Apple v. OpenAI offers a master class in spotting trade secret theft before it's too late

Apple's newly filed trade secret lawsuit against OpenAI contains an allegation that should make every employer's ears perk up.

According to the complaint, multiple departing Apple employees allegedly emailed Apple's confidential information to their personal email accounts on their way out the door. Apple also claims that some former employees later used Apple's confidential and trade secret information to help OpenAI develop competing hardware.

Whether Apple ultimately proves those allegations is for the courts to decide.

But the behavior it describes is one of the oldest—and most obvious—red flags in the employee-theft playbook.

When someone suddenly starts forwarding company files to Gmail the week before resigning, odds are they're not creating a personal scrapbook.

The good news is that employees who steal information often leave breadcrumbs. The key is knowing what to look for.

 

Why your noncompete agreement could become "Exhibit A" in a discrimination lawsuit.

For years, employers have treated noncompete agreements as just another item in the onboarding paperwork. Hand over the offer letter, the handbook acknowledgment, the tax forms, and somewhere in the stack sits a restrictive covenant that employees sign without much thought.

The recently settled lawsuit against Boston Beer Company serves as a reminder that noncompetes rarely stay confined to contract disputes. They can become Exhibit A in a much larger employment-law battle.

The case was brought by several former sales employees who alleged gender discrimination, retaliation, hostile work environment, and unlawful noncompete practices. According to the complaint, Boston Beer required broad noncompete agreements for sales employees and aggressively enforced them against departing workers. The plaintiffs claimed those restrictions trapped employees in jobs they wanted to leave, prevented them from pursuing opportunities with competitors, and amplified the effects of alleged discrimination and retaliation.

Boston Beer denied the allegations. The parties have now settled.

The settlement itself doesn't establish liability. But the allegations offer several important lessons for employers.

When “irreparable harm” isn’t: 8th Circuit slams brakes on a noncompete injunction

Employers love preliminary injunctions in restrictive covenant cases. And courts are supposed to grant them only in extraordinary circumstances.

The 8th Circuit just reminded everyone what "extraordinary" actually means.

Independent contractors and noncompete agreements do not mix

I've always believed that noncompetes and "independent contractor" status don't mix. Now I have an appellate opinion to back me up.

In Reliant Services v. Brown, a construction-staffing company tried to enforce a noncompete against a punch-list worker it had consistently called an independent contractor. Reliant wanted to stop him from doing the exact same punch-list work directly for Ryan Homes — the same work he'd been doing for decades before ever meeting Reliant.

Here's the problem: you can't call someone "independent," claim they run their own business, and then turn around and try to control where they work, who they can work for, and what they can do once they stop working for you. That's the very definition of control. And control is the dividing line between an employee and an independent contractor.

What are you doing to protect your company's trade secrets and keep them secret?

Sherbrooke, a captive insurer for nursing homes, built proprietary software to price risk and underwrite policies. Three insiders—including the CTO who created the software—allegedly decided to spin up a competing insurer and started using that same software to run it.

Sherbrooke sued, claiming trade secret misappropriation.

The district court dismissed the claim, saying Sherbrooke hadn't alleged that it took sufficient "reasonable measures" to protect its secrets. The 4th Circuit reversed. At the pleading stage, the court said, robust confidentiality and invention-assignment agreements were enough to plausibly allege trade-secret protection and misappropriation.

When your top talent drops the leg on your trade secrets…

Carma HoldCo—the company behind the Real American Beer concept—is laying the legal smackdown on two of its former execs, Chad Bronstein and Nicole Cosby.

Real American Beer is the light lager co-founded by wrestling legend Hulk Hogan. It's got a red-white-and-blue brand identity, a distribution deal with Walmart, and is being billed as the "official beer of WWE." It's a high-profile brand with big backing and even bigger stakes.

Carma alleges Bronstein and Cosby developed branding and business plans for the beer while still on the payroll, then body-slammed their confidentiality obligations by launching the same beer under their own company, RAHM (d/b/a Real American Beer), after getting the boot.

Your trade secrets just walked out the front door … and you might have held it open: Generative AI and trade secrets

No employee—except the rare bad actor—means to leak sensitive company data. But it happens, especially when people are using generative AI tools like ChatGPT to “polish a proposal,” “summarize a contract,” or “write code faster.” But here’s the problem: unless you’re using ChatGPT Team or Enterprise, it doesn’t treat your data as confidential.

According to OpenAIs own Terms of Use: “We do not use Content that you provide to or receive from our API to develop or improve our Services.”

But don’t forget to read the fine print: that protection does not apply unless you’re on a business plan. For regular users, ChatGPT can use your prompts, including anything you type or upload, to train its large language models.

A teachable moment on digital communication security

An editor at The Atlantic was accidentally added to a high-level Signal group chat where Trump administration officials were planning military strikes in Yemen.

Yes, you read that right. A journalist, in a chat with top government officials, while they were actively discussing where and when to launch missiles.

It's an appalling breach of national security. It’s also a teachable moment for employers.

If the highest of federal officials can accidentally include a reporter in a thread outlining imminent military action, your company's employees can accidentally include the wrong person in a message about a client, a deal, a product launch, or a sensitive HR issue.

A tale of two approaches to noncompete agreements

Big news on noncompetes—from two very different directions.

First, the NLRB just quietly backed off its aggressive stance that most noncompetes violate federal labor law. The agency's Acting General Counsel rescinded 2023's memo that took that position, signaling a retreat from treating noncompetes as an unfair labor practice.

Meanwhile, Ohio lawmakers are headed in the opposite direction. Last month, they introduced SB 11, a bipartisan bill that would ban nearly all noncompetes in the state. If it passes, it'll be a game-changer, giving employees much more freedom to jump to competitors.

Use caution when poaching competing employees

Here are 25 million reasons to be careful when poaching your competitor's key employees.

In a recent federal case, medical device company Cynosure snagged a $25M jury verdict after its rival, Reveal Lasers, and two former sales managers were found to have violated noncompete, nonsolicitation, and nondisclosure agreements.

The result? A hefty price tag for raiding Cynosure's sales and marketing teams.

The FTC's noncompete ban is DOA

It was only a matter of time before a federal court blocked the FTC's noncompete rule, which would have banned virtually all noncompete agreements on a federal level. The odds were high it would be a Texas federal court, and also high that it would be a nationwide injunction.

That's exactly what happened yesterday.

Judge Ada Brown of the U.S. District Court for the Northern District of Texas entered a nationwide injunction blocking the rule from taking effect a mere 15 days before its effective date.

FTC bans all non-competes … Now what?

There's more than one way to skin a cat … or at least that's what many employers are hoping.

Yesterday, the Federal Trade Commission turned the workplace on its head by banning nearly all non-compete agreements.

I'm not going to summarize the FTC's Rule; your inboxes and LinkedIn feeds will be flooded with plenty of those … including this one we sent out this morning.

Suffice it to say that 120 days from the publication of the Rule in the Federal Register, employers will no longer be able to enforce any non-compete agreements except for those already in place with senior execs earning $151,164 or more annually.

It’s past time to self-regulate your use of noncompete agreements before the government does it for you

Boston Beer Co., the brewer of Sam Adams and other craft beverages, is taking heat for its overuse of noncompete agreements. In a recent article, the Boston Globe cites examples of several former lower-level Boston Beer employees forced out of the industry they love because of the noncompete agreements their former employer forced them to sign at their time of hire.

Legally speaking, to be enforceable a post-employment restrictive covenant must be narrowly tailored by time, geography, and a reasonable business interest worthy of protection. Yet, like the Boston Beer example, all too often employers require many too many employees to sign overly broad and overly restrictive agreements. It's bullying and a scare tactic. It's also legally unsupportable. And it's also why the federal government and many states are looking at regulatory and legislative solutions to limit their use.

If you can’t beat ’em, sue ’em.

“Competition is fine, cheating is not.” That’s what Elon Musk tweeted after Twitter’s lawyer’s cease and desist letter to Mark Zuckerberg went public.

Twitter accuses Meta of engaging “in systematic, willful, and unlawful misappropriation of Twitter’s trade secrets and other intellectual property.”

The problem, however, is that according to Meta, “No one on the Threads engineering team is a former Twitter employee — that’s just not a thing.” 

NLRB General Counsel Jennifer Abruzzo just obliterated non-compete agreements (maybe)

In my view, the proffer, maintenance, and enforcement of a non-compete provision that reasonably tends to chill employees from engaging in Section 7 activity … violate Section 8(a)(1) unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.

With that sentence from NLRB General Counsel Jennifer Abruzzo's just-published memo — entitled, Non-Compete Agreements that Violate the National Labor Relations Act — Ms. Abruzzo sent employment lawyers (including this employment lawyer) scrambling to understand exactly what she said and what she means.

Federal agencies need to stay in their lanes

• National Labor Relations Board and Consumer Financial Protection Bureau announce new partnership to address employer surveillance, monitoring, and data collection in the workplace


• Worker advocates call on OSHA to set standard on employee surveillance


• NLRB General Counsel may seek to invalidate non-compete clauses in employee severance agreements

These are just a few of headlines I've recently read in which one federal agency or another is signaling an intent to regulate outside of its core mission. Federal agencies should stay in their lanes, period. OSHA regulates workplace safety. The NLRB regulates the relationship between unions and management, and in non-union settings the rights of employees to engage in protected concerted activity.

Spotting the employment law issues in “She-Hulk"

Donny Blaze was a former student of Kamar-Taj, having dropped out after failing to adhere to their strict teachings. He left, however, with a souvenir, a sling ring, which sorcerers use to open mystic portals. Blaze then uses the sling ring, along with what he learned during his time at Kamar-Taj, to spice up his otherwise very pedestrian cabaret magic act.

Wong, the Sorcerer Supreme, seeks your legal counsel to file suit against Blaze to enjoin his use of Kamar-Taj's mystic arts. 

What are the potential claims? Let's explore.

The time has come to limit the overuse and overbreadth of noncompetition agreements

It's been nearly five years since I asked this question: "Is your non-compete agreement killing a fly with a sledgehammer?" Now it seems that the federal government is asking the same question.

Yesterday, the Treasury Department published its report, "The State of Labor Market Competition" (as reported by The New York Times). The report sought to answer to investigate the effects of a lack of labor market competition on our country's labor market and answer whether that lack of competition hurts labor markets.

One of the key issues the report addresses is the impact of the overuse of noncompetitive agreements and other post-employment restrictive covenants. The report calls for laws or regulations to limit the use and impact of these agreements.

Whistleblowing and self-help discovery: lessons from Frances Haugen, the Facebook whistleblower

"Can she do that?" That was the question my wife asked me as we watched last night's interview of Frances Haugen, the Facebook whistleblower, on 60 Minutes.

The "that" was the revelation that Haugen stole a trove of confidential documents just prior to quitting her job to support her allegations against her employer.

"It depends," I told my wife, offering the stock lawyer answer to most questions.

You don’t need to wait for President Biden to fix what’s wrong with non-compete agreements

On Friday, President Biden signed an Executive Order on Promoting Competition in the American Economy. According to the Order, its goal is to promote a "fair, open, and competitive marketplace" and "the welfare of workers, farmers, small businesses, startups, and consumers" through the elimination or limitation of "excessive market concentration," which "threatens basic economic liberties, democratic accountability." One of the President's targets is "companies [that] require workers to sign non-compete agreements that restrict their ability to change jobs." Indeed, according to the President, half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.

Thus, President Biden ordered "the Chair of the FTC … to consider working with the rest of the Commission to exercise the FTC's statutory rulemaking authority … to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility."