Supreme Court Specifies Limits on Personal Jurisdiction

n June 19, 2017, the United States Supreme Court in Bristol-Myers Squib Co. v. Superior Court of California, issued an 8-1 decision clarifying the bounds of specific jurisdiction over multi-state corporations. Following the trend established by the Supreme Court in its 2014 Daimler AG v. Bauman decision, the Court applied established principles of civil procedure to reach a decidedly pro-business holding that limits specific jurisdiction to cases where the facts at issue arise directly out of defendant’s presence in the forum state.

Background

Over 600 plaintiffs filed suit in state court in California against Bristol-Meyers Squib Co. (“BMS”) claiming that one of BMS’s drugs, Plavix, had injured consumers. Of the 600 plaintiffs, only 86 were California residents – the rest had no connections with California at all (they did not purchase or ingest the drug in California, and were not injured in California). However, each plaintiff’s claim was essentially identical.

BMS moved to dismiss the claims brought by the out-of-state plaintiffs for lack of personal jurisdiction. During the Court’s deliberation on the jurisdictional issue, the Daimler decision came down, effectively foreclosing general jurisdiction as an option in this case.  Instead, the California Supreme Court granted specific jurisdiction over the out-of-state plaintiffs, applying what they termed a “sliding scale approach to specific jurisdiction” in which the exercise of jurisdiction was allowed “based on a less direct connection between BMS’s forum activities and plaintiff’s claims than might otherwise be required.”

Certiorari was granted to determine whether this novel “sliding scale” approach violated BMS’s due process rights.

The Majority Holding

he majority of the Supreme Court held that the California Court’s sliding scale approach did violate the Due Process Clause of the Fourteenth Amendment (characterizing it as a “loose and spurious form of general jurisdiction”) and found that California courts lacked specific personal jurisdiction over the out-of-state plaintiffs under the traditional “arising out of” analysis.

Writing for the majority, Justice Alito explained that what is needed for a finding of specific jurisdiction “is a connection between the forum and the specific claims at issue.” Since the out-of-state plaintiffs had no personal connections to California, there was no reason to submit BMS to the “coercive power of a State that may have little legitimate interest in the claims in question.”

The Dissent

In a dissenting opinion, Justice Sotomayor focused on the apparent unfairness of the majority’s position, noting that the decision could have the effect of making it more difficult to “aggregate the claims of plaintiffs across the country whose claims may be worth little alone.”  In particular, the dissent took issue with the level of relatedness required for a finding of specific personal jurisdiction, arguing that the majority holding narrowed this standard to an unworkable and unfair degree.

Takeaways

n its 2014 Daimler decision, the Supreme Court greatly limited corporate exposure to general jurisdiction by taking an extremely narrow view of where a corporation is “at home.” Now, in BMS, the Court has taken a similarly pro-business approach, this time to specific jurisdiction, and limited the exposure of companies who operate nationwide.

The impact of this decision on class action claims, foreign corporations, and multi-defendant litigation is yet to be seen. If this holding plays out as Justice Sotomayor believes, however, such claims will be severely curtailed, if not entirely stifled. This decision gives a protective shield to corporate defendants, and shifts the burden to plaintiffs to figure out whether and where the appropriate forum exists.

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Lauren Corbett, the author of this case summary, is an associate at Beck Reed Riden LLP, focusing her practical on complex commercial litigation and employment disputes.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Massachusetts Court Warns Employers Not to Coast on Forum Selection Clause

he Business Litigation Session of the Massachusetts Superior Court recently dismissed a noncompete case against a California employee on the basis of forum non conveniens, notwithstanding a Massachusetts forum selection clause and a Massachusetts choice-of-law provision in the defendant’s employment agreement. The case is titled Oxford Global Resources, LLC v. Hernandezand it was issued on June 9, 2017.

This decision calls into question the enforceability of forum selection and choice-of-law provisions in employment agreements with California employees. The decision also characterizes employment agreements (especially with low-level employees) as “contracts of adhesion” that may be subject to more careful judicial scrutiny. Finally, as discussed below, the Hernandez opinion takes a dim view of what constitutes an employer’s “confidential information,” highlighting existing tension in Massachusetts case law.

Background

efendant Jeremy Hernandez was a California resident who was recruited, hired, and employed by Plaintiff Oxford Global Resources, LLC, in California. Hernandez’s employment with Oxford was conditioned on his signing a “protective covenants agreement,” which contained confidentiality, noncompete, and nonsolicitation obligations, as well as a Massachusetts choice-of-law provision and a Massachusetts forum selection clause. Oxford filed the case claiming that Hernandez breached his agreement when he used Oxford’s confidential information to solicit its clients on behalf of a competitor. Hernandez moved to dismiss the case on the basis of forum non conveniens.

As an initial matter, the Court found that because Hernandez had no meaningful opportunity to negotiate the terms of his employment agreement, it was a contract of adhesion that was subject to careful scrutiny. The Court based its finding on the following facts:

  1. Oxford would not have hired Hernandez if he did not sign the agreement.
  2. Oxford did not allege or offer any evidence suggesting that the parties negotiated the choice-of-law or forum selection provisions, or that Oxford had even demonstrated a willingness to discuss the issues.
  3. Hernandez started as an entry-level employee at $50,000 annual salary.
  4. Hernandez possessed no prior industry skill or experience that would have given him bargaining power to negotiate the agreement.

Notably, the Court did not give any weight to “boilerplate language” in the agreement stating that Hernandez had read the agreement and had the opportunity to have his own lawyer review it.

The Court next found that enforcing the agreement’s Massachusetts choice-of-law provision would result in “substantial injustice” to Hernandez. Because Hernandez was a California resident who was recruited, hired, and employed there, California law (generally voiding noncompetes) would otherwise govern the dispute absent a choice-of-law provision. The court ruled that enforcing the provision would deny Hernandez the protections of California law and subject him to a noncompete.

Although some California courts recognize a trade secret exception that permits the enforcement of agreements that are “necessary to protect the employer’s trade secrets,” the Court nevertheless found that the agreement, which provided that Hernandez could not compete against Oxford using its trade secret information, was not enforceable because it defined confidential information so broadly as to include the identities of Oxford’s customers, prospective customers, and consultants. The Court stated:

The non-competition restriction that Oxford seeks to enforce therefore goes far beyond what is permitted under California law or, for that matter, under Massachusetts law.

An employee is free to carry away his own memory of customers’ names, needs, and habits and use that information, even to serve or to solicit business from those very customers. Such “remembered information” is not confidential because the information itself, as distinguished from an employer’s compilation of such information into a list or database, is known to the customers and thus not kept secret by the employer

The Court concluded that:

Since the mere identity of customers is not confidential, the Agreement that Oxford seeks to enforce is the kind of non-competition agreement that is void under California law. Accordingly, the Court held that the choice-of-law provision was not enforceable.

Finding that it was evident that Oxford sought to include a Massachusetts forum selection clause in order to avoid the application of California law, the Court also held that the forum selection clause was not enforceable under California law.

Ultimately, the Court dismissed the case on grounds of forum non conveniens, finding that it would be unfair to compel Hernandez to defend in Massachusetts and that California had a stronger interest in the case.

Import of the Hernandez Decision

ernandez not only underscores the difficulty of enforcing restrictive covenants against California residents, but also generally calls into question the validity of choice-of-law and forum selection clauses, especially where the employee has had no meaningful opportunity to negotiate the terms of his employment agreement.

Notably, in characterizing the employment agreement as a “contract of adhesion,” the Court in Hernandez gave no weight to the affirmative representations in the agreement (stating that the employee had read and had opportunity to have his attorney review the agreement). Historically, the Superior Court has given varying degrees of weight to these types of affirmative representations.

Moreover, Hernandez adds to the argument that (in some instances) employees are permitted to use their employer’s confidential information concerning client names, needs, and habits, as long as that information is “remembered” rather than compiled into a list or database. In this respect, Hernandez highlights the tension that exists in Massachusetts case law regarding confidential information that is stored in an employee’s memory.

Given the evolving case law on these issues, businesses seeking to protect their confidential information should consult with their attorneys before drafting or enforcing these types of agreements.

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Hannah T. Joseph, the author of this article, is a lawyer in the firm’s litigation practice, whose work in intellectual property has been recognized by, among others, the Boston Bar Association (where she serves as Co-Chair of the Boston Bar Association’s Intellectual Property Committee). Thank you to Monika Zarski for contributing to this article.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Matal v. Tam: SCOTUS Brings a New Slant to Disparaging Trademarks

On June 19, 2017, the United States Supreme Court in Matal v. Tam struck down the Lanham Act’s disparagement clause, which prohibits the registration of disparaging trademarks, finding that the provision violates the Free Speech Clause of the First Amendment. 582 U.S. __, No. 15-1293, 2017 WL 2621315 (U.S. June 19, 2017).

In an 8-0 ruling, the Court held that trademarks are private speech, not government speech or the subject of government subsidies or programs which may be withheld by the government. The Court further held that, even if trademarks are commercial speech, the disparagement clause cannot withstand relaxed scrutiny because it was not narrowly tailored to prevent discriminatory and demeaning trademarks. Consequently, the Court found the disparagement clause to be facially unconstitutional under the First Amendment.

Under Tam, the U.S. Patent and Trademark Office (USPTO) may no longer deny trademark registrations on the basis that the marks may be disparaging. Accordingly, Tam will undoubtedly have far-reaching consequences in the business community (and, not to mention, finally resolve the Washington Redskins case).

The Lanham Act’s Disparagement Clause

The Lanham Act’s disparagement clause prohibits the registration of trademarks “which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute . . . .” 15 U.S.C. § 1052(a).

Under the disparagement clause, the USPTO will find a prima facie case of disparagement where (1) the trademark refers to “identifiable persons, institutions, beliefs or national symbols,” and (2) a substantial percentage of the referenced group, “in the context of contemporary attitudes,” would consider the mark to be disparaging. Once a prima facie case is made, the burden shifts to the applicant of the mark to prove that the mark is not disparaging. The USPTO has clarified that the fact that the applicant is a member of the referenced group or has good intentions in using the mark does not change the analysis.

The Case

Simon Tam is the lead singer of “The Slants,” an Asian-American rock band. He chose the name “The Slants,” a variant of an ethnic slur, in order to reclaim stereotypes about people of Asian ethnicity.

In 2010, he applied to register the band name with the USPTO’s principal register. The USPTO rejected the application, finding that “there is . . . a substantial composite of persons who find the term in the applied-for mark offensive.” Tam contested the decision before the examiner and the USPTO’s Trademark Trial and Appeal Board (TTAB), but was denied.

Tam took the case to court, and the Federal Circuit ultimately held that the disparagement clause is facially unconstitutional under the First Amendment’s Free Speech Clause. The court held that the clause engages in viewpoint-based discrimination, regulating the expressive component of trademarks which cannot be treated as commercial speech, and that the clause cannot survive strict scrutiny.

The government filed a petition for certiorari, which the U.S. Supreme Court granted on the issue of whether the disparagement clause is facially invalid under the First Amendment.

Supreme Court Rules that the Disparagement Clause is Unconstitutional

As a threshold matter, the Court addressed Tam’s argument that the disparagement clause does not apply to marks that disparage racial or ethnic groups. The thrust of Tam’s argument was that the clause prohibits the registration of marks that disparage “natural persons,” not groups. The Court dismissed Tam’s definitional interpretation as “meritless” and refuted by the “plain terms” of the clause (noting that “every person is a member of a ‘non-juristic’ group, e.g., right-handers, left-handers, women, men, people born on odd-numbered days, people born on even-numbered days”). The Court also found that the clause applied broadly to encompass not only marks that disparage natural persons, but also marks that disparage “institutions” and “beliefs.”

Next, the Court addressed the government’s arguments that trademarks are government speech, that they are a form of government subsidy, and that the disparagement clause should be tested under the “government-program” doctrine.

First, the Court held that trademarks are private, not government speech, and are therefore entitled to free speech protections. In other words, because the government does not create, edit, or have the authority to arbitrarily reject marks, trademarks are not government speech and federal registration does not constitute approval of a mark. The Court also stated: “it is far-fetched to suggest that the content of a registered mark is government speech. If the federal registration of a trademark makes the mark government speech, the Federal Government is babbling prodigiously and incoherently . . . For example, if trademarks represent government speech, what does the Government have in mind when it advises Americans to . . . ‘Just do it’ . . . ?”

Second, the Court held that trademarks are not government-subsidized speech and, accordingly, the government could not justify the disparagement clause on the rationale that it is not required to subsidize activities that it does not wish to promote. Among other things, the Court noted that the USPTO does not pay applicants seeking to register a mark – rather, applicants pay the USPTO filing and other fees.

Finally, the Court held that “government-program” cases involving the collection of union dues by public employers were inapplicable to the registration of trademarks.

Given that the disparagement clause could not be analyzed as a type of government speech, subsidy, or program, the Court next addressed the parties’ arguments regarding whether trademarks are commercial speech, which is subject to relaxed scrutiny. The Court declined to resolve the issue, instead finding that the disparagement clause could not even withstand a relaxed scrutiny analysis. Specifically, the Court held that the disparagement clause was not sufficiently “narrowly drawn” to weed out trademarks that support invidious discrimination. Because the clause applies to trademarks that disparage any person, group, or institution, and would therefore apply to trademarks like “Down with racists,” “[i]t is not an anti-discrimination clause; it is a happy-talk clause.” “In this way, it goes much further than is necessary to serve the interest asserted.”

Concluding its opinion, the Court noted:

There is also a deeper problem with the argument that commercial speech may be cleansed of any expression likely to cause offense. The commercial market is well stocked with merchandise that disparages prominent figures and groups, and the line between commercial and non-commercial speech is not always clear, as this case illustrates. If affixing the commercial label permits the suppression of any speech that may lead to political or social “volatility,” free speech would be endangered.

Import of the Decision

With the disparagement clause of the Lanham Act struck down, the USPTO may no longer reject trademark registration applications because the trademarks are disparaging or offensive to a specific group, institution, belief, or symbol. This will undoubtedly result in the registration of myriad words, phrases, and marks that are considered by many to be derogatory. This also leaves the door open for the government to draft a more narrowly-tailored disparagement clause if it chooses to do so. The Tam case also signals a new chapter that calls into doubt other aspects of well-established trademark law. See 15 U.S.C. § 1052(a) (addressing immoral, deceptive, or scandalous matter). The full import of this case and its effect on the future of trademark law is uncertain.

***

Hannah T. Joseph, the author of this case summary, is an associate with the firm, whose work in intellectual property has been recognized by, among others, the Boston Globe (Can you trademark ‘covfefe’? These people and companies are trying) and at the Boston Bar (where she serves as Co-Chair of the Boston Bar Association’s Intellectual Property Committee).

eck Reed Riden LLP is Boston’s innovative litigation boutique. Our hand-picked team of lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment, and are recognized as a leading authority in trade secret, noncompete, and unfair competition law. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Trade Secrets Laws and the UTSA – A 50 State and Federal Law Survey

Beck Reed Riden LLP is pleased to share its 50 State and Federal Survey of Trade Secrets Laws compared with the Uniform Trade Secrets Act.

The chart is a state-by-state comparison of every state’s trade secrets laws (and the Economic Espionage Act, as amended by the Defend Trade Secrets Act of 2016) to the 1985 version (i.e., the most recent version) of the Uniform Trade Secrets Act.

Screen Shot 2014-04-21 at 7.29.02 PMchart is viewable here. (It was originally prepared on August 14, 2016, and has been updated; it is current as of October 30, 2016.)

In addition, for a comprehensive summary of recent trade secrets and noncompete legislative reforms and efforts at reform around the country, please see Russell Beck’s analysis here: Changing Trade Secrets | Noncompete Laws

2017 U.S. News Best Lawyers BadgeThis 50 State and Federal trade secret law survey is intended both as a stand-alone resource and a companion to Beck Reed Riden LLP’s 50 State Survey Chart of Noncompete Laws. Beck Reed Riden LLP’s nationwide study of noncompete laws has been relied upon by the White House and the United States Department of the Treasury.

For up-to-the-minute analysis of legal issues concerning noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLPis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. The Wall Street Journal and The New York Times have both cited Beck Reed Riden LLP’s noncompete agreement experience.

Russell Beck’s work in this area is well recognized; it includes:

  • Over sixteen years of working on trade secret, noncompete, and unfair competition matters

  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (5th ed., MCLE, Inc. 2015), used by other lawyers to help them with their noncompete cases

  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law

  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law

  • Founding and administrating the award-winning blog, Fair Competition Law

  • Establishing and administrating the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 750 members around the world

  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2016 Chambers USA Guide, which explained that “Russell Beck of Beck Reed Riden LLP is highly praised by peers, who commend his “impeccable credentials,” in the employment arena, and identify him as an “expert in noncompetition and trade secret laws.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

50 State Noncompete Chart

Beck Reed Riden LLP is pleased to make available its updated 50 state (plus DC) survey chart of noncompete laws. The chart is a summary of employee noncompetition laws and applicable standards throughout the country.

For up-to-the-minute analysis of legal issues concerning noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Both the White House and the United States Department of the Treasury have recently relied upon this nationwide study of noncompete laws.

In addition, recent articles in the New York Times and The Wall Street Journal feature Beck Reed Riden LLP’s expertise in noncompete and trade secret issues.

The chart covers the following:

  • Whether noncompete agreements are permitted in the state

  • Governing statutory authority, if any

  • Identification of the protectable interests (also known as legitimate interests or legitimate business interests)

  • Applicable standards for enforcement

  • Industries or professions exempt from noncompete agreements

  • Whether the state follows the reformation rule (also known as “judicial modification,” the “rule of reasonableness,” the “reasonable alteration approach,” and the “partial-enforcement” rule), the blue pencil doctrine, or the red pencil doctrine (also known as the “all or nothing” rule)

  • Whether noncompete agreements are enforceable against at-will employees whose employment was terminated without cause

The chart is available for download here.

This version was updated as of July 11, 2017.

Check back for periodic updates or email us at info@beckreed.com, and we will automatically send the latest updates as they become available.

Please note that the chart is not legal advice, nor is it a substitute for proper legal research and advice. It is provided for informational purposes only.

is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. Our hand-picked team combines attorneys with complementary expertise and practical experience

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

MA Noncompete Agreement Reform Clears First Major Hurdle

State-house.pngOn June 29, 2016, the Massachusetts legislature moved one step closer to reforming noncompete agreements. With 150 votes for the legislation, and no votes against, the Massachusetts House of Representatives passed “An Act relative to the judicial enforcement of noncompetition agreements.”

If this noncompete bill becomes law (it’s not there yet—it would still need to be passed by the Senate and signed by the Governor by the end of July for that to happen), then there will be a dramatic shift in the way employers are permitted to use noncompete agreements in Massachusetts.

Significantly, the House of Representatives’ noncompete bill would:

  • Cap the noncompete period to 12 months from the date of termination;

  • Restrict employers from enforcing noncompetes against nonexempt (hourly) workers, student interns, and employees under 18; and

  • Prevent enforcement of noncompete agreements against employees who have been terminated without cause or laid off.

The 12-month cap can be extended for up to two years in the event the employee breaches a fiduciary duty to the employer or if the employee unlawfully takes the employer’s information or property.

Screen Shot 2014-10-19 at 11.33.00 AMne controversial aspect of the new bill is the so-called “Garden Leave” clause, which would require employers to pay half the salary of employees for the duration of their noncompete period after they leave. But there’s a major caveat to the Garden Leave provision: The bill gives employers the option of providing some “other mutually-agreed upon consideration . . . provided that such consideration is specified in the noncompetition agreement.”

The bill would not affect nonsolicit agreements that bar employees from transacting business with employers’ customers, clients, or vendors. The bill also maintains the status quo for the courts’ ability to modify noncompete agreements by giving judges discretion to reform or otherwise revise a noncompete agreement so as to render it valid and enforceable.

According to the House’s legislation, in order for a noncompete agreement to be valid, new hires must be given prior notice that they will be bound by such an agreement – either with the delivery of the offer of employment or 10 business days before the employee starts work, whichever is earlier. There is also a 10-day notice provision for current employees who are asked to sign new noncompete agreements.

Separate from the noncompete aspects of the bill, if passed, the bill will adopt the Uniform Trade Secrets Act. The impact of that is, as a practical matter, limited.

Russell Beck recently spoke on a panel at the Boston Bar Association’s symposium about the Massachusetts non-compete agreement reform legislation. For up-to-the-minute analysis of legal issues concerning noncompete agreements and trade secrets in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLPBLF 2014_Silver_Generalis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law andbusiness litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. Recently, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized; it includes:

  • Over sixteen years of working on trade secret, noncompete, and unfair competition matters

  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (5th ed., MCLE, Inc. 2015), used by other lawyers to help them with their noncompete cases

  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law

  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law

  • Founding and administrating the award-winning blog, Fair Competition Law

  • Establishing and administrating the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 750 members around the world

  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2014 Chambers USA Guide, which explained that “Russell Beck of Beck Reed Riden LLP specializes in noncompete litigation and is a trade secrets expert. He comes highly recommended by his peers for his nationwide practice in this niche. ‘He’s fantastic,’ sources say.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging fromFortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

50 State Noncompete Chart

Image of US Map for Website HiResBeck Reed Riden LLP is pleased to make available its updated 50 state (plus DC) survey chart of noncompete laws. The chart is a summary of employee noncompetition laws and applicable standards throughout the country.

Recent articles in the New York Times and The Wall Street Journal feature Beck Reed Riden LLP’s expertise in noncompete and trade secret issues.

The chart covers the following:

  • Whether noncompete agreements are permitted in the state

  • Governing statutory authority, if any

  • Identification of the protectable interests (also known as legitimate interests or legitimate business interests)

  • Applicable standards for enforcement

  • Industries or professions exempt from noncompete agreements

  • Whether continued employment is sufficient consideration to support aBLF 2014_Silver_General noncompete

  • Whether the state follows the reformation rule (also known as “judicial modification,” the “rule of reasonableness,” the “reasonable alteration approach,” and the “partial-enforcement” rule), the blue pencil doctrine, or the red pencil doctrine (also known as the “all or nothing” rule)

  • Whether noncompete agreements are enforceable against at-will employees whose employment was terminated without cause

The chart is available for download here.

[pdfviewer width="600px" height="425px" beta="true/false"]http://www.beckreedriden.com/wp-content/uploads/2016/03/Noncompetes-50-State-Survey-Chart-20160325.pdf[/pdfviewer]

This version was updated as of March 25, 2016.

Check back for periodic updates or email us at info@beckreed.com, and we will automatically send the latest updates as they become available.

Please note that the chart is not legal advice, nor is it a substitute for proper legal research and advice. It is provided for informational purposes only.

Beck Reed Riden LLPis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

SEC Focused on Conflicts Disclosures by Advisors and Broker-Dealers

two recent cases, the SEC ordered JP Morgan Chase to pay over $270 million for what it deemed inadequate disclosures about certain conflicts of interest. When closely examined, these two cases illustrate just how detailed and granular the Commission can be when evaluating and prosecuting conflicts non-disclosure issues.

The Proprietary Funds Case

On December 18, 2015, the SEC announced that two J.P. Morgan wealth management subsidiaries had admitted wrongdoing (though no intentional violations) relating to the firm’s investment advisory business and agreed to pay $267 million. Specifically, J.P. Morgan Securities LLC (JPMS) and JPMorgan Chase Bank, N.A. (JPMCB), preferred to invest clients in the firm’s proprietary mutual funds without properly disclosing this preference to clients. In addition, JPMS breached its fiduciary duty to certain wealthy clients when it did not inform them that they were being invested in a more expensive class of J.P. Morgan mutual funds shares than other available classes, or that JPMS preferred third-party-managed hedge funds that made certain “retrocession” payments to a J.P. Morgan affiliate.

The level of scrutiny applied in this case is striking. The SEC was initially focused on a possible charge that JPMS was improperly steering clients to house products so that it and its affiliates could make additional fees. JPMS’s Form ADVs, however, disclosed that JPMS “may have a conflict of interest in including affiliated [Mutual] Funds…because [JPMS] and/or its affiliates will receive additional compensation.” Further, in advance of opening an account, JPMS clients were specifically informed how much of their assets were to be allocated between proprietary mutual funds and third-party funds. Because of such disclosures, the SEC pivoted to the theory that there should have been an additional disclosure that JPMS “preferred” to invest client assets in proprietary products.

Holding the bank to this level of scrutiny seems severe; as noted, JPMS disclosed its incentive to put client money into house funds and these were discretionary accounts. Its “preference” for house funds seems axiomatic. All things considered, however, the penalty could have been far worse. Perhaps because of its cooperation and proactive remedial measures, J.P. Morgan was permitted to continue to provide these kinds of investment advisory services and was able to avoid the so-called automatic “bad actor” disqualification, which would have blocked it from the lucrative business of raising money for private companies, including hedge funds and startups. In addition, while the penalties and disgorgement are certainly significant, they amount to roughly one month of JPMS’s operating profits.

The Broker Compensation Case

In the second settlement, JPMS agreed to pay $4 million to resolve charges that it falsely stated on its private banking website and in marketing materials that individual advisors were compensated based on the performance of client investments, not on commission. As it turned out, advisor compensation was not tied to investment performance; it consisted of a salary plus a bonus determined by a number of factors, none of which were performance based. Although it appears that no investor was harmed, the SEC believed that sanctions were warranted: “JPMS misled customers into believing their brokers had skin in the game and were being compensated based upon the success of customer portfolios.”

Bottom Line

Based upon recent developments, it is clear that the SEC intends to look under every rock to see if all conflicts of interest, regardless of their severity, have been disclosed. Accordingly, firms should take a close look at their business practices and make sure their Form ADVs, websites, marketing materials and other disclosure documents accurately reflect those business practices.

For more information, contact William Haddad.

Beck Reed Riden LLPis Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Judging iPhone Encryption: It’s Law Versus Technology in the Courtroom

 

With the release of the iPhone 6, Apple built new security features into the iOS8 operating system, measures which law enforcement officials have complained will hinder criminal investigations.

PhoneOnce a user sets a passcode for a phone using the new operating system, all of the phone’s data – including texts, e-mails, call records, and photos – is encrypted. This means that the phone’s contents are saved in coded form, and anyone accessing them would see only gibberish unless they had the encryption key that unlocks the code.

In a change from previous operating systems, the iOS8 creates a unique encryption key for each device that is partially based on the user’s self-selected passcode. Thus, Apple can no longer break the code and access the user’s data, even if ordered to turn over such information by a court. The director of the F.B.I., James B. Comey, has objected to Apple marketing a product that puts phone data outside the reach of law enforcement, citing concerns about terrorism and kidnapping cases.

The new technology also has implications for lawsuits outside the law enforcement context. A party in a civil lawsuit is typically subject to the discovery process, in which they must turn over to the opposing side all documents and materials that are relevant to the case. This disclosure increasingly includes material such as text messages, call history, and photos or e-mails stored on phones. A court can impose sanctions on a party who deletes or fails to turn over relevant information.

Screen Shot 2014-10-30 at 11.46.35 AMwon’t the same high level of encryption now available on iPhones — so impenetrable that not even the F.B.I. can gain access — also protect iPhone data during civil proceedings? Yes and no.

The new iPhone encryption ensures that a litigant who produces a password-protected iPhone to the opposing party in a lawsuit is still able to keep the contents unreadable by refusing to disclose the password. However, the absolute security of encryption may be illusory, because courts routinely order parties to disclose passcodes (in addition to electronic devices, like phones and computers) in order to produce information about cases.

LockDepending on the case, a court could order a litigant to turn over their passcode to their own attorney, the opposing attorney, or a neutral third-party for the contents of the phone to be inspected.

In analogous cases involving data stored on Facebook, courts have often ordered parties to turn over their passwords to uncover relevant posts. For example, a Virginia court in James v. Edwards, 85 Va. Cir. 139 (2012), ordered the plaintiff to turn over his Facebook password to his attorney in order to allow the defendant’s counsel to access to the relevant information. In the context of an employment dispute, a defendant in a Massachusetts case was ordered to disclose his password for encrypted files stored on his former employer’s server. Enargy Power Co. v. Xiaolong Wang, 2013 WL 6234625 (D. Mass. 2013).

And what if a litigant refuses to disclose the password to his or her encrypted iPhone despite a court order? Courts have broad authority to enforce their orders, and sanctions can include monetary penalties and even jail. In the case of Keller v. Keller, 2014 WL 4056926 (Conn. Super. Ct. 2014), a litigant was found in contempt for failing to obey an order to provide working passwords to his iPhone that was being forensically examined as part of the proceedings.

So, despite the enhanced encryption available to users of Apple’s mobile operating system, courts retain their power to compel disclosure as needed, and a litigant who elects to ignore a court order does so at his or her own peril.

Beck Reed Riden LLPis Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Location, Location, Location: The Importance of Venue Selection

World TravelWhen parties are negotiating the terms of a deal, it is easy to overlook the possibility that, somewhere down the road, significant disagreements could emerge. While it may be difficult to discuss future disputes at a time when both parties are getting along, it is best to agree on a method of resolving conflicts before one actually appears.

Screen Shot 2014-10-17 at 11.50.50 AMne aspect of anticipating the resolution of future conflicts is determining where any such resolution will occur. To this end, venue selection clauses allow parties to agree in advance where their disputes will be settled. For example, a contract can state that disputes will be resolved in a particular country, state, or even city.

Although venue and forum selection clauses are closely related, a venue selection clause sets the geographic location for the resolution of any dispute, while a forum selection clause chooses the particular court or arbitrator that will decide the matter.

The Benefits of a Proper Venue Selection Clause

A properly-drafted contract will include a venue selection clause in order to reduce the potential costs and stress of resolving any future disputes between the parties.

Money: Litigating a dispute in a foreign state or country can significantly add to the costs of dispute resolution. As a threshold matter, travel expenses for shuttling necessary parties to and from an out-of-town venue can add up. In addition, litigating a matter in a foreign jurisdiction typically requires the retention of local attorneys, which can be a significant expense.

Time: Traveling takes time and time costs money. Business owners and employees may need to attend hearings, and time spent away from work will cost the company even more money.

Familiarity: Litigating out of state may require the use of local counsel in that jurisdiction. When a party litigates close to home, it can use a law firm that it is already familiar with.

Peace of Mind: It can be difficult to predict how and when a contract dispute may arise. At least knowing where the dispute will be resolved can help alleviate some of the burdens associated with litigation or arbitration.

A venue selection clause is only beneficial if it can be enforced. If such a clause is not properly drafted, then parties might not receive the benefits that they thought they bargained for.

Enforcement of Venue Selection Clauses in Massachusetts

Generally, Massachusetts courts will enforce venue selection clauses, and parties seeking to challenge them must overcome a heavy burden. To overcome this heavy burden, the challenging party must demonstrate any of the following:

(1) The clause was agreed to as a result of fraud or exploitation.

(2) Enforcement would be unreasonable and unjust.

(3) Enforcement will deprive the challenging party of their day in court.

(4) Enforcement is against a strong public policy in that forum.

If none of these situations apply, the clause may still be challenged if it is not drafted with mandatory language. A venue selection clause that merely suggests or permits a dispute to be settled in a certain venue has the potential to be disregarded. However, the use of the words “will” or “shall” typically indicate that the clause is mandatory and that the dispute can only be resolved in the location specified.

For example, in the case Provanzano v. Parker View Farm, Inc., 827 F. Supp. 2d 53, 60 (D. Mass. 2011), the U.S. District Court for Massachusetts explained that this venue selection clause was mandatory, as opposed to merely permissive: “This agreement shall be governed by the laws of the State of Kentucky, and the venue shall be in Woodford County.” By using mandatory terms (like “will” or “shall”), and combining forum and venue selection clauses with one another, the parties in that case negotiated and were bound by an enforceable, mandatory venue selection clause.

Analysis of any particular venue selection clause is done on a case-by-case basis, and it is important for contracting parties to obtain the advice of legal counsel who is attentive to current law in this area.

Beck Reed Riden LLP Excels In Commercial Dispute Resolution

With years of experience handling all stages of complex litigation from injunction proceedings to trials and appeals, Russell Beck, Stephen Riden, and Will Haddad provide thoughtful guidance to companies. Because of our extensive litigation experience, we regularly advise companies and organizations of all sizes in their day-to-day operations, helping them resolve conflicts creatively so they can return to productive business pursuits. Beck Reed Riden LLP can be reached now for a free consultation via email (info@beckreed.com) or telephone (617-500-8660).

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