Presentation To: Association of Corporate Counsel January 26, 2010 ______________________________ Covenants Not to Compete and Trade Secrets Bryce K. Earl, Esq. and Thomas G. Grace, Esq

Three Certainties For The Future Death, Taxes, and…

Non-Compete/Confidentiality Agreements

Myths About Non-Competes

Where to Find the Restrictions Non-Compete Agreements Confidentiality/Non-Disclosure Agreements Employee Handbook/Company Policies IP Agreement/Work-For-Hire Training Agreements Stock Options/Compensation Agreements Transfer/Relocation Agreements

Types of Restrictions

Trade Secrets/Covenants Not to Compete Impact… All Industries Employees at Every Level Many Business Transactions

Guidelines Regarding Enforceability Protection of Legitimate Business Interests? Reasonable Geography? Reasonable Duration? Other Equities? (Wild Card)

Potential Related Claims Inevitable Disclosure Violation of UTSA “Unfair Competition” Conversion Breach of Duty of Loyalty Economic Espionage Act Computer Fraud And Abuse Act Breach of Good Faith &Fair Dealing Accounting Corporate Raiding

Claims Against Third Parties Tortious Interference with Contract Tortious Interference with Prospective Business Relations Aiding and Abetting

The Uniform Trade Secret Act has been enacted in 43 states . . . Not enacted in: VT NY MA PA NJ AR WY

Trade Secret Definition “TRADE SECRET” means information, including, without limitation, a formula, pattern, compilation, program, device, method, technique, product, system, process, design, prototype, procedure, computer programming instruction or code that:

Trade Secret Definition (cont.) Derives independent economic value, actual or potential, form not being generally known to, and being readily ascertainable by proper means by the public or any other persons who can obtain commercial or economic value from its disclosure or use; and Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Trade Secret? Customers Potential Customers Pricing Contact Information Purchasing History Credit / Payment History Potential Customers Pricing Discounts Incentives Programs Personal Information (NV Amendment) Periodic Sales Figures Profitability Sales Commission Programs / Compensation Inventories Product Profitability Suppliers Discount Programs Product Quality

Nevada’s Privacy Amendment Made Effective January 1, 2010 Applies to all “data collectors doing business in this State” Requires implementation and maintenance of reasonable security measures Requires compliance with PCI standards Specifically defines “encryption”

Nevada’s Privacy Amendment Requires encryption any electronic transmission Any movement of a data storage device Includes data storage contractor Excludes certain telecommunications providers 2005 – requires disclosure of any security breach

Nevada’s Privacy Amendment “Data collector” means any governmental agency, institution of higher education, corporation, financial institution or retail operator or any other type of business entity or association that, for any purpose, whether by automated collection or otherwise, handles, collects, disseminates or otherwise deals with nonpublic personal information.

Nevada’s Privacy Amendment “Personal information” means a natural person’s first name or first initial and last name in combination with any one or more of the following data elements, when the name and data elements are not encrypted: Social security number. Driver’s license number or identification card number. Account number, credit card number or debit card number, in combination with any required security code, access code or password that would permit access to the person’s financial account. The term does not include the last four digits of a social security number or publicly available information that is lawfully made available to the general public.

Confidentiality Agreements Trade Secret or Confidential Information Definition of: Trade Secret Confidential Information Durational Term Enforceability

Potential Defenses Unreasonable Lack of Consideration Not “Competing” With Prior Employer Breach of Agreement by Prior Employer Does Not Protect Legitimate Business Interest of Prior Employer Antitrust Labor Practices Declaratory Judgment

Other Key Issues Choice of Law Forum Selection Arbitration Assignment Settlement Terms Return of All Documents Exit Interview Regular Acknowledgement of Obligations Marking Documents (electronic and Hard Copy) Notification to New Employer

New Employee Risks Confidentiality Trade Secret Noncompete Nonsolicitation Customers Employees Related Company Policies

Review and Update Trade Secrets / Protection Programs Privacy Programs Covenants Not to Compete Confidentiality and Non-Disclosure Agreements Deceptive Trade Practices Employee Disloyalty

Bryce K. Earl Thomas G. Grace bearl@nevadafirm.com tgrace@nevadafirm.com 400 South 4th Street 3rd Floor Las Vegas, NV 89101 tel: 702.791.0308 fax: 702.791.1912 www.santorodriggs.com