How to Protect the Company’s Crown Jewels – Customers & Trade Secrets – Against Unfair Competition

How to Protect the Company’s Crown Jewels – Customers & Trade Secrets – Against Unfair Competition William M. Corrigan, Jr. Armstrong Teasdale LLP One Metropolitan Square St. Louis, Missouri 63102 314.621.5070 wcorrigan@armstrongteasdale.com

Public Perception and Unfair Competition “Some companies use non-competes as a retention tool to hang over employees’ heads.” The New York Times “It isn’t unusual for employers to pursue legal action…to protect against the loss of trade secrets…but these cases usually settle out of court.” Wall Street Journal

Drafting with an Eye for Enforcement Non-Compete Agreements • Non-solicit v. Non-competes • Protection needed • Enforcement • Time limitations justified by the time necessary to protect company

Drafting with an Eye for Enforcement • Geographic scope consistent with the employee’s work area • Keeps the focus on where the harm is • Consideration • New v. current employee

Drafting with an Eye for Enforcement • Attorneys’ fee + costs in the event of breach • Creates additional leverage for enforcement • Blue pencil authority to allow the court to refashion questionable terms • Authorizes judicial flexibility • Forum Selection Clause • Choice of Law Provision

Building a Successful Noncompete Case –5 Steps to a Winning Strategy • Well-Drafted Noncompete • Contract Execution: • Signature of employee • Employee’s opportunity to consult • Q&A session

Building a Successful Noncompete Case –5 Steps to a Winning Strategy • End of Employment: reaffirmation of obligations • Contract affirmation to employee • Exit interview – identify employee’s future plans • Create documentation • Follow-up letter

Building a Successful Noncompete Case –5 Steps to a Winning Strategy • Pre-Litigation Investigation: gather the facts • Demand letters • Customer loss analysis • Interviews – customers/employees • Computer forensic analysis

Building a Successful Noncompete Case –5 Steps to a Winning Strategy • Litigation: key strategy decisions • Jurisdiction • TRO/Injunction/Damages • Expedited discovery • Naming new employer

Trade Secret Litigation = “High Stakes” • In 2007, 8th Circuit affirms $2 million verdict for actual and punitive damages • In 2004, 8th Circuit remits punitive verdict to $7 million

Missouri Uniform Trade Secrets Act Provides remedies for misappropriation of trade secrets with or without a non-compete agreement

Elements to Recover • The information at issue constitutes a trade secret; • The existence of actual or threatened misappropriation by the defendant; • The plaintiff took reasonable steps to maintain the information’s secrecy.

What is a Trade Secret? • The Act defines a trade secret as “technical or non-technical data, a formula, pattern, compilation, program, device, method, technique or process that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use.”

Examples of Trade Secrets: • A price book containing detailed compilation of customer, product and price information. Lyn-Flex West, Inc. v. Dieckhaus, 24 S.W.3d 693 (Mo.App. 1999) • Customer lead sheets and loan files. Conseco Financial Services Corp. v. North American Mortgage Co., 381 F.3d 811 (8th Cir. 2004) • A list of customers and a code for determining discounts, rebates or other concessions in a price list. Mid-States Paint & Chemical Co. v. Her, 746 S.W.2d 613 (Mo.App. 1988)

What is Misappropriation? • Misappropriation is the acquisition, disclosure or use of a trade secret with knowledge that it was acquired by “improper means.” • “Improper means” includes “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy…”

Reasonable Steps to Maintain Confidentiality • Confidentiality agreement • Confidentiality policy • “Confidential Documents” stamp • Passwords • Locked cabinets • Prohibit copying • Exit interview

Remedies Available • Injunctive Relief The court may enter an injunction for a reasonable time to eliminate any commercial advantage that would be derived from the misappropriation. • Compensatory Damages • Punitive Damages

How to Protect the Company’s Crown Jewels – Customers & Trade Secrets – Against Unfair Competition