In January of this year, the California Attorney General obtained $150,000 settlement, plus ongoing notification obligations, from a CA company that learned that one its computers had been sold at a thrift shop.
The ongoing obligations include a duty to: 1) notify employees as information becomes available, 2) train employees on additional methods to protect sensitive information, and 3) review and improve its policies regarding protecting sensitive information.
The CA AG’s enforcement action alleged that the company learned of the lost hard drive on September 24, 2011 and regained the drive on December 21, 2011. Within a week, forensic analysis determined employee personal information was contained on the drive. However, the company did not notify some 20,000 current and former affected by the disclosure until mid-March 2012, almost four(4) months later.
So, what is a reasonable time period to respond to a security breach and how fast does a company have to notify consumers or employees that a data breach has occurred?
Unfortunately, there is no “bright line” rule. Most state breach notification laws and, for that matter many Data/IT/Cloud contracts, require notification within a reasonable time frame, or “without delay”, subject to some qualifications. A couple of states require notification to occur no later than 45 days after discovery, there is not a bright-line, objective answer.
California’s law requires that: “The disclosure shall be made in the most expedient time possible and without unreasonable delay, consistent with the legitimate needs of law enforcement . . . or any measures necessary to determine the scope of the breach and restore the reasonable integrity of the data system.”
The key take away is that waiting several months after a forensic investigation to disclose the occurrence of a data breach to those affected is probably too long. Companies facing a data breach can and should take into account the legitimate needs of law enforcement and the requirements of forensic investigation. Within those parameters, a company is well-advised to begin the notification process even if it must reserve for itself the ability to conduct additional investigation and provide sole tang notification.
NOTE: This is not legal advice. Every situation is unique and if you or your company is dealing with a data breach or its consequences you should engage a qualified attorney.
Please feel free to tweet, like, and share this article. You can contact me at (866) 734-2568 for a no-fee consultation.
One of the key issues that must be examined when negotiating or drafting any contract is how the parties may get out of, or “terminate,” that contract. While many attorneys will rest on standard “termination for breach with notice and cure” language, the recent case of Powertech Tech. v. Tessera, Inc. demonstrates how artful drafting can put limitations on a party’s right to terminate. The Opinion in U.S. District Court for the Northern District of California case No. C 11-6121 can be found here.
Powertech and Tessera were parties to a patent license agreement, although the court’s reasoning does not seem limited to only those types of agreements. The license agreement allowed Powertech to use Tessera’s patents in exchange for payment of license fees.
The contract contained the following clause regarding termination for breach:
“Termination for Breach. Either party may terminate this Agreement due to the other party’s breach of this Agreement, such as failure to perform its duties, obligations, or responsibilities herein (including, without limitation, failure to pay royalties and provide reports as set forth herein). The parties agree that such breach will cause substantial damages to the party not in breach. Therefore, the parties agree to work together to mitigate the effect of any such breach; however, the non-breaching party may terminate this Agreement if such breach is not cured or sufficiently mitigated (to the non-breaching party’s satisfaction) within sixty (60) days of notice thereof.”
The court held that Powertech was not permitted to terminate a license agreement with Tessera for Tessera’s breach because Powertech itself was in breach of the agreement by its failure to pay royalties to Tessera.
Acknowledging Powertech’s argument that Tessera was itself in breach, that in and of itself did not give Powertech the right to terminate the contract. Only a “non-breaching” party may terminate the agreement. Said the court “[a]lthough the first sentence of the termination clause is broad – ‘Either party may terminate this Agreement due to the other party’s breach’ — the language of the clause as a whole makes clear that only a non-breaching party may terminate. Reading the clause as a whole, the court concluded “[t]he termination clause refers to a “breaching party” and a “non-breaching party” in every sentence after the first… [therefore]…the clause requires the party seeking to terminate for the other party’s purported breach to be substantially in compliance with its own obligations first.
The Powertech agreement’s termination clause is useful because it put conditions on a party’s ability to terminate the agreement even when the other party was in breach.
When Montana blogger Crystal Cox lost her defamation case in 2011, the decision was greeted by a chorus of cheers from journalists, who were quick to argue that Cox wasn’t a journalist in any real sense of the word, and therefore didn’t deserve any protection from the First Amendment. An appeals court for the Ninth Circuit has disagreed, however: on Friday, a panel of judges overturned the original decision and said that Cox was in fact entitled to protection.
The implications of this ruling go beyond just a single defamation case. It’s another link in a chain of decisions that are gradually helping to extend the principle of free-speech protection beyond professional journalism to anyone who is publishing information with public value — and as such, it helps shift the focus away from trying to define who is a journalist and puts it where it should be: on protecting…
At the end of August, the California passed an amendment to the California Online Privacy Protection Act that will require commercial websites and services that collect personal data to disclose how they respond to Do Not Track signals from Web browsers.
AB 370, as introduced by California Assemblyman Al Muratsuchi, requires a business that discloses a customer’s personal information to a third party for direct marketing purposes to provide the customer, within 30 days after the customer’s request, as specified, in writing or by e-mail the names and addresses of the recipients of that information and specified details regarding the information disclosed.
This bill, available here, would declare the intent of the Legislature to enact legislation that would regulate online behavioral tracking of consumers.
WHAT: From film to fashion, creative industries are taking steps to protect and promote original work. Designers and manufacturers need to know what steps they can take to protect their designs, their businesses, and their profits. The discussion will address issues related to how to protect original design (copyright & design patent) and the manufacturers (trademark, unfair competition).
I’m always surprised when I see that a politician is being sued for copyright infringement. It actually happens more than I thought it would. Senator John MCain has been accused of using a song without permission at least five times. No, Senator, there is no Fair Use of some one else’s copyright work just because you are using it in connection with political speech (if one could even go so far as to make that argument.)
Ownership of copyright is still a mystery to Sarah Palin as well. On September 13, 2013, news broke that Sarah Palin and her political action committee SarahPAC are being sued by North Jersey Media Group Inc., publisher of The Record and Herald News. The lawsuit claims copyright infringing form use of a an iconic photo of firefighters raising the U.S. flag at the World Trade Center following the Sept. 11 attacks.
The photo, depicting three firefighters blackened by soot as they raise the flag while standing at ground zero, was taken by Record photographer Thomas E. Franklin. The U.S. Postal Service later sued the image on a stamp called “Heroes,” released in 2002.
Does your business use images for sales, marketing and promotional purposes. Contact me for a free consultation on how to identity, protect and commercialize your creative works or properly use the creative works of others. I can be reahced at (866) 734-2568 or http://www.lsglegal.com & http://www.ecommerceattorney.com.
On October 2, 2013, I will be attending the Decoration & Design Building Fall Market where I am giving a presentatIon on protecting original furniture & textile designs. Those in attendance share a belief that style and design matter.
As designers and purveyors of good taste, you may spend months developing a concept, selecting materials, agonizing over the exact curve of the arm of a chair. Manufacturers may refine the design, invest in tooling to build it, promote it, and get it to market. Merchandise buyers may spend months reading, researching, attending events such as this to obtain and fill your showrooms and catalogue with ineffable elements of style. This is original, authentic design. Authentic designs—pieces produced by designers or their authorized manufacturers—are investments.
Therein lies the problem for today’s furniture designers and retailers. It takes intellectual and financial capital to conceive, create and produce good design. Yet, today’s consumer driven, price-focused economy is making it more and more difficult for a designer to protect and profit from the investment of this intellectual capital.
This presentation will focus on why certain designs are protectable, how to protect them, and how to defend against knock-offs.
Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd., Fed. Cir., No. 2012-1221, 8/13/13
On August 13, 2013 the Federal Circuit held that litigation misconduct and unprofessional behavior may be sufficient to meet the “exceptional case” standard under 35 U.S.C. §285 for an attorney fees award of $9 million.
Relying on Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), the court clarified that “it is only absent litigation misconduct or misconduct in securing the patent that we require the finding of both ‘bad faith’ and ‘objectively baseless’ litigation to warrant sanctions under §285.” In this case, the district court did not err in awarding attorney fees for the entire litigation because Defendant’s “extensive misconduct was enough to comprise an abusive ‘pattern’ or a vexatious ‘strategy’ that was ‘pervasive’ enough to infect the entire litigation.”
English: A customer signing the at A Stone’s Throw Jewelers in . (Photo credit: Wikipedia)
Fifield v. Premier Dealer Services, Inc.
BACKGROUND
The plaintiff in this declaratory judgment action had been employed by a subsidiary of an insurance company that marketed finance and insurance products to the automotive industry. After a sale of that business, plaintiff’s employment was terminated, but he was offered employment conditioned upon his acceptance of an “Employee Confidentiality and Inventions Agreement” (the agreement) which included non-solicitation and non-compete provisions. The agreement states in pertinent part:
“Employee agrees that for a period of two (2) years from the date Employee’s employment terminates for any reason, Employee will not, directly or indirectly, within any of the 50 states of the United States, for the purposes of providing products or services in competition with the Company (i) solicit any customers, dealers, agents, reinsurers, PARCs, and/or producers to cease their relationship with the Company *** or (ii) interfere with or damage any relationship between the Company and customers, dealers, agents, reinsurers , PARCs, and/or producers *** or (iii) *** accept business of any former customers, dealers, agents, reinsurers, PARCs, and/or producers with whom the Company had a business relationship within the previous twelve (12) months prior to Employee’s termination.”
Plaintiff successfully negotiated with Premier a provision that the restrictive covenants would NOT apply if he was terminated without cause during the first year of his employment (the first-year provision). Three months later, plaintiff resigned, began working for a competitor and sued to have the restrictive covenants held unenforceable stating that plaintiff had no access to confidential and proprietary information. The trial court held that the restrictive Covenants were unenforceable for lack of “consideration” – a legal term of art that generally means a bargained-for exchange of value. The appeals court affirmed.
ANALYSIS
Defendant argued that the non-solicitation and non-compete provisions were enforceable because the offer of employment was adequate consideration, there was a mutual exchange of promises (employment in exchange for restrictions), and the covenants were pre-employment, not post- employment. Defendant further argued that “the purpose of Illinois law regarding restrictive covenants is to protect against the illusory benefit of at-will employment” which was “nullified by the inclusion of the first-year [non-enforcement] provision in the agreement.”
Plaintiff countered with the argument that the provisions in the agreement are unenforceable because Illinois law requires employment to continue for a substantial period of time and that “Illinois courts have repeatedly held that two years of continued employment is adequate consideration to support a restrictive covenant…regardless of whether an employee is terminated or decides to resign on his own.”
The appellate court agreed with plaintiff citing Brown & Brown, Inc. v. Mudron, 379 Ill. App. 3d 724, 728 (2008) which held that the promise of continued employment in the context of post-employment restrictive covenants may be an illusory benefit where the employment is at-will. “Illinois courts have held that continued employment for two years or more constitutes adequate consideration. Id. at 728-29.”
TAKE AWAYS
The Fifield decisions has already generated a great deal of discussion from corporate board rooms to legal blogs. Unfortunately for businesses and their lawyers, the case leaves many unanswered questions.
For example, the court does not discuss whether the outcome would have been different if the employee were a high-level executive with immediate access to a wide range of highly sensitive confidential and proprietary information. At best,mother court simply mentions the plaintiff’s allegations that he had no access to such information.
Another area of uncertainty impacts start-up and early stage businesses. Very young businesses are often highly dynamic and early employees have access to a broad swath of the company’s Intangible assets such as business and revenue models, marketing plans, computer software and hardware and prospective customers, regardless of whether they serve a customer service function or “C-suite” executive function. The requirement that an employee have two years continued employment before a restrictive covenant becomes enforceable ignores the very real dynamic of start-up companies.
Lastly, an important question that went unanswered is whether the employer can offer some other “consideration” besides two years continued employment. For example, is there a pure monetary consideration that would support enforcement of the covenant? What if the covenant only lasted as long as the period of the departing employee’s employment?
NEXT STEPS
If you have restrictive covenants in your agreements with employees, it is strongly recommended that you meet with your lawyer to discuss the impact of this case on these agreements and your business. At the very least, you should carefully review your non-compete and non-solicitation agreements to see if they are supported by adequate consideration. If you have questions or concerns, or just don’t know how to begin, feel free to contact the lawyers at Leavens, Strand, Glover & Adler for a free, in-person or over-the-phone consultation. You can also email the author here: dadler@lsglegal.com.
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