(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)
A reader asks: My business is in an industry where sales people and software engineers are often recruited by competitors. How can I protect my company from being raided?
Answer: Employers use what are called restrictive covenants to protect trade secrets and prevent employees from unfairly stealing clients and/or information. Courts heavily scrutinize these covenants so it is imperative to have a seasoned attorney assist you with writing one that will be enforceable under the laws of the state where your company is located. (Just missing a few words can create tremendous grief for an employer.)
There are a variety of these available, but let’s look at the most common:
Non-disclosure agreeements: Non-disclosure agreements (“NDAs”) are one of the most effective and commonly used solutions to this problem. An NDA protects information that is a trade secret – data that has economic value (actual or potential) due to its exclusivity and is something you’re making efforts to keep secret.
Taking trade secrets without the owner’s consent is called misappropriation and if an employee misappropriates a trade secret, a company has the right to recover:
- Actual damages it suffers from the theft
- Repayment of the money made by the employee (or his new employer) as a result of the trade secret theft
- Injunctions requiring the return of the stolen property
- Attorney’s fees
To ensure the full protection of an NDA, you’ll need to require the employee to sign a confidentiality agreement when they come on board that defines the scope of information your company is trying to protect. This can be anything from a company’s secret sauce to pricing, lists and business processes.
Additionally, the NDA should contain a proprietary inventions assignment agreement (PIAA), which ensures that all work products created by the employee belong to the company and not to the employee – and the employee has no right to take them when he or she leaves the company. This can include everything from software programs to customer lists to website designs to pricing.
Covenants not to compete – Better known as non-compete agreements, the enforceability of these varies dramatically from state to state. In the states in which they are enforceable, like New York or Massachusetts, they can be very powerful tools. In other states, like California, they are generally prohibited.
California specifically has a statute stating that restrictive covenants not to compete are presumed invalid unless specific circumstances apply. For example, if the owner of a company sells their business, a non-compete may be enforceable against him or her in California.
For the states where these are enforceable, there are still some restrictions based on the duration of the agreement, geographical location and the breadth of activity prohibited.
Additionally, in many cases it doesn’t matter where the agreement was entered into or what the laws are there. If the employee moves to another state, either during or after employment, things can become muddled. So, it’s best to use non-competes with great caution. They may not be as effective as you initially think.
Non-solicitation – There are basically two kinds of non-solicitation agreements – non solicitation of employees and non-solicitation of clients.
Non-solicitation of employees is generally enforceable in most states, but a non-solicitation of clients may be considered an unfair restraint on trade. The exception in those situations is if the non-solicitation agreement is necessary to protect trade secrets.
Non-solicitation agreements are generally less onerous then covenants not to compete and typically more enforceable.
Startup owners: Got a legal question about your business? Submit it in the comments below or email Curtis directly. It could end up in an upcoming “Ask the Attorney” column.
Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.
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Facebook finally put out a press release on PR Newswire officially setting the record straight on $1.5 billion in funding. The overseas clientele of Goldman Sachs bought $1 billion, and the bank plus Digital Sky Technologies together invested another $500 million.
The blogosphere will doubtlessly explode with posts about why and how the numbers seem to have changed from what was originally reported by The New York Times on January 2. I don’t think the size of the deal selling to Goldman’s clientele shrank from $1.5 billion to $1 billion because of U.S. investors got shut out of the deal, although that’s a clever idea.
I think the discrepancy more likely has to do with the nature of off-the-record scoops, like the one that started the media frenzy in the first place. Rarely do the early leaks of secrets ever turn out to be accurate. Don’t mistake this as dissing any of the previous coverage of $500 million in direct investment and $1.5 billion from Goldman clientele. Like the release says, Facebook chose to limit the overseas offering to $1 billion, after the bank offered the choice of a range from $375 million to $1.5 billion.
The release consists of one straightforward factual paragraph, a quote from Facebook Chief Financial Officer David Ebersman and then a set of four questions and answers about the deal — all of it appears below, except for the boilerplate at the tail end. The fact that this official statement came out today indicates that the deal has closed. Read on for the release:
Facebook Raises $1.5 Billion
Facebook Receives $1 Billion from Goldman Sachs Overseas Offering; Digital Sky Technologies and Goldman Sachs Also Recently Made $500 Million Direct Investment
Investment Values Facebook at $50 Billion
PALO ALTO, Calif., Jan. 21, 2011 /PRNewswire/ — Facebook today announced it has raised U.S.$1.5 billion at a valuation of approximately $50 billion.
The transaction consisted of two parts. Today, Goldman Sachs completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion in Facebook Class A common stock. In December, Digital Sky Technologies (DST), The Goldman Sachs Group, Inc., and funds managed by Goldman Sachs invested $500 million in Facebook Class A common stock at the same valuation.
“Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing,” said David Ebersman, Facebook’s chief financial officer. “With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead.”
The investment generated a significant number of questions from interested parties and Facebook has addressed the most common ones below.
Why did Facebook raise this money?
DST and Goldman Sachs approached Facebook to express their interest in making an investment, and Facebook decided it was an attractive opportunity to bolster its cash reserves and increase its financial flexibility with limited dilution to existing shareholders.
Why did Facebook choose to raise $1 billion in the overseas offering?
Under the transaction’s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook. While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion.
What are Facebook’s plans for the proceeds of this transaction?
There are no immediate plans for these funds. Facebook will continue investing to build and expand its operations.
Does this investment mean that Facebook will have more than 500 shareholders?
Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.
It’s great to see that the social network will indeed begin making financial disclosures to the public by the end of April; and the release doesn’t say anything about whether or when an initial public offering might happen.
Why do you think the total size of the transaction changed from the originally reported $1.5 billion coming from overseas clients of Goldman Sachs to the currently announced $1 billion?
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Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company credit card
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company me
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company credit card
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company reviews
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company credit card
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company credit card
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company me
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
bench craft company me
Lara Logan of CBS <b>News</b> Was Attacked and Sexually Assaulted in Egypt
Many of the scenes broadcast from Egpyt in recent days have been joyful, but events took a horrific turn for CBS News correspondent Lara.
CBS <b>News</b>' Lara Logan Sexually Assaulted in Egypt - Celebrity <b>News</b> <b>...</b>
The foreign correspondent was the victim of a "brutal and sustained" attack.
Michelle Malkin » CBS <b>News</b> reporter Lara Logan sexually assaulted <b>...</b>
CBS News reporter Lara Logan sexually assaulted, beaten in Cairo; Update: Unhinged NYU fellow attacks Logan as “war-monger”
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