Confidentiality, Non- Competition and Non- Disclosure Agreements Steven L. Baron Mandell Menkes LLC October 27, 2009

Confidentiality Agreements Protects against disclosure of confidential information and trade secrets of employer. Protects against disclosure of confidential information and trade secrets of employer. Term: during employment and potentially forever. Term: during employment and potentially forever. May not cover stuff you already know. But, how do you prove you already knew it. May not cover stuff you already know. But, how do you prove you already knew it. Check terms of employee handbook. Check terms of employee handbook.

Confidentiality Agreements Confidentiality. Employee will not disclose any Confidential Information to any person or entity for any reason, except as required to perform its obligations under this Agreement. For purposes of this Agreement, Confidential Information shall include the financial terms of this Agreement and all records, reports, documents, designs, plans, contracts, literature, data, concepts, ideas, software, computer programs, source code, object code, information, memoranda, correspondence, and other material created, developed or used by Employer or Employee pursuant to this Agreement, or delivered or transmitted to Employer by Employee pursuant to this Agreement or otherwise. Confidential Information shall also include information in Employee’s knowledge or possession concerning Employer’s business, marketing, administrative, advertising, budgeting or organizational plans, practices, policies and procedures, as well as Employer’s customer lists and scientific or technical information, Employer’s advertising rates, information about users of any Employer Web site, and any traffic patterns or usage information about Employer Web sites, regardless of whether such knowledge or information was obtained pursuant to this Agreement or otherwise. Employer shall own all rights, title and interest in all Confidential Information. Employee acknowledges that much of this information constitutes trade secrets or proprietary information unique to Employer, and that disclosure in breach of this Paragraph will result in irreparable injury to Employer for which Employer shall be entitled to injunctive relief in addition to all other remedies available at law or in equity. Confidentiality. Employee will not disclose any Confidential Information to any person or entity for any reason, except as required to perform its obligations under this Agreement. For purposes of this Agreement, Confidential Information shall include the financial terms of this Agreement and all records, reports, documents, designs, plans, contracts, literature, data, concepts, ideas, software, computer programs, source code, object code, information, memoranda, correspondence, and other material created, developed or used by Employer or Employee pursuant to this Agreement, or delivered or transmitted to Employer by Employee pursuant to this Agreement or otherwise. Confidential Information shall also include information in Employee’s knowledge or possession concerning Employer’s business, marketing, administrative, advertising, budgeting or organizational plans, practices, policies and procedures, as well as Employer’s customer lists and scientific or technical information, Employer’s advertising rates, information about users of any Employer Web site, and any traffic patterns or usage information about Employer Web sites, regardless of whether such knowledge or information was obtained pursuant to this Agreement or otherwise. Employer shall own all rights, title and interest in all Confidential Information. Employee acknowledges that much of this information constitutes trade secrets or proprietary information unique to Employer, and that disclosure in breach of this Paragraph will result in irreparable injury to Employer for which Employer shall be entitled to injunctive relief in addition to all other remedies available at law or in equity.

Non-Competition Agreements/Restrictive Covenants Prevent employee/independent contractor from engaging in work or projects that may compete with business of employer. Prevent employee/independent contractor from engaging in work or projects that may compete with business of employer. Disfavored (but enforceable) under the law. Disfavored (but enforceable) under the law. Must be limited in scope, geography and time. Must be limited in scope, geography and time. No bright line test on what’s acceptable. No bright line test on what’s acceptable.

Non-Competition Agreements/Restrictive Covenants Upon termination of this Agreement and/or the date Optometrist ceases to perform services for Corporation for any reason, with the sole exceptions of termination by the Optometrist for “Cause” as defined in Section 14(b), or termination by Corporation without cause pursuant to Section 13(b), and for a period of five (5) years following termination, Optometrist will not, without written consent of Corporation, engage in the Practice of Optometry (i) at either of the ___________, or (ii) at any other facility within the Service Area. The parties agree that these covenants are necessary to protect the activities of Corporation and the professional practices of employees of Corporation. Optometrist agrees that any breach of these restrictive covenants will result in irreparable damage to Corporation for which it will have no adequate remedy at law, and hereby consents to an injunction by any court of competent jurisdiction in favor of Corporation enjoining any breach of such covenants, without prejudice to any other right or remedy to which Corporation may be entitled. If Corporation institutes a suit or takes action against Optometrist for violation of or to enforce this Section 16, Corporation shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorney’s fees. In the event that these covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their being extended to too great a period of time or too large a geographic area or over too great a range of activities, they should be interpreted to extend only over the maximum period of time, geographic area, or range of activities as to which they may be enforceable. Upon termination of this Agreement and/or the date Optometrist ceases to perform services for Corporation for any reason, with the sole exceptions of termination by the Optometrist for “Cause” as defined in Section 14(b), or termination by Corporation without cause pursuant to Section 13(b), and for a period of five (5) years following termination, Optometrist will not, without written consent of Corporation, engage in the Practice of Optometry (i) at either of the ___________, or (ii) at any other facility within the Service Area. The parties agree that these covenants are necessary to protect the activities of Corporation and the professional practices of employees of Corporation. Optometrist agrees that any breach of these restrictive covenants will result in irreparable damage to Corporation for which it will have no adequate remedy at law, and hereby consents to an injunction by any court of competent jurisdiction in favor of Corporation enjoining any breach of such covenants, without prejudice to any other right or remedy to which Corporation may be entitled. If Corporation institutes a suit or takes action against Optometrist for violation of or to enforce this Section 16, Corporation shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorney’s fees. In the event that these covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their being extended to too great a period of time or too large a geographic area or over too great a range of activities, they should be interpreted to extend only over the maximum period of time, geographic area, or range of activities as to which they may be enforceable.

Non-Disclosure Agreements (“NDAs”) Like confidentiality agreement but may be used outside of employment context. Like confidentiality agreement but may be used outside of employment context. Presenting ideas to:Presenting ideas to: Venture capital firm Venture capital firm Other funding source Other funding source Potential joint venturer Potential joint venturer Potential business partner. Potential business partner.

Coady v. Harpo, Inc., 308 Ill.App.3d 153 (1 st Dist. 1999) Post-employment restrictive covenant. Post-employment restrictive covenant. Senior Associate Producer seeks DJ of non-enforceablility. Senior Associate Producer seeks DJ of non-enforceablility. Prohibitions in contract: Prohibitions in contract: During contract and thereafter (i.e. forever)During contract and thereafter (i.e. forever) Can’t reveal info about:Can’t reveal info about: Oprah, her business or private life; Oprah, her business or private life; Business and dealings of Harpo; Business and dealings of Harpo; Harpo’s employment practices and policies Harpo’s employment practices and policies Can’t give or participate in interviews about OprahCan’t give or participate in interviews about Oprah

Coady v. Harpo, Inc., 308 Ill.App.3d 153 (1 st Dist. 1999) Who wins?Who wins?

Coady v. Harpo, Inc., 308 Ill.App.3d 153 (1 st Dist. 1999)

Court’s rationale: Court’s rationale: No restraint on plaintiff’s future career.No restraint on plaintiff’s future career. No restraint on commerce.No restraint on commerce. Forever is ok.Forever is ok. “Whether for better or for worse, interest in a celebrity figure and his or her attendant business and personal venture somehow seems to continue endlessly, even long after death, and often, as in the present case, extends over an international domain.” “Whether for better or for worse, interest in a celebrity figure and his or her attendant business and personal venture somehow seems to continue endlessly, even long after death, and often, as in the present case, extends over an international domain.”

RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001) “This is a case about how an employee who signed a non- disclosure and non-compete agreement chose to join a competitor. This is a textbook case of how not to do it.” “This is a case about how an employee who signed a non- disclosure and non-compete agreement chose to join a competitor. This is a textbook case of how not to do it.” Magistrate Judge Morton DenlowMagistrate Judge Morton Denlow

RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001) Employee signs 2-year deal and agrees during the term and thereafter. Employee signs 2-year deal and agrees during the term and thereafter. Won’t reveal “Proprietary Information.”Won’t reveal “Proprietary Information.” PI = “any and all information including but not limited to information concerning the design and development of tooling used in the Company’s business, not generally known or recognized as standard practices, and information which is disclosed to … [employee] concerning any and all of the technology, research,... produced by the Company.PI = “any and all information including but not limited to information concerning the design and development of tooling used in the Company’s business, not generally known or recognized as standard practices, and information which is disclosed to … [employee] concerning any and all of the technology, research,... produced by the Company.

RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001) Employee has access to: Employee has access to: Customer contact management system.Customer contact management system. Account contact management software.Account contact management software. Reports with quote, order, cost and profit data.Reports with quote, order, cost and profit data. Info provided with appropriate safeguards (e.g. password protection) Info provided with appropriate safeguards (e.g. password protection)

RKI, Inc. v. Grimes, 177 F. Supp. 2d 859 (N.D. Ill. 2001) Employee recruited by direct competitor. Employee recruited by direct competitor. Before leaving, employee downloads customer information from databases. Before leaving, employee downloads customer information from databases. Employee immediately begins to solicit former employer’s customers. Employee immediately begins to solicit former employer’s customers. Held: Confidentiality provision of contract was enforceable, and employee breached. Held: Confidentiality provision of contract was enforceable, and employee breached.

Nilssen v. Motorola, Inc., 963 F. Supp. 664 (N.D. Ill. 1997) Nilsson approaches Motorola about electronic ballasts. Nilsson approaches Motorola about electronic ballasts. Discussions ensue over several years Discussions ensue over several years In midst of discussions, parties enter a confidentiality agreement. In midst of discussions, parties enter a confidentiality agreement. Motorola afforded Nilsson opportunity to retroactively label material “confidential.” Motorola afforded Nilsson opportunity to retroactively label material “confidential.” Trade secret litigation erupts. Trade secret litigation erupts. Court finds no implied duty of non- disclosure in the face of express contract. Court finds no implied duty of non- disclosure in the face of express contract.

Pope v. Alberto-Culver Company, 296 Ill.App.3d 512 (1 st Dist. 1998) P approaches AC with proposal to use a plastic tube to contain and apply lye- based hair relaxer. P approaches AC with proposal to use a plastic tube to contain and apply lye- based hair relaxer. P and AC execute a non-disclosure agreement: AC agrees not to disclose or misappropriate any trade secrets or confidential information. P and AC execute a non-disclosure agreement: AC agrees not to disclose or misappropriate any trade secrets or confidential information. P and AC do not consummate deal. P and AC do not consummate deal. AC introduces lye-based hair relaxer in a tube. AC introduces lye-based hair relaxer in a tube. P sues. Who wins? P sues. Who wins?

Pope v. Alberto-Culver Company, 296 Ill.App.3d 512 (1 st Dist. 1998)

Placement of a lye relaxer in an already existing tube and using tube to apply relaxer were easily within realm of general skills and knowledge. Placement of a lye relaxer in an already existing tube and using tube to apply relaxer were easily within realm of general skills and knowledge. A design process that can be readily ascertained from an examination of the product itself cannot be a trade secret. A design process that can be readily ascertained from an examination of the product itself cannot be a trade secret. NDA of no help: excluded information that is generally available to the public or becomes available through no fault of AC. NDA of no help: excluded information that is generally available to the public or becomes available through no fault of AC.

Learning Curve Toys v. Playwood Toys, 342 F.3d 714 (7 th Cir. 2003) LC and PT meet to discuss potential business venture regarding toy train business. LC and PT meet to discuss potential business venture regarding toy train business. LC and PT enter into an oral confidentiality agreement. LC and PT enter into an oral confidentiality agreement. PT discloses to LC a method of making realistic “Clickety-Clack” wooden train tracks. PT discloses to LC a method of making realistic “Clickety-Clack” wooden train tracks. LC and PT do not enter into business agreement. LC and PT do not enter into business agreement. LC went on to sell the Clickety-Clack track. LC went on to sell the Clickety-Clack track. PT sued for misappropriation of trade secrets. PT sued for misappropriation of trade secrets. Who wins? Who wins?

Learning Curve Toys v. Playwood Toys, 342 F.3d 714 (7 th Cir. 2003) Not Thomas Not Thomas

So, what have we learned? An NDA can last forever (if it does not restrain trade or employment). An NDA can last forever (if it does not restrain trade or employment). When drafting, be broad but be specific in defining information covered and permitted uses. When drafting, be broad but be specific in defining information covered and permitted uses. An NDA will not protect information that is otherwise generally available. An NDA will not protect information that is otherwise generally available. NDAs enforceable only if reasonable efforts made to keep information confidential. (i.e. same level of care given to trade secrets). NDAs enforceable only if reasonable efforts made to keep information confidential. (i.e. same level of care given to trade secrets). NDA’s can cover confidential customer information. NDA’s can cover confidential customer information. Faced with an express NDA, courts will not find an implied duty of non-disclosure (but employee may owe duties of loyalty etc.). Faced with an express NDA, courts will not find an implied duty of non-disclosure (but employee may owe duties of loyalty etc.). Follow NDA’s provisions (e.g. proper marking on documents). Follow NDA’s provisions (e.g. proper marking on documents). Parties may be bound by oral NDA’s. Parties may be bound by oral NDA’s. In Illinois, courts seem to follow all-or-nothing approach (not “blue pencil”). In Illinois, courts seem to follow all-or-nothing approach (not “blue pencil”).