Nice People DO Finish Last:
Protecting Your Assets
Bernie Fuhs
313.225.7044
fuhs@butzel.com
Presentation Highlights
• Critical steps to protect your assets and relationships
• Types of restrictive covenants (non-compete, nonsolicit, 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 ONE
Know What Assets and Relationships
You Have to Protect
Examples
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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
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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
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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 passwordprotected
• 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 & NonSolicitation 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
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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
Questions?
Bernie Fuhs
313.225.7044
fuhs@butzel.com