Using noncompete agreements to protect intellectual property

In professional baseball, when a player is traded, his former team often changes the hand signals it uses to call pitches and direct base runners, assuming the player will share everything he knows with his new employer.

In corporate America, however, simply exchanging old data for new isn’t an effective means to protect intellectual property. Businesses need multiple forms of intellectual property protection to safeguard their patentable inventions, customer databases, digital coding, trade secrets and other intangible knowledge from competitors or other groups, and employee noncompete agreements can be part of that strategy.

Consider these three factors to determine if a noncompete is right for your organization.

Make sure there’s a real need

A noncompete agreement is a legal document signed by key personnel, usually as a term of employment. It’s generally used to constrain those with inside knowledge from working for a competitor under stated conditions after leaving employment with your company. Some agreements can also block an employee’s ability to seek employment for a set period of time or within a geographic region where your competitors are clustered.

Noncompete agreements were originally used to keep key management personnel, who held sensitive inside information that could seriously compromise the employer, from sharing that intellectual property in a way that could harm the business. Examples of sensitive IP include trade secrets, client information, financials, prototypes, codes and business and marketing strategies. While the historical criteria remains a good barometer for whether to implement this type of legal agreement for IP protection, companies should also be selective about using noncompetes. Courts may not enforce your noncompete agreements if you have every employee in your organization sign one. Therefore, reserve noncompetes for employees whose inside knowledge must remain confidential, especially if they were to leave. This will make the agreements easier to enforce in court, should you need to do so.

Consider alternative approaches

Courts don’t look favorably on legal moves that block future employment, even if it is to protect intellectual property. That’s not to say that a noncompete isn’t the right strategy for your circumstances, but consider alternative ways of providing intellectual property protection without needlessly burdening employees.

One option is nondisclosure agreements. An NDA gives employees the freedom to move employers and constrains them from sharing intelligence gained through previous employment.

Know the law

The required wording of noncompete agreements varies from state to state. It’s important to understand the requirements to follow not only in your own backyard but also in the state where your ex-employee is now working.

If you are interested in using a noncompete to protect intellectual property, consult an intellectual property attorney for help drawing up agreement that will be enforceable in court, or for other solutions for intellectual property protection. 

Fay Sharpe is a law firm that has offered clients intellectual property protection since 1884. Contact Fay Sharpe at 216.363.9000 or fs@faysharpe.com.