NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE?

1. NON-COMPETES: SHOULD YOU HAVE THEM, AND WHAT TO DO WHEN FACED WITH ONE? Jonathan A. Keselenko Partner Foley Hoag LLP February 6, 2008

2. What is at stake? • Every Day, Your Intellectual Property Walks Out the Door • Employee Mobility –Competition • Ability to Hire

3. Recent Phenomena • Non-Disclosure (NDAs) and Non-Competition Agreements increasingly prevalent • Upside and Downside • Substantial Increase in Litigation of Issues Involving Enforcement of Restrictive Agents

4. Recent Phenomena (Continued) • Other causes of the increase in litigation: • Managers, rather than Human Resources department, identifying new talent • Human Resources has less control over process (what is said and done before official offer made) • It’s an electronic world • Companies willing and able to scrutinize departing employees’ computers to assess their pre-termination conduct

5. General Legal Landscape • At-will Employees Can Change Employers Freely • Can Plan to Compete • Can Take Active Steps to Do So While Employed • Caveat: not on your dime/time!

6. Types of Restrictive Agreements • Nondisclosure/Inventions Agreements • Noncompetition Agreements • Nonsolicitation Agreements • Customers • Employees • Suppliers

7. Enforceability of Non-Competes • Not Automatic • Must Be Necessary to Protect Legitimate Business Interests and Not to Protect From Ordinary Competition • Reasonable in Time and Geographic Scope

8. Interests • Protection of Customer Good Will, Relationships • Protection of Trade Secrets/Confidential Information

9. What Information is Protectable? • Customer Information • Manufacturing Processes and Methods • Business/Financial Information • Sales Figures • Marketing Forecasts • Future Plans • Computer Programs and Data Compilations

10. What is Not Protectable? • General Knowledge/Skills/Abilities • Publicly Available Information • Information Resulting From Reverse Engineering

11. Tips for Maximizing Protection: • Develop Comprehensive Program to Protect Trade Secrets and Other Information • Confidentiality Policy • Educate Employees About Policy • Restrict access to information • Label confidential documents (electronic too) “Confidential. Do Not Copy, Do Not Distribute”

12. Tips for Maximizing Protection (Continued): • Focus Your Agreement on Protecting Your Information • Specify the kinds of information that are confidential • Specific is better than generic • Spell out what is “competition”

13. Tips for Maximizing Protection (Continued): • Common Mistake: The “Naked” Non-Compete or “One Size Fits All” Approach • Swinging for the Fences Often Results in Strike-outs: Tailor Your Agreement to Your Interests • Make sure You Have Consideration • Inception of employment is best • If not, tie to other benefits

14. Tips for Maximizing Protection (Continued) • Act Quickly/Aggressively to Protect Your Rights • Investigate Employee’s Actions • Letters to Former Employee, New Employer • Litigation

15. Tips for Maximizing Protection (Continued) • Consider State of Employment • State laws very widely • The California Problem • Options

16. Menu of Litigation Options • Immediate Request for Injunction • Expedited Discovery • Arbitration?

17. Hiring Employees With Non-Competes • The other side of the coin – risks • Have practice of inquiring about getting existing agreements • Study the risks • Agreements • Trade Secret laws • Duty of Loyalty

18. Hiring Employee With Non-Compete…(Continued) • Just Because There Is A Non-Compete Doesn’t Mean No Hire: • Competitors? • Legitimate Interest? • Other Positions? • Weigh Risk

19. Hiring Employee With Non-Compete…(Continued) • Document expectations/restrictions • Employee warranties

20. Effectively Managing The Hiring Process • Departing employees sometimes do stupid things • Outline parameters for communication about new employment • Not on company time • Not with use of company equipment • Best advice to employee: assume every key stroke on every computer will be seen by your former employer

21. Effectively Managing The Hiring Process (Continued) • Managing managers who recruit/start hiring process: • Trainings on protecting your company’s intellectual property/confidential information should include a discussion of how this goes both ways, so that in the enthusiasm to lure friends/former coworkers from other places, employees do not get the company into trouble • Advise about parameters relating to solicitation • Do not inform of plan to depart; wait until termination is effective before communicating with customers

22. Effectively Managing The Hiring Process (Continued) • If information is taken (customer list, etc.), investigate former employer’s efforts to protect the information • Do not forget written agreements: scrutinize language in agreements

23. Hiring Employers Have Some Recourse Against Overly Aggressive Former Employers • Recent significant case: Brooks Automation, Inc. v. Blueshift Technologies, Inc., et al. • Plaintiff sought to enforce a non-competition agreement against a former employee and his new employer • Court refused to enforce the agreement, granted defendant’s Chapter 93A (unfair competition) counterclaim, ordered plaintiff to pay defendants’ attorneys’ fees as a penalty for initiating the action

24. Hiring Employers Have Some Recourse Against Overly Aggressive Former Employers (Continued) • Court held that plaintiff company had no reasonable basis to believe its suit would succeed • Plaintiff company acted with a purpose other than adjudicating its claims: to prevent the defendant company from entering a contract with a 3rd party • The plaintiff company filed a frivolous lawsuit, and willfully violated Chapter 93A • The court trebled the damage award to $627,900, plus attorneys’ fees

25. Should Non-Competes Be Illegal? • Proposals in Massachusetts • The California Model

26. Questions/Discussion Jonathan A. Keselenko, Esquire Foley Hoag LLP 155 Seaport Boulevard Boston, MA 02210 Phone: (617) 832-1208 Fax: (617) 832-7000 jkeselenko@foleyhoag.com