White House Report Says Non-Competes May Hurt Competition

The White House is weighing in on the growing use of non-compete agreements and how they can negatively affect competition, individual workers and the overall economy. Once a tool reserved for top executives, the 16-page report released earlier this week details how non-compete agreements are becoming more commonplace for low-wage, less-skilled workers.

Non-compete agreements are a focus of my work and one of my favorite topics for discussion. These agreements can be valuable tools in the marketplace. They help protect company trade secrets, which promotes innovation. They also may encourage a company to invest more in specialized training for employees by reducing the possibility that the employee will leave the company.

But as the White House notes, with nearly a fifth of U.S. workers, including many low-wage employees, currently covered by non-competes, these agreements are likely being used in situations where they aren’t necessary. download

Here are a couple of interesting excerpts:

In addition to reducing job mobility and worker bargaining power, non-competes can negatively impact other companies by constricting the labor pool from which to hire. Non-competes may also prevent workers from launching new companies. Some critics also argue that non-competes can actually stifle innovation by reducing the diffusion of skills and ideas between companies within a region, which can in turn impact economic growth. Non-compete agreements may also have a detrimental effect on consumer well-being by restricting consumer choice.

Based on the impacts of unnecessary non-competes for workers, consumers, and the broader economy, several states have passed, and many others are currently weighing reforms to the ways non-compete agreements are regulated. Federal legislation has also been proposed to limit the use of non-compete agreements in low-wage fields where they are less likely to have valid uses.

As I wrote earlier this year when the U.S. Treasury Department released its report on non-competes, I work with many executives who are required to sign such agreements.

These individuals generally have access to important confidential information, receive specialized training and are well-compensated, often with stock options and equity interests. However, I still have argued in some cases for more flexible agreements to allow my client greater mobility and career growth.

I can understand a company wanting to protect its confidential information and investment in top workers, but what if the company’s chief goal is to keep customers? Is the use of a non-compete a fair tool in these cases?

For example, let’s say a popular hair stylist gets a lucrative offer to move to a new salon. Devoted customers often follow the stylist to the new shop. But what happens if a stylist is covered by a non-compete? Is the existing salon trying to protect confidential information and/or training, or is it using a non-compete merely to keep customers?

I have deep concerns about a non-compete agreement being used in cases to preserve a company’s relationship with the customer through a well-regarded employee. You just can’t own someone else’s personality. And using a non-compete in this way is really just a thinly veiled attempt at stifling competition, hardly a laudable or even legitimate purpose.

While I support a company’s effort to protect confidential information and the investment in specialized training, I think we are straying too far from the original – and reasonable – uses for these agreements.

Employee mobility is a good thing in the U.S. for the individual, consumers and competition. The White House, the Treasuring Department and Labor Department are expected to convene a group of experts in the coming months to further discuss non-compete agreements and their consequences. Stay tuned.

Posted in Business Continuity, CEOs, Confidential Information, Covenants Not to Compete, Executive contracts, Non-Competes, Uncategorized | Tagged , , , , , | Comments Off on White House Report Says Non-Competes May Hurt Competition

UPDATED: Trade Secret Proposal Has Won Over Congress & The President, But Not Me

Who says Congress can’t agree on anything these days? By an overwhelming vote of 410-2, the House recently approved the Defend Trade Secret Act (DTSA). The Senate already has passed the proposal and President Obama is expected to sign it into law. (UPDATE: The president did sign it into law May 11, 2016)

Washington may be all simpatico about the DTSA, but I still have reservations about the overall need for this expansive new law, as well as the ex parte authority it allows for the seizure of allegedly stolen trade secrets.

The DTSA appears to be another example of the federalization of the justice system – and that’s not always a good thing.

Currently, trade secret theft claims are generally resolved in state courts. Proponents say the DTSA will provide a federal civil cause of action for the theft of trade secrets and establish a nationwide uniform standard for protection and enforcement. With that comes the greatly enhanced potential for forum shopping in these cases.

I don’t see anything wrong with the current system. State courts in Texas have effectively dealt with these cases for years, and I see no reason why they can’t continue to do so. The suggestion that state courts are not as capable as the federal courts in handling complicated intellectual property issues is without merit in my opinion – and in my experience.

Even still, with diversity jurisdiction, a plaintiff can choose to file these cases in federal court. So the notion that we need a federal law to allow federal jurisdiction to deal with theft by agents of foreign nationals is just not a reality for the most part.

And it’s not just creating federal jurisdiction in every trade secrets case. It provides for a longer statute of limitations – five years from discovery of the theft, and for treble damages in the case of willful and malicious theft instead of the usual double damages.  But those are relatively insignificant; the real concern is the ex parte seizure power authorized by the Act. As I discussed earlier this year, this provision raises the issue of hearing only one side of the story and the potential for abuse.

The provision allows for one party to argue before a judge for the seizure of allegedly stolen trade secrets without the opposing party knowing about the complaint or the hearing.

I don’t know about you, but when I argue against nobody, I usually win.

The stakes are high in these types of cases and the potential for abuse of this seizure power is real. Unscrupulous parties will try to find a way to use this power inappropriately.

Generally speaking, ex parte anything in the civil arena is a bad idea. When the other side gets to argue their side, it maintains a higher level or accountability and honesty.

Yes, there are safeguards provided in the provision. Lawmakers added the term “extraordinary circumstances,” in granting such seizures and a fee is imposed in cases of wrongful seizures. But I find the power granted by this provision troubling.

Why aren’t criminal courts – and the protections provided to a defendant in these courts – a more just alternative? Others have succeeded in taking this route for their clients, and the opposing side still is afforded their rightful legal protections.

Posted in Confidential Information, Defend Trade Secrets Act, Litigation, Trade Secrets, Uniform Trade Secrets Act | Tagged , , , , , , , | Comments Off on UPDATED: Trade Secret Proposal Has Won Over Congress & The President, But Not Me

When You Get SLAPPed, You Can Get SLAPPed Hard

Lawyers who are keeping an eye on SLAPP litigation will want to review the Texas Supreme Court’s April 15 ruling in Sullivan v. Abraham.  In its brief decision, the court provided a little more clarity in this emerging area of litigation that can affect many areas of law, including trade secrets.

In Sullivan, the court held that Texas’ new-ish law against strategic lawsuits against public Sullivan v. Abraham, anti-SLAPPparticipation (SLAPP) does not allow a court to reduce the amount of “reasonable” attorneys’ fees to account for “justice and equity.” The plaintiff, who won the underlying action, had sought $71,700 in fees and expenses, but the trial court awarded only $8,000. That decision was upheld on appeal, with the court finding that the trial court had “discretion to award a lesser amount if ‘justice and equity’ so required.”

TexasBarToday_TopTen_Badge_SmallThe Supreme Court, however, disagreed, ruling that the “equitable and just” standard wasn’t part of the Texas Citizens Participation Act, the 2011 anti-SLAPP law the underlying suit invoked. The TCPA simply allows for “reasonable” fees, the high court ruled, and sent it back to the trial court to determine what “reasonable” is in this case.

The lesson here is an important one: the TCPA is a robust tool to protect Texas citizens when they are participating in protected activities, whether that’s exercising free speech, seeking a remedy in court or partaking in the right of association.

In the case of trade secret theft cases, companies will often counter sue, or even file suit against the plaintiff in a separate case, on little more than a hunch that, because a former employee is suing the company, they’re using confidential information, trusting that discovery will – or won’t – bear that suspicion out.

Parties with that thought in mind need to make sure that what they’re suing for isn’t protected activity (i.e. filing a lawsuit) and, if it is, they need to be prepared to explain at the outset of their case that they have “clear and specific” evidence to support their case – even before discovery begins. Otherwise, they risk not only dismissal, but getting SLAPPed with a hefty attorneys’ fees bill.

The high court actually watered down the TCPA in 2015’s In re: Lipsky. In that case, a Texas couple who claimed that fracking contaminated their water well with methane was sued for defamation by Range Resources Corp. The court ruled that Range could not pursue the defamation case because it didn’t show “clear and specific” evidence to establish a prima facie case against the couple.

In its decision, however, the court clarified that circumstantial evidence could be considered “clear and specific” evidence, under the TCPA.

“Circumstantial evidence may be used to prove one’s case-in-chief or to defeat a motion for directed verdict, and so it would be odd to deny its use here to defeat a preliminary motion to dismiss under the TCPA,” the opinion said. “That the statute should create a greater obstacle for the plaintiff to get into the courthouse than to win its case seems nonsensical.”

At just 5 years old, the TCPA is still fairly new, so it’s worth keeping an eye the courts for continued clarity.

Posted in Complaints Against Executives, Litigation, SLAPP, Trade Secrets | 1 Comment

Now in Hackers’ Sights, Law Firms Must Step Up Protection of Client Confidences

As the Panama Papers made brutally obvious, law firms contain vast amounts of confidential information about clients. Some of that information might not reflect positively on those clients (such as huge offshore accounts), but some of that information could help make hackers or their customers rich.trade secret safe

At least, that was the apparent intention when law enforcement came upon a “criminal-seeks-hacker” posting on the “dark web.” According to an alert sent to American Bar Association members by the FBI’s Cyber Division, the criminal was looking for a hacker to break into the networks of international law firms as part of an insider trading scheme.

The FBI’s alert didn’t specify as much, but presumably the alert involves the recently reported hack into a number of elite U.S. and U.K. law firms.

Unfortunately, law firms are seen as softer cyber targets than some other sectors because they haven’t uniformly adopted rigorous cybersecurity protocols. It’s a safe bet that’s now about to change. We’ve always been protective of our clients’ confidential information in the analog sense, i.e. in what we say publicly, the storing of physical records, and in all other “real world” situations. And that’s as it should be. Some the issues we deal with involve incredibly valuable information, particularly if it’s in the wrong hands.

Now, apparently, it’s time for lawyers and law firms to step up our game on the digital front. Hackers literally have nothing better to do with their time than find ways to steal confidential information, so it’s incumbent on law firms to do everything they can to thwart them.TexasBarToday_TopTen_Badge_Small

The FBI passes along these tips to deter hackers:

  • Educate personnel on appropriate preventative and reactive actions to known criminal schemes and social engineering threats, including how employees should respond in their respective position and environment.
  • Scrutinize links contained in e-mails, and do not open attachments included in unsolicited e-mails.
  • Disable macros. Be careful of pop-ups from attachments that require users to enable them.
  • Only download software – especially free software – from known and trusted sites
  • Create a centralized Information Technology e-mail account for employees to report suspicious e-mails.
  • Change network default passwords, configurations, and encryption keys. Use strong passwords.
  • Recommend your company’s IT professional(s) review, test, and certify the need/compatibility of a patch or update prior to installing it onto the operating system or software.
  • Monitor employee logins that occur outside of normal business hours.
  • Restrict access to the Internet on systems handling sensitive information.
  • Install and regularly update anti-malware solutions, software, operating systems, remote management applications, and hardware.
  • Do not use the same login and password for multiple platforms, servers, or networks.
  • Monitor unusual traffic, especially over non-standard ports. Close unused ports.
  • Monitor outgoing data, and be willing to block unknown IP addresses.
  • Isolate sensitive information within the network.
  • Only allow required processes to run on systems handling sensitive information.
  • Implement two-factor authentication for access to sensitive systems.
  • Ensure proper firewall rules are in place.
  • Be aware of the corporate footprint and persona facing the Internet. Conduct searches using multiple search engines on multiple Internet domains of company names, Web addresses, key personnel, and projects to determine if there is an accidental weak point in the network security. Conduct infrastructure look-ups in the public domains to ensure additional information is not inadvertently advertised.

ABA members can click here to subscribe to future Cyber Alerts.

Posted in Confidential Information | 1 Comment

You Really Should Read the Treasury Department’s Report on Non-Competes

Anybody concerned with non-competes – that is any potential employer or employee, so pretty much all of us – should settle in with a nice sandwich and the beverage of their choice and read the U.S. Treasury Department’s Office of Economic Policy’s recent report, “Non-compete Contracts: Economic Effects and Policy Implications.”Department_of_Treasury_Seal_(2895964373)

It’s a well-written, 36-page quick read that, ever so politely and factually, makes the case that, in far too many cases, employers are taking advantage of their employees’ lack of knowledge about non-competes to reduce those employees’ negotiating power, wages and mobility. The report proves what we instinctively already know: many employees who aren’t privy to trade secrets and haven’t been given sufficient “consideration” (typically specialized training and/or additional compensation) are subject to non-competes that effectively reduce their ability to change jobs and grow their careers. The Jimmy Johns and Law360 cases, both of which I’ve blogged about previously, are perfect illustrations of this phenomenon.

Here’s one of the better excerpts from the report:

Several pieces of evidence suggest that employers are relying on workers’ incomplete understanding of non-compete agreements. First, employers often require that workers sign non-compete agreements even in states that refuse to enforce them. For example, in California, which (with limited exceptions) does not enforce non-compete agreements, the fraction of workers currently under a non-compete is 19 percent, which is slightly higher than the national average.

Second, a separate survey, exclusively focused on members of the Institute of Electrical and Electronics Engineers, reports that “…barely 3 in 10 workers reported that they were told about the non-compete in their job offer. In nearly 70% of cases, the worker was asked to sign the non-compete after accepting the offer – and, consequently, after having turned down (all) other offers. Nearly half the time, the non-compete was not presented to employees until or after the first day at work.”

This evidence is especially powerful insofar as it applies to highly-educated, high-wage workers who might be considered more likely to understand the process surrounding non-competes. Even in cases where the conventional explanation of trade secrets has a surface plausibility, firms often delay the presentation of non-competes. This behavior would not be necessary if non-competes were a mutually-beneficial arrangement.[emphasis added]

I work with a lot of executives who are bound by non-competes, but these are men and women with access to confidential information, who are usually quite well-compensated, and who have often received the kind of specialized training that makes a non-compete a reasonable tool. Even then, I have argued that there are other, less restrictive ways to protect confidential information than impeding my client’s mobility and career growth.

TexasBarToday_TopTen_Badge_SmallWe know what non-competes can do to individual employees who are bound by arguably unenforceable non-competes, but the Treasury Department’s report makes the case that the negative effects are more widespread. The report synthesized labor market data and previous studies to conclude that “stricter non-compete enforcement [is] associated with both lower wage growth and lower initial wages.” It also impedes worker mobility, which hurts the overall economy, the report said: “Job churn helps to raise labor productivity by achieving a better matching of workers and firms, and may facilitate the development of industrial clusters like Silicon Valley.”

That can lead to “brain drain” in those states that enforce non-competes. The beneficiaries are states, like California, that typically don’t enforce them – even though, as noted, roughly 19 percent of California workers are bound by non-competes.

The report concludes with several “Directions for Reform” that, unfortunately, are merely suggestions at this point:

  1. Increase transparency in the offering of non-competes. In other words, no employee should be surprised to learn he or she has signed a non-compete. Nor should they be presented the non-compete on the first day on the job, once the employee has turned down other job offers.
  2. Encourage employers to use enforceable non-compete contracts. Right now, so many of the non-competes employees sign are completely unenforceable, but that doesn’t matter because the employees either don’t know that or they can’t afford a lawyer to fight for them. As we learned from the Law360 affair, once a new employer learns of a non-compete, they are likely to simply let the new employee go rather than expend the resources it takes to fight it out in court.
  3. Require that firms provide “consideration” to workers bound by non-compete contracts in exchange for both signing and abiding by non-competes. And, no, 50 percent off sandwiches doesn’t count as “consideration.”

Fortunately, there has been a fair amount of media coverage over this issue in recent years. And that may lead to legislation either on the national or state level.

In the meantime, watch what you sign when you take a new job.

Photo credit: woodleywonderworks

Posted in Confidential Information, Non-Competes, Trade Secrets | Tagged , , | 1 Comment

Crass Executive Spending Puts Leading Veterans Charity under a Cloud

As obvious as it seems, abusing an expense account with lavish personal spending is one of the most common ways a CEO can get into trouble. Being an executive comes with reasonable perks that are necessary and helpful to doing the job. But some people get carried away and forget that these funds are not for their personal use and enjoyment.

It’s not just a problem at the biggest corporations. The same temptations can be found within some of the country’s most respected nonprofit organizations. That’s what seems to have happened at the Wounded Warrior Project, one of the largest charities helping veterans. The two top executives were fired after reports of excessive spending on perks like fancy restaurant dinners and first-class travel to luxury resorts for “team-building” conferences. Such extravagances seem particularly egregious if you’ve ever watched one of the organization’s powerful TV ads featuring severely wounded veterans and the struggles their families go through trying to help them when they return home.

WW picAccording to tax reports and charity watchdog groups, Wounded Warrior was spending roughly 40 percent of donations on overhead costs. Former employees of the organization also complained that its focus seemed to shift too far in the direction of fundraising at the expense of its core mission to help veterans.

Of course, fundraising is a crucial role for leaders of a charity. And the ousted CEO and COO were said to be instrumental in building up Wounded Warrior, which took in $372 million in 2015. Sometimes the leaders of an organization, whether it’s a charity or business, develop a sense of entitlement after working hard to make something a success. That can happen even when they are well-paid. CEO Steven Nardizzi reportedly was paid $473,000 in 2014. That too might strike some as excessive, but as I’ve noted, executives of large well-operated nonprofits are valuable and their compensation should reflect that. The problem here is that spending by Nardizzi and the COO seems to have spun out of control.

We’ve seen this in the public sector too. The scandals at Enron and Tyco uncovered Astroworld rented for a family picnic, a $1.5 million Christmas party, and purchases like a $15,000 dog umbrella stand; a $6,000 shower curtain; $5,960 for two sets of sheets; a $2,900 set of coat hangers; a $2,200 gilt metal wastebasket; and a $445 pincushion

Spending must be for the advancement of your company or institution; it is not a license to take money from the organization for personal enrichment. It just takes a modicum of common sense. Ask yourself this: “Are you doing this to enhance company business or is it to help yourself?” Generally, business judgment gives you wide latitude and discretion on expenses, but it does have limits. At some point, expenses can become over the top and wastefully lavish. The over-the-top spending by Wounded Warrior’s leadership seems like one of those examples.

Posted in CEOs, Complaints Against Executives, Corporate culture, Executive Compensation | Tagged , , , , , , , , , , , , | Comments Off on Crass Executive Spending Puts Leading Veterans Charity under a Cloud

How to Spot a Possible In-House Trade Secret Thief

My main complaint with how trade secret theft is talked about is the notion that the chief culprits are hackers from China or somewhere similarly opaque.

In reality, most trade secret thieves are homegrown, and the tools of the trade are fairly low-tech.  It’s ridiculously easy to slip in a thumb drive and download sensitive documents. Fortunately for companies looking to find their culprits, it’s also usually easy to detect when that’s happened.

4505842946_6ff8cc2a8b_oInsider theft is so common that the FBI generated this list of red flags. If the items on this list look familiar, it’s a good time to speak up. Know anybody like this?

  • They work odd hours without authorization. It’s one thing to work late nights every now and then, but if an employee is consistently working late nights and accessing the company’s server from remote locations, it bears closer monitoring.
  • They unnecessarily copy or take proprietary information home via hard copy, thumb drives or email without proper approvals.
  • They disregard company policies about installing personal software or hardware, accessing restricted websites, conducting unauthorized searches or downloading confidential material. There’s probably no cause for concern if an employee is downloading Spotify (though there could be reason for concern if they’re streaming Nickelback), but if they’re consistently trying to access blocked websites and downloading unfamiliar software, it’s probably worth closer inspection.
  • They take short trips to foreign countries for unexplained reasons. If you’ve seen House of Cards, you know that quick trips to Beijing = illegal business negotiations that earn you a lot of frequent flyer miles.
  • They engage in frequent personal contacts with competitors. A certain amount of networking is expected, but regular golf outings with your corporate nemesis are a red flag.
  • They buy things they can’t afford. You have an approximate idea of their earnings, and a new G5 or 65-foot custom yacht is probably not in their budget. Bonuses may have been great, but not that
  • They’re concerned about being investigated, leaving traps to detect searches of their home or office, or looking for listening devices or cameras. Paranoia doesn’t usually indicate ethical behavior.

If you notice any of these behaviors, it is best to report them to the proper internal teams at your company, and possibly the FBI via their tip site:  https://tips.fbi.gov/. Also, find a good attorney to help. I might know a good one.

Photo by Dave Newman

 

Posted in Complaints Against Executives, Confidential Information, Legal, Trade Secrets | Tagged | 1 Comment

Ex parte civil seizure is overkill in trade secret lawsuits

Congress is so polarized right now that it’s tempting to applaud anything that has bipartisan support. After all, if all those people who can’t stand each other can unite over something, it should be safe to assume that whatever brought them together has to be worth supporting, right?

In the case of the Defend Trade Secrets Act, I may have to be the skunk in the garden party. Of course, the intent of the act is a sound one: providing a federal civil cause trade secret theftof action for the theft of trade secrets and creating a uniform standard nationwide for protecting and enforcing those secrets. But one of the remedies – ex parte seizure of allegedly stolen assets – gives me pause.

One reason there’s so much support for this legislation is that, in the public’s mind, the main culprits behind theft of American trade secrets are shadowy underworld hackers lurking in Russia, North Korea and China. But much as we want to blame Boris and Natasha for stealing all our innovation, the reality is that most trade secret theft cases are brought against American citizens who are or were employees of the company being stolen from.

Imagine being an executive who has recently gone from Company A to Company B. Company A alleges in a civil suit that you have stolen trade secrets. Company A’s lawyers convince a judge to order the FBI to seize your personal laptop because, like virtually every white collar worker in America, you frequently do work on your personal computer. If there’s evidence of your chicanery, it’s likely to be on your personal computer, along with all your personal correspondence, family photos and music library.

Remember, these seizures are granted ex parte, which means neither the executive nor Company B have a chance to be heard by the judge making the decision whether to grant the seizure. The only party represented in the room is Company A, which isn’t exactly a disinterested party in the matter.

The DTSA effectively makes government law enforcement agencies an arm of the private sector – all without the protections provided a criminal defendant.

Granted, the bill’s authors heard those objections and, in late January, amended the bill to add that such seizures should only be granted “in extraordinary circumstances.” However, not only is “extraordinary circumstances” overly vague, but if a case were truly “extraordinary,” wouldn’t it justify criminal prosecution?

The Washington and Lee Law Review Online published an exceptional analysis, Ex Parte Seizures and the Defend Trade Secrets Act, last November, which was before the “extraordinary circumstances” amendment was added. Nevertheless, the analysis, written by Eric Goldman of Santa Clara University School of Law, is a thorough examination of why such seizures are so objectionable.

As in so many political debates, those favoring remedies like ex parte civil seizure point to foreign wrongdoers to pass remedies that will, in reality, be executed mainly against American citizens on American soil.

Protecting trade secrets is vital, important work. But it shouldn’t come at the price of violating the civil liberties of American citizens whose only crime was working after-hours on their personal computer.

Posted in Complaints Against Executives, Confidential Information, Defend Trade Secrets Act, Trade Secrets | Tagged , | Comments Off on Ex parte civil seizure is overkill in trade secret lawsuits

Law360 Kerfuffle Adds to Noncompetes Bonfire

Every few months, a story comes along that reignites the “noncompetes are evil” fervor. Right now, the story du jour is that of Stephanie Russell-Kraft, a freelance reporter who formerly wrote for the legal newswire Law360. She left Law360 – her first job out of grad school – to take a job at competitor Thomson Reuters Corp.typewriter-726965_1920

A few weeks later, she was let go from Thomson Reuters because Law360 was enforcing a covenant not to compete that Russell-Kraft had signed (and forgotten about) her first day on the job.

I do a lot of work with executives who have signed noncompetes. The key word there is executives. These are highly paid, highly skilled professionals who were privy to plenty of confidential information while on their previous jobs.

Noncompetes are often valid and enforceable when an employer has a “protectable interest” that is best protected by restricting, within reason, where its former employees go to work. That protectable interest could be specialized training, customer lists, trade secrets or other confidential information. Without that element, it can be hard to get a court to enforce a noncompete.
TexasBarToday_TopTen_Badge_Small
No disrespect to journalists, but theirs is not known as a highly paid profession, at least not in the early years. And it’s doubtful such a young reporter would be privy to many of their employers’ trade secrets. Granted, many journalists have had to sign noncompetes over the years, particularly broadcast reporters.  And, in some cases, they may be valid and enforceable.

But, just as with last year’s brushfire over the Jimmy John’s noncompete clause, it’s likely that, should Law360 attempt to enforce its noncompete in court, they would fail.

Trouble is, most employers don’t have to take it that far. All Law360 had to do – according to a report in the Wall Street Journal – is write a letter to Thomson Reuters saying “you’ve hired one of our reporters in violation of her noncompete” and Thomson Reuters showed her the door. Had Thomson Reuters hired a lawyer to fight it out in court, it most likely would have won. But why go to that expense when there are dozens (hundreds?) of other reporters you can hire who won’t cause you that kind of grief and expense?

That’s not the case for a highly paid executive whose expertise you dearly want and your company needs. They’re worth fighting for, and companies often do just that.

The purpose of a noncompete is to protect confidential information, or some other protectable interest, not to prevent employees from growing their careers (or making sandwiches) at other companies. Sometimes they’re reasonable and enforceable. And sometimes, as in the case of Law360 and Jimmy Johns (and, allegedly, a host of other employers), they don’t seem to serve any purpose other than to stamp out the ability of low-level employees to make a living.

They do little more than frighten employees into submission.

One possible effect of Corporate America’s love affair with the unnecessary, unenforceable noncompete is that they could eventually backfire and jeopardize noncompetes signed by those employees who do have access to information worth protecting.

Until then, young reporters, sandwich makers and all the other unsuspecting employees asked to sign a noncompete as a condition of employment, read your paperwork closely and be sure to keep a copy for yourself.

If nothing else, hopefully, the bad press Jimmy Johns and Law360 are getting will be enough to make them change their ways.

Posted in Confidential Information, Executive contracts, Legal, Litigation, Non-Competes, Trade Secrets | Tagged , , | 1 Comment

Another Plug for Keeping Secrets Secret

Just a quick post to follow up on the item I wrote back in June about the hack into the Houston Astros’ Ground Control database by someone within the St. Louis Cardinals’ front office.Astros Cardinals hack

We now know the culprit was Chris Correa, a former Cardinals scouting director who recently pled guilty to five counts of accessing Astros computers without authorization from 2013-14. Correa was able to get into the Astros’ database because he had the password of a former Cardinals’ employee who had joined the Astros.

Correa may spend time in jail, and MLB Commissioner Rob Manfred may decide to fine or otherwise punish the Cardinals. It’s also possible the Astros will file a grievance and/or a civil suit against the Cardinals.

But, as I told The Houston Chronicle’s Evan Drellich (in a story published Jan. 16), the Astros might have a hard time proving their losses in civil court, partly because it could be argued that the Astros didn’t take sufficient steps to protect their proprietary information.

‘I’m a little surprised they didn’t exercise better password hygiene,’ Ahmad said. ‘If I’m on the defense … I point out that, you know what, all of this could have been avoided if the guy could’ve just changed his password.

‘Part of people are going “this is sports, how important and how confidential is this really?” And I think you combine it with the notion of, come on, change your password and nothing happens.’

Nobody is immune from being hacked, so individuals and companies need to treat their trade secrets like secrets and ensure that everybody with access to them varies not only their passwords but also their password naming conventions. If the only thing you change in your password is the month, it doesn’t take a criminal mastermind to figure it out.

The only reason we know about the Astros hack is because some of the team’s confidential information was published in the media, tipping off the Astros to the fact that something was amiss. If that hadn’t happened, Correa might never have been caught.

Think about that: most hackers go undetected. So don’t make their lives any easier.

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