International Best Practices for Protecting Against Unfair Competition

1. International Best Practices for Protecting Against Unfair Competition March 2017

2. AUSTRALIA

3. Identifying the categories of restraint • Confidentiality • Protecting proprietary information (and information technology (“IT”)) • Do not poach our staff • Do not poach our clients, customers, and suppliers • Do not interfere with our contractual relationships with each of the above klgates.com

4. Identifying the categories of restraint • During employment • Protecting – confidentiality and noncompetition • common law of contract • express terms • implied duties of fidelity • implied duties of good faith klgates.com

5. Identifying the categories of restraint • After employment • Protecting confidentiality and interference with contractual relationships (of former employer) and against unfair competition • presumptive position—competition should be free and unfettered • common law of contract • post-termination obligations are allowable but must be reasonable klgates.com

6. Identifying the categories of restraint • Categories • Confidentiality • Protecting secret information • Protecting proprietary information • Preserving IT • Typically enforceable klgates.com

7. Identifying the categories of restraint • Categories • Obligations not to poach staff • Obligations not to poach clients, customers, and suppliers • Obligations not to interfere with the contracts between staff, clients, customers, and suppliers or similar • Typically enforceable klgates.com

8. Identifying the categories of restraint • Categories • Obligation not to compete in a market • Obligation not to compete at all • Obligation not to work (for a period) • All read more narrowly by Australian courts klgates.com

9. when competition is unlawful • Only very narrow categories of confidential information are protected by the general law • Restraints must be articulated and enforced contractually • The answer is always contextual so avoid over-reach • Employer must protect the confidential information itself • Del Casale & Ors v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 klgates.com

10. when competition is unlawful • National Law: Competition and Consumer Act 2010 • All restraints of trade are unlawful • Except to the extent they are reasonable • Means reasonable in the public interest • The answer is always contextual; a balancing act klgates.com

11. when competition is unlawful • National Law: Corporations Act 2001 • Chapter 2D. Directors, officers, and employees: are • Not entitled to use proprietary or secret information during or after service with a company • Enforceable including by civil penalty provisions klgates.com

12. when competition is unlawful • The balance to be struck • Freedom to contract a restraint; versus • The public interest in free competition • Public interest recognised early • Nordenfeltv Nordenfelt Guns & Ammunitions [1894] AC 535 klgates.com

13. when competition is unlawful • AND the balance to be struck considers: • Legitimate business interests versus • The public interest in competition • The outcome depends on the context • Nature of the business • Nature of the “market” • The public interest in rendering competition in that market klgates.com

14. The limits of contractual protection • Clause preventing working otherwise is read narrowly • The touchstone is people are entitled to earn a living in a field in which they are qualified by education, training, and experience • Consequently, the presumptiveposition is: it is unreasonable (without more) to oblige a person not to work including competitively: • What is more? • Are they being paid?   • How long are they so restricted? • Over what territory (or market) does the restriction apply? • What activities are restricted? • Is the private interest legitimate or over-reach? klgates.com

15. The limits of contractual protection • Protecting confidential information • Essential to carefully define what is confidential • Do not over-reach on what is to be protected • Important to demonstrate what is defined is in fact protected in practice by the business klgates.com

16. The limits of contractual protection • Do not poach • Courts typically uphold nonpoach terms: • For 12 months or even longer • Over a broad geography • Why? Because such clauses (mostly) do not unduly restrict a persons ability to work in the market • A person can earn a living whilst respecting the legitimate business interest of the former principal klgates.com

17. The limits of contractual protection • Do not poach: recent case Pryse v Clark (1 March 2017) [2017] NSWSC 185 • Six former Herbert Smith Freehills (“HSF”) Partners ordered to honor nopoach obligations • Consequently, partners cannot render services to HSF clients for six months • But restraint preventing partners from joining White & Case was not enforceable • Free to work in competition but not for HSF clients klgates.com

18. The limits of contractual protection • Do not compete: contextual questions • What activities are restrained? • For how long? • Over what territory or in what market? • What is the “interest” being protected? • Is that “interest” legitimate? • What is the public interest? • Does the public interest tip the balance? klgates.com

19. The limits of contractual protection • Do not compete • Clauses can be read down in some states • Restraint of Trade Act 1976 • But not in other states, so cascading clauses common • 12 months, if not • Six months, if not • Three months • Throughout Australia, if not • Throughout a state, etc. klgates.com

20. enforcing the remedies • Injunction • Specific performance of the contractual restraint • Damages (in addition or as an alternative remedy), or • Account of profits (lost due to the asserted breach) klgates.com

21. enforcing the remedies • Tort Remedies against third parties • Inference by the new employer with contractual relationships • between the former employer and the former employee • between the former employer and its business contacts • Put the new employer on notice to then hold it accountable • Inhibits new employing entity and puts it at risk • Can discourage breach of restraints: exposure to money damages klgates.com

22. ITALY

23. CATEGORIES OF RESTRAINT Noncompetition and employees • Noncompetition over the course of the employment agreement: general duty of loyalty (Section 2105 of the Italian Civil Code) • Noncompetition following termination of the employment agreement: covenant pursuant to Section 2125 of the Italian Civil Code klgates.com

24. CATEGORIES OF RESTRAINT Competition amongst entrepreneurs • Section 2598 of the Italian Civil Code: general duty for the entrepreneur to compete fairly • Former employee can play a role in assisting his/her new employer in carrying out an unfair competition conduct klgates.com

25. CATEGORIES OF RESTRAINT Competition amongst entrepreneurs • Section 2596 of the Italian Civil Code: noncompetition covenant amongst entrepreneurs klgates.com

26. When is competition unlawful? Employment relationship: breach of the duty of loyalty • Obligation not to compete with the employer • Obligation not to divulge and/or dispose of confidential information/industrial secrets General duty to protect the employer’s interests klgates.com

27. When is competition unlawful? Noncompetition following termination of the employment relationship • Breach of the noncompetition covenant by the former employee klgates.com

28. When is competition unlawful? Competition amongst entrepreneurs • Unfair competition «by confusion» • Unfair competition «by discredit» • «Unfair play» in competition (solicitation of employees; of clients diversion) Former employee assisting his/her new employer in unfair competition klgates.com

29. When is competition unlawful? Competition amongst entrepreneurs • Breach of the noncompetition covenant by the entrepreneur klgates.com

30. LIMITS TO CONTRACTUAL PROVISIONS Noncompetition covenant following termination of the employment relationship Requisites • Made in writing • Fair compensation for the employee • Restrictions limited as to purpose, time and location klgates.com

31. LIMITS TO CONTRACTUAL PROVISIONS Noncompetition covenant following termination of the employment relationship Fair compensation: • On top of normal salary • Duration of the noncompetition covenant • Wideness of restrictions imposed on employee Rationale for employee: reduction of relocation chances in the relevant market Rationale for employer: protection from competition by the employee klgates.com

32. LIMITS TO CONTRACTUAL PROVISIONS Noncompetition covenant following termination of the employment relationship • Compensation is usually paid as a percentage of the salary • It can be paid either during the employment relationship or in arrears after its termination • Recommended option: payment after termination of the employment relationship: • tax and social security benefits • employee less inclined to infringe the obligation not to compete • where compensation is paid during employment relationship, employer is not entitled to pay-back klgates.com

33. LIMITS TO CONTRACTUAL PROVISIONS Employeesotherthan executives Up to threeyears Duration of the obligation not to compete Executives Up to five years klgates.com

34. LIMITS TO CONTRACTUAL PROVISIONS Limitation as to territory • Absence: null and void • Limitation to the Italian territory: valid • Limitation to part of the EU or to the whole EU: valid • Limitation to the whole EU plus further territories: null and void klgates.com

35. LIMITS TO CONTRACTUAL PROVISIONS Limitation as to purpose • The noncompetition obligation may include any activity in competition with the employer: • tasks carried-out during the employment relationship • any activity which may result in competition with the activity carried out by the employer klgates.com

36. LIMITS TO CONTRACTUAL PROVISIONS Limitation as to purpose • The noncompetition obligation cannot: • include activities different from the business conducted by the employer • wholly restrict the chance for the employee to carry out activities in line with his/her professional skills • prevent the employee from earning an income suitable to his/her life requirements klgates.com

37. LIMITS TO CONTRACTUAL PROVISIONS Employer’s right to withdraw from the non-competition covenant • Before termination of the employment relationship: YES • After or at the same time with termination of the employment relationship: NO klgates.com

38. LIMITS TO CONTRACTUAL PROVISIONS Nonsolicitation • Usually, a nonsolicitation obligation adds to the noncompetition duty as an integral part thereof • Employee must not be compensated for the nonsolicitation obligation klgates.com

39. LIMITS TO CONTRACTUAL PROVISIONS Noncompetition covenant amongst entrepreneurs (Section 2596 of the Italian Civil Code) • Proved in writing • Limited as to territory and activity • Limited as to duration: up to five years klgates.com

40. Enforcing the remedies Contractual arrangements (employee’s noncompetition duty) • Pay-back if compensation is paid after termination of the employment relationship • Preliquidated damages • Notice to the former employer • Activities to be carried out • Details of the new employer • Pay-slips klgates.com

41. Enforcing the remedies Judicial remedies following infringement of a noncompetition covenant • Summary order to cease the activity carried out in violation of the noncompetition duty • Summary order to obtain payment of preliquidated damages • Summary order aimed at suspending/interrupting relationship with the new employer • Further compensation for damages klgates.com

42. Enforcing the remedies Judicial remedies for unfair competition amongst entrepreneurs • Summary order to immediately cease the unfair conduct and to reinstate the status quo ante • Cautionary sum to be paid in case unfair conduct does not come to an end (for any single infringement) • Compensation for damages • Publication of restrictive order/judgment in newspapers klgates.com

43. UNITED STATES

44. STATE LAWS GOVERN AND VARY • Enforceability of post-termination restraints is governed largely by state law rather than federal law • Several states have legislation governing this area while others have only common law • Some federal laws are applicable klgates.com

45. Federal laws • The Defend Trade Secrets Act of 2016 (“DTSA”): Protecting against the theft of trade secrets and providing for criminal penalties and civil remedies • Allows for jurisdiction in federal court • Civil remedies include • injunctive relief • damages (up to double damages if malicious and willful) • attorney’s fees klgates.com

46. FEDERAL LAWS –DTSA • Contract immunity notice required for new or updated contracts to obtain double damages and attorney’s fees • Immunity for disclosure of a trade secret: • in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law; or • in a document filed under seal in a legal proceeding klgates.com

47. Federal laws • The Sherman Act, 15 U.S.C. § 1–regulating unreasonable restraints of trade • October 2016 Department of Justice and Federal Trade Commission (“DOJ/FTC”) Antitrust Guidance for HR Professionals: • Highlighting the illegality of • wage-fixing agreements and • no-poaching agreements “The DOJ intends to proceed criminally against naked wage fixing or no-poaching agreements” klgates.com

48. Federal Laws – the sherman act “An individual likely is breaking the antitrust laws if he or she: • agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements), or • agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called “no poaching” agreements).” klgates.com

49. Categories of post-employment restraint • Confidential information • Nonsolicitation of employees • Nonsolicitation of customers and vendors • Noncompetition klgates.com

50. Confidential information • This asset is generally provided the greatest protection by courts throughout the country • Trade secrets are protected even in the absence of a contract pursuant to the DTSA and all states except for New York and Massachusetts have adopted some form of the Uniform Trade Secrets Act • Information does not necessarily have to rise to the level of a trade secret to warrant protection klgates.com