Forensic Accounting
Brand Protection
Computer Forensics
Corporate Investigation

Volume 8 - No. 1                    Download PDF

In this edition of 
The Kessler Report:

Staying a Step Ahead of Stock Scams

Boiler Rooms Go
High-Tech: Online Investment Fraud

Signs You're Dealing With a Smooth Criminal

Web Monitoring Firms: Far Reaching or Far-Fetched?

Non-Compete Agreements: The Extra Step in Intellectual Property Protection

Q&A: Theft in the Workplace

Kessler's Corner:  Investment Fraud

FYI: Operation
Brand Aid

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The Extra Step in Intellectual Property  Protection

Many companies go to great lengths to protect their intellectual property, be it copyrighted material, trademarks, or brand and logo protection.  A company like Walt Disney, for example, will copyright all creative materials and work to protect their signature logo, the black mouse ears.  They may even hire an outside investigative firm to keep an eye on companies by using physical plants and in cyberspace.  These investigative firms will conduct database research, image scanning, and in some cases, undercover work to protect Disney’s copyright and trademark material.  But while companies often spend money to watch for outside entities who may be infringing on their intellectual property, they may not give any extra thought to the people inside the company walls.  In states where it is enforceable, it is wise for companies to have their employees sign a non-compete agreement.  

A non-compete agreement is essentially a covenant signed by an employee stating that he will not leave for the company and work for a competitor for a certain duration after he has left.  The idea is to keep an employee, particularly one who is readily “in the know” about certain trade secrets or developing plans, from moving to a competitor and disclosing those secrets or developing plans.  In some companies, for example, a toy company, an employee could literally have billions of dollars in revenue in his hands or stored in his memory.  Imagine you own a toy company, and your research and development team comes up with a furry creature called the “Frumpy” doll.  Certainly, the team member who conceived the “Frumpy” doll should be asked to sign a non-compete agreement, particularly if the “Frumpy” because the largest Christmas craze in retail history. 

Billions of dollars could be earned as a result of those furry dolls, but imagine those billons being lost because a team member switched over to a competitor before the “Frumpy” could hit the market.  That illustrates the importance of going the extra step in protecting your intellectual property through non-compete agreements.  

There are some pitfalls to avoid when enforcing the non-compete agreement.  For one, be discriminative when asking employees to sign an agreement.  Try to limit how many employees you ask to sign, and use who has knowledge of information that could cost the company if it were leaked as a basis.  That way, if the agreement is ever challenged in court, the judge would be more likely to rule in your favor and less likely to draw an assumption that you’re using the non-compete agreement to punish your employees for leaving.  The agreement exists to protect companies from losing money as a result of losing trade secrets, but it is a highly guarded and sensitive document because courts do not take depriving a person of a job lightly.  Your goal as the employer is to make the document work in your favor, without harming the person who signs it.  

Incentive is another key element to ensuring that your non-compete agreement is not only honored, but legally supported in the courts.  Courts want to see that you didn’t offer the document outright, and only with sanctions against the employee if he didn’t sign.  If the employee is currently being hired by your company, then offering the job itself can qualify as an incentive.  With employees that are already in the company and perhaps have been promoted (for instance if that guy in your mail room is now joining your research and development team) you may want to consider offering a raise or a signing bonus.

The time you expect an employee to remain out of the competitor’s grasp is another issue with non-compete agreements.  Standard time frames range between six months and a year.  Anything beyond that really has to be qualified and proven that as a result of losing a certain employee, your company stands to lose a great deal of revenue and property.  So good questions to consider are: how much information does this employee have, and how long will it take before his information is somewhat outdated?  The answers to those questions will help give you a time frame that both the employee and the courts can handle.  

The bottom line is this: always keep the courts and the employee in mind when drafting your non-compete agreement.  By satisfying their reservations about the covenant, you stand a greater chance of protecting your intellectual property.  Many companies don’t think about their own employees when it comes to protecting their property, but quite often it is the employees of a company that can sink it, intentionally or not.  By researching what a non-compete agreement can do for your company, you may be automatically saving yourself millions of dollars, and in the meantime, adding incentives to keep your employees where they are.

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