Use of Misappropriated Trade Secret Not Required For a Trade Secrets Act Violation
If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.
In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.
This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.
© Copyright, PCT Law Group 2013, all rights reserved.
Business Disputes Cases Amongst Leaders on List of Largest Virginia Jury Verdicts in 2010
According to a Virginia Lawyers Weekly survey on the largest Virginia jury verdicts in 2010, verdicts in business disputes lawsuits claimed three of the top four positions.
The top Virginia jury verdict in 2010 was awarded by an Alexandria federal court jury for $26 million in the case of In Re: Outsidewall Tire Litigation. In this case, a tire-mining inventor prevailed in a lawsuit in which he alleged that a Chinese tire manufacturer and a Dubai tire distributor conspired to steal trade secrets and infringe on the inventor’s copyrights and trademarks.
In third place on the survey was the case of Humanscale Corp. v. CompX International, Inc., in which two leading companies in the field of ergonomic office products accused each other of patent infringement with respect to keyboard support systems. A Richmond federal court jury awarded the defendant $19 million in past damages and a royalty of 6% of future sales on the defendant’s counterclaims.
Coming in fourth place on the list of the top Virginia jury verdicts of 2010 was the matter of Perot Systems Government Services Inc. v. 21st Century Systems Inc. In this business case, which was tried in state court, the plaintiff alleged that two of its former employees copied confidential information when they joined the defendant company’s new government contracting division. A Fairfax County jury awarded the plaintiff $14.12 million for the defendants’ breach of fiduciary duty, breach of a non-disclosure agreement, breach of a non-solicitation agreement, tortious interference with a contract, violation of the Virginia Computer Crimes Act, violation of the Virginia Business Conspiracy Act, common law conspiracy, violation of the Virginia Uniform Trade Secrets Act, and conversion.
To participate in the Virginia Lawyers Weekly survey, the verdict must have been: for at least $1 million; returned by a jury in Virginia (not a judge); and during the calendar year 2010. In total, there were 22 Virginia court cases included on the survey, of which 16 of the verdicts were personal injury actions.
IRS Announces Standard Business Mileage Reimbursement Rate for 2011
Employers should take notice that the Internal Revenue Service (IRS) has announced a standard business mileage reimbursement rate of 51 cents per mile for 2011. The business mileage reimbursement rate is used by many employers for computing the appropriate employee reimbursement amount in instances where an employee uses a personal vehicle for a work-related purpose. The new mileage reimbursement rate, which takes effect on January 1, 2011, represents a slight increase from the rate set by the IRS in 2010 of 50 cents per business mile driven.
Employers with an established personnel policy should update their employee handbooks by year-end to reflect this change. Those employers who do not have an established policy for reimbursing employees for business miles traveled in personal vehicles should consider instituting a mileage reimbursement policy for 2010 and adopting a good mileage log reimbursement form for employees.
Employers should consult the IRS website for more information on the mileage reimbursement guidelines.
Virginia SCC Adds Annual Filing and Payment Options for Corporations to Growing List of eFile Services
As previously noted on the Virginia Business Law Update, the Virginia State Corporation Commission (SCC) is in the process of rolling out a new suite of electronic filing capabilities on its SCC eFile website. The latest enhancement is a welcome addition to all Virginia corporations -- the ability to file corporate annual reports and pay corporate annual registration fees online.
Over the coming months, the SCC plans to further expand the services available on its SCC eFile website. Specifically, Virginia corporations and limited liability companies will be able to submit organizational documents electronically and pay associated fees on the SCC eFile website. Additionally, Virginia businesses will be able to file Uniform Commercial Code (UCC) documents and pay UCC filing fees online.
Virginia Supreme Court To Decide Fairfax County Metrorail Expansion Tax Case
The Virginia Supreme Court has granted the appeal of a Fairfax County business who is challenging a controversial special tax established to fund the extension of the Metrorail to Dulles International Airport. FFW Enterprises, a commercial real estate company in Tysons Corner, filed the appeal after a Fairfax County Circuit Court judge granted the Fairfax County Board of Supervisors’ motion for summary judgment in June of last year.
At issue in the case is whether the Fairfax County Board of Supervisors’ creation of a special tax district to fund the county’s share of the Dulles Metrorail expansion project is constitutional. The county charged commercial and industrial real estate owners in the special tax district 22 cents per $100 of assessed property value (in addition to their normal property taxes), but exempted residential property owners.
It is FFW Enterprises’ position that the tax is unlawful because the Virginia Constitution requires a uniform application of taxes, so that tax burdens are equally distributed amongst commercial, residential, and industrial tax payers.
This is an important case for Fairfax County businesses and residents alike as the Virginia Supreme Court’s determination will have a substantial impact on how Fairfax County finances its share of the Metrorail expansion project.
A decision from the Virginia Supreme Court should come later this year. We will keep you updated on any new developments with this case.
Virginia Governor Proposes to Reinstate Tax Deduction for Employers
Governor McDonnell announced today that he will propose reinstating a tax deduction for Virginia employers in the biennial budget in hopes of spurring economic development. Since 2004, Virginia law has allowed companies to claim the federal Internal Revenue Code Section 199 Domestic Production Activity Deduction, which encouraged U.S. manufacturing. The tax break initially allowed a 3 percent deduction, and was increased to 6 percent then 9 percent. However, this deduction is set to gradually phase out by 2014. Governor McDonnell asserts that the elimination of the deduction would result in an estimated $30 million tax increase for Virginia employers, and is proposing an amendment to prevent this result.
McDonnell said in a statement that “[t]his is a pro-job creation amendment that will help keep employers in the commonwealth, encourage businesses to locate in Virginia and give us a further advantage over other states.” Major employer, Northrop Grumman, which is weighing whether to locate its headquarters in Virginia or Maryland, would qualify for the tax break.
The amendment will have no fiscal impact in FY 2011, according to the Governor, and an estimated $10 million in FY 2012. The Governor has until midnight Tuesday to send any further amendments to the budget to the legislature, which will be considered on April 21.
Virginia Business Executive Arrested in Foreign Corrupt Practices Act Bribery Case
The FBI recently arrested twenty-two business executives and employees for violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), which prohibits any U.S. person from making a corrupt payment to a foreign official for the purpose of obtaining or retaining business. This investigation hits close to home as one of the individuals arrested is the founder and vice president of a Woodbridge, Virginia company that supplies security-related articles for law enforcement agencies and governments worldwide. It is the largest investigation and prosecution against individuals in the history of the law.
The recent arrests are the result of the first extensive use of undercover federal agents related to the FCPA. In this investigation, the FBI undercover agent posed as a sales agent representing the defense minister of an African nation. After making contact with the defendant, the agent relayed that he had been tasked with obtaining a variety of military and law enforcement products for the African nation’s presidential guard. Allegedly, the $15 million deal struck with each defendant included a 10% payment going directly to the defense minister and another 10% going to the “sales agent.” In addition to allegedly attempting to pay the FBI agent improper “commissions,” the indictment also alleges that the undercover agent met the executives in luxury hotels and expensive restaurants, that the executives provided inflated price quotes for the products and wired bribe money to the “sales agent.”
The Department of Justice (DOJ) has clearly become more aggressive in its enforcement of the FCPA. Notably, the DOJ and Securities Exchange Commission (SEC) have brought substantially more cases against individuals in the past couple of years. In 2008, the Corporate Crime Reporter reported the Deputy Chief of the Justice Department’s Fraud Section as stating that prosecution of individuals is on the rise because of explicit Department policy – sending people to jail will have a credible deterrent effect.
Clearly, business executives and owners of companies who engage in international business transactions must operate with a heightened degree of scrutiny and take considerable measures to prevent their companies from violating the FCPA.
Complying with the FCPA
In general, if your company operates internationally, particularly in high-risk countries or industries, then a rigorous FCPA compliance program is warranted. The elements of such a program depend on many factors, but typically include a comprehensive FCPA policy prohibiting improper payment to foreign officials, education of employees regarding the law, monitoring employee actions for compliance, and procedures and policies related to reporting potential violations.
Virginia House of Delegates Approves Ban on Human Microchips
Yesterday, the Virginia House of Delegates approved a ban on forced implantation of human microchips. The law makes it illegal to implant an identification or tracking device into a person’s body without their written consent. California, North Dakota and Wisconsin have already passed laws prohibiting employers and others from forcing anyone to have a radio-frequency identification device implanted under their skin, and Georgia and Tennessee are considering doing the same.
Both the private and government sectors are concerned with ensuring that private information and physical locations are secure. And for that reason, identification devices are becoming more and more prevalent and important in our era of information technology. Some employers already take advantage of the great progress in the areas of biometrics and smart technologies, which enable them to provide identification systems that are fast, secure, and nearly error free. Some believe that the next inevitable step is the use of human microchips in the commercial market.
The Virginia law prohibits the forced implantation of a microchip device into a person as a condition of employment. Thus, the potential benefits of a passive or active microchip device may never be realized by employers. Some applications of this technology are apparent – increasing security at certain locations (nuclear plants, military bases) and ensuring that only the right people have access to confidential company information – and some applications are yet to be accomplished – tracking children and fugitives and controlling the spread of disease.
However, Virginia lawmakers recognized that these benefits would come at the expense of various rights we enjoy as citizens of this country - privacy, Fourth Amendment protection against unreasonable searches and seizures, Fifth Amendment protection against self-incrimination, etc. In addition, the continuous intrusion into one's life and the potentials for abuse of the technology are just some of the social and ethical considerations which disfavor such advancements.
Virginia Businesses Rejoice: SCC Rolls Out First Wave of E-Filing
For any Virginia business owner who has attempted to navigate the State Corporation Commission’s (SCC) website, the news of a more user friendly experience is certainly reason to rejoice! According to an article in Virginia Lawyers Weekly, the SCC has launched the first wave of a “suite of electronic filing capabilities.”
Although the new “eFile” functionality is currently limited to changing registered agent information, Virginia businesses can expect several additional changes in the coming months. For instance, businesses will soon be able to eFile Uniform Commercial Code (UCC) financing statements, corporate annual reports, and corporate formation documents. Eventually, businesses will be able to pay filing fees online.
In addition to launching the eFile initiative, the SCC is also revamping its antiquated Clerk’s Information System. When complete, the new system will significantly improve user experience by making it easier to conduct name searches and obtain information about existing Virginia businesses.
These changes are long overdue but, thankfully, the SCC will soon join the rest of us in the 21st century!
Supreme Court Decision Lifts Ban on Political Spending by Corporations in Candidate Elections
The U.S. Supreme Court overruled two precedents about the First Amendment rights of corporations by a 5-to-4 decision handed down yesterday in Citizens United v. FEC. Under previous Supreme Court precedent, corporations were barred from spending freely to support or oppose candidates. This decision has changed the law for corporate fundraising and will dramatically transform campaigning for president and Congress in the future.
Under the new decision, the government may not ban political spending by corporations in candidate elections. The decision does not specifically address unions; however, the lift of the ban of corporate political spending will also apply to them. The majority also struck down part of the Bipartisan Campaign Reform Act, also known as the 2002 McCain-Feingold campaign finance law, that banned corporations and unions for paying for political ads.
Not all restrictions for corporate political spending in candidate elections were lifted. Some of the limits that remain are: corporations cannot provide money directly to federal candidates or national party committees and nonprofit groups that advocate for political candidates must still comply with disclosure requirements.
Small Business Marketing for Federal Procurement Opportunities
In planning your marketing plan for the New Year, you may wish to consider the many federal procurement opportunities ready to be seized. How do you find such opportunities? There are many sources for obtaining information on federal procurements, but I wanted to highlight a few of particular interest. A blog by Onvia, a company that helps businesses locate sales opportunities and information, provides good articles on small business opportunities with the federal procurement scorecard and finding government prime contractors for government subcontracting. The U.S. Chamber of Commerce Small Business Nation also has a Government Contracting Toolkit available online, which provides 10 steps to successful bids.
Implementing a systematic strategy for obtaining government contracts can produce substantial revenue results in just one year. An example of whirlwind growth in the government contracts arena is Dovel Technologies Inc., a woman owned small business headquartered in McLean, VA, which was selected as 2009 Contractor of the Year (under $25 million in revenue) by the Greater Washington Government Contract Awards. Dovel provides a broad array of information technology services and solutions, and about 95 percent of its revenue is from government contracts with the bulk of its work in subcontracting. Its upward spiral only noticeably began in April 2008. Congratulations to Dovel - what a difference a year can make!
Is Tax Relief On The Way For Virginia Businesses?
Heidi Meinzer, of Bean, Kinney & Korman, P.C., has a terrific summary of three business tax relief measures that are on the Virginia General Assembly's docket for the upcoming session. Although the proposed tax credits (HB 2, HB 47, and HB 57) are not substantial, Virginia businesses will certainly appreciate any relief to mitigate the worst economic downturn in the Commonwealth since the 1930s.
The 2010 Virginia General Assembly session convenes on January 13, 2010.
IRS Announces Standard Business Mileage Reimbursement Rate for 2010
Employers should take notice that the Internal Revenue Service (IRS) has announced a standard business mileage reimbursement rate of 50 cents per mile for 2010. The business mileage reimbursement rate is used by many employers for computing the appropriate employee reimbursement amount in instances where an employee uses a personal vehicle for a work-related purpose. The new mileage reimbursement rate, which takes effect on January 1, 2010, represents a significant decrease from the rate set by the IRS in 2009 of 55 cents per mile.
Employers with an established personnel policy should update their employee handbooks by year-end to reflect this change. Those employers who do not have an established policy for reimbursing employees for business miles traveled in personal vehicles should consider instituting a mileage reimbursement policy for 2010 and adopting a good mileage log reimbursement form for employees.
Employers should consult the IRS website for more information on the mileage reimbursement guidelines.
Annual National Security Small Business Conference on December 2-3, 2009 in McLean, VA
The National Defense Ind
ustrial Association (NDIA) is holding its annual small business conference on December 2-3, 2009 at the Hilton McLean Tyson's Corner, McLean, VA. This conference is a good opportunity for small businesses to participate in an open exchange of information and ideas with senior government officials from the Department of Defense and the Small Business Administration as well as pick up tips to enhance their bottom line.
NDIA provides a legal and ethical forum for the exchange of information between industry and Government on National Security issues, and this year’s conference theme is “Partners for Success: Small Business and the Military.” In addition to learning firsthand about available business opportunities with the U.S. Government and large businesses, some of the other highlights of the conference include sessions on preparing proposals to win more contracts, tips for small businesses on government procurement, and enhancing your business opportunities through organizational branding and strategic communications.
This conference will be valuable to small government contractors in the security industry, and shouldn’t be missed. For registration information, please visit NDIA’s Meetings and Events Webpage.
Stay Connected with H. Scott Johnson Jr.
Stay Connected with Angela H. France
Stay Connected with Malik Cutlar