be enforceable under California law, employee non- compete and non-solicit of customer provisions are likely not. It remains to be seen whether the so-called “trade secret exception” will be a viable exception to California’s general prohibition against non-competition agreements.


Employers should keep these developments in mind when assessing such agreements and make sure that their agreements comport with the recent developments in the law. Failure to do so places employers at risk for unlawful business practice suits. In Dowell, the employer was found to have engaged in unfair competition by utilizing its overly broad non-solicitation of customer provisions. To the extent that an employer has evidence of the employee’s misuse of trade secret or “threatened misappropriation,” the employer has a claim for trade misappropriation, among other claims, in addition to a possible claim for a violation of its non- disclosure provision.


Because non-compete agreements are typically unenforceable in California, employers typically pursue trade secret misappropriation claims against former employees who steal proprietary company information. In such suits, the employer has the burden of showing that the information is a trade secret, including showing that reasonable secrecy measures were in place to protect the information. Accordingly, prudent companies should consider investing the time and money to conduct a trade secret audit. A trade secret audit generally assesses what company information may be protectable as a trade secret and the security measures the company has in place to protect such information. The results of a successful audit are


clearly identified trade secrets with adequate protection measures (including updated trade secret protection agreements) in place: the existence of which are essential to success in trade secret litigation, as well as to ensure that key company assets are adequately protected.


At a minimum, employers should review their current employment agreements to make sure that their agreements do not run afoul of these recent decisions. An agreement between employer and employee defining certain information as a trade secret does not conclusively establish its status. But such an agreement may be an important factor in establishing the value the employer placed on the information and that it could not be readily derived from publicly-available sources. Companies that are serious about protecting their assets and want to position themselves for success should litigation ensue cannot afford not to take these essential pro-active steps.


Robert Milligan is a partner with Seyfarth Shaw LLP in Los Angeles, California. He specializes in commercial and employment litigation, with a focus on trade secret litigation and counseling, including drafting trade secret protection and non-compete agreements. Mr. Milligan speaks and writes frequently on trade secret and non-compete issues. He is the co-editor of his firm’s trade secret blog, www.tradesecretslaw.com and an Executive Committee Member of the State Bar Intellectual Property Section. He can be reached at rmilligan@seyfarth.com or 310-201-1579.


22 CA Employer March 2011


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27