Articles Tagged with “sacrameto startup attorney”

This year, California small businesses and the legal community will be keeping a close eye on how the State Supreme Court rules on major disputes over arbitration agreements. An arbitration agreement is a written agreement between two parties, designating an arbitrator — instead of a court of law — to resolve any disputes that may arise out of their business relationship. Companies often require employees to sign arbitration agreements as a means of limiting the costs associated with any disputes that may arise out of the employment relationship.

Legality and History of Arbitration Agreements

As far as the legality of arbitration agreements, the Federal Arbitration Act of 1925 (FAA) provides that arbitration agreements are “valid, irrevocable and enforceable, and entitled to the same respect as other contracts.” Despite this, several years ago, the California Supreme Court struck down an arbitration clause in a consumer agreement because the arbitration agreement did not permit the consumer to bring a class action arbitration. In a 5-4 decision, the United States Supreme Court reversed that ruling, holding that state law cannot interfere with an arbitration agreement’s elimination of the class action mechanism to resolve disputes. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Court held that, “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration…. We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe Congress would have intended to allow courts to force such a decision.” Accordingly, the Court found that the FAA preempts California state law and ruled that states may not enact special rules that disfavor arbitration, even in the interest of public policy. The decision effectively made it much more difficult for employees to file employment-related class actions, and led to California courts issuing very conflicting and often confusing decisions in employment cases involving arbitration agreements.

From November 27, through December 15, 2013, hackers stole credit card numbers and encrypted debit card PIN data from as many as 40 million credit and debit cards swiped at Target. The security breach was the second-largest data breach in United States retail history. According to Target, it “alerted authorities and financial institutions immediately after it was made aware of the unauthorized access, and is putting all appropriate resources behind these efforts. Among other actions, Target is partnering with a leading third-party forensics firm to conduct a thorough investigation of the incident.” In a letter to customers, Target warned that customer names, credit and/or debit card numbers, expiration dates, and the CVV (security codes) were stolen. Target is facing significant financial ramifications including legal costs as well as owing money to the credit card companies that must reimburse their customers. Target also faces significant damage to its reputation.

Several months ago, Forbes magazine reported on class action lawsuits over the failure of businesses to secure consumers’ personal data, such as what occurred in the Target breach. While the filing of such cases may become the trend, it does not appear that they will be successful as recent cases have been dismissed for failure to prove standing. The judges in those cases have specifically ruled that the possibility of future injury in the form of an increased risk of identity theft, is insufficient to establish a present injury, and thus, plaintiffs do not have standing.

Interestingly, just two months before the Target data breach, California Governor Jerry Brown signed into law an amendment to California’s Security Breach Notification Act. According to Forbes, the new law requires “consumer notification if ‘a user name or email address, in combination with a password or security question and answer that would permit access to an online account’ was compromised. The law applies even if that information is not combined with a name, and applies to all types of online accounts.”

In October, NetApp Inc. sued its rival, startup Nimble Storage Inc., in the U.S. District Court for the Northern District of California, alleging unfair competition, misappropriation of trade secrets, breach of contract, and five other counts related to the hiring by Nimble of former NetApp employees. NetApp accuses Nimble of recruiting its employees and encouraging them to steal confidential information, including sales materials, pricing models, and details about customers. According to the complaint, about 15 percent of Nimble’s employees — or 55 employees — and half of its executives are former NetApp employees. The suit was filed just weeks after Nimble filed to raise up to $150 million in an initial public offering. The company went public on December 13, and is led by former NetApp executive Suresh Vasudevan. Both Nimble and NetApp are in the business of providing data storage.

Startup Secrets

This lawsuit raises a very important issue for startups: Keeping secrets — particularly trade secrets — private. Startups should understand that there are four types of intellectual property that can and should be protected: (1) trademarks; (2) copyrights; (3) patents; and (4) trade secrets. A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Examples of trademarks include McDonald’s golden arches symbol. Figures or characters, such as Geico’s talking gecko, can also be a trademark. A copyright protects works of authorship, such as writings, music, and works of art that have been tangibly expressed. A patent is a limited duration property right relating to an invention, granted by the United States Patent and Trademark Office (PTO) in exchange for public disclosure of the invention (we have discussed patent trolls many times in previous articles). A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. Examples of trade secrets include the recipe for Coca-Cola and KFC’s fried chicken. Both recipes are allegedly stored in secret safes and known only by a few select employees.

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