Tag Archives: Advice

Florida Companies: Are Your Non-Competes Missing This Critical Provision?

June 15, 2017 By in Advice, Case Summary, Florida Non-Compete Lawyer, Noncompete Tags: , , , , , Leave a comment

Under Florida’s restrictive-covenant statute, Section 542.335(f), a restrictive covenant is only enforceable by a successor entity or third-party beneficiary if the agreement so provides. This provision can become very important following corporate merger or sale transactions. Or in the due-diligence period leading up to those transactions.

In a recent Florida case, Collier HMA Physician Mgmt, LLC v. Menichello, the plaintiff almost fell victim to this statutory requirement. A copy of the opinion can be downloaded here.

In this case, the plaintiff owns a healthcare business employing approximately 40 doctors. It also operates two hospitals and clinics. The defendant, a physician, previously worked for the plaintiff, where he signed a non-compete agreement prohibiting him from working for certain of the plaintiff’s competitors. After his departure, he accepted a position with one of those competitors, and the plaintiff filed suit.

The physician argued that a merger transaction involving the plaintiff’s corporate parent triggered the statutory provision above. Per the physician, since the agreement did not expressly provide for enforcement by successors, the merger invalidated the non-compete. The trial court agreed and granted summary judgment in the defendant’s favor.

The appellate court reversed. To reach that conclusion, it interpreted the term “successor” in the statute as “a corporation that, through amalgamation, consolidation, or other assumption of interests, is vested with the rights and duties of an earlier corporation.”

The court found that “the status of [the plaintiff] after the merger does not comport with the standard definition of a successor as it relates to corporations or other business entities.” In particular, there were several tiers of corporate entities between the plaintiff and the parent company that was subject to the merger. While the ownership of the ultimate parent company changed, “nothing about the corporate structure or ownership of [the plaintiff] was different after the merger”; it “continued in existence as a single member limited liability company.”

In the end, the plaintiff here was able to enforce its non-compete agreement. But all of this trouble could have been avoided. This leads to a very simple takeaway: when drafting restrictive covenants in Florida, include a provision allowing their enforcement by successors and assigns. Florida companies with existing restrictive-covenants should have a lawyer review them for compliance with this statute.

Similarly, anyone considering acquiring or merging with a company with Florida employees/independent contractors needs to have a lawyer review any restrictive covenants for this purpose.

The failure to include this provision could lead to all sorts of problems. For example, it could impede a later merger or sale of the company. But any Florida company can avoid these problems by having a lawyer conduct a simple review.

 

One Simple Step in Outlook to Protect Your Trade Secrets

May 28, 2017 By in Trade secrets, Trade Secrets Best Practices, Uncategorized Tags: , , Leave a comment

If you and your employees use Outlook, you can take one simple step now to dramatically reduce the risk of inadvertent sharing of confidential information: Disable email-address auto fill.

Everyone loves this feature. You type the first few letters of someone’s name, and Outlook fills in an email address. But the increased efficiency comes at a cost, as everyone occasionally sends an email to the wrong person whose name is similar to the intended recipient.

If that email contains confidential info, you’ve just compromised it. Hopefully, you sent it to someone friendly who will comply with your embarrassed request to delete the email. Even if there’s no confidential information, the recipients may question your ability to exercise discretion when necessary. (Also, imagine later trying to prosecute a trade-secrets action and having to produce in discovery an email sending the info at issue to some random guy.)

So I strongly recommend that you disable this feature. And have your IT department disable it for all employees. The relatively minor loss of efficiency is outweighed by the reduced risk of unwanted disclosure. And there’s an added benefit: not having to send sheepish apology emails to the mistaken recipients (and sometimes to the other intended recipients who now have an interloper privy to the discussion).

Here’s how you disable this feature:

File –> Options –> Mail –> Send Messages –> Deselect the radio button for “Use Auto-Complete List to suggest names when typing in the To, CC, and Bcc lines”

ABA Ethics Opinion: Trade-Secrets Lawyers Need to Encrypt Emails

May 11, 2017 By in Advice, Cybersecurity, Trade secrets, Trade Secrets Best Practices Tags: , , , , 1 Comment

By definition, lawyers working on trade-secrets issues, whether in litigation or otherwise, have access to their clients’ most confidential information. And, of course, these lawyers routinely communicate with clients via email, including about the trade secrets. Sometimes, even the trade secrets themselves are exchanged via email.

This raises ethical issues. Recently, the ABA Committee on Ethics and Professional Responsibility issued a formal opinion addressing lawyers’ ethical obligations when transmitting confidential client information. The opinion can be downloaded here.

All lawyers who deal with trade-secrets issues should read the opinion. But here are some highlights:

The opinion recognizes that law firms are hacking targets because:

(1) they obtain, store and use highly sensitive information about their clients while at times utilizing safeguards to shield that information that may be inferior to those deployed by the client, and (2) the information in their possession is more likely to be of interest to a hacker and likely less voluminous than that held by the client.

It then discusses applicable ethical rules, concluding that “lawyers must exercise reasonable efforts when using technology in communicating about client matters.” So what are reasonable efforts?

What constitutes reasonable efforts is not susceptible to a hard and fast rule, but rather is contingent upon a set of factors. In turn, those factors depend on the multitude of possible types of information being communicated (ranging along a spectrum from highly sensitive information to insignificant), the methods of  electronic communications employed, and the types of available security measures for each method.

The opinion specifically mentions lawyers who deal with trade secrets, since those matters “may present a higher risk of data theft.” The fact-based analysis is often relatively simple in trade secrets cases: if you are transmitting your client’s trade secrets or related information, you may need to use “particularly strong protective measures”:

A fact-based analysis means that particularly strong protective measures, like encryption, are warranted in some circumstances. Model Rule 1.4 may require a lawyer to discuss security safeguards with clients. Under certain circumstances, the lawyer may need to obtain informed consent from the client regarding whether to the use enhanced security measures, the costs involved, and the impact of those costs on the expense of the representation where nonstandard and not easily available or affordable security methods may be required or requested by the client. Reasonable efforts, as it pertains to certain highly sensitive information, might require avoiding the use of electronic methods or any technology to communicate with the client altogether, just as it warranted avoiding the use of the telephone, fax and mail in Formal Opinion 99-413.

There is a simple takeaway for all trade-secrets lawyers: think very carefully about how you are transmitting confidential client info. This requires an open dialogue with the client. You need to figure out how you will be protecting this data while in transit (and at rest, but that’s a separate issue). At my firm, we have the capacity to encrypt individual emails on-demand, which can allow for secure transmission of sensitive data.

But this sensitive data isn’t only shared with clients. Often, it will need to be produced in litigation. Lawyers spend a lot of time negotiating protective/confidentiality orders with attorney’s eyes only (AEO) protections. But don’t forget to securely transmit AEO documents to the other side. For example, my firm uses a secure/encrypted document sharing platform.

Trade-secrets cases often move fast. But this ABA opinion shows that regardless of how intense the litigation becomes, lawyers must be cognizant of their obligations to protect clients’ confidential information.

Alley-Oops: The Orlando Magic Tweeted a Picture Showing Team Trade Secrets

April 14, 2017 By in Trade secrets, Trade Secrets Best Practices, Trade Secrets In the News, Uncategorized Tags: , , , Leave a comment

Sometimes companies forget about even the most obvious protections for their trade secrets. For example, “don’t tweet out a picture of your secret business strategies.” The Orlando Magic recently did just that.

Earlier this month, a player’s agent tweeted a picture of the player signing a new contract with the Magic. But the picture also showed a dry-erase board listing the Magic’s off-season free-agent targets and trade possibilities. Now there are reports that the Magic’s general manager, who has since been fired, took the picture.

It goes without saying that the Magic don’t want the rest of the league knowing about their off-season personnel plans, which are arguably trade secrets if appropriately protected. But for some reason, they left those plans on a dry-erase board and then let an agent—who could potentially benefit from knowing that information—into the room. And then they allowed the contents of the board to be shared with the rest of the world. Not particularly savvy.

The lesson here is simple, and seemingly obvious: trade secrets need to be secret. They shouldn’t be left up on a dry-erase board. Or in papers on someone’s desk. This episode shows that even intelligent people can have a lapse of judgment. If you implement and enforce a trade-secrets policy that only allows storage of trade secrets in secure media, and limits disclosure of trade secrets to those who need them to do their jobs, you can minimize the “human error” element that led to this embarrassing gaffe.

The Cybersecurity Article that Every Executive Should Read Immediately

April 6, 2017 By in Advice, Cybersecurity, Trade secrets, Uncategorized Tags: , , , , , , Leave a comment

I love this article, titled Why America’s Current Approach to Cybersecurity Is So Dangerous. It should be required reading for all executives at companies at risk of a cyber attack — in other words, all companies. While the whole article is great, its core message can be reduced to a single sentence: People, not technology, are the key to reducing the risk of cyberattacks. I could not agree more, as I’ve written about before. Every company needs to ask: what can we do to create a culture of protection?

The article starts by identifying the problem:

We should be concerned that, as a society, our minds go mushy when it comes to “digital literacy,” “information security,” “online safety,” or whichever name we choose. In fact, that mushiness is a major reason why America’s current approach to cybersecurity is so dangerous. We’re ignoring the behaviors of the overwhelming majority of actual users, and therefore leaving the largest attack surface undefended. . . . To the extent we are all part of the contest in cyberspace, we’re essentially deploying our troops without armor, our submarines without sonar.

And as a result, “cybersecurity has transformed what is actually a ‘people problem with a technology component’ into its exact opposite.” Yes! Technology is not a panacea for preventing cyber attacks. Technology can’t protect your company’s biggest vulnerability: the people working there. “Until we embrace a vision of public cybersecurity that sees all people, at all ranges of skill, as essential to our collective security, there will be no widespread cybersecurity.” The same goes with your company. You can spend millions or more on tech-based protections, but if you ignore the human risk, your security is virtually certain to fail. And of course, if you are at risk of a cyberattack, you are at risk of trade-secret theft.

The article finishes with a great analogy between cybersecurity and public health:

We need to get better to increase our herd immunity against botnets. We need to see that cybersecurity—like all aspects of safety, security, and resilience—is a shared responsibility. Better devices and apps won’t save us, since there are myriad other ways that individuals—even highly trained ones—become the weak link allowing bad guys to access personal, corporate, and government information assets. And almost all efforts at online safety, while well-meaning, are so poorly designed as to preclude knowing whether they work. It’s not magic: As with health or safety education, we need to start with basic steps and repeatable behaviors—like hand-washing or looking both ways before crossing.

This is the key. In a mature organization that has fully embraced and achieved a culture of protection, the employees will treat cybersecurity as second nature. Good habits will have become routine. Unfortunately, I have yet to encounter a company that has reached this point. For a variety of reasons—dependence on technology first among them—just about all employees have a host of bad habits that put the company at risk.

Creating this culture is not easy. To the contrary, it will require repeated, sustained effort, initiated and supported from the very top of the organization down, over a long period of time. Nor will it guarantee that all cyberattacks will be thwarted. But I see no viable alternative. Any company that has not made employee-level protection a top priority is virtually certain to suffer repeated cyberattacks.

Federal Court Denies Expedited Discovery In Defend Trade Secret Act Case

February 28, 2017 By in Advice, Case Summary, Defend Trade Secrets Act, Florida Non-Compete Lawyer, Trade secrets, Uncategorized Tags: , , , , , , , , Leave a comment

Trade-secret-misappropriation cases can move fast. Often, the plaintiff files a motion for temporary restraining order alongside its complaint. Sometimes, the plaintiff has enough evidence already to justify a TRO. Other times, the plaintiff needs to take discovery before the TRO hearing.

But the typical discovery deadlines in the rules of civil procedure are not well suited for these TRO proceedings. Thus, plaintiffs regularly seek expedited discovery. In my experience, the parties are often able to agree to an expedited discovery schedule, since defendants usually want to take discovery as well. But when the parties cannot agree, the court needs to get involved. A recent case out of the Middle District of Florida shows the importance of narrowly tailoring expedited discovery requests, particularly when asking a judge to permit this type of discovery.

In Digital Assurance Certification, LLC v. Pendolino, the plaintiff works with municipal bond issuers to comply with various SEC regulations. The plaintiff alleges that the defendant, a former employee, left to work for a competitor. And in his final week of work, according to the plaintiff, the defendant used a USB drive to access every document on the plaintiff’s shared drive. Thus, the plaintiff brought claims for violations of the Defend Trade Secret Act and the Florida Uniform Trade Secrets Act, among others, and filed a motion for a TRO.

In advance of the TRO hearing, the plaintiff filed a motion for expedited discovery. The court denied the motion. A copy of the order can be downloaded below.

The court first set forth the standard for determining whether the plaintiff had demonstrated good cause for expedited discovery:

Factors the Court considers in deciding whether a party has shown good cause include: (1) whether a motion for preliminary injunction is pending; (2) the breadth of the requested discovery; (3) the reason(s) for requesting expedited discovery; (4) the burden on the opponent to comply with the request for discovery; and (5) how far in advance of the typical discovery process the request is made.

Here, the court focused on the second factor, the breadth of the plaintiff’s requests. The court took issue with the scope of the plaintiff’s requests, noting that “while these matters may be relevant to the issues raised in DAC’s complaint, they go far beyond what is needed for the hearing on the motion for a temporary restraining order.”

Take away: When bringing a motion for a TRO, the plaintiff’s lawyers need to figure out quickly whether the parties will be able to agree to an expedited discovery schedule. If not, the plaintiff needs to draft discovery requests that are laser focused on the issues relevant to the TRO hearing. In my experience, judges will allow this type of discovery, as long as the requests are reasonable. Conversely, judges will protect defendants from overbroad discovery.

Digital Assurance Certification, LLC v. Pendolino

Shark Tank and College Football Non-Competes

December 17, 2015 By in Florida Non-Compete Lawyer, Noncompete, Trade Secrets In the News, Uncategorized Tags: , , , , , , , , , , , , Leave a comment

Two recent stories show why all companies should at least consider implementing non-compete agreements or other restrictive covenants.

First, here’s a link to a short interview with Shark Tank’s Robert Herjavec, talking about his first company. Unbeknown to Robert, his sales manager had set up a side business, to which he funneled half of Robert’s customers. Robert only found out because another employee broke down and told him during her exit interview.

Robert finishes the interview with good advice: “The minute you hire the first employee, you have to be careful.”

We don’t know if the sales manager had signed a non-compete or non-solicitation agreement. Such an agreement could have given Robert far better legal options.

Also, Robert trusted that his employees would be loyal. While it’s obviously good to trust your employees, it’s far better to trust and also have them sign appropriate restrictive covenants.

I also read about how an assistant coach of the Arkansas Razorbacks football team left for the University of Georgia. Bret Bielema, Arkansas’ head coach, was not happy. Apparently, his recently hired coaches signed non-compete agreements that prohibited them for coaching for other SEC schools. But the coach who had left had been hired earlier, and he did not have a non-compete.

Of course, Arkansas should have had its coaches sign non-competes from the outset. And once they decided to require new coaches to sign one, they should have at least attempted to have the older coaches sign as well.

These stories show how non-compete agreements can have value across diverse industries. It’s worth speaking with an attorney to figure out whether your company can benefit from implementing restrictive covenants, or improving existing agreements.

 

Florida Loves Non-Compete Agreements

December 3, 2015 By in Advice, Case Summary, Noncompete, Trade secrets, Uncategorized Tags: , , , , , , , , , , , , , , Leave a comment

Florida’s restrictive-covenant statute, Section 542.335, is one of the most employer-friendly in the country. A recent case from Florida’s Fourth District Court of Appeal, Transunion Risk and Alternative Data Solutions, Inc. v. Reilly, shows how this statute favors an employer trying to enforce a restrictive covenant against a former employee. A copy of the opinion can be downloaded below.

This opinion is short on facts, but the plaintiff sued the defendant for violating a non-compete agreement and sought a temporary injunction. At the injunction hearing, the trial court ruled in the defendant’s favor after the plaintiff finished its case in chief, before the defendant put on any evidence.

The appellate court reversed. First, it looked at the likelihood of irreparable injury, citing the statute’s presumption of irreparable injury that arises when the plaintiff shows a violation of an enforceable restrictive covenant. Here, the appellate court reversed because the defendant did not present evidence:

As the trial court’s ruling was issued before Reilly presented any evidence, Reilly could not have met his burden of presenting evidence overcoming the presumption.

This doesn’t sound right. A defendant should have the right to rebut this presumption simply by cross-examining the plaintiff’s witnesses. That’s what the trial court apparently thought happened here. But the presumption so strongly favors the plaintiff that this appellate court was unwilling to allow the defendant to rebut it without putting on affirmative evidence.

The trial court also concluded that the plaintiff had an adequate remedy at law. But the appellate court reversed this finding, noting that even when a plaintiff has suffered actual money damages,

the continued breach of a non-compete agreement threatens a former employer’s goodwill and relationships with its customers, and nothing short of an injunction would prevent this loss.

This finding essentially eliminates the adequate-remedy-at-law prong of the injunction analysis in restrictive-covenant cases.

Finally, the appellate court reversed the trial court’s finding that the plaintiff had not demonstrated a substantial likelihood of success on the merits. On this point, the appellate court relied on the trial court’s “implied finding” that the defendant violated a restrictive covenant. So once a court finds that the defendant breached, the plaintiff has automatically shown a substantial likelihood of success.

This case shows how Florida’s restrictive-covenant statute provides employers with the upper hand in litigation. As a result, these agreements are a very effective tool for protecting proprietary information and trade secrets. All Florida companies should consult with an attorney to determine whether to implement these types of agreements.

Transunion Risk and Alternative Data Solutions, Inc. v. Reilly

What’s Worse Than Having Trade Secrets Stolen? Waiting Too Long to Do Something About It.

October 16, 2015 By in Advice, Case Summary, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , Leave a comment

If you discover that your trade secrets have been stolen, you must act immediately. That’s the lesson from a recent case in the Middle District of Florida, Dyncorp International LLC v. AAR Airlift Group, Inc. A copy of the order can be downloaded below.

The Plaintiff, Dyncorp, has been providing aviation services to the State Department under a contract going back more than 20 years. Apparently, the State Department is now re-bidding that contract. The Defendant, AAR, is one of the bidders. Dyncorp alleges that AAR hired former Dyncorp employees and “coerced” those employees into disclosing Dyncorp’s trade secrets, which AAR used in its bid.

Dyncorp filed suit for, among other things, violating the Florida Uniform Trade Secrets Act. About three weeks later, Dyncorp filed a motion for preliminary injunction that sought to enjoin AAR from using Dyncorp’s trade secrets.

The district court denied the motion, finding that Dyncorp did not satisfy any of the injunction prerequisites. Of particular note, the court found that Dyncorp’s delay in filing suit showed that it had not suffered irreparable injury:

Dyncorp admits that it was notified of AAR’s alleged misappropriation of trade secrets in April 2015 but let more than four months pass without filing suit. Dyncorp attempts to explain the delay away by arguing that it complained to the State Department and AAR and conducted its own investigation during this time, but offers no explanation as to why those undertakings and this suit could not proceed simultaneously – particularly if, as Dyncorp asserts, it was facing the prospect of irreparable injury.

This case shows that once you discover—or even suspect—that your trade secrets are being improperly used, you must act fast. Any delay can be cited by a defendant as a reason for denying injunctive relief, just as AAR did here. While not every case will demand the immediate filing of a lawsuit, you need to at least consult with an attorney right away. Then, your attorney can advise you of your various legal options, and the risks and benefits of each.

Dyncorp v. AAR — Order Denying Preliminary Injunction

Can Periscope Broadcast Your Trade Secrets to the World?

May 30, 2015 By in Advice, Trade secrets Tags: , , , , , , , 1 Comment

Periscope is an app that allows users to broadcast live video using their smart phone. This technology has the power to transform the delivery of media and information. Essentially, every person can now effortlessly create live video content, whether it’s sharing a family event with those who can’t attend or witnessing a newsworthy event.

I keep hearing more and more about Periscope. For example, I’ve seen media members use it to share press conferences or behind-the-scenes info. At first blush, this may seem irrelevant to your company’s trade secrets. But that may not be the case.

Right now, through Periscope and similar apps, every one of your employees can instantaneously broadcast live video to the world. It’s much easier to share exactly what’s going on, in real time, at your company.

This raises multiple levels of concern. To start, employees may inadvertently transmit proprietary information. For example, an employee could be sharing a broadcast from work intended for his friends and family, while other employees discuss proprietary information within earshot. Even though there was no intent, this information was still shared outside the company.

Even worse, Periscope is a powerful tool in the hands of someone with malicious intent. There has long been a risk that malicious actors can easily capture video. But now, that video can be shared live. For example, an employee could surreptitiously broadcast a company meeting. Or live video of a proprietary process or system.

Periscope is another example of how rapidly evolving technology is constantly creating new risks to your trade secrets. Your trade-secrets policy needs periodic review to make sure it addresses new technology. Depending on the nature of your business, it may make sense to ban live broadcasts completely. Most importantly, you should discuss these issues with an attorney who can help you decide what protections are appropriate for your business.

 

 

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