Business Law Section

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Message from Jim Hill, Chair of the Business Law Section

Jim HillThis December eNews is our Holiday Greeting to all Business Law Section Members and Friends.  While wishing everyone Happy Holidays, we want to take this opportunity to thank our many BLS volunteers and our dedicated State Bar staff who have helped us not just survive, but thrive, as we embark on a new year. 

Our 15 BLS Standing Committees continue to provide timely, substantive comments on legislation, new cases and legal developments in their respective areas of business law expertise.  All standing committees are producing content for our flagship publication, the Business Law News, with Issue #1 hot off the press and the BLN Annual Review Edition in the works.  All Standing Committees are regularly publishing eBulletins that go out to their thousands of constituency list subscribers, and many others are engaging in social media dialogue on business law topics on Twitter, LinkedIn, Lexology and other media outlets—all of which are readily available to you as a member of the Business Law Section.  Again, all the substantive content we produce for Business Law members are benefits of membership in the Business Law Section.  The content is created by hundreds of volunteers who give their time and energy to the Business Law Section, which is instrumental in shaping and building the body of business law in California. 

As you have been seeing from other state bar communications, this is the first year the State Bar has required all California lawyers to pay mandatory dues as well as our voluntary Section dues by electronic means.  We urge you and your firms to take advantage of the easy to use digital bill payment technology that is now in place—and while you do so, please make sure that you renew your current Business Law Section membership.  Only through your voluntary dues can we keep the BLS funded and continue our work into the future.  This year, we are also asking that you go one step further and ask others with whom you practice, especially younger lawyers, to check the box to join the Business Law Section.  We are actively looking to recruit new members, with new perspectives and fresh enthusiasm, to join in the work we are doing as part of the Business Law Section and its Standing Committees.  So, please, as we enter into 2017, reach out and encourage others to join us.  We wish all of you and your families the Happiest of Holidays and a very Happy New Year.

Selected Developments in Business Law — Trade Secrets Practice in California

Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications.  This month’s feature is from the November 2016 update to Trade Secrets Practice in California.  References are to the book’s section numbers.  See CEB’s BLS Landing Page for special discounts for Business Law Section members.  The most significant legal developments affecting trade secrets practice in California since the last update include developments in such important practice areas as the Defend Trade Secrets Act of 2016, nondisclosure agreements, whistleblowers, trade secret misappropriation, and more. 

The Defend Trade Secrets Act of 2016 (DTSA) (Pub L 114–153, 130 Stat 376) (18 USC §§1831–1839)), effective May 11, 2016, provides for the first time a federal private civil action for trade secret misappropriation and accompanying federal jurisdiction. The DTSA amends the Economic Espionage Act of 1996 (18 USC §§1831–1839), which addresses federal criminal trade secret theft issues and is limited in scope to a "product or service used in or intended for use in, interstate or foreign commerce" (18 USC §1836(b)). Provided this standard is met, a plaintiff may now pursue a claim for trade secret misappropriation in federal court regardless of whether diversity exists and without reference to state law issues that may raise other legal or practical concerns. See §1.1B.

A trade secret proponent cannot unilaterally create a confidential relationship protecting alleged trade secret status (for example, by using a nondisclosure agreement) without the knowledge and consent of the party to whom it is disclosed. McIntyre v BP Exploration & Prod., Inc. (D Alaska, Mar. 5, 2015, No. 3–13–CV–149RRB) 2015 US Dist Lexis 26927. See §1.7.

In Cellular Accessories For Less, Inc. v Trinitas LLC (CD Cal, Sept. 16, 2014, No. CV12–06736) 2014 US Dist Lexis 130518, a federal court applying the Uniform Trade Secrets Act (UTSA) found that LinkedIn contacts and other social media connections could have trade secret protection. See §1.7.

The court in Finton Constr., Inc. v Bidna & Keys, APLC (2015) 238 CA4th 200 held that California's absolute litigation privilege immunized an attorney defending a client in a trade secrets misappropriation case from liability for receiving allegedly stolen data as part of the defense of his client. See §1.11.

In Freeman Inv. Mgmt. Co. v Frank Russell Co. (SD Cal, July 18, 2016, No.13–CV–2856 JLS (RBB)) 2016 US Dist Lexis 93201, the court noted that California courts have not yet addressed whether trade secret ownership is required to establish standing. See §2.1. In Freeman, the defendant had received a copy of the employee handbook "and agreed to its terms when [he] began [his] employment." The court found that the plaintiff sufficiently demonstrated ownership of the trade secrets and standing to bring its trade secret cause of action because the handbook language "could not be more clear in allocating possession of the trade secret information to [plaintiff]." 2016 US Dist Lexis 93201 at *10. See §2.31.

Effective January 2016, the legislature amended Lab C §1102.5 to expand whistleblower and anti-retaliation protections to family members of persons who are engaged in protected conduct or who make a complaint protected by the Labor Code. See §4A.13.

The DTSA immunizes whistleblowers from criminal or civil liability for disclosing a trade secret made in confidence to a government official, directly or indirectly, or to an attorney, and when the disclosure is made for the purpose of reporting a violation of law. 18 USC §1833(b)(1). See §4A.13.

The California Supreme Court granted review in Parrish v Latham & Watkins, LLP (review granted Oct. 14, 2015, S228277; superseded opinion at 238 CA4th 81) to consider whether the trial court's denial of the former employees' summary judgment motion conclusively established that the plaintiff had probable cause for bringing the UTSA action, notwithstanding the trial court's subsequent finding that the original action was brought in bad faith. See §6.24.

A provision reflecting the requirements of the DTSA has been added to the form licensing agreement provision "Effect of Disclosure." See §8.26.

Prior to foreclosing on trade secret collateral, the creditor must also be careful not to misappropriate trade secrets by disclosing the trade secrets to third parties without the consent of the borrower. See Macquarie Bank Ltd. v Knickel (8th Cir 2015) 793 F3d 926. See §9.19.

The Ninth Circuit held in In re Orange, S.A. v U.S. Dist. Court (9th Cir 2016) 818 F3d 956 that a nondisclosure agreement's forum selection clause did not cover trade secret misappropriation. See also Conde v Open Door Mktg., LLC (ND Cal, Apr. 12, 2016, No. 15–cv–04080–KAW) 2016 US Dist Lexis 49264 (finding forum selection clause language did not apply to plaintiff's wage and hour claims). See §11.12.

In Lilith Games (Shanghai) Co. v uCool, Inc. (ND Cal, July 9, 2015, No. 15–CV–01267–SC) 2015 US Dist Lexis 89365, *14, the court found that "authoring programming for a video game is not nearly as specialized or technical as the trade secrets at issue in Advanced Modular Sputtering, Inc., which required additional disclosure in order to differentiate the trade secrets from other aspects of the equipment"). See §§11.43, 11.45.

The UTSA allows plaintiffs to seek an injunction against "threatened" misappropriation. See CC §3426.2(a). Similar injunctive relief is available under the DTSA. 18 USC §1836(b)(3)(A). See Henry Schein, Inc. v Cook (ND Cal, June 22, 2016, No. 16–cv–03166–JST) 2016 US Dist Lexis 81369 (preliminarily enjoining use of customer information that defendant e-mailed to herself before leaving employment, based on both UTSA and DTSA). See §12.1A.

Under the DTSA, an injunction may issue "provided the order does not prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows." 18 USC §1836(b)(3)(A)(i)(I). See §12.13.

The court in U.S. v Christensen (9th Cir 2015) 801 F3d 970 found that potential for a Pen C §502 violation exists even when a valid password is used to access database if the user subsequently takes, copies, or uses database information improperly. See §13.5.

The DTSA amended the Racketeer Influenced and Corrupt Organizations Act (RICO), effective May 11, 2016, by making both economic espionage and theft of trade secrets indictable as predicate acts for alleging racketeering activity. See 18 USC §1961(1)(B). See §13.7.

The DTSA added to the Electronic Espionage Act a requirement that the district court permit a trade secret owner to file a brief explaining why its trade secrets should be kept confidential. See 18 USC §1835(b). See §13.9A.

For trade secret theft offenses under 18 USC §1832, the DTSA increased the penalty from up to $5 million to the greater of $5 million or three times the value of the stolen trade secrets, including the costs of reproducing them. 18 USC §1832(b). See §13.9A.

When establishing the estimated loss for sentencing purposes using a model based on the development costs for trade secrets, the government must prove by a preponderance of the evidence that the defendant intended to cause a loss to the victims that equaled the cost of development. U.S. v Pu (7th Cir 2016) 814 F3d 818. See §13.9A.

Save the Date: Agribusiness Committee to Host Annual California Farm Bureau Federation Ag Issues: Update Meeting

The Agribusiness Committee of the California State Bar Business Law Section will kick off its 2017 Agriculture Tour series with the California Farm Bureau Federation’s Ag Issues Update Meeting, to be held in Sacramento on Friday, February 3, 2017.

The program is a unique opportunity for practitioners to hear the perspectives of Farm Bureau’s legal staff on recent judicial opinions, pending court cases and key legislative and regulatory developments affecting agribusiness throughout California.  Discussion topics will include recent water, energy, and labor regulations, as well as case law and legislation, impacting California’s farmers and ranchers.  The meeting will include a buffet lunch. More information on the speakers and MCLE credit for attendance will be available soon, so stay tuned for updates!

Save the Date! The Partnerships and LLCs Committees will be hosting in-person program in Palo Alto

The program will be held Friday, February 3, 2017 at 11:30, at DLA Piper in Palo Alto.  MCLE credit will be provided for participants.  Topics include (among others): Tax provisions in operating agreements, as well as a walk-through of a K-1.

California Secretary of State’s Office Addresses the Nonprofit Organizations Committee Meeting

Janessa Huez of the California Secretary of State's office addressed the Nonprofit Organizations Committee on December 15, 2016, to discuss new programs at the Secretary of State's office.

The most significant of these programs is a substantial redesign of the search engine for business entities. The search method is more robust than before, and it is now easier to refine the search for all corporations. The Statements of Information are now available online, which makes the data base far more useful in finding information about California corporations and LLCs.  The new website tools became active on December 13, and 100,000 views occurred on the first day, a significant uptick in use of the website. 

The formations of nonprofit organizations are up 20% over one year ago.  The Secretary of State's office provides forms for preparing articles of incorporation.  Sixty-six percent of filers use these forms, while 44% continue to draft original forms of the articles.  In contrast, for dissolutions, 99% of filers use the Secretary of State's forms. 

To learn more about the Nonprofit Organizations Committee or attend its meetings, please contact Chair Myron Steeves (msteeves@churchlawcenter.com).  

CEB Offers Discounts to BLS Members

CEB is currently offering discounts to BLS Members, including 10% off the price of a wide selection of CEB print and OnLAW publications as well as savings on section dues.  For more information on these and other CEB discounts, click HERE. 

Reach a State-Wide Audience by Publishing in the Business Law News

The Business Law News (BLN) is seeking articles of general interest to business law practitioners for its next publication.  With approximately 8,200 members, the BLS has a wide-ranging audience.  The BLN is not only circulated to BLS members in print every quarter, it is also available to BLS members on the internet at www.calbar.ca.gov.  The next BLN issue is the Annual Review of Recent Developments of Interest to California Business Lawyers.  This issue provides a useful tool to check on current developments in practice areas of interest to you.  The submission deadline for the Annual Review is January 15, 2017.  Please submit your articles to the new editor-in-chief, Kenneth Minesinger (minesinger@gmail.com).  

READ MORE

Keep Up With Current Legal Developments by Receiving eBulletins Specifically Tailored for Your Field

The 15 BLS Standing Committees publish eBulletins announcing developments in their respective areas of law and upcoming events open to BLS members. Click HERE to sign up to receive eBulletins from any BLS Standing Committee completely free of charge

Showcase Your Knowledge:  Follow the BLS on Social Media and Contribute to Discussions

We all know that social media can help drive new business.  Did you know that the BLS maintains a presence on LinkedIn,  Twitter, and Facebook where it posts regular updates about new cases, new regulations, key legislative developments, and news and events from the BLS’s Standing Committees?  What you may not know is that you can not only send items to the BLS to post or tweet, but also suggest items from your own social media pages for the BLS to re-post, re-tweet, or like.  Doing so expands the reach of what you have to say to everyone who likes or follows the BLS on its various social media platforms, and may result in the BLS following you!  Please submit your suggested items for consideration or direct any questions to BLS Social Media Coordinator, Dennis J. Wickham (wickham@scmv.com); BLS Vice-Chair of Member Services, Uzzi O. Raanan (uraanan@dgdk.com); or BLS Chair, James P. Hill (hill@sullivanhill.com), and join the ever expanding discussion!

Amplify Your Professional Reputation by Joining a Standing Committee

The 15 Standing Committees of the BLS continue to accept applications to fill vacant seats.  Practitioners and other legal professionals who are members of the BLS and who have at least five years of experience are eligible to apply.  Membership on a committee affords unique opportunities to participate in the creation of law in your practice area, to get to know and be known by other practitioners, to work with the recognized leaders in your field, and to stay on the cutting edge of developments and practice techniques.  Membership is a rewarding experience that keeps one ahead of, and in touch with, business law developments.  Most committees meet once a month, often by phone.  A full list of the Standing Committee meeting dates for December are listed below.  A description of the required commitment and application process, along with a link to the application, can be found HERE.

Attend a Standing Committee Meeting and Participate in Your BLS

The BLS achieves its goals through the work of its 15 Standing Committees.  You are invited to attend the regular monthly meeting of any BLS Standing Committee (see below for meeting dates).  These monthly meetings provide attendees an excellent opportunity to chat with committee members and other lawyers with a similar expertise.  Some committees even offer free MCLE credit!  Please see the contact person listed below to RSVP or request more information.  Follow us on Twitter @calbarbuslaw.  Use a Standing Committee’s hashtag to search for tweets by that committee in its designated field and to re-tweet.

Standing Committee Meeting Dates for December

For a list of upcoming meeting dates and contact persons, see Standing Committee Meetings HERE. 

Thank You for Being a Section Member - Here's 6 Hours MCLE in Legal Ethics!

We're very grateful for your membership in the Section. As a token of that, we're offering six hours of self-study MCLE credit in the area of Legal Ethics. The programs are posted in our Member's Only Area.

Simply watch the programs and read the accompanying materials, and keep track of having done so. You can report this to the State Bar when it's time to demonstrate your compliance with the MCLE requirements.

Contact Us

Business Law Section
The State Bar of California
180 Howard Street
San Francisco, CA 94105-1639
BusinessLaw@calbar.ca.gov
415-538-2570
FAX 415-538-2368