Epstein Becker

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Epstein Becker Green P.C.
75 State Street Boston, MA 02109 Phone
617-342-4000 Fax [phone]
PROTECTING TRADE SECRETS AND CONFIDENTIAL
INFORMATION AND PREVENTING COMPETITION BY FORMER
EMPLOYEES
Thomas I. Elkind, Esq. Epstein Becker Green,
P.C. 75 State Street Boston, Massachusetts
02109 [phone]
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Covenants Not to Compete

• Court will enforce only to extent
  reasonable in light of all the circumstances
• reasonable and necessary to protect
  employers legitimate business interests
• supported by consideration
• reasonably limited in time, geography and
  scope
• consistent with public interest

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Covenants Not to Compete

• Legitimate Business Interests
• Include protection of employers
  confidential and proprietary information
• May enforce non-compete to protect against
  even the risk of disclosure (e.g., now
  employed by direct competitor, risk of
  disclosure great)
• Employer must have taken steps on its own
  to protect interest at issue
• Employer must show harm from breach or
  threatened breach of non-compete

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Covenants Not to Compete

• Legitimate Business Interests (Contd.)
• Employees position is relevant
• More senior the employee was, more likely
  to have sensitive information
• Cant require non-compete of entire
  organization, only of key people
  (receptionist shouldnt be subject to a
  non- compete if not necessary to protect
  legitimate business interest)

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Covenants Not to Compete

• Supported by Consideration
• Consideration given during the non- compete
  period (paid not to work)
• Consideration given when signing the
  non-compete (continued employment, new
  severance package, etc.)
• Continued employment by itself is
  generally not sufficient consideration

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Covenants Not to Compete

• Reasonable Limits in all Circumstances
  including Time, Geography and Scope
• Mass. Courts have enforced non- compete as
  long as 5 years (particularly in a sale of a
  business) but 1 or 2 years more typical
• With rapidly changing business and
  internet environment, less than 1 year may
  be more appropriate
• Geography must be reasonable in scope in
  light of the marketplace served. Will enforce
  worldwide non-compete if that is the nature of
  the marketplace
• Scope of the definition of competing
  services, customers or products must be
  reasonable

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Covenants Not to Compete

• Otherwise Consistent with Public Interest
• Individual must still be able to earn a
  living
• Employee may take own knowledge and
  skills, but may not take trade secrets or
  Employers good will
• May not restrict ordinary competition
  partial restraint of trade may be okay
  total restraint is not

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Confidential Information/Trade Secrets

• Elements of a Misappropriation of a Trade Secret
  Claim
• Information is confidential/trade secret
• Employer took reasonable steps to maintain
  confidentiality
• Employee improperly (breach of
  confidential relationship) acquired or used
  the trade secret

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Confidential Information/Trade Secrets

• Six factors to determine if the information is,
  in fact, confidential
• Extent information is known outside of the
  business
• Extent information is known by employees
  and others involved in the business
• Extent of measures to guard secrecy of
  information
• Value of the information to employer and
  its competitors
• Amount of money or effort expended by
  employer to develop the information
• Ease of difficulty with which the
  information could be properly acquired or
  duplicated by others

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Confidential Information/Trade Secrets

• Practical steps Employer should take to maintain
  confidentiality
• Frequent reminders to employees
• No public, unrestricted disclosure by
  owner of the confidential information
• Reasonable measures taken internally to
  restrict access to information
• Heroic measures not required

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Confidential Information/Trade Secrets

• Was confidential information improperly used?
• Duty to maintain confidentiality (inferred
  from existing relationship)
• Written agreement requiring
  confidentiality

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Sample Non-Competition Clauses

• (See materials handed out.)

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Enforcing the Employment Contract

• When Employee leaves
• Immediately restrict access to
  confidential information and/or computer
  system - before termination, if possible
• Remind Employee of non-competition
  obligations, if agreement has already been
  signed
• Ask Employee to confirm in writing that
  he has no confidential information
• Demand that Employee return all
  information
• Demand that Employee return laptop

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Enforcing the Employment Contract

• When Employee leaves (contd.)
• Offer severance package as consideration for
  non-compete obligation
• Employees know whether Employer actually
  enforces con-competes consistent efforts to
  do so may deter violations by departing
  employees

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How to Handle the Competing Employee

• If you suspect a violation, confront
  directly and firmly but amicably
• If Employee does not respond
  satisfactorily, threaten litigation
• File lawsuit and seek a preliminary
  injunction
• Speed counts - if you want an injunction,
  do not delay

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How to Handle the Competing Employee (Contd.)

• Consider suing the new employer as well
• May convince new employer that employee is more
  trouble than worth
• On the other hand, creates another defendant,
  possibly with more resources to fight
• Consider using new employers web-site to
  support your claim that it is competing with
  your business