How To Protect Your Company From Business Litigation

Obligations And Challenges

About Nexonia

Nexonia offers easy-to-manage and cost-effective web-based business solutions.• Expense reports, timesheets, and customer

service solutions• Solutions come in 161 currencies and are

offered in English, French and Spanish• Time, expense and billing reports are available

in a pre-defined or customized format according to specific needs

About AppFolio SecureDocs

AppFolio SecureDocs is a virtual data room for sharing and storing sensitive documents with parties outside company walls.

AppFolio, Inc. Company Basics

• Founded by the team that created and launched GoToMyPC and GoToMeeting

• Backed by leading technology companies and investors

• Web-based business software for financial and legal professionals

About Robert Shlachter

• Rob Shlachter is a trial lawyer who handles all types of complex business litigation with a focus on intellectual property, unfair competition, and commercial litigation.

• From 2005-2012, Rob has been named a top litigator multiple times in The National Law Journal, Chambers USA: America’s Leading Lawyers, Best Lawyers in America, Benchmark Litigation Guide, and Oregon Super Lawyers for business, intellectual property, and “bet-your-company” disputes.

Agenda

• Preservation of electronically stored information

• Data filtering, processing, and production tools

• Social media in e-discovery

• Consequences of failing to comply with e-discovery

• Non-competes, confidentiality agreements, and trade secret restrictions

Preservation of Electronically-Stored Information: Timing

• Obligation to preserve arises when a party should “reasonably know that evidence may be relevant to anticipated litigation.”

• Plaintiff should preserve immediately. Plaintiff’s burden may arise before defendant’s because plaintiff controls timing of litigation.

Poll 1

Preservation of Electronically-Stored Information: Best Practices

• Discuss preservation of documents with counsel. Counsel must oversee compliance with litigation hold and monitor efforts.

• Broadcast the need to preserve to the appropriate people (IT staff, assistants, other key employees, etc.)

• Under counsel’s supervision, send regular and frequent reminders of obligation to preserve. Use a model letter from counsel to send to employees.

• Remember that the obligation to preserve extends to discovery in possession or control of third parties (possibly including vendors, consultants, etc.)

Data Filtering, Processing, and Production Tools: Electronic Evidence

• Electronic evidence can reside in a wide variety of locations (local hard drives, network servers, backup tapes, etc). Understand the “lay of the land” at the outset of the case.

• Electronic evidence can be easily altered or lost, even by everyday computer use.

• Preserve all relevant sources of evidence, including email retention, rotation cycles for backups, and re-purposing computers for new employees.

Data Filtering, Processing, and Production Tools: Data Filtering

• What is your business’s protocol for document management?– Does everyone follow protocol? What are the auto-delete and auto-

backup policies? What are the regulatory requirements for preservation?

• Identify key custodians

• Search terms

• Review databases– Native, in-house, outside service

Poll 2

Data Filtering, Processing, and Production Tools: Processing

• Employ early case assessment (“ECA”) tools– Determine the source files to be analyzed;– Set the parameters for assessment;– Software automatically scans & assesses the data;– Review the reports generated by the software.

Data Filtering, Processing, and Production Tools: Production Tools

• Different applications have different capabilities, strengths, weaknesses, etc.

• Key issues to consider:– Process native documents/extracting metadata in a reliable and defensible

manner?– Deduplication and grouping ‘near’ duplicates?– Metadata and text searching/sorting?– Concept clustering (grouping documents by topic and not just matching

words)?– Coding and tagging databases?– Redacting and marking for production?– Creating privilege logs?

Social Media: Overview

• Social media data is generally discoverable.

• Same duty to preserve exists.

• Social media sites (Facebook, MySpace, Twitter, etc.) pose unique issues for requesting and producing parties:

– Publicly-available information vs. information that resides with non-parties.

– Relevancy of information to claim.– Authenticating internet-based

information.– Difficulties preserving information that

inherently “updates” frequently.

Social Media: Best Practices

• Businesses should avoid or limit the potential for broad-reaching discovery of individual social media pages when/if litigation commences.

• Consider limiting or monitoring at-work access to social media sites.

• Develop clear policies for use of social media at work, communicate those policies clearly, enforce them, and update them when needed.

• Consider forming a “crisis management” team and plan in the event of a social media error or issue. Be ready to address problems quickly and appropriately.

Poll 3

Consequences For Failing To Comply With Discovery Obligations

• Spoliation is the “destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” Spoliation occurs if the party had “some notice” that documents were “potentially relevant” to litigation before they were destroyed.

Consequences For Failing To Comply

• Electronically-stored information is especially vulnerable to deletion, modification, or corruption, and parties and counsel must take extra precautions to preserve this kind of evidence.

• Courts have an inherent authority to impose sanctions in response to abusive litigation practices and also may impose sanctions.

Consequences For Failing To Comply

• Not all spoliation has the same consequences:– Unintentional: Data destroyed during “routine, good faith operation

of an electronic information system” is protected from sanctions.– Negligent/Reckless: Allowing routine processes to continue

negligently or recklessly destroying information, overseeing inadequately litigation hold instructions, and/or insufficiently trying to discover relevant docs before destruction may lead to sanctions.

– Willfulness, fault or bad faith: Deliberate spoliation or gross failure to fulfill obligations to preserve/produce electronic data likely will lead to sanctions and may lead to a verdict in favor of the opposition.

Consequences For Failing To Comply

• Sanction can include:– Fees, fines, costs;– Referral of counsel to state bar;– Preventing the party from

presenting evidence;– Adverse inference jury

instruction;– Terminating the case by

dismissal or default.

Non-Competes: Definition

• A non-compete agreement is a contract between an employee and employer, generally signed at the time of hiring or promoting, where the employee agrees not to enter into competition with the employer after employment is terminated for a defined period of time.

Non-Competes: General Requirements

• Must be reasonable: The contract must be designed to protect the employer’s legitimate interests without overly restricting the employee’s ability to find a job in the field that doesn’t compete with the employer.

• Must be made in exchange for something: In some states, a non-compete agreement is valid only if it is signed at the beginning of employment because the employer is giving something (a job) in exchange for the employee’s agreement. In California, non-competes generally are not allowed.

• Must be limited in length of time: Time periods of six months to two years are usually enforceable. Longer periods may render an agreement invalid because it may be seen as too restrictive on the employee’s ability to find meaningful work.

• Generally, must be limited in geographic scope: An employer generally cannot bar an employee from competing anywhere in the country or the world.

Non-Competes: Enforceability

• In some states, if a non-compete does not meet one of the requirements above and is too restrictive on the employee, a court can change the contract and make it less restrictive and enforce it.– Example: A contract barring an employee from

working in her field anywhere in the state may be changed to restrict the area to the city where the employer is based.

• In other states, the courts cannot change the contract. There, the contract will be enforced as written or ignored completely.

Confidentiality Agreement: Definition

• A contract in which the parties agree that certain types of information that pass from one party to the other or that are created by one of the parties will remain confidential.

• Often used when a company or individual has a secret process or new product that it wants another company to evaluate as a precursor to a licensing agreement or for use in a new and different application.

• Now routinely used in employment agreements.

Confidentiality Agreement: Purposes

• Protect sensitive technical or commercial information from disclosure to others. If information is revealed, the injured party has cause to claim a breach of contract and may seek injunctive and monetary damages.

• Prevent forfeiture of patent rights. Public disclosure of an invention before patent application can be deemed as forfeiture of patent rights in that invention, so a confidentiality agreement can avoid that forfeiture.

Confidentiality Agreement: Key Provisions

• Define “confidential information.” The agreement should set forth as specifically as possible the scope of information covered.

• Explain purpose of disclosure. Confidential information is revealed to another party only for a specific purpose. The agreement should set forth what that agreement is.

• Incorporate “no disclosure” and “no use” provisions. The recipient must agree not to disclose the information to third parties and not to use the information for any purpose other than that set forth in the agreement.

• Include limits on information deemed confidential. There must be some limits on the type of information that will be deemed confidential. For example, information received by third parties, that becomes publicly known, or that is requested by order of a government agency is not considered confidential.

• Set a term. The term of the agreement must be long enough to protect the interests of the disclosing party but not so long as to unduly burden the recipient.

Poll 4

Trade Secret Restrictions: Definitions

• A trade secret is information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under circumstances to maintain its secrecy.

• State laws generally recognize that, at the termination of employment, an employee may not take with him trade secrets developed by his employer and disclosed to him while the employer-employee relationship existed.

• Types of restrictions include non-competition clauses, non-solicitation clauses, forfeiture-for-competition clauses, and trade secrets clauses.

Trade Secret Restrictions: Limitations

• The law recognizes that a business must be protected against the wrongful appropriation of trade secrets by a former employee, but it also recognizes the right of an individual to follow and pursue the particular occupation for which she is best trained.

• Generally, an employee is free to take with him general skills and knowledge acquired during his former employment.

• To prevail in court, the employer must identify specific trade secrets which are in the former employee’s possession and which are at risk.

Trade Secret Restrictions: Best Practices

• Enter into a formal agreement with employees. Disclosing a trade secret to an employee or licensee according to an express agreement provides the employer broader protection than that provided by trade secret law alone.

• Incorporate into the agreement the appropriate clauses:– Non-competition clause (discussed above);– Non-solicitation clause (limits the former employee from soliciting company

customers, or from convincing other company employees to join the employee in the new venture);

– Forfeiture-for-competition clause (calls for the forfeiture of various benefits – like stock options and bonuses – if an employee failed to abide by a non-compete clause);

– Trade secrets clause (defines a business’s trade secrets within the employment agreement, thereby saving time and expense in litigating the issue of what is a trade secret).

Contact Information

Robert Shlachter209 SW Oak StreetSuite 500Portland, OR 97204Phone: (503) 227-1600rshlachter@stollberne.com

NexoniaBrookfield Place, TD Canada Trust Tower161 Bay Street, 27th Floor, PO BOX 508Toronto, OntarioCanada M5J2S1Phone: 1 (800) 291-4829help@nexonia.com

AppFolio SecureDocs50 Castilian DriveGoleta, CA 93117Phone: (866) 700-7975info@securedocs.comsales@securedocs.com

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