Your New Hire’s Non-Compete

For years you’ve admired your top competitor’s ability to create new products that have, much to your frustration, consistently outsold yours. Now one of the key members of your competitor’s product team is sitting in your office asking YOU for a job. As he describes to you how he thinks he can position your company for double-digit sales growth, you cannot help but think to yourself, “is this too good to be true?”.  Don’t let your excitement, however, blind you to one likely fact; buried somewhere at the headquarters of his current employer is a signed non-competition agreement (non-compete).

While your initial inclination toward this likely fact may be to believe what you don’t know can’t hurt you, this is one case where getting all of the facts out on the table is the best way to go. Proving your ignorance of the non-compete when faced with a lawsuit may be difficult at best. Further, whether or not you have actual knowledge of the non-compete or its terms, your prospective new hire is still very much subject to the agreement and may face legal action, including an injunction, if hired by you. As a result, you may lose your new star, and what you’ve invested in him, permanently or at least until the matter is sorted out.

Get the Facts, Then Protect Your Company

Before you hire anyone, and especially in cases where a person seeking employment with you comes from a direct competitor, make it a practice to determine if the person is bound by a non-compete or other restrictive agreements with his or her current employer. If they are, get a copy of the agreement and have legal counsel review it. Don’t just go by what the applicant tells you is in his or her agreement. Since he or she wants a job with you, the applicant is likely to minimize what is in the agreement and characterize it as ‘no big deal’.  Even the most honest and forthright applicant, however, is likely to forget key terms. Again, get the actual agreement and have it reviewed by counsel prior to going forward.

Find out from counsel whether the agreement is enforceable and just what it covers. You can then formulate a strategy for dealing with it. If your counsel determines that the new hire’s non-compete is at least somewhat enforceable and applicable to the hire’s new job, here are some steps you may wish to take to avoid or insulate your company from liability:

  • As a first step, ask counsel to revise the offer letter as necessary to advise the application to give ample notice at the prior employer, cooperate in the transition, avoid encouraging other employees or customers to leave with him or her, avoid taking or copying proprietary information, and otherwise adhere to the restrictive covenants in his or her agreement. These types of written statements and admonitions may prove helpful in side-stepping certain more serious legal claims, and may appease the prior employer just enough to sway them from bringing you into a suit in the first place.
  • Structure the terms and conditions of the new hire’s employment to avoid putting him or her in a position to violate the non-compete. For example, you may wish to structure his or her job in ways that make it less likely that he or she will be tempted to rely upon information or contacts from his or her prior job. You may also wish to forbid the employee from having any contact or involvement at all with customers of their former employer. Further, any devices he or she used while employed with the former employer (i.e. phones, laptops, tablets, etc.) should be examined to make sure they do not contain proprietary information or data of the former employer.  Finally, you may wish to avoid extending to him or her any pay incentives that would encourage violations, such as incentives for encouraging customers to switch from using the products of the prior employer. Once you’ve determined the appropriate limitations, document them and have the employee sign off on them as a means of insulating your company should legal action against the employee nevertheless occur.
  • Refuse any requests from the employee for a blanket indemnification agreement against violations of his or her non-compete. Such an agreement opens you and your company up to a lawsuit for tortious interference, which can carry punitive damages. And, it should go without saying, don’t offer to indemnify him or her either. In highly competitive/highly litigious industries, even the offer of such an indemnification agreement can be viewed as hostile and trigger legal action.
  • Direct communications from persons with the former employer to a person other than the new hire to avoid claims of solicitation. Ensure that the new hire’s communications to clients or customers of your company avoid disparaging the prior employer and don’t use any proprietary information protected under the non-compete. Also make sure that you document any unsolicited calls from customers of the prior employer to the new hire as proof that the calls did not violate the new hire’s agreement.

If, despite your company’s best efforts, it is discovered that the new hire has breached his or her former employer’s non-compete while in his or her new position with your company, swift action is necessary to insulate your company from liability.  Administrative leave for the new hire may be appropriate to avoid further breaches. Further, you may wish to initiate “clean room” procedures to make sure any information misappropriated from the prior employer is isolated and does not become part of your company’s products and processes.

To Sum it Up…

Employees from other companies in your industry can bring fresh perspectives, valuable skills, and otherwise be great additions to your company. Before proceeding, however, get the facts about any non-compete or other restrictive agreement between the employee and his prior company. Have legal counsel review the agreement and formulate strategies for protecting your company from liability.

For assistance, please feel free to contact The Lawson Firm.  We have years of experienced in providing counsel to companies concerning non-compete and other restrictive-covenant agreements.  We help companies identify potential liabilities and formulate strategies for managing them.♦

Contact The Lawson Firm

Related Information:

Are Your Trade Secrets Safe?

Is it Time to Update Your Company’s Non-Disclosure/Non-Compete Agreement?

Intellectual Property Protection

logoAttorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients.  This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article, other than labor and employment law, is not available in Ohio.

© Copyright 2014-17. The Lawson Firm, LLC.

Trademark Basics: Questions and Answers

What is a Trademark?

A trademark (or for those which relate to a service, a “service mark”) is any word, phrase, design, picture, logo, symbol, or any combination of these used by a business to: (1) identify its goods and services; and (2) distinguish them from the goods and services offered and sold by other businesses. A trademark forms a part of your company’s valuable brand identity.  Registering your company’s trademarks provides it with certain benefits.

What is Registration and What Benefits Does it Provide?

A trademark is registered when it is filed with, and recorded by, the government.  Trademarks may be registered in the U.S. with the United States Patent and Trademark Office (USPTO) or with any of the 50 states.  In most cases, federal registration is recommended as it provides the broadest rights for your trademark.

Federal registration adds significant value to your company’s already valuable trademarks and carries with it several important benefits.  First, federal registration allows your company to sue in federal court for trademark infringement to recover lost profits, damages, and costs from an infringer and, under certain circumstances, treble (triple) damages and attorneys’ fees.  This is an important deterrent to would-be infringers.  Further, registration establishes the legal validity of your trademark, its ownership, and your company’s exclusive right to use the mark in commerce.  This, in turn, will allow you to monetize the value of the trademark through licensing and other means.  Finally, federal registration allows you and your business to proudly display the symbol “®” with the trademark.  This serves as universal notice of the trademark’s legal validity and identifies the mark as a valuable company asset.

In addition to the role they play in developing a powerful brand for your company, registered trademarks possess an economic value as well that can often be quantified and realized in a variety of ways.  Like any asset, trademarks may be sold for a price or used as collateral for asset-based business financing.  Perhaps the most common use, however, is licensing.  In a trademark licensing transaction, your company allows another company to use the trademark in marketing its own products and services in exchange for a royalty fee.  Trademark licensing has grown exponentially in the past decade and is no longer just for large corporations.  Even smaller or niche-market businesses with recognized products or services can benefit from trademark license agreements.  The advantage is two-fold: (1) increased revenues from the royalty payments under the agreement; and (2) wider exposure for your company’s brand.

The Lawson Firm, LLC (“TLF”) can help your company determine an appropriate valuation for its trademarks if it plans to sell, collateralize, or license them.  TLF can also assist with structuring the trademark licensing agreements themselves.  The first step, however, is to register your trademarks…

What does the Registration Process Involve?

As a first step, a TLF attorney will meet with you, either in person or over the phone, to review your trademark to determine if it may qualify for registration.  Not all trademarks qualify for registration.  There are a number of reasons why, and these will be discussed and explained to you as necessary during your initial meeting or call.  If it appears that your mark may be qualified for registration, TLF will then conduct a “trademark search”.  A trademark search will determine if your trademark, or one very similar to yours, is already being used by others in connection with the class or classes of products or services offered by your company.  Using a trademark that is the same as, or “confusingly similar” to, one already being used by another company will not only disqualify your trademark from registration, but it could also expose your company to liability for trademark infringement.

If it is determined that your trademark may be used without exposing your company to liability for infringement, TLF will prepare and file a registration application.  You may be asked to supply a digital image of your mark along with sample products or ads showing how you are using it, or how you plan to use it, to sell your goods and services.

How Long does it take to Register a Trademark?

Each trademark application submitted to the USPTO must be reviewed by a trademark examiner.  Because hundreds of thousands of trademark registration applications are submitted to the USPTO each year, there is a long line of applications that must be reviewed. During 2016, the typical registration application took about 8-10 months to wind its way through the review process.  TLF uses application submission methods and procedures that typically result in less waiting time (and cost) than average.

What if the Trademark Belongs Another Company?

If a trademark search reveals that a similar mark is already being used by another company to sell the same class of goods or services as your mark, it is still possible that your company may go forward with using the mark under a co-existence agreement with the other company.  A co-existence agreement delineates the ways in which the owners of the two marks may use them simultaneously in the marketplace while avoiding the likelihood of confusion between them.

Alternatively, if it is determined that the trademark is registered to another company, but is not being actively used by that company, a proceeding may be brought to cancel the registration.  A successful cancellation challenge would pave the way to registration of the trademark by your company.

Can Our Trademark or Service Mark be Filed for Registration Before We Launch Our Product or Service?

Yes, a trademark or service mark may be filed for registration on what is known as an “Intent-to-Use” (ITU) basis.  This allows your company to initiate the registration process before the trademark or service mark is actually used in commerce.  To fully complete the registration process, however, it will be necessary to file a Statement of Use (SOU) providing proof that the trademark or service mark is actually being used in commerce.  The SOU must be filed within six months after the USPTO issues a Notice of Allowance for the mark.  The six-month period may be extended for up to an additional five, six-month periods.

Can the USPTO Refuse to Register Our Trademark?

Yes, in some cases the USPTO may refuse to register your company’s trademark.  They may view the mark as too similar to an existing mark, or as not eligible for registration for a variety of reasons.

It is also possible that another trademark owner will oppose your company’s mark.  In this case an opposition proceeding may take place during which both parties will be allowed to state their positions.  If either a USPTO refusal occurs, or an opposition proceeding is initiated by another trademark owner, TLF will discuss the matter with you, explain your options, and work with you to develop an appropriate strategy going forward.

To protect your valuable trademarks, please contact us to start the registration process.

Contact the Lawson Firm

Related Information

Trademark Registration and Protection

Intellectual Property Protection

Report Notes Trademark Counterfeiting Issues Remain

Attorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article is not available in Ohio.

© Copyright 2016-17. The Lawson Firm, LLC. 

Is it Time to Update Your Company’s Non-Disclosure/Non-Compete Agreement?

Employee non-disclosure and non-competition agreements (NDA/non-competes) are important safeguards against the misappropriation of a company’s trade secrets and other confidential business information.  Such agreements can play a critical role in a company’s intellectual property protection program.  Too often though, a company will use the same form agreement for years even though its legal value may have eroded due to changes in the law or changes in the company’s business. The following are some things to consider in determining whether it may be time to update your company’s NDA/non-compete.

Has Your Company Grown?

Smaller companies that begin as close-knit, highly invested groups often first consider using an employee form NDA/non-compete when the first “outside” employees are hired. Often this first round of hires is mainly administrative, has limited (if any) access to critical company trade secrets, and therefore does not pose the type of threat from which an NDA/non-compete is designed to protect the company. It is not uncommon for these companies to use a fairly non-restrictive, general standard-form agreement at first and to continue to use the same form even after the company begins hiring additional, more specialized employees with greater access to (and knowledge of) the company’s trade secrets. It is only after one of these newer, higher-level employees defects with critical business information in hand that the company comes to realize its NDA/non-compete should have been more comprehensive and more restrictive.

Has Your Company’s Business Changed?

Similarly, it is not uncommon for a company’s development of new products, business methods, or marketing channels to outpace the protection afforded by its NDA/non-compete. The owner of a small software products company recently learned the hard way that his company’s NDA/non-compete would pose little obstacle to a key employee who had defected to a competitor. The form agreement did very clearly and specifically prevent the employee from engaging in “…the business of providing security software to accounting firms.”  The problem? The company was no longer in the business of providing security software to accounting firms. In fact, the company had, for the last several years, only developed commercial websites for online retailers. The employee, therefore, was not restricted by the terms of the company’s NDA/non-compete from joining another commercial retail website development firm.

Does Your Company Have More to Protect Now than it did in the Past?

Beyond the more obvious misalignment between a company’s business and the protection afforded by its NDA/non-compete described above is the more gradual misalignment that occurs as a company slowly, but surely, develops more critical trade secrets to protect. A company that starts as a reseller, or that engages heavily in shadowing the moves of its competitors at the start, may need to eventually give greater consideration to the value of the technologies and business methods it develops as the company grows and evolves. It is not uncommon for the protections afforded by a company’s NDA/non-compete to seriously lag behind the company’s need to protect the valuable trade secrets and other critical business data it gains over time.

Has Your Company Added Employees or Contractors in Other Jurisdictions?

Companies that expand to multiple states often mistakenly continue to use the same NDA/non-compete with employees in all of the states in which it does business.  The NDA/non-compete typically originated in the company’s home state and the company simply continued using the same form agreement as it expanded to new states.  The enforceability of these agreements, however, varies from state to state. Some businesses find out too late that an NDA/non-compete that was enforceable in its home state might not hold up in one or more of the other states to which it has expanded over time.

Has Your Company Updated its Agreement Since the Enactment of the Federal Defend Trade Secrets Act?

The federal Defend Trade Secrets Act, enacted in May 2016, contains provisions providing advantages for companies that include certain notice provisions in their employee confidentiality agreements.  Such advantages include the right to sue for punitive damages and attorney’s fees in actions brought under the Act.  If your company has not taken advantage of these new protections, it may wish to consider doing so.

Is it Time to Update Your Company’s Agreement?

To discuss how we may assist you with creating or updating your company’s non-disclosure/non-competition agreement, or with other aspects of your company’s intellectual property protection program, please contact us.♦

Contact the Lawson Firm

Further Information:

Are Your Trade Secrets Safe?

Attorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. Further information about TLF may be found at www.lawsonfirm.net. This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in this article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article, other than labor and employment law, is not available in Ohio.

© Copyright 2012-17. The Lawson Firm, LLC.

Report Notes Foreign Misappropriation and Counterfeiting Issues Remain

The U.S. Trade Representative recently released its 2017 “Special 301” Report, identifying a wide range of concerns with respect to cross-border intellectual property protection including:

  • ” reported inadequacies in trade secret protection in countries around the world, as well as an increasing incidence of trade secret misappropriation…; and
  • the continuing challenges of copyright piracy and the sale of counterfeit trademarked products on the Internet.”

The Report is used to focus on these and other issues, and as guidance in discussions with trading partners to improve the environment for intellectual property owners around the world.

The Lawson Firm assists companies in protecting their valuable intellectual property by providing, among other services, trade secret protection services to guard against misappropriation as well as registration of trademarks with customs authorities to help prevent the importation of counterfeit products.♦

Contact The Lawson Firm

U.S. Trade Representative 2017 “Special 301” Report

Attorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. Further information about TLF may be found at www.lawsonfirm.net. This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article, other than labor and employment law, is not available in Ohio.

© 2017.  The Lawson Firm, LLC.

Copyright Protection for Product Designs

The United States Supreme Court recently handed down its decision in Star Athletica v. Varsity Brands; a case involving a dispute over whether designs used on cheerleader uniforms could be protected by copyright law. Varsity Brands, the plaintiff at the trial court level and a leading maker of cheerleader uniforms, brought an action against competitor Star Athletica alleging that certain uniform designs used by Star infringed upon those created by Varsity.  The critical issue in the case was the standard for “conceptual separability”; that is, the test used by courts to determine whether a design used on a salable product can be perceived as a copyright-able work separate from the product itself.  In its decision the Court clarified the test as follows:

A feature incorporated into the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article, and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated.

This test is a departure from tests applied by courts in earlier cases which focused to a degree upon physical separability.  Applying the new test in this case, the Court held that:

…the surface decorations on the cheerleading uniforms are separable and therefore eligible for copyright protection. First, the decorations can be identified as features having pictorial, graphic, or sculptural qualities. Second, if those decorations were separated from the uniforms and applied in another medium, they would qualify as two-dimensional works of art under [copyright law]. Imaginatively removing the decorations from the uniforms and applying them in another medium also would not replicate the uniform itself.

The decision is likely to be boon for product manufacturers that use highly stylized designs in their products.  Being able to protect those designs more readily under copyright law puts a new arrow in the quiver of those companies.

The Lawson Firm, LLC (“TLF”) helps companies of all sizes to maximize protection of their valuable intellectual property including copyright-able works, trademarks, trade secrets, and other valuable business assets.  Contact us to determine how we may be of assistance to your company.♦

Contact The Lawson Firm

Attorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. Further information about TLF may be found at www.lawsonfirm.net.  This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article is not available in Ohio.

© 2017.  The Lawson Firm, LLC.

The New Defend Trade Secrets Act

Trade secrets – those confidential pieces of information, data, processes, inventions, techniques, methods, etc. used by a business that provide it with a competitive advantage over those without that same knowledge or “know how” – represent perhaps the most valuable form of intellectual property that can be owned by a business.

The new Act creates a federal cause of action for trade secret theft making it easier for business owners to pursue such an action in federal court. Unlike other forms of intellectual property (patents, trademarks, and copyrights), trade secret rights are rooted in state law and protected by a patchwork of state laws and case precedents.  The new law provides a more uniform and reliable means of pursuing trade secret protection, an especially important measure in today’s environment where trade secrets are more likely to be compromised in the course of national or international commerce (especially e-commerce) than purely through local channels.

Think about your businesses’ trade secrets – chances are your business has some.  How are you protecting them?  Are you doing enough to protect them from theft online, from theft by others, or from theft by your own employees?  Feel free to drop me a line if you’d like to discuss this.

Best regards, – Scott Lawson E: slawson@lawsonfirm.net.  P: (440) 666-9735.♦

Related Information:

Are Your Trade Secrets Safe?

Is it Time to Update Your Company’s Non-Disclosure Agreements?

Attorney Advertising. The Lawson Firm, LLC (“TLF”) is a law firm providing legal counsel and value-added legal services to its business clients. Further information about TLF may be found at www.lawsonfirm.net. This article is intended to provide general information only and is not intended to provide solutions to specific issues. Readers are cautioned not to attempt to solve specific issues solely on the basis of the information contained in the article. TLF does not claim expertise in the laws of jurisdictions other than those in which our attorneys are licensed. Certification in any of the practice areas mentioned in this article, other than labor and employment law, is not available in Ohio.

© 2016.  The Lawson Firm, LLC.