Confidentiality, NonCompetition and NonDisclosure Agreements
Steven L. Baron
Mandell Menkes LLC
October 27, 2009
Confidentiality Agreements
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Protects against disclosure of confidential
information and trade secrets of employer.
Term: during employment and potentially
forever.
May not cover stuff you already know.
But, how do you prove you already knew
it.
Check terms of employee handbook.
Confidentiality Agreements
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Confidentiality. Employee will not disclose any Confidential Information to any person
or entity for any reason, except as required to perform its obligations under this
Agreement. For purposes of this Agreement, Confidential Information shall include
the financial terms of this Agreement and all records, reports, documents, designs,
plans, contracts, literature, data, concepts, ideas, software, computer programs,
source code, object code, information, memoranda, correspondence, and other
material created, developed or used by Employer or Employee pursuant to this
Agreement, or delivered or transmitted to Employer by Employee pursuant to this
Agreement or otherwise. Confidential Information shall also include information in
Employee’s knowledge or possession concerning Employer’s business, marketing,
administrative, advertising, budgeting or organizational plans, practices, policies and
procedures, as well as Employer’s customer lists and scientific or technical
information, Employer’s advertising rates, information about users of any Employer
Web site, and any traffic patterns or usage information about Employer Web sites,
regardless of whether such knowledge or information was obtained pursuant to this
Agreement or otherwise. Employer shall own all rights, title and interest in all
Confidential Information. Employee acknowledges that much of this information
constitutes trade secrets or proprietary information unique to Employer, and that
disclosure in breach of this Paragraph will result in irreparable injury to Employer for
which Employer shall be entitled to injunctive relief in addition to all other remedies
available at law or in equity.
Non-Competition Agreements/Restrictive Covenants
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Prevent employee/independent contractor from engaging in work or
projects that may compete with business of employer.
Disfavored (but enforceable) under the law.
Must be limited in scope, geography and time.
No bright line test on what’s acceptable.
Non-Competition Agreements/Restrictive Covenants
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Upon termination of this Agreement and/or the date Optometrist ceases to perform
services for Corporation for any reason, with the sole exceptions of termination by
the Optometrist for “Cause” as defined in Section 14(b), or termination by
Corporation without cause pursuant to Section 13(b), and for a period of five (5)
years following termination, Optometrist will not, without written consent of
Corporation, engage in the Practice of Optometry (i) at either of the ___________,
or (ii) at any other facility within the Service Area. The parties agree that these
covenants are necessary to protect the activities of Corporation and the professional
practices of employees of Corporation. Optometrist agrees that any breach of these
restrictive covenants will result in irreparable damage to Corporation for which it will
have no adequate remedy at law, and hereby consents to an injunction by any court
of competent jurisdiction in favor of Corporation enjoining any breach of such
covenants, without prejudice to any other right or remedy to which Corporation may
be entitled. If Corporation institutes a suit or takes action against Optometrist for
violation of or to enforce this Section 16, Corporation shall be entitled to all of its
costs and expenses, including, without limitation, reasonable attorney’s fees. In the
event that these covenants shall be determined by any court of competent
jurisdiction to be unenforceable by reason of their being extended to too great a
period of time or too large a geographic area or over too great a range of activities,
they should be interpreted to extend only over the maximum period of time,
geographic area, or range of activities as to which they may be enforceable.
Non-Disclosure Agreements (“NDAs”)
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Like confidentiality agreement but may be used outside of employment
context.
•
Presenting ideas to:
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Venture capital firm
Other funding source
Potential joint venturer
Potential business partner.
Coady v. Harpo, Inc., 308 Ill.App.3d
153 (1st Dist. 1999)
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Post-employment restrictive covenant.
Senior Associate Producer seeks DJ of
non-enforceablility.
Prohibitions in contract:
• During contract and thereafter (i.e. forever)
• Can’t reveal info about:
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Oprah, her business or private life;
Business and dealings of Harpo;
Harpo’s employment practices and policies
• Can’t give or participate in interviews about
Oprah
Coady v. Harpo, Inc., 308 Ill.App.3d
153 (1st Dist. 1999)
• Who wins?
Coady v. Harpo, Inc., 308 Ill.App.3d
153 (1st Dist. 1999)
Coady v. Harpo, Inc., 308 Ill.App.3d
153 (1st Dist. 1999)
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Court’s rationale:
• No restraint on plaintiff’s future career.
• No restraint on commerce.
• Forever is ok.
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“Whether for better or for worse, interest in
a celebrity figure and his or her attendant
business and personal venture somehow
seems to continue endlessly, even long after
death, and often, as in the present case,
extends over an international domain.”
RKI, Inc. v. Grimes, 177 F. Supp.
2d 859 (N.D. Ill. 2001)
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“This is a case about how an
employee who signed a nondisclosure and non-compete
agreement chose to join a
competitor. This is a textbook case
of how not to do it.”
• Magistrate Judge Morton Denlow
RKI, Inc. v. Grimes, 177 F. Supp.
2d 859 (N.D. Ill. 2001)
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Employee signs 2-year deal and agrees
during the term and thereafter.
• Won’t reveal “Proprietary Information.”
• PI = “any and all information including but not
limited to information concerning the design
and development of tooling used in the
Company’s business, not generally known or
recognized as standard practices, and
information which is disclosed to … [employee]
concerning any and all of the technology,
research, . . . produced by the Company.
RKI, Inc. v. Grimes, 177 F. Supp.
2d 859 (N.D. Ill. 2001)
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Employee has access to:
• Customer contact management system.
• Account contact management software.
• Reports with quote, order, cost and
profit data.
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Info provided with appropriate
safeguards (e.g. password
protection)
RKI, Inc. v. Grimes, 177 F. Supp.
2d 859 (N.D. Ill. 2001)
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Employee recruited by direct
competitor.
Before leaving, employee downloads
customer information from
databases.
Employee immediately begins to
solicit former employer’s customers.
Held: Confidentiality provision of
contract was enforceable, and
employee breached.
Nilssen v. Motorola, Inc., 963 F.
Supp. 664 (N.D. Ill. 1997)
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Nilsson approaches Motorola about
electronic ballasts.
Discussions ensue over several years
In midst of discussions, parties enter a
confidentiality agreement.
Motorola afforded Nilsson opportunity to
retroactively label material “confidential.”
Trade secret litigation erupts.
Court finds no implied duty of nondisclosure in the face of express contract.
Pope v. Alberto-Culver Company,
296 Ill.App.3d 512 (1st Dist. 1998)
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P approaches AC with proposal to use a
plastic tube to contain and apply lyebased hair relaxer.
P and AC execute a non-disclosure
agreement: AC agrees not to disclose or
misappropriate any trade secrets or
confidential information.
P and AC do not consummate deal.
AC introduces lye-based hair relaxer in a
tube.
P sues. Who wins?
Pope v. Alberto-Culver Company,
296 Ill.App.3d 512 (1st Dist. 1998)
Pope v. Alberto-Culver Company,
296 Ill.App.3d 512 (1st Dist. 1998)
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Placement of a lye relaxer in an already
existing tube and using tube to apply
relaxer were easily within realm of general
skills and knowledge.
A design process that can be readily
ascertained from an examination of the
product itself cannot be a trade secret.
NDA of no help: excluded information
that is generally available to the public or
becomes available through no fault of AC.
Learning Curve Toys v. Playwood
Toys, 342 F.3d 714 (7th Cir. 2003)
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LC and PT meet to discuss potential
business venture regarding toy train
business.
LC and PT enter into an oral confidentiality
agreement.
PT discloses to LC a method of making
realistic “Clickety-Clack” wooden train
tracks.
LC and PT do not enter into business
agreement.
LC went on to sell the Clickety-Clack track.
PT sued for misappropriation of trade
secrets.
Learning Curve Toys v. Playwood
Toys, 342 F.3d 714 (7th Cir. 2003)
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Not Thomas
So, what have we learned?
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An NDA can last forever (if it does not restrain trade or
employment).
When drafting, be broad but be specific in defining information
covered and permitted uses.
An NDA will not protect information that is otherwise generally
available.
NDAs enforceable only if reasonable efforts made to keep
information confidential. (i.e. same level of care given to trade
secrets).
NDA’s can cover confidential customer information.
Faced with an express NDA, courts will not find an implied duty of
non-disclosure (but employee may owe duties of loyalty etc.).
Follow NDA’s provisions (e.g. proper marking on documents).
Parties may be bound by oral NDA’s.
In Illinois, courts seem to follow all-or-nothing approach (not
“blue pencil”).