22 March 2019 - Article
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”:%20https://www.congress.gov/bill/114th-congress/senate-bill/1890/text. 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.