protecting your critical customer relationships and trade secrets

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Protecting Your Critical Customer Relationships and

Trade Secrets

Presented by:

Alexander NemiroffPartner, Philadelphia Office

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BACKGROUND

Assets involve more than a company’s real estate and equipment.

Improved technology makes it easier to move information.

Employee mobility and technology raise the risks that such assets will find their way to a competitor.

These assets can and should be protected.

LORE V. LAW

Non-competes and similar agreements aren’t worth the paper they’re written on. o Not true in most States.

We don’t have any protectable information.o All employers have confidential, proprietary and trade secret

information.

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PROTECTING BUSINESS INFORMATION

Identify the information you want to protect:o Inter-disciplinary assessment.

Where is that information?o Not just with employees:

• Customers.

• Vendors.

• Website.

• Social Media.

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PROTECTING BUSINESS INFORMATION

Employee/customer relations issues:o Likely reaction to efforts to protect.

Cultural issues:o Appetite for litigation.

o Industry issues.

Multistate issues:o One size fits all to state-by-state.

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LOCK AND LABEL IT

Consider implementing physical and virtual security protections

Examples:o Lock and key

o Stamping documents “confidential”

o Training employees

o Limiting employee access

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LEGAL PROTECTIONS

Common Law.

Statutes.

Contracts.

o Information subject to protection:

• Trade secrets.

• Proprietary information.

• Other confidential information.

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TRADE SECRETS

Offers protection beyond contracts, or in the event of no enforceable contract

Covered by statute or common law

Protects the misappropriation, disclosure or use of:o Information of value

o At least part of the value comes from the fact competitors don’t know it

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CONTRACTS

One of the most effective ways to prevent the loss of business information.

Restricts employees’ use and disclosure of business information.

Non-Competition - Enforceable in most states if the employer can establish a legitimate protectable interest and the covenant is reasonable in time and geographic scope.

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TYPES OF POST-EMPLOYMENT RESTRICTIONS

Non-Disclosureo A policy is not a contract

Give everything back

Non-Solicitation – employees

Non-Solicitation – customers

Non-Compete

Note: Also apply during employment

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“Reasonableness” Considerations

Length of time of the restriction.

Geographical area covered.

Scope of business covered.

Fairness and business needs.

Extent of the restraint on the employee's opportunity to pursue his occupation.

Extent of interference with the public's interests.

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Provisions in Restrictive Covenants

There are certain provisions that should be considered standard in agreements in most jurisdictions.

However, there are jurisdictions with specific requirements.

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STANDARD PROVISIONS Consideration

If newly hired employee, make getting the job and the access to confidential information associated therewith the consideration:o The agreement should be referenced in the offer letter and

employment contract, and should be signed before employment begins.

If current employee, provide something of value that the employee would not otherwise have received.

Agree to provide employee access to business information.

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STANDARD PROVISIONS Protective Clauses

Define and limit use of business information.

Return all property upon cessation of employment and upon request, whether or not within definition.

Prohibition against solicitation of employees.

Prohibition against solicitation of/doing business with customers.

Prohibition against unfair competition.

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STANDARD PROVISIONS Tolling, Supplement and Notice

Consider a tolling provision: o Time for non-solicit/non-compete is tolled during the period of

any breach.

Provision clarifying that the agreement supplements, rather than replaces, legal obligations.

Notice of agreement, new employment, change of address.

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STANDARD PROVISIONS No Defense, Other Positions

Claim by employee not a defense.

Agreement should apply to other positions, regardless of compensation.

Agreement should apply to subsidiaries/ affiliates/successors/assigns.

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STANDARD PROVISIONS Remedies

Irreparable Harm: o Acknowledges that breach will cause and entitle employer to

seek and obtain injunctive relief.

Attorneys’ Fees: o Beware of generic “prevailing party” language (some courts

interpret this as a requirement for success on the merits).

Liquidated Damages?

Forfeiture: o Conditions the receipt of certain benefits/compensation on the

promise of non-competition.

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STANDARD PROVISIONSSeverability Clause/Blue Pencil

Most courts will “blue pencil” overly broad restrictions to narrow restrictions and enforce the remainder of the covenant.

Some states apply a strict blue pencil rule, meaning these states will cross out, but not rewrite provisions.

Employer should indicate its intent to make terms severable, both by saying so and with severable restrictions.

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OTHER PROVISIONS Choice of Law; Jurisdiction

Choice of law provisions.

Choice of venue provisions.

Jury trial waivers.

Arbitration?o Particularly if confidentiality is a concern.

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UNUSUAL JURISDICTIONSStates with Unfavorable Law

California: Generally non-competes are unenforceable.

North Dakota: Non-competes are considered “unlawful and voidable,” except in sale of business and partnership dissolution.

Oklahoma: Same (can prohibit solicitation of established customers).

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UNUSUAL JURISDICTIONSStates with Favorable Law

Connecticut: Presumption of irreparable harm.

Florida: State statute provides a presumptive “pass.”

Georgia: Same.

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UNUSUAL JURISDICTIONSStates with “Quirks”

Louisiana: Specify parish(es) or municipality(ies). Employer must do business there.

Pennsylvania: Considers the circumstances under which the employment relationship terminated.

Texas: Non-compete is enforceable only when ancillary to an otherwise enforceable agreement.

Virginia: No blue pencil.

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OTHER ISSUES

International Enforcement.

The Financial Industry

The Medical Industry

Playing Offense and Defense

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When employment ends…

Actually, before employment ends the employer should think about its approach to departing employees:

Exit interview

Letter to departing employeeo Must make sense under the circumstances

Letter to competitor hiring employeeo Again, see above

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When employment ends…

Conduct internal discovery, including forensic computer evidence.

Do not review an employee’s laptop without expert assistance.

Do not immediately wipe and reissue the employee’s computer or other devices.

Litigation.

Questions

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Thank You!

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