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“One of the things that we’re seeing is more prevalence of litigation for trade secrets and to protect IP [intellectual property],” said Lauren R. Mendolera, an attorney who is a partner at Harter Secrest & Emery, LLP. “This seems to be coming out of this lack of clarity and lack of comfort people have with non-compete agreements.”
This stems from the Federal Trade Commission’s (FTC) issuance of a rule in April 2024 that would have imposed a comprehensive ban on new non-compete agreements with all workers and a ban on existing non-competes against most workers. The rule was set to begin in September 2024 but was set aside by a federal court in August 2024, thus prohibiting the FTC from enforcing it.
“There were some months where people were eliminating non-competes from their agreements or looking for ways around them, looking for ways to protect their trade secrets and their IP in other ways than non-competes,” Mendolera said.
This, coupled with individual states dealing with non-competes in very different ways, has prompted some parties to look to litigation, lawsuits or other provisions in contracts to protect trade secrets or IP where they normally would be relying on non-competes.
Mendolera also expects to see more general business owner and shareholder litigation this year.
“When the economy is a little bit uncertain like it is now I think people are more reluctant to start new businesses and tend to dig into the businesses they’re currently operating which tends to mean that there aren’t business breakups or divorces as often, but there are business disputes,” Mendolera said. “And what that looks like is you stay the course in your business, but you litigate the issues with co-owners or shareholders.”
Another trend Mendolera has seen over the past few years has been an increase in insurance coverage disputes.
“I think part of that is because insurance premiums are on the rise, so people have more of a tendency to sue their insurance companies when something isn’t covered because they feel like they’ve been paying sometimes for years for coverage that they thought they understood and perhaps didn’t understand or what they thought was covered wasn’t covered,” she said. “When they bring that to court, and it’s litigated it tends to be heavily favoring on the insured side.”
Lastly, Mendolera is seeing more diverse data privacy and security litigation.
“There are so many different creative situations that we’re just not used to dealing with and that there is no precedent for, and you see that overlapping too with cyber insurance,” she said. “You buy cyber insurance thinking it’s covering you and then a hacker creates a new scheme we’ve never seen before. And you sort of are unclear whether you’ll have insurance coverage for the breach for litigation for the losses.”
When it comes to avoiding litigation, Mendolera stresses the importance of understanding your insurance coverage and being properly insured.
“I think reaching out to professionals who do this for a living and who can understand this in a very efficient way, is really helpful for businesses,” said Mendolera, who notes these professionals can include an insurance broker and/or insurance attorney. “Sometimes just getting a little bit of additional coverage or cutting out some coverage can make all the difference in the world.”
She also encourages businesses to reach out to their legal counsel whenever they have a question.
“Just getting in front of issues is so important nowadays,” Mendolera said. “Don’t let it slip down as something that’s not as time sensitive as the rest of what you’re doing with your business and then have it be too late. It’s all in the planning.”
Julian B. Modesti, an attorney who is co-leader of Harris Beach Murtha’s Business Litigation Practice Group, says litigation is very active right now, with one of the drivers being distressed debt at an all-time high.
“Rates have been a problem for a while now and if those rates don’t come down or if they come up I think you’re going to see lenders start to put more pressure on their borrowers,” said Modesti, explaining this could result in increased commercial lending litigation or commercial foreclosures.
He also explains this is not just on the public finance side, but on the private finance/private equity side as well.
”If the economy becomes challenged in any way further, you’re just going to see that whole realm of commercial lending and distressed debt uptick the activity even further,” he said.
Modesti is also seeing an upward trend in commercial mediation and commercial arbitration where parties are trying to find more efficient and less costly means of resolving disputes, as opposed to going to court.
“The courts are all jam-packed with cases right now, so finding a competent commercial mediator or arbitrator to perhaps get to the result faster is something that many attorneys and their clients in the commercial realm are looking for,” Modesti said.
He also points to the explosion of class actions and the diversity of class actions as a major continued trend in litigation.
“Class actions are at an all-time high and they keep rising,” he said. “And it’s not just necessarily among the same industries like pharmaceuticals, medical products, chemical companies and food products. It’s across the board.”
When it comes to reducing one’s business litigation risks, Modesti believes it begins with a combination of setting your business up correctly from the start; having the correct policies and procedures in place; using forms that are specific to your business; belonging to trade groups so you can stay on top of risks that are particular to your industry and communicating with counsel.
“I think it’s really important for everybody to what I would like to call like an outside general counsel, somebody who you can call and run something by really quickly,” Modesti said. “Because I’ve seen those five-to-10-minute phone calls save clients tens of thousands of dollars.”
Caurie Putnam is a Rochester-area freelance writer.
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