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Presentation Highlights
• Critical steps to protect your assets and relationships
• Types of restrictive covenants (non-compete, non-solicit, confidentiality) and Trade Secret law
• Issues with Social Media
• Practical issues with increasingly competitive job market
• Action plan to keep the genie in the bottle Image courtesy of Walt Disney©
Your Assets Are At Risk Three Critical Steps to Protect Them
1. Know what assets you have to protect
2. Available preventive measures to protect your assets
3. Immediate action/remedies when your assets are threatened
What You Are Up Against
Economic Times Good or Bad – Same Concern
• Job hopping or looking for a better opportunity while preparing to leave when an opportunity arises
• Increased movement in 2012
• All about the Benjamin’s
“It has become appallingly obvious that our technology has exceeded our humanity.” ~Albert Einstein
• 8 GB thumb drive = 10 CD-roms or 160,000 Word documents
• Only $12.99
• $45-300 billion in annual losses due to trade secret misappropriation
Why Do They Feel Justified Stealing Your Assets and Relationships?
• The “justifier” (I built it, it’s mine)
• The “thief” (no one will know if I take some information and contact these customers)
• The “lawyer-wanna be” (can’t prevent me from doing this; those agreements I signed are not enforceable)
• The “blissfully ignorant” (I didn’t know or think it was a big deal)
STEP ONEKnow What Assets and Relationships You Have to Protect
Examples
• Customer lists and information• Engineering designs, processes,
techniques• Prices, costs, margins, mark-ups,
“metrics”• Internal weaknesses• Marketing and strategic plans
The Relationships = The Key to Success
• Customer• Client• Vendor• Supplier• Employee• Consultant/contractor
STEP TWO Preventive Measures to Protect Your Assets
Restrictive Covenants
• Non-Competition– Most effective protection– Subject to most scrutiny
• Non-Solicitation – Typically easier to enforce than non-compete– More geared towards protecting relationships
• Confidentiality/Non-Disclosure – Generally easily enforceable– Less effective with trade-secret protection
Practical Issues in Today’s Job Market
• Increased movement in 2012
• More competition for top talent
• Increased leverage for potential employees
• Less willing to sign non-compete agreements
Strategies to Deal with Practical Issues• “Team” approach
– “We all sign them”– Protects all involved
• Narrowly tailor the agreements– Duration – Geography (limited to customers and/or areas that person
is responsible for and/or exposed)– Scope of activity (limited to types of projects, areas of
responsibility, etc.)
• Communication
• Additional consideration
Enforceability of Restrictive Covenants
• Be aware of Employee location - certain states look unfavorably upon non-competition covenants (i.e. California, Oklahoma, North Dakota, )
• Some states will “blue pencil”; some will not
• Movement towards making non-competition agreements easier to enforce (i.e. Texas, Georgia)
Trade Secret Law (works with non-compete/non-solicit agreements)
• UTSA– The Uniform Trade Secrets Act (UTSA) (in
place in 46 states except MA, NJ, NY, and TX) defines a trade secret as:
– information, including a formula, pattern, compilation, program, device, method, technique, or process, that is both of the following:• 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.
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
The Growth of Social Media
• Facebook – Over 1 billion users
• LinkedIn – Over 175 million users
• Twitter – Over 500 million users
• Google+ - Over 400 million users
Image courtesy of Vabulous Media©
Who Owns the Social Media Accounts?
• Social media accounts MAY be considered protectable trade secrets
• Outline ownership and access at the outset of employment if at all possible
• Beware of demanding or even asking for usernames and passwords to social media accounts (Social Media Privacy Bills – including Michigan)
Solicitation - Practical Advice
• Scarcity of case law on emerging technology
• Predict outcomes based on existing case law – Solicit via FB message = soliciting by email– DiFonzo (Mass) – FB announcement by new
employer = no solicitation
• It’s the substance of the message (same look), not the medium (different name)
• Who initiated the contact and what was the substance of the contact
“It’s the same look!”
Planning/Preparation – Be Proactive
• Worry about misappropriation of your assets the day that you hire – not the day that you terminate or he resigns
• Consult with the experts – legal and business
• Engage your experts (legal and business) to conduct an audit
Planning/Preparation – Be Proactive
• Take inventory of the assets & relationships to protect
• Take inventory of what protections in place
• Understand the weapons available to you – agreements, statutes, business solutions
Available Weapons – Reasonable Steps for Protection
• Appropriate agreements (one size does not fit all)
• Information storage – locked or password-protected
• Limited, need-to-know access• Clear marking of confidential information• Visitor restrictions• Third-party confidentiality agreements• Employee policy on confidential
information
Available Weapons – Reasonable Steps for Protection
• Routine verification of confidentiality procedures• Prohibiting removal of confidential information
from company premises and limiting copying• Conducting exit interviews• Pursuit of departing employees with access to
confidential information - consistent enforcement• Avoidance of industry wars – review of candidate’s
restrictive covenants– Reps and warranties that candidate did not take and
will not use previous employer’s information – Indemnification provisions
Deploying Your Weapons – Implementation of Asset Security Plan• Require employees to sign your agreements
• Obtain employee buy-in and be prepared to deal with resistance
• Include appropriate language in your contracts (don’t forget vendor contracts, i.e., data security laws)
• Take the steps necessary to guard the confidentiality of your information
Avoid Unnecessary Disclosures & Inconsistency• Company brochures/product guides and websites
• Customers/clients (and information conveyed to them)
• Severance agreements superseding employment agreements void
• Prior departures by similarly-situated employees
• Resolution of prior non-compete/non-disclosure litigation
• How many employees sign/do not sign similar agreements
Exit Interview
• New employment (where, what position)
• Return of materials
• Acknowledgment form
• Social media accounts
Beware of Disciplining Employees for Social Media Posts
• NLRA Section 7 concerted activity
• NLRB’s involvement and scrutiny of social media policies
• Fine balance between disciplining employees and protecting trade secrets or enforcing agreements (use a disclaimer or savings clause)!
Beware of Horizontal Non-Hire & Non-Solicitation Agreements• Agreement with competitors not to hire or solicit each
others employees is horizontal– Different concerns than typical employee (vertical) non-
compete– Must be reasonably necessary to facilitate a pro-
competitive agreement (ancillary) • May violate anti-trust laws• 2010 Silicon Valley Cases (DOJ v. Google, Apple Pixar,
Adobe and Intel)– Alleges bilateral agreements to not “cold call” each other’s
skilled (technical) employees;– Employers immediately settle with consent decree
• Consent decree allows non-solicitations reasonably necessary for “a legitimate collaboration agreement”
– Follow on class action lawsuits filed
STEP THREE Immediate Actions/Remedies When Your Assets Are Threatened
Action Plan
• Critical to have experienced attorneys and business advisors prepare an action plan
• Protocol for departing employee
• Step-by-step actions identified for potential breach
Your Assets Have Been Taken or Are at Risk – Now What?
• Move quickly and aggressively (where appropriate)
• Get your experts involved immediately
• Preserve the evidence (electronic evidence is crucial – do not attempt to play Sherlock Holmes)
Don’t Diddly Do!
Image courtesy of Matt Groening and Fox©
Final Pointers
• Police confidentiality measures• Draft enforceable non-competes• Beware of horizontal agreements with competitors• Beware of social media issues• Have a strategy in place for practical hiring issues• Be cautious with subsequent agreements• Make good termination/discipline decisions• Consistently enforce• Act swiftly• Preserve all documents and computer evidence
