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

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  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. EarlThomas G. Grace 400 South 4 th Street 3rd Floor Las Vegas, NV tel: fax: