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Small Business Litigation is Flooding the Courts

And it’s coming from all sides and directions.

Broadly speaking, it can be broken down into two types of disputes:

Employer↔Employee. The hottest action here concerns both (1) traditional and predictable bones of contention—wrongful termination; allegations of discrimination; alleged reprisals against whistleblowers—as well as (2) a whole new cascade of disputes generated by new technologies.

Wrongful termination lawsuits are on the rise, as are actions based on charges of discrimination, especially on the basis of age, sex, and sexual orientation. Aging Baby Boomers and Generation Xers are the plaintiffs in the plurality of these cases.

Many states have enacted whistleblower protection laws, some of which are very wide-ranging in terms of what they protect. In some cases, employers don’t even have to violate a law or regulation, only that an employee complained about something s/he “reasonably believes” is a violation and that an adverse action occurred as a result of the employee’s complaint. That’s a pretty low bar for filing a lawsuit against an employer and getting through the initial pleadings.

The new risks for employers and employees have to do with work situations enabled by technology, such as the ability to work at home, and the “dual-use” of portable computer devices (laptops, iPads, cellphones).

B↔2↔B. The bulk of new business-to-business disputation originates in the ability to hack into a competitor’s digital data and steal proprietary information. While industrial espionage dates back to the dawn of recorded history, the means of thievery have changed dramatically.

Intellectual property (IP) that has been properly protected by filing patents, trademarks, and copyrights provides a clear path to resolution by the courts (if necessary). The bigger risks today are the theft of trade secrets, many of which are deemed by companies to be even more important than their registered IP. Theft of a trade secret may cost a firm the loss of its competitive advantage. Think, for example, about the formula for Coca-Cola, which has been one of the most closely-held trade secrets for more than a century.

These cases can involve an employee who takes his/her former employer’s proprietary information to a competitor, or joint venture partners who exchange trade secrets under non-disclosure agreements and then one partner exploits the proprietary information to its own advantage. More often these days, trade secrets are stolen by hacking into a competitor’s computer network.

The litigation that results from allegations of such theft can be monstrously expensive. In addition to often massive discovery, trade secret litigation frequently requires hiring forensic experts and initiating extensive internal investigations in order to gather evidence and develop trial strategies. Moreover, there is a high risk of criminal liability of the defendant in such suits under statutes such as the Economic Espionage Act, 18 U.S.C. §1831 https://law.cornell.edu/uscode/text/18/1831  and Computer Fraud and Abuse Act, 18 U.S.C. §1030 https://law.cornell.edu/uscode/text/18/1030.

The Defend Trade Secrets Act of 2016 (DTSA)

DTSA, Pub. L. 114-153 https://congress.gov/114/plaws/publ153/PLAW-114publ153.pdf  creates a federal cause of action for theft of a trade secret. DTSA was one of those increasingly rare instances of bipartisanship. The bill passed the Senate unanimously and the House by a vote of 410-2.

DTSA largely mirrors the Uniform Trade Secrets Act, http://uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf, which has been adopted by 48 states. The federal law similarly defines trade secrets, authorizes similar remedies, imposes a three-year statute of limitations, and creates an ex parte seizure procedure for use where the defendant “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person….” The law also protects whistleblowers from retaliatory accusations of trade secret misappropriation, provided that the whistleblowers disclose trade secret information to the government or court officials in confidence.

Potential Legal Work Generated by DTSA
In addition to litigation, DTSA opens up opportunities for additional legal work:

  • Updating client employment and confidentiality agreements to disclose the whistleblower immunity provisions in DTSA. This is required to enable the company to recover double damages or attorney fees in trade secret litigation.
  • Inventorying your client’s trade secrets and evaluating the existing protections to secure them.
  • Developing response plans for suspected misappropriations.
  • Developing response plans for what to do in the event the company receives a seizure order.

The larger point here is to keep up with congressional enactments, albeit few and far between in this era. They often contain gems that translate into both increased legal business possibilities and job opportunities.