Privacy Law Provides Standing for Nonresident Plaintiffs

• Pages: 23-24
• Date: 01 October 2022
• Author: R'iele J. Sims
• Subject Matter: Civil Law

drew on such knowled ge in further-

ing Apple’s corpo rate interests. The

court explain ed that under the UTSA,

mere possessi on of trade secrets by

a departing e mployee was simply not

enough to “meet th e standard for

improper use or acquisition.”

The court fur ther relied on public

policy conside rations of free employee

mobility in reje cting Hooked’s argu-

ments. “Allowing an a ction for trade

secret misappropriation against a for-

mer employee for u sing his or her own

knowledge to ben ef‌it a new employer

is impermissi ble because it would be

equivalent to retroa ctively imposing on

the employee a covenant n ot to com-

pete,” the court o pined. The court fol-

lowed past preced ent in rejecting the

“inevitable dis closure” doctrine “unde r

which a claim for tra de secret misap-

propriation is st ated if an employee’s

new job will inevitab ly lead to reli-

ance on the forme r employer’s trade

secrets.”

In light of strong pu blic policy con-

siderations favori ng employee mobil-

ity, in addition to the power d isparities

often present in t rade secret litigation,

Litigation Secti on leaders oer some

lessons lear ned from the court’s opin-

ion. “This d ecision is characteristic of

how California h as balanced employee

mobility versus protection of con-

f‌idential inform ation—heavily tilted

toward employee mobil ity,” observes

Chad S.C . Stover, Wilmington, DE,

cochair of the Sec tion’s Intellectual

Property Litig ation Committee. “One

problem with this is th at it becomes

more dicult to prevent a c ompetitor

from stealing conf‌idential information

by merely hiring away top em ployees,”

explains S tover.

Section lead ers advise that compa-

nies, espec ially startups like Hooked,

take various prec autions to avoid the

same fate, such a s entering into a non-

disclosure agre ement prior to negotia-

tions. “Ho oked could also implement

better policie s on protecting trade

secrets and lim iting the disclosure of

the company’s most important trade

secrets to a smalle r group of employ-

ees,” Stover sugges ts. “Another

approach would b e to seek patent

protection to the exten t possible,” he

adds, recognizing that such protection

would be “limited i n duration.”

Having a nondiscl osure or nonso-

licitation agree ment in place is also

a mitigation measu re that Section

leaders agre e can be benef‌icial in

similar situatio ns. “Rejection of the

inevitable discl osure doctrine is not

good for businesses,” opines James

D. Abrams, Columbus, OH , cochair of

the Section’s Commercial & Business

Litigation Commit tee.“However,

employees cann ot unlearn the skills

they’ve develope d over time, so the

best way to protect the em ployer and

employee is to require a n oncompeti-

tion agreemen t so that a situation like

Hooked could not occur,” he explains .

According to Sectio n leaders,

the erosion of the in evitable disclo-

sure doctrine i n jurisdictions such

as California s upports the need for

caution when entering into negotia-

tions similar to thos e at issue in this

case. “[Ho oked] should not have pro-

ceeded without a [nond isclosure] or

a nonsolicitation agreement,” Abrams

observes.

Despite Hooked ’s failure to take

adequate prec autions, the risk of

litigation “is not ac ceptable to most

companies , and it will deter this type

of conduct in the m ajority of M&A dis-

cussion s,” Stover predicts . However,

whether this decision potentially

functions to chi ll future acquisition

negotiations between startups and

established technology companies

remains to be seen .

Privacy Law

Provides Standing

for Nonresident

Plaintis

By R'iele J. S ims, Litigation News

Contributing Editor

Out-of-state resident s may sue under

a Michigan priva cy law, according to

one district co urt decision. In Lin v.

Crain Communic ations Inc., the court

held that the stat ute applies to non-

residents and c oncluded that the

plainti had all eged an injury in fact

sucient to confe r Article III standing.

Practitioner s may want to reconsider

the wisdom of chall enging a plainti’s

Article III st anding in similar com-

plaints for stat utory damages under

state privacy protec tion laws, suggest

ABA Litigation Sec tion leaders.

The plainti, Gary Lin, a Virginia

resident, f‌iled a putative class action

lawsuit against Crain Communications

Inc., a multi-industry publishing con-

glomerate headquartered in Michigan.

The plainti alleged that he subscribed

to Crain’s Autoweek magazine and that

the publisher violated the Michigan

Personal Privacy Protection Act (PPPA)

by selling his personal reading informa-

tion (PRI) to third parties without his

consent. The complaint also alleged

that the publisher rented customer lists

containing subscribers’ personal infor-

mation, including the “subscriber’s full

name, home address, and title of Crain

publication to which he or she sub-

scribes” to other companies. According

to the plainti, the publisher never

required subscribers to “read or agree

to any terms of service, privacy policy,

or information-sharing policy, and

fail[ed] to obtain any consent from—or

provide eective notice to—its sub-

scribers before disclosing their PRI.”

The publisher moved to dismiss the

lawsuit, arguing that the plainti lacked

statutory standing because the PPPA

statute does not apply to out-of-state

residents. It also argued that the plain-

ti had failed to allege an injury su-

cient to confer Article III standing.

The U.S. District Court of Eastern

Michigan denied the motion to dismiss.

The court interpreted the PPPA broadly

enough to confer statutory standing

to out-of-state residents because the

statute did not impose any residency

requirements. Focusing on the statu-

tory language and relevant case law,

it explained that the PPPA “provides a

cause of action for customers whose

information is disclosed in violation of

it.” A customer is def‌ined as “a person

who purchases, rents, or borrows a

book or other written material.” Thus,

the court determined that “the PPPA

does not impose a residency require-

ment for customers to have protections

under the statute.”

Additionally, the court noted that

the legislative purpose of the statute is

not only to protect customers, but also

to disallow corporations operating in

Michigan from violating the PPPA. It fur-

ther observed that the legislature could

have limited the statute to Michigan res-

idents by including explicit language as

FALL 2022 • VOL. 4 8 NO. 1

23 | ABA LITIGATION SECTIO N

Published in Litigation News Volume 48, Number 1, Fall 2022 . © 2022 by the American B ar Association. Repr oduced with permis sion. All rights rese rved. This informa tion or any portion th ereof may not be cop ied or disseminated in any for m

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