1. By Bill Egan and Larry Fox
Lessons Learned
Keeping the Competition Out of Your Kitchen
By Bill Egan and Larry Fox
Avisen Legal P.A.
November 1, 2017

2. Avisen Legal, P.A.
Business Law
Technology and Intellectual Property Law
Employment Law
Deep Knowledge and Experience
Common Sense, Collaboration and Commitment

3. Myths Non-Compete Agreements Are Not Enforceable
Employers Use Them as Scare Tactics
They Are Standard
Employer Can Require Employee to Sign Anytime
Non-Disclosure Agreements Alone Are Sufficient Protection
Also Need IP Assignment
Also Need Common Sense
Employer Owns All Work It Pays For

4. What Do I Focus On
What Do I Look At When an Employee Leaves To Start a Similar Business?
Non-Compete
Term, Scope, Enforceability
How Similar are the Businesses
Non-Solicit of Employees, Customers, Suppliers
Term, Scope
Invention Assignment Agreement, Including Post Termination Provisions
Bad Behavior on Part of Departing Employees
Did They Take Anything With Them? Flash Drives; Portable Drives, Contact Lists
Did They Forward s?
Did They Take Opportunity That Came to Them As An Employee

5. What is Competition? Any Person or Entity That Can Hurt Your Business
Present and Future
Friends can Become Foes
Includes Co-Founders
Current Direct Competitors
Rising Competitors
Indirect Competitors
Employees
Investors

6. What’s in Your Kitchen? Proprietary Assets:
An asset is a resource with
Economic value that
A party owns or controls
Expectation that it will provide future benefit. 

7. Protectible Assets / Business Interests
A Protectible Asset (a/k/a “Protectible Business Interests”)
Legally Enforceable
Right
That An Owner Has and Others do not and
That the Owner
Can Use at Its Discretion, and
Can Preclude or Limit Use by Others

8. Types of Assets Equipment Real Estate Cash and cash equivalents
Accounts Receivable
Inventory
Intellectual Property
Talent

9. TYPES OF INTELLECTUAL PROPERTY
TRADE SECRETS (Non-Public)
Confidential Information
Can Last Forever, IF Kept Secret
PATENTS (Public)
Exclusive Right in a Territory, to Make, Use and Sell a Invention and Prevent Others From Doing the Same
Generally Lasts 20 Years From Filing
COPYRIGHTS (Non-Public or Public)
Original Works Of Authorship – e.g., Software Source Code
In General Lasts 70 years

10. Patents Strongest Protection Against Competition Requirements
Process, Machine, Article of Manufacture, Composition of Matter
E.g. Not Music or An Abstract Idea
New
No Prior Public Disclosure (Even To a Friend)
No Prior Sale
In USA, One Year Grace Period Before Patent is Filed
Useful
Not Obvious To Someone Skilled in the Art

11. What to Focus On
What Do I Look At When an Employee Leaves To Start a Similar Business?
Non-Compete
Term, Scope, Enforceability
How Similar are the Businesses
Non-Solicit of Employees, Customers, Suppliers
Term, Scope
Invention Assignment Agreement, Including Post Termination Provisions
Bad Behavior on Part of Departing Employees
Did They Take Anything With Them? Flash Drives; Portable Drives, Contact Lists
Did They Forward s?

12. How To Protect Intellectual Property
Obtain Assignment of Ownership of IP Rights
Put Non-Disclosure Agreements in Place
Put Non-Competes in Place Where Appropriate
Put Customer and Employee Non-Solicits In Place Where Appropriate
Non-Solicit vs. No Hire
These Rules Apply To:
Employees
Consultants
Suppliers
Customers (sometimes)

13. TRADE SECRETS AND HOW TO PROTECT THEM
Information That Has Value Because It is Not Generally Known
Owner Use Reasonable Efforts to Keep Secret
Examples: formula, source code, method, technique, process, financial information, customer lists, supplier information, technical information
WHAT ARE REASONABLE EFFORTS?
Non-Disclosure Agreements With Employees and Third Parties that Restrict Use and Disclosure.
Marking Documents “XYZ Co Confidential”
Restricting Disclosure on a Need to Know Basis
Limiting Access: Password Protection; Locked File Cabinets; Security

14. Non-Public IP Trade Secrets Secret Stealers
Theft is real and growing
Easer to get to
Easier to copy
Secret Stealers
65%
Business 25%
Unrelated 10%
Problem – most of the 90% think they are entitled to it

15. Types of Trade Secrets Stolen
Software
Formulae
Customer Lists
Internal Business Information
Financials
Operational information
Logistical information
Technical information and know-how

16. Trade Secret Theft – Perps
Customer and Sales Information (Goodwill)
Sales reps
Marketing Professionals
Senior Executives
Technical Information
Engineers IT
Ponemon Institute Survey
59% took Confidential Info.
53% downloaded it
38% sent it via

17. Trade Secret Leakage Means Flash Drive (Easiest) Email (Dumbest)
Webmail (2d Dumbest)
Smartphones
Boxes and bags
Inadvertent
Facebook
Twitter
Other SM

18. Confidential Information
Trade Secrets plus
Business plans,
Contracts,
Financial statements,
Pricing information,
Processes and procedures,
Patent applications,
Sales and marketing plans and strategies,
Improvements,
Developments,
Third party CI provided to the Company on a confidential basis.

19. Protect Trade Secrets and CI
Identify it
Separate it
Mark it
ID employees, vendors and contractors who should have access
Protect it from everyone else
Secure it on servers
Lock it in file drawers
Train employees

20. Trade Secret Agreements
Can bind
Employees,
Independent Contractors,
Vendors,
Suppliers
Distributors,
Customers and
Other Third Parties

21. Trade Secret Agreements
Can be indefinite in duration
Specifically identify that information that is protected
Can define Confidential Information broadly
Can define its own remedies
Can be enforced by simple breach of contract action
Violation of Trade Secrets Act Not Required

22. Anatomy of an NDA Restriction on Use Restriction on Disclosure
Definition of Confidential Information
Marking Requirement
Period of Disclosure
Period of Protection (Term and Post Termination/Expiration)
Authorized Recipients of Confidential Information

23. NDA TIPS Don’t Think Having an NDA In Place Is Bulletproof
Difficult to Detect Misappropriation
Expensive to Bring a Litigation
Litigation May Not Make You Whole
Can’t Get Blood Out of a Turnip
Stage Gate Information Disclosures
Don’t Reveal to Much
Disclose Information Only on a Need to Know Basis
Research Your Recipients
Don’t Disclose Sensitive Information to People Who Are Not Vetted
Put a Non-Compete In Place

24. Other Measures Password Protect Computers Auto-Lock Screens
Password Protect Files
Do not send unprotected info via
Encrypt Sensitive
Use patents, trademarks and copyrights
Cut off access for terminated employees
“Remind” Exiting (Remember Ponemon)

25. Other Measures
Create and Publish Comprehensive Trade Secret Protection Policy
Employee Handbook
Policies and Procedures
Postings
Train Employees on Policies
Periodically Remind them of Obligations
Have them Acknowledge
Audit for breaches

26. ENFORCEMENT OF TRADE SECRET RIGHTS
HOW TO DETECT MISAPPROPRIATION?
EMPLOYEES -
IT AUDIT ON DEPARTURE OF KEY EMPLOYEE
IT POLICY THAT PERMITS AUDIT DURING EMPLOYMENT
LETTER TO FUTURE EMPLOYERS – DETAIL NON-COMPETE AND NDA
INEVITABLE DISCLOSURE DOCTRINE
VERY NARROW APPLICATION – INTIMATE KNOWLEDGE OF BUSINESS, SUBSTANTIAL THREAT OF INJURY
Not Recognized Under Federal Law (2016 DTSA)
VENDORS, CUSTOMERS AND PARTNERS
NDA or NDA Provision in Agreement
Audit Rights

27. Intellectual Property Assignments
Inventions and Patents
Absent agreement, inventor owns the patent
Some exceptions, but Agreement should define
Copyrights
Work for Higher Doctrine
Gives Employer Ownership Rights
If Copyright Developed while Employee Acting in Scope of Employment
Work For Hire Typically Does Not Apply to Consultants

28. Intellectual Property Assignments
Employees or Consultants performing Scientific or Technical Duties should sign Invention Assignment Agreement
Continued Employment is Consideration
IP Assignments Should be Reviewed Periodically
Co-Founders Should Sign Invention Assignment Agreements
Statutory exceptions
Most jurisdictions have exceptions for completely unrelated inventions
Also require written notice to employees

29. Non-Compete Agreements
Overview
Viewed by courts as Agreements and Restraint of Trade
“Disfavored”
Must be Properly Written and Entered Into
Found In
Employment Agreements
Consulting Contracts
Stand-Alone Non-Compete Agreements
Employee Handbooks
Sale of Business Agreements

30. Why Are Non-Competes Disfavored?
Contracts in restraint of trade are generally unlawful
E.g., Anti-trust
Public Policy Favors Employee Freedom
But:
Freedom to Contract
Employee Not Required to Work for Employer
Employer Needs Trained Workforce
Without fear of training future employees of competitor

31. Valid Non-Competes – Requirements
Valid Contract
Protectable Business Interest Enforceable in Employees Jurisdiction
(not in CA, OK & ND)
Restrictions must be Objectively Reasonable
Geographically
Temporarily
Protectable Business Interest
Enforceable Jurisdiction Where Employee is Located

32. Valid Contract Offer Acceptance Consideration
No Surprises on First Day
Acceptance
Employee Must Sign
Consideration
Must be Something
New (in MN and certain other jurisdictions)
Contingent on Acceptance

33. Protectible Interest Trade Secrets Confidential Information Goodwill
Relationships With Customers
Personal to Employee
Provided by Business
Specialized Employee Training
Other Significant Investment
NOT Ordinary Competition
(So why “Non-Compete”?)

34. Reasonableness of Restrictions
Employee's Employability Outside of Employer
Ability to Obtain Other Meaningful Employment
Not making burritos
Employee’s Level of Responsibility
Telemarketers
Training Provided to Employee
Ask How Can this Employee Hurt Me?
Non-Compete Scope and Duration Can Be Broader with Company vs. Employees
Also Broader in Connection with Sale By a Business Owner

35. Non-Solicitation Agreements
Better than Non-Competes
Targets Customer or Client Relationships
Easier to Enforce
Can work for Competitor, But Can Not Take Customers
Longer Horizon

36. Anti-Raiding Provisions
Employee Non-Solicitation Agreement
Distinguish between No-Solicit and No-Hire
Routinely Approved
Nevertheless Vulnerable to Attack
Restraint of Trade on 3rd Party
Include Current Employees and Consultants or Those Working In the Business in the 6 Month Period Before Hire
Prevents People From Taking a Month Off to Avoid the Provision
Exception for Hiring In Response to General Advertisement

37. Enforcement Litigation Arbitration Considered Too Slow
Injunctions
Arbitration Considered Too Slow
Cease and Desist Letters
Cease and Desist Phone Calls
Damages
Attorneys Fees
Blue Pencil / Red Pencil Doctrine