1. 1 PROTECTING CORPORATE ASSETS How to protect your company’s confidential information, trade secrets, goodwill and other intangible assets Presented By: David M. Cogliano, Esq. CVS Caremark David.Cogliano@CVSCaremark.com Stephen T. Paterniti, Esq. Sarah B. Herlihy, Esq. JACKSON LEWIS LLP Paternis@jacksonlewis.com Sarah.Herlihy@jacksonlewis.com

2. 212 What We Will Discuss What Assets Need Protection? What Tools Do You Have To Protect Those Assets? Sample Contract Clauses

3. 3 PROTECTABLE INTERESTS

4. 414 What Are We Protecting? Assets involve more than a company’s real estate and equipment Indeed, many companies have few if any traditional assets. Instead, their value rests in favorable contracts, customer and supplier relationships, and other information about the way the employer does business Employee mobility and technology raise the risk that such assets will find their way to a competitor These assets can and should be protected

5. 515 Does Your Company Have Assets That Need Protection? Think Broadly. Goodwill with customers, suppliers, distributors “Recipes” – literally or figuratively Financial information Strategic plans, including planned acquisitions “Negative” know-how (knowing what doesn’t work may be as valuable as knowing what does work) Trade secrets, including pre-patent inventions Processes, such as manufacturing processes Client preferences Contract details (pricing, services, expiration dates, etc.) Other confidential information

6. 6 HOW DO YOU PROTECT THESE ASSETS?

7. 717 What Tools Are Available To In- House Counsel? Two broad “tool kits” available to protect a company’s intangible assets: 1.Common law and statute 2.Contracts between the employee and employer

8. 818 Good Practices Generally In addition to the legal tools available, there are certain practical steps a company should take to protect its confidential information.  Limit access to confidential information, identify information as confidential (stamp, etc.) and train employees  Secure computers and areas where confidential information is maintained, change passwords and codes frequently  Manage goodwill to ensure that the relationship is between the company and the customer, supplier, etc., not an individual employee  Standard in Massachusetts to protect trade secrets is “eternal vigilance” Courts are unsympathetic to companies who fail to take reasonable steps to protect their own confidential information, or other intangible assets, and then ask the court to take action.

9. 919 Protections Absent A Contract Basic tension between an employee’s right to use his/her skill set and the right of employer to protect confidential information/goodwill Most states favor competition and employee mobility Absent a contract, common law generally only restricts an employee from taking and using a former employer’s confidential information (and, for some key employees, breaching a duty of loyalty) Statutory protection may also be available (Computer Fraud and Abuse Act, criminal theft statute, tort statute for theft of trade secrets)

10. 10110 Why Have A Contract? Why aren’t the common law protections enough? Hypothetical: Chemist working for Company X does not have a non-compete. This employee is fully aware of Company X’s distinct and very efficient manufacturing process. The chemist leaves to join a direct competitor, Company Y. Suddenly, Company Y has reduced its cost structure, suggesting that it has increased its efficiency. Company X typically cannot prevail by arguing that the chemist “must have” or “inevitably” used Company X’s confidential information to assist Company Y. It will have to prove that the chemist did so – a more onerous burden than proving a breach of a non-compete. In marginal cases, where there is a close question of whether the information is a trade secret, or could have been independently obtained, a contract places Company X in a far stronger position.

11. 11111 Myths About Restrictive Covenants Restrictive covenants aren’t enforceable in any meaningful way Our company doesn’t have any protectable information

12. 12112 Types Of Restrictive Covenant Contracts Non-Disclosure Return employer information (give everything back) Non-Solicitation of employees Non-Solicitation of customers Non-Compete

13. 13113 General Principles Use clear and consistent language in policies and agreements, as needed, such as: Offer letters Compensation agreements (including sales plans) Equity grants Severance agreements Information provided to third parties provided with confidential information Consideration issues

14. 14114 Factors Decide what you really need; agreements should be tailored to your business and the situation Sale of business v. employee hire Nature of employee’s job Level of employee Industry Types of information at issue Geographic scope of business Length of time of restriction Extent of restraint in employee’s opportunity to pursue his/her occupation Interference with public interest (e.g., homeland security or medical device) Size of business

15. 15115 Confidential Information/Trade Secrets Confidential Information and Trade Secrets include but are not limited to: Financial and business information (information pertaining to pricing, costs, commissions, fees, profits, sales, markets, mailing lists, strategies and plans for future business, new business, product or other development, potential acquisitions or divestitures, and new marketing ideas); Product and technical information, such as product formulations, new and innovative product ideas, methods, procedures, devices, machines, equipment, data processing programs, software, software codes, computer models, and research and development projects; Any and all information in whatever form relating to any client or prospective client of the Company, such as the identity of the Company’s clients, the names of representatives of the Company’s clients responsible for entering into contracts with the Company, the amounts paid by such clients to the Company, specific client preferences, needs and characteristics, contract expiration dates, terms and conditions, and leads and referrals to prospective clients;

16. 16116 Confidential Information/Trade Secrets Personnel information, such as the identity and number of the Company’s other employees, their salaries, bonuses, benefits, skills, qualifications, and abilities; Any information not included above which Employee knows or should know is subject to a restriction on disclosure or which Employee knows or should know is considered by the Company or the Company’s clients or prospective clients to be confidential, sensitive, proprietary or a trade secret or is not readily available to the public; and intellectual property, including inventions and copyrightable works. Confidential information and trade secrets are not generally known or available to the general public. The following is a non-exhaustive list of specific matters which, in relation to the Company, are acknowledged by Employee to constitute trade secrets, proprietary and/or confidential information and materials and must be treated as such by Employee:

17. 17117 Non-Disclosure Employee agrees, except as specifically required in the performance of Employee’s duties on behalf of the Company or with prior written authorization of the Chief Executive Officer or Chief Operating Officer of the Company, Employee will not, while associated with the Company and for so long thereafter as the pertinent information or documentation remains confidential, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise use any Confidential Information or Trade Secrets.

18. 18118 Goodwill - General During the course of employment with the Company employees may develop relationships with clients of the Company. The Company pays for the expenses of salary, benefits, travel, entertainment, and other expenses in developing such goodwill. As such, Employee understands and agrees that this goodwill is intended to inure only to the benefit of the Company; the goodwill is owned by the Company; and the Company shall be the sole beneficiary of such goodwill during and after termination of the employee’s employment with the Company.

19. 19119 Goodwill – More Detailed The Company devotes substantial resources to identifying the needs of, and to developing and maintaining relationships with, existing and prospective clients. These clients constitute a substantial part of the goodwill and value of the Company’s business. While existing and prospective clients may be secured and/or serviced by the Company’s employees, they remain at all times clients and prospective clients of the Company. In servicing the Company’s existing and prospective clients, among other things, the Company makes available to its employees specially developed and researched insurance industry data and client- specific information, as well as an extensive network of support services. During the course of employment with the Company, employees may develop relationships with clients of the Company. The Company pays for the expenses of salary, benefits, travel, entertainment, and other expenses in developing such goodwill. As such, Employee understands and agrees that this goodwill is intended to inure only to the benefit of the Company; the goodwill is owned by the Company; and the Company shall be the sole beneficiary of such goodwill during and after termination of the employee’s employment with the Company.

20. 20120 Non-Solicitation – Employees Solicitation and Hiring. During the period commencing on (the “Effective Date”) and expiring the ________ anniversary of the termination of the Employee’s employment with the Company for any reason (the “Restricted Period”), the Employee shall not, either directly or indirectly (including through an affiliate), (a) solicit or attempt to induce any person who either (i) was an employee of the Company on the Effective Date ( a “Restricted Employee”) to terminate his/her employment with the Company or (b) hire or attempt to hire any Restricted Employee; provided, that this clause shall not apply to any individual whose employment with the Company has been terminated for a period of six months or longer before the date of the termination of the Employee’s employment with the Company.

21. 21121 Non-Solicitation – Customers During the Restricted Period, the Employee shall not, either directly or indirectly as a stockholder, investor, partner, employee, consultant or otherwise, solicit business of the same or similar type being carried on by the Company or any of its subsidiaries and affiliates, from any person or entity known by the Employee to be a customer or prospective customer of the Company or any of its subsidiaries and affiliates

22. 22122 Non-Compete - Broad NON-COMPETE AGREEMENT. Employee agrees and covenants that for a period of two years following the termination of this Agreement, whether such termination is voluntary or involuntary, Employee will not directly or indirectly engage in any business competitive with Employer or solicit company customers. This covenant shall apply to any geographical area covered by any office of the Company or territory that the Employee worked in within the last two years. Directly or indirectly engaging in any competitive business includes, but is not limited to, (i) engaging in a business as owner, partner, agent, consultant, or independent contractor (ii) becoming an Employee of any third party that is engaged in such business, (iii) becoming interested directly or indirectly in any such business, or (iv) soliciting any customer of Employer for the benefit of Employee or any third party that is engaged in such business.

23. 23123 Non-Compete – More Narrow Employee agrees that while he is employed by the Company and during the two (2) years immediately following termination of his employment for any reason Employee shall not, directly or indirectly, as an individual, proprietor, partner, stockholder, officer, employee, director, consultant, joint venturer, investor, lender, or in any other capacity whatsoever, engage in, become financially interested in, be employed by or have any business or professional connection with any business that competes with the Company in the marketing and/or sales of commercial floor cleaning services and products in ___________________ counties in Massachusetts, and ____________________________ counties in New York. Provided, however, that Employee may own any securities of any corporation which is engaged in such business and is publicly owned and traded.

24. 24124 Non-Compete – Most Narrow Limitation of Practice; Non-competition: The parties agree that Employer's business is local in scope and that Employer would suffer serious damage and loss of goodwill if, upon termination or expiration of this Agreement or any renewal thereof, Employee competed with Employer by providing veterinary services for clients who reside within the practice’s trade area or currently are regular clients of Employer. It is understood that the restrictions contained in this Agreement are necessitated in part because of the time, effort, and resources required to acquire Employer’s business, its continued development and maintenance, and in the event that Employee’s relationship with the business is terminated, the additional time and effort necessary to replace Employee.

25. 25125 Non-Compete – Most Narrow Therefore, as a material inducement to Employer to enter into this Agreement and pay Employee the compensation and benefits offered, and in exchange for the professional education, experience, and training to be obtained while working for Employer under this Agreement, Employee agrees that during the period of this Agreement and any renewal thereof, and for a period of two years after Employee ceases to be employed by Employer for any reason, Employee will not:

26. 26126 Non-Compete- Most Narrow (a) render, offer to render or attempt to render veterinary services for, (b) serve as an independent contractor for, (c) own, manage, operate or control, (d) be employed by, participate in or have an interest in, or (e) be connected in any manner with the ownership, management, operation or control of,

27. 27127 Non-Compete – Most Narrow Any business or profession, including that of a mobile practice, engaged in veterinary services similar in scope to those provided by Employer within a ________air-mile radius of Employer's practice location(s) during the twenty-four (24) month period immediately preceding Employee’s last date of employment. Employee acknowledges that the following is a non- exhaustive list of practices/entities covered by this restriction:________________

28. 28128 Additional Provisions There are certain provisions that should be considered: Consideration, describe consideration provided at time of initial hire, consider a clause providing that additional consideration is not needed despite changes in position, compensation, responsibilities, etc. Consider a tolling provision: time for non-solicit/non- compete is tolled during the period of any breach Provision clarifying that the agreement supplements, rather than replaces, statutory and common law obligations (e.g., trade secret law) Provision requiring employee and permitting employer to show agreement to potential subsequent employer Agreement should apply to subsidiaries/ affiliates/ successors/ assigns Provision reflecting intent to enforce and “blue pencil” if necessary

29. 29129 Additional Provisions Provision defining the confidential information/trade secrets at issue Provision restricting the jurisdiction/venue for enforcement (including any claim by employee for declaratory judgment) Consider adding arbitration provision if confidentiality is a real concern (including right to expedited discovery and relief) Provision permitting a new employer or former employer to “buy out” of their restrictive covenant (“pay to play”) Provision providing employee with compensation during the restricted period (“garden leave”)

30. 30130 Additional Provisions – Remedies Remedies may also be spelled out in an agreement: Irreparable Harm - acknowledges that breach will cause and entitle employer to seek and obtain injunctive relief Attorneys’ Fees - if the employee is found to have breached the agreement, employee pays the cost of establishing the breach and otherwise enforcing the agreement, including the cost of any investigation Forfeiture - conditions the receipt of certain benefits/compensation (particularly deferred compensation) on the promise of non-competition Liquidated damages - may simplify enforcement and litigation

31. 31 HIRING A RESTRICTED EMPLOYEE

32. 32132 The Flip Side – Considerations When Hiring A Restricted Employee Employees have common law obligation regarding former employer’s confidential information, irrespective of whether they have a restrictive covenant with their former employer Employers need to protect against violation of restrictive covenants and inadvertent “infection” with a competitor’s confidential information “It’s not the crime – it’s the cover-up” – courts act in equity when issuing injunctions for violations of restrictive covenants. Conduct such as hiding information, destroying documents, deleting files are bad facts for the former employee/new employer.

33. 33133 Acknowledgment of Obligations Clause I acknowledge that I have informed the Company of, and agree to provide to the Company a copy of, any restrictive covenants my former employer may believe or claim exists between me and my former employer. I have also been instructed by the Company not to use, disclose, upload or otherwise bring to the Company any of my former employer’s confidential information or trade secrets.

34. 34 ENFORCEMENT, BRIEFLY

35. 35135 Two Sides Of The Argument Presumably, no employer wants to steal another company’s legitimate trade secrets, but there is a tension: Former employers want to protect their information and relationships when an employee leaves BUT New employers want to leverage an employee’s “tool box” of knowledge and the new employee’s “personal relationships”

36. 36136 Initial Strategy Issues Former Employer What is the employer’s largest concern? Goals? Initial fact gathering critical. Identify trade secrets/confidential information at issue Any “bad” conduct? New Employer Taking the “high road” early on may minimize risk (e.g., limit work done by new employee) Proper onboarding may also minimize risk

37. 37137 Legal And Strategy Issues Initial handling of trade secret or restrictive covenant issues often focuses on attempts to get leverage through legal arguments, including: Testing the enforceability of the contract, both as to whether it is a valid contract and whether it is being enforced too broadly Challenging whether there is a legitimate interest at issue, or whether the goal is to stop legitimate competition

38. 38138 Consideration Former Employer If contract signed at beginning of employment, employment is good consideration Need to address subsequent changes in employment as potential arguments that consideration lapsed New Employer Acquisition may void, as may other changes in the employee’s job

39. 39139 Scope Of Contract Former Employer Identify legitimate business interest Narrower argument can be stronger Employee not prevented from making a living New Employer Prohibits ordinary competition Information not “secret’ Relationships/goodwill owned by employee, not former employer Time/geography too broad

40. 40140 Litigation Former Employer TRO v. PI Notice or Ex-Parte Need for expedited discovery New Employer Agree to some limitation and seek full hearing (and discovery) Counterclaims Segregating employee

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