A lot has been written about the havoc that COVID-19 has wrought on courts and the changes it has caused in the way we litigate and try cases. Unlike more conventional litigation, which ultimately seeks damages in trials that go before a jury, trade secret litigation frequently revolves around a trade secret owner’s request for an injunction, fast-moving legal proceedings that are generally decided by judges rather than juries. So what has been the impact of COVID-19 on trade secret cases? Perhaps the easiest way to analyze the pandemic’s impact is to break it down into three components: (1) administrative, (2) procedural and (3) substantive.
No. 1 — The Impact of COVID-19 on the Courts: When COVID-19 unfolded in March 2020, most courts postponed hearings and trials to minimize the interaction of lawyers, judicial staff and jurors. The reopening of courts has tracked the reopening of the economy, with fits and starts as courts’ dockets have ebbed and flowed with the surges of reported COVID-19 cases. By way of example, in the larger cities in Ohio, a backlog has developed for cases involving juries, as the criminal docket is the priority and the civil docket takes a back seat. As for hearings and status conferences before judges, those are mostly being done by phone, Zoom or Webex.
These particular disruptions have impacted trade secret cases, although not to the degree of other conventional litigation. Because most trade secret cases involving injunctions or declaratory relief regarding the terms of the employment agreements, rather than requests for damages, trade secret cases are most frequently tried before judges, not juries. And while judges are busier and dealing with the chaos in their dockets, their availability for trade secret cases probably hasn’t been impacted as greatly.
However, trade secret owners will on occasion pursue damages for their alleged losses before a jury. And like other cases seeking that more conventional remedy (money damages), there have been delays in getting those cases to trial.
A related issues is the impact that the virus has had on the number of these cases that have been filed. While I am not aware of any survey at this point, my experience has been that there have been fewer trade secret cases filed since March 2020.
I suspect that the primary reason for this a decrease in employees leaving their jobs. Most trade secret disputes arise in the context of the employer/employee relationship. As David Almeling’s seminal statistical analysis of trade secret litigation published in the Gonzaga Law Review in 2009 largely confirmed, 85% of trade secret cases involve employers/employees or parties that knew each other well. Consequently, where there is greater employee mobility, expect a higher number of trade secret disputes because of the employer’s fear that an employee may use or disclose its trade secrets in his/her new position.
Therefore, I believe there are fewer trade secret cases at the moment because employers are not hiring and people are uncomfortable leaving their jobs because of the current economic uncertainty. However, as the economy improves, and the confidence of businesses and employees grow, expect more departures, and more fights over trade secrets. One commentator has predicted that there will be a flood of trade secret litigation and that strikes me as a reasonable prediction, given the pent-up energies of a vibrant but dormant economy.
No. 2 – The Impact of COVID-19 on Procedure. Trade secret plaintiffs rely on two primary forms of injunctive relief: temporary restraining orders (TROs) and preliminary injunctions. With TROs, most of these requests do not involve evidentiary hearings or live testimony but instead rely on oral argument and evidence included in an affidavit filed with the court. As a result, even pre-pandemic, many TRO conferences and hearings were frequently done by phone given the exigent circumstances that accompany those requests. Technologies like Zoom, Teams and Webex have actually made it easier for parties in this respect. Consequently, COVID-19’s impact on the manner in which they have been handled has not as severe.
However, courts may not be as receptive to these TRO requests as they once were (as explained below in a moment). While some courts may be more willing to broker short-term agreements to preserve the status quo until they can later hear the evidence in a preliminary injunction hearing, courts may simply defer an injunctive relief request until later and essentially consolidate the TRO with a preliminary injunction.
In terms of discovery and depositions, like conventional litigation, much of this is being done electronically and remotely. If you had taken any video or telephonic depositions before the pandemic, this has not radically changed the way you conduct discovery. It simply has imposed the discipline of getting your exhibits in order the night before and making sure the deponent and his/her counsel have them in advance.
No. 3: Substantive Changes? This is where the pandemic may have had its greatest impact. As the pandemic escalated last March, the consensus among many litigators (including yours truly) was that employers would have more difficulty securing injunctions in trade secret and restrictive covenant cases. One reason was the greater vulnerability of employees in the midst of a recession and the balancing of their need to earn a livelihood against the protection of the employers’ trade secrets (see my blog post last year noting the potential parallels in court decisions in Ohio during the Great Recession in 2009-2010).
But another was the evolving perspective of what truly qualified as an emergency in the midst of a global pandemic. That rationale was summarized in an opinion written on March 18, 2020 by District Court Judge Steven C. Seeger of the Northern District of Illinois in the Art Ask Agency v. The Individuals case (better known as the “Unicorn” case). In that opinion, Judge Seeger expressed his exasperation of the persistent litigant who sought an injunction to prevent infringing unicorns and knock-off elves, stating that the world was in an the midst of emergency but the plaintiff was not.
In another case decided on April 21, 2020, Ligtel Communications v. Baicells Technologies, an Indiana federal court considered the impact of the pandemic in its analysis of the requested injunction. The case arose from allegations of, among other things, misappropriation of trade secrets relating to equipment ultimately used in the delivery of broadband services. Not suprisingly, the defendants argued that an injunction would have ripple effects, including potential disruption of the delivery of internet services to over 26,000 consumers living in rural communities. In her opinion denying the request for an injunction, District Court Judge Holly Brady emphasized this disruption and its impact on the public interest during the pandemic because the internet had become so important to so many who were working and providing services remotely.
Looking down the road, expect more challenges to whether an employer took reasonable efforts to protect its trade secrets during the course of the pandemic. Some of the cases will likely turn on the employer’s management of remote technologies like Zoom to circulate information and any failure to follow appropriate protocols to maximize protection. In the Smash Franchise Partners v. Kanda Holdings opinion issued in August 2020, Delaware’s Chancery Court denied trade secret status to information that had been made available in a series of Zoom conference calls. The court noted that the plaintiff had failed to adequately screen participants in the calls, change passwords for those calls, and follow its own policies.
In sum, expect more trade secret cases as the economy improves and employees leave and employers increase their hiring. Also expect more disputes over the adequacy of the measures that employers used to protect the trade secrets when employees worked remotely. Finally, the pandemic’s impact on the economy and everyday life will filter in unexpected ways as courts weigh what injunctive relief to grant.