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Trade Secrets Law is Now Stronger Than Ever. Will This Lead More States To Invalidate the Less Useful, But More Pernicious, Employee Non-Compete?

Charles H. Martin Contract Law and Public Policy

Trade Secrets Law is Now Stronger Than Ever. Will This Lead More States To Invalidate the Less Useful, But More Pernicious, Employee Non-Compete Agreement?

The “Defend Trade Secrets Act of 2016” was signed into law yesterday by President Obama. It creates a new federal private civil action against trade secret thieves. This is a useful alternative to the pre-existing state private civil actions by trade secret owners, because it 1) provides access to federal courts nationwide, 2) allows a federal judge to order the nationwide seizure of property violating a trade secret, and 3) allows the judge to protect the related secret from disclosure, including through encryption.

The judge’s order cannot be used to enforce an employee non-compete agreement. It also cannot serve an equivalent purpose by being based only on an employee’s knowledge of a trade secret, without an actual threat of its misappropriation by the employee. The new law also allows extra civil damages for willful and malicious trade secret theft.

California has always viewed state law trade secret protection as the appropriate approach to protecting valuable business information (except for patent, trademark and copyright protections), rather than employee non-compete agreements. Non-competes have been widely criticized as harmful to employee mobility and new business development. Now that stronger federal law trade secret protection is available nationwide, it makes sense for more states to restrict or invalidate employee non-compete agreements under state law.

Charles H. MartinTrade Secrets Law is Now Stronger Than Ever. Will This Lead More States To Invalidate the Less Useful, But More Pernicious, Employee Non-Compete?