Security-Watch/Cyber-Conflict-Monitor/2014/0519/US-indicts-five-in-China-s-secret-Unit-61398-for-cyber-spying-on-US-firms-video.