This week's Corporate news includes a new federal law governing trade secrets, new changes favoring defendant in New York Shareholder Suits involving going private transactions by controlling shareholders, and a case that may be reviewed by the Supreme Court that challenges the constitutionality of the American Invents Act.
PRESIDENT OBAMA SIGNS MAJOR FEDERAL TRADE SECRET
LEGISLATION INTO LAW
On May 12, 2016, President Obama signed into law the Defend Trade
Secrets Act (DTSA), a landmark bill permitting companies to go
directly to federal court to fight trade secret theft. The
new law represents a sea change in the field of intellectual
property, bringing to trade secrets protection under federal law
(which previously protected only patents, trademarks and
copyrights). Prior to the DTSA, trade secret theft law had
been exclusively relegated to the U.S. states, which required state
court litigation or persuasion by a plaintiff as to Department of
Justice intervention. While all but three U.S. states, as well as
the District
of Columbia, Puerto Rico
and the U.S.
Virgin Islands, currently have on their books some form of the
Uniform Trade Secrets Act, state law variation and interstate trade
secret theft laws render cumbersome state-court venue as to trade
secret defense and protection. Under the DTSA, whistleblowers
who disclose trade secrets as part of violation reporting will have
immunity, and employers will need to give their employees written
notice of the immunity in relevant trade secret and confidentiality
agreements or risk losing certain fee and damage collection rights
against employees. For more information, please read here.
New York Adopts Defendant-Friendly Standard for
Shareholder Suits in GOING-Private Mergers by Controlling
ShareholderS
A New York court recently ruled that the business judgment rule
applies in shareholder litigation challenging going-private
transactions, except in instances where certain
shareholder‑protective conditions are not present. The ruling
upheld the dismissal of a shareholder suit in which the plaintiffs
alleged that the merger was unfair because a controlling
shareholder did not pursue higher third‑party bids. A
lower‑court judge had used the business judgment standard to
evaluate the board's decision to consummate the going private
transaction deal, which the plaintiffs argued was the wrong
standard. The appeals court applied the business judgment
rule because it found that the plaintiffs had not shown that
necessary protections were absent, citing a 2014 Delaware decision
lowering the more stringent entire fairness standard to the
business judgment rule in certain cases, placing the burden of
proof on plaintiff shareholders. The court found that relevant
factors in determining whether shareholder‑protective
conditions are present include whether the merger was approved by
both (a) an informed majority of the minority stockholders who were
not coerced in their vote, and (b) a special committee of truly
independent directors that met its duty of care in negotiating a
fair price and did not lack freedom to reject the offer and was not
otherwise prevented from hiring its own advisers. For more
information, please read here.
Supreme Court Asked to Review Constitutionality of
America Invents Act
The owner of a flash memory patent recently urged the Supreme Court
to accept its case against Hewlett‑Packard to determine the
constitutionality of inter‑partes review, instituted
through the 2011 America Invents Act (AIA). The AIA allows
third parties to expeditiously challenge the validity of issued
patents in front of the United States Patent and Trademark
Office's Patent Trial and Appeal Board under
inter‑partes review, as an alternative to protracted
federal district court litigation (where such disputes were heard
prior to the AIA's adoption). The federal courts had previously
held that patents may be adjudicated outside of federal courts
because patents are public rights that the USPTO issues as part of
a federal regulatory scheme. The flash memory patent owner is
arguing that inter‑partes review is unconstitutional
because patents are property rights with clear common law
antecedents. For more information, please read here.