Business Law Archives - NC Business Lawyer

Protecting your company’s trade secrets

Meynardie & Nanney — Wed, 18 Dec 2019 20:53:16 +0000

If an employee leaves your business and takes confidential information to use for his or her own gain, you may have grounds for legal action under the North Carolina Trade Secrets Protection Act. This statute defines misappropriation of trade secrets and outlines available court remedies for this action.

Learn how to shield your business’s trade secrets and explore whether you may be eligible for damages.

What is a trade secret?

Any information that creates or could potentially create value for your business constitutes a trade secret if you have made reasonable attempts to keep it confidential. Examples include databases, processes, techniques, documents, devices, computer programs and formulas. If another party can easily develop or reverse-engineer the information in question, it is not a trade secret.

What constitutes misappropriation?

Under state law, misappropriation occurs when another person, business or entity uses, discloses or acquires trade secrets without your consent or authority. However, if the third party in question got the trade secret from someone who had the right to disclose it or through reverse-engineering or independent development, misappropriation has not occurred.

What are the available legal remedies for misappropriation?

You have three years to file a lawsuit for misappropriation of trade secrets in North Carolina. If you are able to prove misappropriation, the court may order:

An injunction that requires the defendant to discontinue these actions and keep the trade secrets confidential
Economic damages that reflect the harm to your business caused by misappropriation of the trade secrets, which may include any profits the defendant obtained from these actions
Punitive damages and attorney fees if the defendant acted maliciously or willfully

Keep in mind that you cannot pursue a lawsuit unless you have taken steps to shield your company’s trade secrets from public knowledge. For example, you should carefully control access to this information and clearly label confidential information as such. Employees should also sign non-disclosure agreements and non-compete agreements that specifically limit the use and disclosure of trade secrets.

Meynardie & Nanney

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What are your rights as a minority member in an LLC?

Meynardie & Nanney — Tue, 15 Oct 2019 17:03:48 +0000

Being a minority member in an LLC does come with its ups and downs. You may not have as much say as a majority member, but you still have rights. It is essential that you understand them and stand up for them. If you do not exercise your rights, then you have nobody to blame but yourself when things go a direction you are not happy with. At least by expressing yourself and taking full advantage of your position, you can rest easy knowing that you did everything you could with the North Carolina LLC.

Business Law Today explains that you want your LLC agreement to be as favorable to you as possible. This is where you have the best chance to ensure everyone recognizes your rights.

Keep in mind that you want to gain the best leverage as possible all the time. You can always team up with other minority shareholders to form a bigger voice. Keep that right at hand because it can be very helpful. You also want to use your abilities and position as leverage. For example, maybe you can negotiate with suppliers because you have a better relationship with them than other shareholders. If this is the case, use this to your advantage.

You want to be sure that other members cannot act without your knowledge of large decisions and issues within the company. Always speak out and stand up for yourself and the other minority shareholders. You can have a voice.

Beyond this, just make sure that the LLC follows all the clauses and points in the agreement. If you see something wrong, make sure to speak up. That is the only way to enforce your rights. This information is for education and is not legal advice.

Meynardie & Nanney

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How can I protect trade secrets?

Meynardie & Nanney — Thu, 04 Jul 2019 06:47:38 +0000

Successful North Carolina businesses often attribute achievements to trade secrets. Trade secrets come in a variety of forms. Recipes, designs, methods and any other bit of information that helps a business maintain an economic advantage are trade secrets. Trade secrets are intangible assets but they have protection under United States law.

The World Intellectual Property Organization suggests that businesses should take reasonable steps to protect intangible assets. If trade secrets are on a computer network, the computer needs adequate protection. In addition, non-disclosure agreements may help protect businesses. If an employee steals trade secrets, the business has a chance to win in court. Likewise, employees need adequate training in terms of trade secrets. Employees need to know how to protect confidential information. Most of this training is basic and if not carried out, a business may be unable to collect in the case of a theft.

Adequate risk management can help secure confidential information. Companies can assess risks to discover which areas are more prone to leaks or breaches. When dealing with third parties, if someone has access to your trade secrets, then non-disclosure agreements can resurface. Businesses have to use strong communicative skills to communicate with third parties the need for trade secret protection. Every person that the business deals with has to live up to the standard of protection. Trade secret protection is a priority in terms of business. Boosted security and protection systems can protect trade secrets from theft.

This information is solely for help with how a business can protect trade secrets. This information is in no way legal advice.

Meynardie & Nanney

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What happens to a jointly owned business in a divorce?

Meynardie & Nanney — Sun, 23 Jun 2019 07:34:10 +0000

When a couple starts a business together, they generally do not anticipate a divorce down the road. Yet things change, and even the best-laid plans can go awry.

If a couple jointly owns a business, the fate of that business after a divorce depends on the unique situation. Many cases, however, require complex asset distributions.

Divorce mediation for business owners

A couple that owns a business together should strive to reach a divorce settlement via mediation rather than taking the case to court. Mediation leaves the power in the couple’s hands as to what to do with a jointly owned business, rather than giving the final decision to a judge. A common solution is for one spouse to buy out the other. Another is to sell the business and to split the profits equitably. During mediation, the couple will ultimately be able to decide the fate of the enterprise.

Distribution of marital property in North Carolina

North Carolina is an equitable distribution state, according to § 50-20. Based on this law, the courts will divide all marital property fairly between the spouses, rather than splitting it 50/50. Marital property refers to all assets one or both spouses acquire during the marriage. Nonmarital property, or property acquired prior to the marriage, will not become part of the equitable distribution.

If two people started a business together during the course of their marriage, the business would fall under the category of marital property in North Carolina. It would thus become relevant during a divorce hearing. Should the divorce case go to court, a judge would listen to both sides and take many factors into consideration to determine how to split marital assets, including the jointly owned business.

The factors a judge may consider include the income, assets and debts each party accumulated during the marriage, as well as how long the marriage lasted and any child custody matters. Once the judge has received all the information he or she needs to make a decision, the judge will decide how to divide interest in a business.

Meynardie & Nanney

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What happens to my company if my business partner gets a divorce?

Meynardie & Nanney — Tue, 18 Jun 2019 02:04:03 +0000

North Carolina is an equitable distribution state. Inequitable distribution states, the court presumes splitting marital property equally is a fair starting point. Now, there is flexibility in a court’s decision on circumstances where equal distribution may be unfair. During a divorce, Forbes suggests that your business partner’s share in the business becomes a part of the debate.

A partner may decide to pay out the spouse with stock. In this case, the spouse may become a partner his or herself. This decision affects your stock and the decisions made in the company. If the ex-spouse has voting rights, then he or she will be a part of how you run the company. If the spouse already worked for the company, this may not be a problem. If you have preferred instead of common shares, then your partner cannot transfer voting rights.

On the other hand, a business partner may decide to liquidate interest and pay his or her spouse. If your partner chooses the second option, then the company undergoes a valuation process. This determines the value of the interest. Now, this process is more invasive. It involves providing financial information and other documents to a third party. In addition, employees of the company may have to perform interviews.

After a divorce, companies concerned with the information shared during the process may insist on a confidential agreement. This will ensure that a third party cannot use any information about your business for other matters.

This information is for educational purposes regarding the divorce of a business partner. By no means should the information here serve as legal advice.

Meynardie & Nanney

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Will employees react negatively to non-solicitation agreements?

Meynardie & Nanney — Fri, 31 May 2019 20:35:37 +0000

Businesses have good reason to use non-solicitation agreements. Imagine the time and effort a North Carolina company invests in cultivating relationships with clients. Then one day an employee decides to leave the company and hire those clients away, depriving the company of valuable business it once relied on. Non-solicitation agreements can help prevent this scenario from happening. But some business owners feel non-solicitation clauses are an insult to employees. This is not and should not be the case.

As Chron.com points out, a non-solicitation agreement is not the same as a non-compete clause. It is true that employees can feel alarmed if they feel an employer is trying to strictly limit their future work prospects. However, a non-solicitation agreement does not ask an employee to never compete with a current employer at a future time. An employee is just being bound not to use company information, such as a client list, to unfairly take away business from the current employer.

The typical provisions of a non-solicitation agreement are something many employees can respect. A person who has aspirations to run a company someday can likely empathize with an employer’s efforts to protect their operation. It may even inspire employees to take similar actions to protect their own sensitive information in the event they start their own companies at a later date.

Even so, some employees do not like the idea of being restricted in their future business endeavors and may decide to leave a company rather than sign such an agreement. However, packaging a non-solicitation agreement with an incentive plan can make the agreement more palatable. Some companies offer a cash bonus to be earned over time and a deferred bonus that an employee receives after helping the company achieve a performance benchmark. This can motivate an employee to stick around the company for a while.

Non-solicitation agreements are worth pursuing because they can be effective, plus courts look favorably on them since they do not excessively limit the work prospects of an employee. Since businesses may draft non-solicitation agreements in different ways, this article should not be read as legal advice, only for your personal educational benefit.

Meynardie & Nanney

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Patent or trade secret: Which should you use?

Meynardie & Nanney — Tue, 21 May 2019 00:26:39 +0000

Your trade secrets are what set your North Carolina organization apart from the competition, so it makes sense that you would want to take all possible measures to protect those secrets from misappropriation. You may even consider patenting your confidential information. However, before you take definitive action, consider which would offer you better protection: patent or trade secret laws. The World Intellectual Property Organization explores both the pros and cons of protecting your confidential information as a trade secret.

Trade secret law offers several advantages that patent law does not. For one, trade secret law does not limit how long a person may protect information. So long as the public does not learn your secret information, you may protect your intellectual property indefinitely via trade secret law.

Safeguarding information as a trade secret also does not require any registration costs, whereas patenting property does. You can also receive immediate protection with trade secret law, whereas if you attempt to patent information, it can take months or even years to gain protective status. Finally, there are little government formalities with which to comply for trade secrets, while property must meet extensive and strict criteria to qualify for a patent.

There are a few disadvantages to trade secret protection, however. For one, if an innovative product embodies your secret, others can reverse engineer the product and discover the secret. Thereafter, you would no longer have protection and third parties could make use of the information. With a patent, however, others could reverse engineer a product but still not be able to use the secretive information for their own gain.

The same holds true if someone misappropriated and leaked your secret — others could then use the information for their own gain. With a patent, however, others may access your information but still not use it.

A trade secret is also more difficult to enforce than a patent, and courts often rely more on their discretion rather than the actual law when determining enforceability. Finally, another person may develop the same relevant information and subsequently patent it, thereby rendering your own information unusable to you.

This content is for educational purposes only. It is not meant to be used as legal advice.

Meynardie & Nanney

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The right to privacy is a delicate thing

Meynardie & Nanney — Thu, 25 Apr 2019 02:27:24 +0000

Company Q was unhappy when it hemorrhaged four employees with access to sensitive trade secrets. The first Company Q employee to resign, Defector A, set up two competing companies.

Three more information-privileged Company Q employees, Defectors B, C and D left Company Q’s domain, attracted to Defector A’s new ventures. The enterprising defectors absconded with some nice parting gifts in the form of Company Q’s trade secrets and client database.

The case of the trade secrets’ disappearance

Company Q claimed it discovered that Defector D, upon his resignation, had left his personal Facebook page open on a Company Q computer. Company Q felt justified in snooping. It is a well-known axiom that those who read others’ diaries are not happy after the experience. Company Q ordered its IT department to install software to covertly search Defector D’s Facebook conversations with his colleagues during the prior months before A through D left its employment; Company Q continued to observe real-time Facebook interactions among its former employees.

Not surprisingly, Company Q did not expect to see all the prior and current posts flying back and forth between the defectors. Company Q was profoundly unhappy when it discovered its valuable trade information was now firmly in the defectors’ hands; Company Q noted the competitors vigorously put the stolen trade secrets to good use.

The case of the federal court appearance

Company Q was not amused and sent its capable legal team to New Jersey federal court to file a stiff lawsuit against the former employees and their new business ventures. Company Q posited breach of loyalty, theft of trade secrets, attempts to lure away Company Q’s clients and other unsavory activities. The court disapproved the betrayal and awarded a preliminary injunction to stop the competitors from siphoning its clients away and handed down a temporary restraining order.

The case of circuit court nonacceptance

The defecting employees promptly appealed. A forensic investigator supported Defector D’s statement that he had logged out of his personal Facebook account before he resigned; therefore, Company Q had violated his right to privacy and sifted through his posts with unclean hands. To the four defectors’ dismay, the Third Circuit Court of Appeals was not impressed by the “unclean hands” gambit; furthermore, the court remonstrated that no amount of unclean hands were sufficient to sway its decision in this particular case. It upheld the decision of the lower court.

Business owners who are victims of defecting employees who help themselves to trade secrets should be careful before risking a privacy lawsuit. Other courts have ruled against companies who accessed an employee’s private communications, even when the defector used company-owned technology. Company Q prevailed in this instance, but others may not encounter similar success. When trade secrets walk out, owners may want to obtain representation to steer them away from an uncertain court battle. Courts can act unpredictably toward invasion-of-privacy issues.

Meynardie & Nanney

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North Carolina Trade Secrets Law Complements New Federal Remedies

Meynardie & Nanney — Mon, 25 Mar 2019 10:19:41 +0000

Comparing Federal and North Carolina Trade Secret Protection

by Bob Meynardie
May 9, 2016
Bob Meynardie, Trade Secrets & Non-Competes

A new federal private cause of action to protect trade secrets appears imminent. Since North Carolina already allows private parties to bring a civil action to protect their trade secrets, we compare the two statutes and answer several practical questions related to the dual protection.

1. Do the statutes protect the same things?

The North Carolina Trade Secrets Protection Act (“NCTSPA”) defines a trade secret as business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The Federal Defense of Trade Secret Act (“FDTSA”) defines a trade secret as all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if the owner thereof has taken reasonable measures to keep such information secret and the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by the public.

Though the federal definition is much wordier, the two definitions are very similar. Essentially both statutes protect financial or technical information that has economic value because it is not generally known and the owner has taken reasonable steps to protect the secrecy of the information.

2. Does the same conduct constitute a misappropriation or violation of both statutes?

The Federal statute defines a misappropriation as the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or disclos[es] or use[s] a trade secret of another without express or implied consent.” Improper means includes, among other things, acquisition “under circumstances giving rise to a duty to maintain the secrecy of the trade secret.” Notably, reverse engineering is not improper.

The NCTSPA defines misappropriation as “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret.” Reverse engineering is lawful under the State statute as well.

In contrast to the FDTSA, the NCTSPA does not make knowledge or reason to know that the information is a trade secret an element of misappropriation. However, as discussed below, knowledge or reason to know significantly impacts the remedies available under the State statute.

3. Do the statutes offer the same remedies?

Damages are available under both the State and federal statutes. Under the State statute actual damages are measured by either the economic loss to the owner or unjust enrichment of the defendant. Punitive damages are available if the misappropriation was willful or malicious.

Under the FDTSA, damages are available measured by damage to the owner, unjust enrichment to the defendant, or as a reasonable royalty. If the misappropriation is willful and malicious exemplary damages are available in an amount up to three times (House version; two times in the Senate version of the Bill) the amount of compensatory damages awarded.

Both the State and federal statute provide for injunctive relief to prevent the use or disclosure of trade secrets. The State statute provides that an injunction may condition use of the trade secret on the payment of a reasonable royalty. Under the State statute, the knowledge or reason to know that the information is a trade secret has significant effects on the remedies available.

For instance, no damages are available for use prior to the time the defendant knew or had reason to know it was a trade secret. If the defendant has materially changed its position prior to knowledge then she cannot be enjoined but may be required to pay a royalty. Further, if the defendant has acquired inventory without knowledge he may dispose of the inventory without payment of a royalty.

Preservation of Secrecy: The NCTSPA explicitly allows the court to take steps to preserve the secrecy of the trade secret. Since by definition, the secret derives value from not being publicly known anything less would be self-defeating. Under the State statute, this includes:

sealing the record
in-camera proceedings and
protective orders.

In addition to the means of preservation available under the NCTSPA, the federal statute also provides for “civil seizure” of the trade secret. In some cases, this may be a very important remedy but there is a heightened threshold to be met before it is available. The details of civil seizure under the FDTSA is beyond the scope of this post but will be discussed in a subsequent blog post.

4. Can the prevailing party recover attorneys’ fees?

Under the FDTSA, reasonable attorneys’ fees are available to the Plaintiff where the trade secret is willfully or maliciously misappropriated or where a motion to terminate an injunction is made in bad faith. Fees are available to the defendant when the claim of misappropriation or an opposition to a motion to terminate the injunction is made in bad faith.

Likewise, under the NCTSPA, attorneys’ fees are available to the prevailing party if the claim of misappropriation was made in bad faith or if the misappropriation was willful or malicious.

5. When must the action be brought?

A claim under the North Carolina statute must be brought within three years of the misappropriation or within three years of when it was or reasonably should have been discovered.

The Senate and House versions of the FDTSA have different statutes of limitation. The Senate version allows three years but the House would allow five years. Although a five year statute of limitations in some cases may make a difference, waiting five years to protect a valuable trade secret may impact the determination of how valuable a secret it is in the first place.

Meynardie & Nanney

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The Elusive Happy Ending

Meynardie & Nanney — Mon, 25 Mar 2019 10:05:09 +0000

by Joe Nanney
February 9, 2018
Business & Commercial Litigation, Construction Litigation, Joe Nanney

Mediation is a remarkable tool for resolving disputes. Very few cases in North Carolina are tried to juries anymore, in large part because the mediation process is so effective.

I was recently in a restaurant that prominently displayed this sign: “NO we don’t have WiFi. Talk to each other.” Many times disputes erupt or are exacerbated because folks refuse to talk to each other. Mediation forces a conversation – often a difficult conversation, but it has the ability to lay bare feelings and positions that the parties often prefer to remain hidden for a variety of reasons.

Parties often begin a mediation more interested in “winning” or inflicting pain on the other side than finding a resolution. When I mediate a case, I often tell litigants at the outset that if they expect to leave the building happy, they are probably going to be disappointed. My goal as a mediator is not to make anyone happy. It is to find a solution to a problem that the parties can live with – and that almost always means they won’t be particularly happy at the end of the day.

Compromise seems to be a dirty word these days, but it is fundamentally important in almost every business context. Mediation is a communal process. An effective mediator can open up communication between and among people who might not want to communicate, but it is the only path towards any compromise. Indeed, in cases where long-standing relationships have been disrupted through a disagreement, the mediation process can sometimes help start the process of mending those relationships, but I digress.

If the parties in a mediation obtain a result they can live with, and we can put an end to the time, money, and stress of an ongoing lawsuit, that is a win – even though it may not feel like it to the litigants at the time. As litigators, we should make sure our clients see that big picture, and don’t get lost in the emotional jungle of anger, hurt, or insult. Those emotions create obstacles to resolution. We can help our clients move beyond those obstacles to achieve the bigger goal of resolving their disputes, so they can get on with their lives, and one way of doing that is making sure their expectations are realistic. One of my favorite mediators tells folks that his job is to help folks have difficult conversations. He’s exactly right. Those conversations probably won’t bring them happiness, but by ending the litigation, we give them the opportunity to go find it on their own.

Meynardie & Nanney

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