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
PROTECTING CORPORATE ASSETS
How to protect your company’s
confidential information, trade
secrets, goodwill and other intangible
assets
1
What We Will Discuss
•
What Assets Need Protection?
•
What Tools Do You Have To Protect Those Assets?
•
Sample Contract Clauses
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PROTECTABLE INTERESTS
3
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
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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
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HOW DO YOU PROTECT THESE ASSETS?
6
What Tools Are Available To InHouse 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
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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.
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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)
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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.
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Myths About Restrictive Covenants
•Restrictive covenants aren’t enforceable in any
meaningful way
•Our company doesn’t have any protectable
information
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Types Of Restrictive Covenant
Contracts
• Non-Disclosure
• Return employer information (give
everything back)
• Non-Solicitation of employees
• Non-Solicitation of customers
• Non-Compete
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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
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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
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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;
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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:
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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.
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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.
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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 clientspecific 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.
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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.
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