1. Confidentiality Agreements
Michael I. Shamos, Ph.D., J.D.
Institute for Software Research
School of Computer Science
Carnegie Mellon University
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2. Confidentiality Agreements
An agreement not to disclose or use confidential information
The “confidential information” need not qualify as a “trade secret”
For what period of time?
For what purpose?
What happens if the confidential information becomes public during the confidentiality period?
What remedy?
Which court?
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3. Confidentiality Agreements
Typically used in
employment agreements
evaluating business plans
preliminary business negotiations
disclosing ideas and inventions
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4. Obligations Imposed by Law
One may have a duty to keep information confidential even if there is no written agreement
Examples:
attorney-client communications
doctor-patient
But: written agreements are a good idea:
Remind the parties
Make the obligation definitive and explicit
Provide evidence for later litigation
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5. Confidentiality Agreement
PARTIES, PURPOSE
MUTUALITY
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6. Confidentiality Agreement
DEFINITION OF CONFIDENTIAL INFORMATION (CRITICAL)
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7. Confidentiality Agreement
EXCEPTIONS TO CONFIDENTIAL INFORMATION (CRITICAL)
BECOMES PUBLIC
PREVIOUSLY KNOWN TO RECIPIENT
OBTAINED FREELY FROM A THIRD PARTY
DEVELOPED INDEPENDENTLY
DISCLOSED BY PERMISSION
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8. Confidentiality Agreement
SAVING CLAUSE
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9. Confidentiality Agreement
PERMITTED USE
RESTRICTIONS ON DISTRIBUTION
NEED TO KNOW
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10. Confidentiality Agreement
CONFIDENTIAL MARKINGS
RESTRICTIONS ON REPRODUCTION
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11. Confidentiality Agreement
INJUNCTION CLAUSE
ATTORNEY’S FEES
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12. Confidentiality Agreement
DURATION
CHOICE OF LAW
CHOICE OF FORUM
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13. Inevitable Disclosure Doctrine
A trade secret owner can stop a former employee from working for a competitor if it can show that the new job would inevitably cause the employee to rely on knowledge of the trade secrets
It does not require proof that the employee has taken or threatened to use the trade secrets
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14. Non-Competes in California
California maintains a strong public policy against non-competition agreements is embodied in Business & Professions Code section 16600:
“Except as provided in this Chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.”
Policy in California is that an employer or contractor may not require an employee, subcontractor or vendor to sign a post-termination non-competition agreement.
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15. Inevitable Disclosure in California
California does not recognize “inevitable disclosure.”
Proof of misappropriation or threatened misappropriation is required
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16. Schlage Lock Co. v. Whyte (Cal. App. 4th Dist. 2002)
We hold this doctrine [inevitable disclosure] is contrary to California law and policy because it creates an after-the-fact covenant not to compete restricting employee mobility.
Schlage and Whyte did not agree upon a covenant not to compete. We decline to impose one, however restricted in scope, by adopting the inevitable disclosure doctrine.
Lest there be any doubt about our holding, our rejection of the inevitable disclosure doctrine is complete. If a covenant not to compete (which would include, for example, a nonsolicitation clause), is part of the employment agreement, the inevitable disclosure doctrine cannot be invoked to supplement the covenant, alter its meaning, or make an otherwise unenforceable covenant enforceable.

17. Temporary Restraining Orders
A temporary restraining order (TRO) preserves the status quo (the last uncontested status between the parties) until a hearing can be held
A TRO may be granted without notice to the adverse party only if immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party can be heard in opposition
Every (federal) TRO must expire within 10 days
If a TRO is granted without notice, a preliminary injunction hearing must occur at the “earliest possible time” and takes precedence of all matters except older matters of the same character F.R.C.P. Rule 65
TROs are often issued in trade secret cases
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18. EarthWeb v. Schlack 71 F. Supp. 2d 299 (S. D. N. Y
EarthWeb v. Schlack 71 F.Supp.2d 299 (S.D.N.Y. 1999), aff'd in part (2d Cir. 2000)
EarthWeb provides online IT products and services through its websites
Schlack was VP, Worldwide Content, for EarthWeb
International Data Group (IDG) is a $1B IT media company, with a subsidiary ITworld.com, a site to be launched
ITworld.com hired Schlack to perform substantially the same job
EarthWeb sued, alleging Schlack would disclose (1) strategic content planning; (2) license agreements and acquisitions; (3) advertising; and (4) technical knowledge

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EarthWeb v. Schlack
EarthWeb obtained a temporary restraining order to keep Schlack from starting his new job. It had to keep paying his salary
(The last uncontested status was Schlack still working for EarthWeb)
A preliminary injunction hearing was held (to decide whether Schlack should be prevented from working for ITworld.com during the lawsuit
Schlack had an employment agreement
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20. EarthWeb v. Schlack The “Proprietary Information” section stated,
“(a) [Schlack] will not disclose or use, at any time either during or after the term of employment … any Confidential Information … ‘Confidential Information’ shall mean all proprietary information, technical data, trade secrets, and know-how, including, without limitation, research, product plans, customer lists, markets, software, developments, inventions, discoveries, processes, formulas, algorithms, technology, designs, drawings, marketing and other plans, business strategies and financial data and information … whether or not marked as ‘Confidential.’ ‘Confidential Information’ shall also mean information received by EarthWeb from customers of EarthWeb or other third parties subject to a duty to keep confidential.”

21. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS
EarthWeb v. Schlack
A “Limited Covenant Not to Compete” section stated,
(c) For a period of twelve (12) months after the termination of Schlack's employment with EarthWeb, Schlack shall not … (1) work as an employee, employer, consultant, agent, principal, partner, manager, officer, director, or in any other individual or representative capacity for any person or entity that directly competes with EarthWeb … ‘directly competing’ is defined as a person or entity or division on an entity that is (i) an on-line service for Information Professionals whose primary business is to provide Information Technology Professionals with a directory of third party technology, software, and/or developer resources; and/or an online reference library, and or (ii) an on-line store, the primary purpose of which is to sell or distribute third party software or products used for Internet site or software development
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22. EarthWeb v. Schlack
The court found that use or disclosure was not “inevitable” and declined to transform the very general proprietary information clause into a non-compete agreement
It then turned to the non-competition covenant, which it construed strictly according to its terms
The “primary business” of ITworld.com was not to offer a directory, library or online store for IT professionals. At most 2% of its business would involve that.
Even if it were ITworld.com’s primary business, EarthWeb would have to show that the non-competition agreement was reasonable and necessary to protect its legitimate interests.

23. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS
EarthWeb v. Schlack
“The policy underlying this strict approach rests on notions of employee mobility and free enterprise. Once the term of an employment agreement has expired, the general public policy favoring robust and uninhibited competitions should not give way merely because a particular employer wishes to insulate himself from competition.”
The one-year duration was too long given the fast-moving nature of the Internet
Schlack’s services were not “unique and extraordinary”
“Strategic thinking” is not a particular marketing plan deserving of protection.
INJUNCTION DENIED.
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24. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS
Enforceability
No “blue lining.” Several states, Missouri and Georgia being two, hold that courts may not "blue pencil" or amend defective elements of noncompetition agreements ancillary to employment. See Palmer & Cay, Inc. v. Marsh & McLennan Companies Link. In these states, an employer must be very careful in drafting a noncompete agreement. When bringing an enforcement action against the employee, it's all or nothing. Either every material provision of the noncompete is held valid or the agreement completely fails.
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25. LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS
Major Ideas
Confidentiality agreements should be very specific and limited in scope and duration
“Inevitable disclosure” is difficult to prove
Non-competition arguments are not favored, will be strictly construed against the employer
If one clause is found invalid, the whole non-compete agreement may dissolve
California does not permit non-competes except in special circumstances (such as sale of a business)
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