Wednesday, November 27, 2013

Non-Compete and Trade Secrets Overview Part 3: My Clients' Top 5 "Wish I Would Have Knowns"

It never fails.  A client comes to me with a non-compete or a trade secret issue of some kind and when I give them the law that applies to their situation, inevitably they say, "Ugh!  Wish I would have known!!"  If you've read the last two posts in this series, you now have a basic understanding of what some of these concepts are.  But how can you synthesize all of that information and apply it to your situation?  Well, you're in luck, because today, I am identifying 5 situations that my clients have found themselves in where if they had the little nuggets I'm going to share with you, they likely would have had more success in their non-compete or trade secrets battle.

Wish I Would Have Known #1: I wish I would have had an agreement!  

Yes, you read that right: some companies have no agreements in place at all!  As I told you in Part I of this series, it's overkill to ask the mail room clerk to sign a non-compete agreement, but employers should have all key employees sign one.  Key employees have specialized training, have personal relationships with customers, or possess confidential information.  And employees aren't the only ones who should have such agreements: independent contractors who are important to a business's livelihood should have them too.

Wish I Would Have Known #2: I wish I would have had a lawyer draft my agreement.

I agree, this one is a bit self-serving.  (Yes, I do write non-compete agreements.  Because I know the pitfalls, I write them well and I charge a flat rate to do it.  We should talk.)  But this is where an attorney like me can really bring a business value - before there is a dispute.  There are form agreements available all over the internet, but most of them are overly broad and have little chance of being enforced.  A great example is the agreement I described in my first War Stories post.  It did nothing more than prevent competition and, as a result, was held invalid by a court.  Had the company seeking enforcement of that non-compete consulted an attorney  and gotten a better agreement in place before the dispute arose, the company would have gone into battle against my client with much better ammunition and a much better chance of winning the case.  Spending a little money on the front end to do some proper planning saves big money on the back end.  Litigators like me are custodians: we clean up the mess that results from poor planning and it's very expensive.  Get ahead of the problem! 
Wish I Would Have Known #3: I wish I would have developed a better program and enforced it. 

Worse than the companies that fail to use appropriate agreements are the companies that have no program whatsoever for protecting themselves against unfair competition or the theft of their trade secrets.  Consider this: your key salesperson goes to work with a competitor.  He takes nothing with him, but since he's dealt with all of your customers, he solicits many of them and they stop doing business with you.  Without an agreement or some kind of program in place to protect yourself, you have no recourse.  And other employees start following him.  This obviously leads to a bad outcome.  A non-compete agreement is critical, but so is enforcing it against the first person who tries to breach it.  If other employees know you mean business, they won't try the same thing. 

Wish I Would Have Known #4: I wish I had better protected information I consider confidential.          

Just because you say something is confidential does not make it so.  There are three key questions to ask yourself about any information you wish to protect: 
        (1) Where is the information kept?
        (2) Who has access to the information?
        (3) Is the provided to customers, vendors, suppliers, or any other third-party? 
If the answers to these questions show broad access to your company's information by many people, it's time to develop a better confidentiality policy.  Limited access to information that is kept under lock and key is more likely to be considered a trade secret than information that is widely disseminated and, therefore, more likely to receive court-ordered protection.   Here are some rules of thumb that will give you a good start: 
Information about pricing, suppliers or vendors that is given to customers is not secret.
Information that you allow employees to take home or access from their personal computers is probably not secret.

Information that doesn't truly belong to you is not secret.  For example, if you are a distributor of a product, the product is not secret as to you.  Maybe the customers you sell to or your profit margins are secret (and that's a BIG maybe!), but nothing about the product itself is secret.  Another example that I'm seeing frequently is information that belongs to a client of an outsourcing company.  If a business outsources its IT work, the deliverable that is created by the outsourcing company is based on the customer''s information.  Maybe the methods used by the outsourcing company are secret (again, a BIG maybe!), but the outsourcing company has no ownership in the information in the first place.  
Wish I Would Have Known #5: I wish I had lived by the agreement.
Some clients do everything right: they have solid, enforceable agreements in place and they diligently protect their confidential information.  But then they commit the gravest of sins: they don't follow the agreement they are seeking to enforce.  The law is clear that he who breaches the contract first cannot enforce it.  So, if a "for cause" employee is fired without cause, for example, that employee will likely be free to go compete against you, regardless of any non-compete clause in his agreement.  Other common employer breaches include failing to compensate a departing employee, either pursuant to his agreement or under the law, and failing to follow buy/sell provisions with a corporate shareholder. 

These client mistakes are common and avoidable.  I've said it before and I'll say it again: planning is key!  Working with a lawyer either when you set up your business or when you're starting to expand makes such a difference.  I promise you that my services cost far less in the planning stages than in the litigation stages.  Don't hire a lawyer to clean up messes - hire one to prevent those messes from happening.  Your business is worth it! 
Liza Favaro 
Non-Compete Counsel 

* Disclaimer: The ideas and opinions shared on this site are my own and are not attributable to my employer. No amount of interaction on this site will create an attorney-client relationship. If you have a legal question and you ask it here, I will also answer it here (if I can), but such answers do not guarantee results and do not create an attorney-client relationship. If you wish to contact me directly, you may do so at



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