Cases from Pennsylvania

COMMONWEALTH COURT OF PENNSYLVANIA
No Lift-Off for Lyft's Trade Secrets Plea in Pennsylvania

The Commonwealth Court of Pennsylvania has ruled against Lyft, Inc.’s (Lyft) request to designate its aggregate trip data as a trade secret. This ruling comes out of two consolidated petitions for review filed by Lyft and Kim Lyons, a reporter for PG Publishing, Inc., d/b/a The Pittsburgh Post-Gazette (collectively, PG) from two orders of the Public Utility Commission (PUC).

In 2014, Lyft briefly attained experimental authority to operate as a transportation network company (TNC) in both Allegheny County and the entire Commonwealth. Shortly thereafter, the Bureau of Investigation and Enforcement (BIE) filed a complaint against the company, which prompted PUC to terminate Lyft’s authority to operate in the area. Administrative law judges for BIE have requested data from Lyft—including the number of rides utilized in certain areas before Lyft had full authority to operate—which Lyft objects to providing on the basis that this information constitutes a trade secret.

On review, PUC initially found and then reaffirmed that the data Lyft sought to protect merely constituted aggregate data, which rarely attains trade secret status from the Commission and did not here. Additionally, PUC found that the economic harm Lyft would face as a result of releasing such information did not outweigh the public’s interest. In fact, “the number of trips during the period before Lyft received authority to operate posed a risk to public safety.”

Speaking in the case at bar, Judge Simpson of the Commonwealth Court affirmed PUC’s determination. Judge Simpson notes that PUC properly analyzed what constitutes a trade secret pursuant to its own regulation, 52 Pa. Code §5.365, (Regulation), which differs from the definition of trade secret provided in Pennsylvania’s Uniform Trade Secrets Act. The differences between the Regulation and the Act had the effect of nullifying Lyft’s arguments in reliance on any state court precedent.

Specifically, PUC’s Regulation places the burden on the moving party (Lyft) to 1) prove that disclosure will result in substantial harm and 2) that the harm outweighs public interest in a transparent hearing. In balancing these two prongs, the PUC clearly supports an analysis of these factors: (1) The extent to which the disclosure would cause unfair economic or competitive damage. (2) The extent to which the information is known by others and used in similar activities. (3) The worth or value of the information to the party and to the party’s competitors. (4) The degree of difficulty and cost of developing the information. (5) Other statutes or regulations dealing specifically with disclosure of the information.

Judge Simpson ruled that the data requested by PUC is not detailed enough to trigger economic harm to Lyft as demanded by the factors above. He also denied Lyft’s argument that its competitors could extrapolate detailed information from the aggregate data to gain a competitive market edge. The Court called this argument “speculative and vague.” Therefore, Lyft had failed to prove the first prong of PUC’s Regulation, losing its opportunity to obtain a protective order for its ride data.

Finally, the Court denied PG’s request for an Interim Emergency Order to intervene in the case in the public interest, on the basis that PG’s aims have already been achieved. Judge McCullough, concurring in the majority’s ruling that Lyft’s aggregate data is not proprietary, dissents on this issue. Judge McCullough believes PG, as a conduit of information to the public, has the right to attain party status in this case, especially since Lyft is likely to repeat its attempts to keep certain vital information private as the case moves forward.

Read the full opinion here: http://www.pacourts.us/assets/opinions/Commonwealth/out/843cd15_8-31-16....

Court of Appeals of North Carolina
Assignability of Non-Competes

The Court of Appeals of North Carolina overturned a trial court's ruling that an assigned non-compete was unenforceable.

TSG is a company that specializes in "fabric finishing," or the use of chemicals to effect the color and textures of various textiles. Former employee Bollinger had signed a non-compete agreement with TSG in 2007, and TSG subsequently filed for bankruptcy, and transferred its assets to a subsidiary corporation with a similar name. While Bollinger's job remained the same, he technically now worked for a different company, who had been assigned his employment contract including the non-compete agreement. When Bollinger decided to go work for American Custom Finishing, a competitor located just 5 miles down the road, TSG sued to enjoin him from doing so based on the non-compete agreement. The trial court, however, decided that the agreement was unenforceable, primarily because there was no explicit assignability clause in the non-compete, and the trial court found that a balancing of the equities weighed against enforcement.

The Appellate Court disagreed with the trial court's approach. The Court explained that the case relied on by the trial court, Hess v. Gebhard & Co., 808 A.2d 912 (PA 2002), was different from the present case in that the assignor and the assignee were basically strangers, while here the assignment was just part of a restructuring following a bankruptcy. Thus the non-compete is being enforced by TSG who is certainly not a "stranger to the original undertaking," as was the case in Hess, and so the requirement that there be an assignability clause is substantially relaxed. Further, the fact that Bollinger was given an annual raise of $1,300 and a signing bonus of $3,500 for signing the non-compete, and that he left abruptly after 27 years of service at TSG to work at a competitor 5 miles down the road, both weigh strongly in favor of enforcing the non-compete. While the trial court was persuaded by Bollinger's argument that he is unemployable outside the textile industry, and so enforcing the non-compete would be particularly burdensome on him, the Appellate Court was far less sympathetic.

United States District Court for the Western District of Pennsylvania (Pittsburgh)
U.S. Government Files Charges Against Chinese Officials for Cybertheft of Trade Secrets

In the first time charges have ever been brought against a state actor for cyber-espionage including theft of trade secrets, the U.S. government has alleged that five Chinese Officials stole valuable information from a number of U.S. companies. The indictment, filed in the Western District of Pennsylvania, enumerates the alleged conduct, including: stealing confidential and proprietary technical and design specifications for pipes, pipe supports, and pipe routing for a Westinghouse Power Plant; stealing confidential information from SolarWorld regarding their cash flow, manufacturing metrics, production line, and costs; installing malware on U.S. Steel computers in an attempt to identify and exploit vulnerable servers; stealing network credentials for nearly every ATI employee; stealing e-mails from senior USW employees containing sensitive information about USW strategies related to pending trade disputes with China; and stealing emails from Alcoa pertaining to an agreement between Alcoa and a Chinese State Owned Enterprise.

Estimating the cost of cyber-espionage on the U.S. economy is quite tricky, but some economists have claimed the damages are on the order of tens of billions of dollars. Over the past year, the U.S. has made it clear that they will intensify their efforts to put an end to the theft. John Carlin, the Assistant A.G. for National Security, stated that “State actors engaged in cyber espionage for economic advantage are not immune from the law just because they hack under the shadow of their country’s flag.”

Eastern District of Pennsylania, U.S. District Court
Consulting Group Sues Former Employees and Competitor for Violation of Restrictive Covenant with Partial Success

Capsicum Group, LLC - a legal services consulting group - brought this action against against two former employees and a competitor - "SSR" - to prevent those employees from working for SSR . Capsicum relied on a restrictive covenant entered into by the two employees which restricted their ability to compete with Capsicum for a period of two years following the end of their employment relationship. Believing that certain provisions of this covenant were unenforceable, SSR nevertheless hired the two employees. The Hon. William H. Yohn, Jr., U.S.D.J. held that SSR did not possess the requisite mens rea but nevertheless enforced certain provisions of the covenant.

United States District Court for the Western District of Pennsylvania (Pittsburgh)
W.D. Pa. rules that the Penn. UTSA allows for attorneys’ fee awards in cases of specious misappropriation claims made in bad faith

Judge William Standish of the United States District Court for the Western District of Pennsylvania held that Pennsylvania’s version of the Uniform Trade Secrets Act (“PUTSA”) allows awards of attorneys’ fees in cases of specious misappropriation claims made in bad faith. A radiation therapy company, Best Medical International, Inc. (“Best Medical”) had brought a counterclaim against a former employee, Hill, who had initially sued Best Medical for failure to pay severance benefits. Best Medical later added three other former employees and competitor Accuray, Inc., and alleged that all had misappropriated its trade secrets. Eventually, the former employees and Accuray were granted summary judgment after prolonged settlement discussions in which it came to light that Best Medical could not identify the alleged trade secrets, did not properly investigate its claim before filing, and did not have any actual evidence of misappropriation. The former employees and Accuray proceeded to ask for attorneys’ fees. The issue had not yet been addressed under the PUTSA, but Judge Standish granted the request, as Best Medical’s behavior met numerous other states’ established standards of “objective speciousness” and “subjective bad faith.”