Almost daily, we hear about cyber attacks on big businesses and government agencies. But the attacks are not isolated to the big entities. Your business’s most valuable trade secret information more than likely resides in an electronic database that is vulnerable. Yet probably the greatest threat to that database may come from within: your own employees.

It is easy to move electronic files, and in a fluid economy in which your employee may have an opportunity to jump ahead by joining a competitor, the temptation to take data for use in future employment may be particularly strong. Historically, many employers have relied on employment contracts to protect confidential information and trade secrets. Unfortunately, too frequently, these contracts are drafted so broadly with respect to the sections aimed at protecting confidential information that those provisions are of limited value at best.

The good news for employers (at least those who can bring suit in federal courts in the Seventh Circuit) is that they have another, and arguably more powerful, weapon against theft of trade secrets and other confidential information. It is the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 (2004) (“CFAA”).

Making a CFAA claim

The CFAA essentially punishes anyone who accesses a computer without authorization to take various unlawful actions, such as stealing or deleting information stored on the computer. Although the CFAA was originally enacted to punish remote computer hackers, it is increasingly being used by employers as a way to pursue departing employees — and their new employers — who steal or delete information before departing or access it after they leave.

To state a claim under the CFAA, the plaintiff-employer must show that the departing employee accessed a “protected computer” (i.e., one that was used to access the Internet) without authorization and took, deleted or performed some other action with respect to information stored on that computer. The Seventh Circuit has held that access is unauthorized for the purposes of the CFAA if the employee acts contrary to the employer’s interest.

For example, employers have brought suits under the CFAA against departing employees who stole information from employer computers to use in a competing business or who deleted incriminating information from employer computers before departing. Remedies available to the plaintiff-employer include injunctive relief and monetary damages, as stated in 18 U.S.C. § 1030(g).

There are several benefits of bringing a claim under the CFAA in addition to or instead of traditional contract and trade secret theories of recovery. First, the plaintiff-employer does not need to establish that the stolen information constitutes a “trade secret” under applicable state law to prevail under the CFAA. The misappropriated or deleted information may be confidential to an employer and not be protectable as a “trade secret” under state law, and yet the employer can still prevail under CFAA. For example, under Illinois law, client lists and customer contact information typically do not amount to trade secrets because the information can be discovered from sources outside the company.

To prevail under CFAA, the employer does not need to rely on a non-disclosure agreement to establish a claim. Employee restrictive covenants, including non-disclosure agreements, may pose challenges to enforcement, especially when the consideration for such agreements is supported exclusively by at-will employment. But the duration of a departing employee’s employment is irrelevant to CFAA claims.

Proactive protection

Technological advances have made stealing electronically stored information easier. Fluid employee mobility has increased the frequency of theft and deletion of information by departing employees. Forewarned is forearmed, and employers may be able to combat theft or damage inflicted by employees on their way out by reminding employees of the consequences of conduct that would violate CFAA.

Employers need to take measures to cut off access to their databases and to preserve evidence for a reasonable period of time. In other words, do not rush to pass on the departing employee’s laptop or desktop computer — you may corrupt evidence of the departing employee’s theft or misconduct. Employers should be aware of all of their legal remedies, including the CFAA, when faced with a departing employee who steals confidential information.

A recent Illinois appellate court decision illustrates that a policyholder can compel its insurance carrier to provide it with a defense even when it is clear from extrinsic facts that the insurer will not ultimately have an obligation to indemnify the policyholder against a judgment.

Given the high cost of defending against even baseless claims, compelling the insurer to pay the defense costs even though it will not have to fund a judgment is not an empty victory. As illustrated by the recent appellate decision in Illinois Tool Works, Inc. v. Travelers Casualty and Surety, the policyholder may need to push the insurer to focus on the facts as pled and not the facts as “known” to force its insurance carrier to defend the claim. Policyholders themselves should not focus on the facts as known but on potential liability, assuming the claimant could actually prove the claims — regardless of how factually baseless they may be — in assessing whether it has coverage for defense costs.

The appellate court’s take

In Illinois Tool Works, the policyholder purchased insurance policies that included a defense obligation from the defendant carriers from 1971 through 1987. It is undisputed that Illinois Tool Works was not supplying and distributing products in the welding product market until 1993, when it entered that market by acquiring another company. Illinois Tool Works did not actually engage in the welding product market during the time encompassed by the insurance policies it purchased from the defendant insurers.

Regardless of when Illinois Tool Works entered the welding product market, it found itself named as a defendant in multiple toxic tort personal injury lawsuits filed around the country by people who claimed to have been injured through the use of welding products they allege it sold. The plaintiffs complained in generic terms that they were injured by products sold or distributed by Illinois Tool Works over a period of time that encompassed the years 1971 through 1987. Illinois Tool Works was sued directly for its conduct and indirectly as a successor to the company it acquired. The complaints were vague as to when the exposure occurred but suggested it included the period from 1971 through 1987.

Attempting to avoid their duty to defend Illinois Tool Works, the insurance carriers relied on extrinsic facts nowhere to be found in the complaints against Illinois Tool Works. The insurers denied coverage on the basis that Illinois Tool Works did not in fact distribute the products at issue during the period their policies covered. But an “insurer’s knowledge that extrinsic facts not pled in the complaint will ultimately defeat any coverage obligation does not negate its duty to defend in the first place if the complaint, on its face, presents a claim potentially within the insurance policy’s coverage,” the court stated. Finding the insurers were obligated to fund the policyholder’s defense, the court recognized that “the Insurers agreed to provide a defense for cases based on groundless allegations and, thus, to bear the cost of disproving groundless allegations on [the policyholder’s] behalf.”

The insurers also asserted that to the extent the claims against Illinois Tool Works were a successor to the entity it acquired, there was no coverage. The appellate court found that to the extent the claims were solely as successor to the entity it acquired, there was no coverage.

Addressing inherent conflicts

Among the takeaways from this case, insurers often point to extrinsic matters or seek information about extrinsic matters in order to “evaluate” their defense obligations. Insurance carriers use this “investigation” to search for excuses to avoid their duty to defend even though that duty arises from the claims pled. Sometimes, such as when a policyholder was not even engaged in the conduct alleged during the periods covered by the insurance policies, the carrier’s position may not, at first blush, seem so unreasonable. And many times, policyholders accept the insurance carrier’s determination that there is no coverage based on the extrinsic facts, if the policyholder does not contest the facts the insurer cites.

The insurer’s duty is determined by the claims alleged. After all, a policyholder does not buy insurance just against meritorious claims but also to defend against meritless claims. As illustrated by Illinois Tool Works, the insurance carrier’s coverage obligation includes a defense against claims for conduct alleged to have occurred at a time when the manufacturer had not even begun to manufacture the products at issue. An insurer’s refusal to defend is only justified when “it is clear from the face of the underlying complaint that the allegations fail to state facts which bring the cause within or potentially within coverage,” the appellate court stated. This principle should help to guide how a policyholder defends itself. Vague, poorly pled claims may provide a policyholder with a greater opportunity to find insurance coverage. Thus, while there may be a kneejerk response to seek clarification through a motion to dismiss, the policyholder may be better served by avoiding that reaction.

This case also illustrates the conflict inherent when the complaint presents a claim that is potentially within coverage but where the facts will ultimately show the claim is outside coverage. In such circumstances, the policyholder should insist on receiving a defense by attorneys it hires – at the insurer’s expense – and not accept a defense from counsel appointed by the insurer. Frequently in these circumstances, the insurance carrier will respond to a claim with a lengthy reservation of rights letter tracking the often mind-numbing language of the insurance explaining all of the reasons that coverage is likely to ultimately be excluded — but then providing defense counsel.

Will defense counsel engaged by the carrier be as likely to defend the case in a way to preserve the insurer’s duty to fund the defense? It’s a reasonable question that should cause the policyholder to engage counsel. And in light of the conflict presented between the insurer and policyholder, the insurer will be required to pay for the defense until such time, if ever, as there are no claims potentially within the coverage of the insurance policy.

The talent market is increasingly fluid, with many businesses following the talent development mantra “if you can’t beat ’em, hire ’em.” Poaching from a competitor is not without risk. However, there are reasonable steps that should be taken to reap the rewards of the fluidity of today’s talent pool while managing the risks. Two principal risks in “poaching” are trade secret misappropriation and interference with a contract. Some employers seek to build on the lessons learned by their competition, and to do so does not inherently violate the law. However, an employer may misappropriate trade secrets by obtaining trade secrets from its new hires.

When hiring, an employer needs to discern between an employee’s innovative ideas and those the employee “brought” with her from her prior position. And a new hire may come subject to contractual restrictions. The following are some suggestions for how to minimize those risks and the risk of your company becoming embroiled in a lawsuit with the former employer.

Ask to see the contracts

Early in the interview process, you should ask whether your prospective employee is bound by any contractual restrictions, such as non-disclosure obligations, non-competition restrictions or non-solicitation restrictions. If the answer is yes, you should ask to see copies of the contracts that contain these restrictions and question the employee about the circumstances under which he or she entered into the contracts. You should also have your corporate attorney review the contracts to determine whether the restrictions are enforceable.

Indeed, some less-than-forthcoming prospective employees may not fully appreciate the terms that were incorporated in letter agreements or contracts. To avoid uncertainty, it is entirely reasonable to request to see such documents. An unwillingness to share such details is a red flag and can help you avoid claims. You should also confirm that the prospective employee has not harvested materials from her employer’s computers, and you should be clear that he or she must not do so. While some say imitation is the best form of flattery, the line between innovation and theft is not so gray.

Is the hire worth the prospective cost?

You are faced with a business decision about whether to hire the employee despite the restrictions when a prospective employee is bound by contractual restrictions. Factors you should consider include:

• Your attorney’s opinion on whether the restrictions are likely enforceable or unenforceable.

• The likelihood that the prospective employee’s former employer would file a lawsuit in an attempt to enforce the restrictions.

• The appetite of the prospective employee’s former employer for litigation.

• The importance of the prospective employee to your organization.

• The value of the prospective employee versus the cost of litigation.

You should also be aware that if a prospective employee’s former employer files a lawsuit, the lawsuit will likely be filed against the potential employee and your company. You should determine whether your company wants to be and can afford to be involved in such litigation. You should also be aware of the potential causes of action that might be filed against your company.

Finally, what is good for the goose is good for the gander. You should bear in mind the prospective employee’s willingness to violate employment agreements, as you may someday find yourself at loggerheads with this person if hired.

Should you hire a prospective employee who is breaching a contractual restriction by accepting employment, the early days of employment may be spent in deposition and in courtrooms rather than on your business because the former employer will often seek to enforce the restrictions by seeking injunctive relief on an expedited basis. Defending a motion for a temporary restraining order can be a costly process.

A positive of expedited injunctive litigation is that all parties quickly learn what the court’s thinking is on the enforceability of the restrictions and can attempt to resolve the dispute early in the ligation process. The only certainty, though, is that there will be expense, so you need to ask whether the reward is worth the risk. Further, you need to consider whether you are prepared to fund litigation on behalf of the prospective employee or whether it will be every person for himself.

Building in protections

If you decide to proceed with the hiring, there are further steps you should consider to better protect your company in the event a lawsuit is filed by the prospective employee’s former employer. You should have the employee enter into an employment agreement through which the employee acknowledges and agrees that he or she has not taken and will not use any of the former employer’s confidential information. If the employee has a non-solicitation restriction, you should have the employee acknowledge and agree not to attempt to solicit customers or employees of the former employer.

In addition, if the employee has a non-competition restriction, you might consider placing that employee in a different position or giving that employee different responsibilities than he or she had with the previous employer.

Finally, you might also consider having the employee attempt to negotiate limitations on the restrictions with his or her former employer. If the enforceability of the restrictions is questionable or if the circumstances of the employee’s departure favor the employee, the former employer might be willing to negotiate or waive the restrictions to avoid an adverse ruling from a court that might affect other employees with the same contractual restrictions.

If the employee does not have any restrictions, you should still consider having the employee make a representation in the employment agreement that he or she is not bound by any restrictions and that he or she has not taken and will not use any of the former employer’s confidential information. In addition, you may want to have the employee agree to indemnify you in the event that it turns out the employee is subject to contractual restrictions or takes or uses the former employer’s confidential information.

There is no way to hire a competitor’s employee without risk. However, you can make yourself aware of any contractual restrictions that bind the prospective employee and take the steps outlined above to help manage that risk.

Hourly minimum rises to $10 on July 1, 2015, and will reach $13 in 2019

Chicago’s Minimum Wage Ordinance takes effect July 1, 2015, raising the minimum wage to $10 per hour for non-tipped employees and $5.45 for tipped employees.

It provides for subsequent raises each July 1 until the hourly minimum wage reaches $13 for non-tipped employees in 2019. The full text of the ordinance can be found here.

The ordinance affects employers with at least four employees (and at least one covered employee) who maintain a business facility within the geographical boundaries of Chicago or are subject to licensing requirements under Title IV of the Municipal Code of Chicago. A “covered employee” is one who works at least two hours within Chicago’s geographic boundaries in any two-week period. This includes employees making deliveries or traveling within the city if the employee is compensated for that time.

Employers should be aware of the ordinance’s posting requirements. Specifically, the notice must be posted in a conspicuous location in each of the employer’s facilities within the city’s boundaries. Covered employers also must provide the notice to each covered employee with their July 1, 2015, paycheck.

Between now and July 1, 2019, the hourly minimum wage for non-tipped employees will increase according to the following timeline:

• 2016: $10.50

• 2017: $11

• 2018: $12

• 2019: $13

Beginning in 2020, the hourly minimum wage for Chicago workers will increase each year at a rate proportional to the Consumer Price Index measure of inflation. However, such increases will not exceed 2.5 percent annually, and there will be no increase in hourly minimum wage if the unemployment rate in Chicago for the year prior was 8.5 percent or higher.

For tipped employees, the timeline looks a bit different. The hourly minimum wage for tipped employees will increase to $5.95 in 2016 and will then increase based on the Consumer Price Index measure beginning in 2017. Similarly, the increase will not exceed 2.5 percent and there will be no increase if Chicago’s unemployment rate for the year prior was 8.5 percent or higher.

If you have questions about the Chicago Minimum Wage Ordinance or the requirements it imposes upon employers, please contact the Employment & Labor Group.

This blog was written with assistance from Audrie Howard, a summer law clerk for the Employment & Labor Practice Group.

Regardless of whether you are a supplier or purchaser, it is imperative to know whether your contract with your purchaser or supplier is a “requirements contract.” Potentially conflicting terms and conditions in purchase orders and invoices exchanged between parties may result in the formation of a “requirements contract” or preclude the formation of such an agreement. And whether you are a supplier or purchaser, a requirements contract will have a material impact on your rights and obligations.

So, what is a requirements contract? A requirements contract obligates a buyer to buy all of its requirements of particular goods or materials from a seller for a specified period. Exclusivity is an essential element of a requirements contract. A contract that does not expressly obligate a buyer to buy all or a specified quantity of the particular goods or materials from the seller is not a requirements contract.

With a requirements contract, the buyer and the seller share risk. The buyer assumes the risk of less urgent changes in its economic circumstances, and the seller assumes the risk of a change in the buyer’s business that may make the cost associated with the continuation of a requirements contract unduly costly. While the buyer gets the benefit of steady supply and the seller obtains a predictable demand, each incurs risk associated with the potential fluctuation of price beyond what either anticipated.

What constitutes a breach?

The obligations owed under a requirements contract are not inherently absolute. So under what circumstances can a buyer reduce the quantities of goods or materials it purchases under the contract or stop purchasing goods under the contract without breaching its obligations?

Inherent to a requirements contracts is the notion that both the buyer and seller have a duty to conduct their business in good faith. Unfortunately, there is no bright line test for what constitutes “bad faith” in the termination of a requirements contract.

For example, when a buyer reduces or eliminates its “requirements,” to evaluate whether it is in breach, an essential inquiry turns on whether the buyer had a legitimate business reason for doing so as opposed to merely having second thoughts about the contract. And there are circumstances in which a supplier may be excused from its obligations under a requirements contract.

By way of example, a company entered into a five-year requirements contract to buy all of the prepress art services it required to print trading cards. One year into the five-year contract, the buyer sold substantially all of its assets to another company, effectively ending its need for the prepress art services. The vendor filed suit alleging that the company breached its duty of good faith by failing to continue to purchase prepress services. The court held that the company acted in good faith in its termination because it was in economic duress and had a legitimate business reason to sell its business.

Where a seller has made extraordinary expenditures and investments in reliance on a requirements contract, a buyer might find itself duty bound to remain in business (or at least pay an amount covering the damages resulting from its termination) until the term of the requirements contract has expired. The duty has been found in situations where a seller spent significant money to expand its manufacturing operations to meet the demand of the requirements contract, where a seller built a new plant to meet the demand of the requirements contract and where the seller incurred substantial debt on the expectation of the requirements contract. However, these are exceptions to the general rule that a seller assumes the risk to all good-faith variations in a buyer’s requirements, even to the extent of a determination to liquidate or discontinue its business.

Building protection into your contract

With the above in mind, buyers and sellers can take steps to contractually protect themselves by reallocating some of the risks inherent in requirements contracts. For example, a seller may choose to reallocate some of the risk that a change in the buyer’s business might pose by specifying some minimum purchase requirement in the contract. The buyer and seller may reallocate some of the risk of price fluctuations by including clauses that provide for price or supply adjustments.

Fundamental to the risk transfer inherent in the supply agreement is an understanding of whether the terms and conditions exchanged between the parties have given rise to a “requirements” contract. Manufacturers and suppliers should consider reviewing their existing contracts to determine if they have any requirements to gain a better understanding of what their obligations and rights are under those agreements.

Woody Allen once said, “Showing up is 80 percent of life.” But this observation, while often apropos, is not applicable if one’s objective is to obtain insurance coverage for IP infringement claims.

Coverage can often be found for those claims if they are viewed through the right lens. But recent insurance coverage decisions highlight the nuance required to present such a claim in a way that brings it potentially within the coverage. The “potentially within the coverage” is magic that triggers the insurer’s duty to provide a defense in what can be expensive litigation. And even if a claim is potentially covered, coverage will be lost if the claim is not timely asserted. So showing up late may be no better than failing to show up at all.

Reviewing the policy language

When faced with an infringement claim, a first step should be to consult your insurance counsel to evaluate how the claim can be construed and presented in a way that triggers the insurer’s duty to provide a defense and ensures that the insurer receives the required notice.

Insurance policies with coverage for advertising injury generally exclude coverage for infringement other than where the claim arises from the infringement in the ad. Stated another way, such insurance policies will exclude coverage for infringement except where the infringement is part of the advertising itself. So to find coverage, it is important to understand how the product was marketed and to appreciate the nuance in the specific language used in the exclusions in the insurance policy.

For example, the use of a model home built from an infringing plan to market similar homes has been found to be a covered claim. And an Illinois appellate court found that a lawsuit over the use of a retail display promoting the infringing feature of a product to market the product was a covered claim. But another decision the same court issued a couple of months later (Erie Insurance Exchange v. Compeve Corp.) rejected coverage for a claim arising from an advertisement depicting the infringing product. The court explained that for there to be coverage, the injury complained of must arise from the infringement in the advertisement. The difference in outcomes was driven by the way in which the “advertisement” and the issues in the underlying claim were presented.

The difference in the outcomes in these and other cases arise in part from the differences in the exclusions found in the policies. The differences also can be explained by the manner in which the insurance claims were presented. To succeed, the policyholder must parse the dense language in the policy to find a plausible construction through which the infringement claim could possibly – not definitively – fall outside the coverage exclusions. This requires evaluating how the infringement is manifest in the marketing presentation. The art in presenting the claim for coverage is finding a way to make the argument for coverage based on the advertisement as the infringement rather than merely a depiction of the infringement.

Showing up too late

Even if the policyholder can find a claim within coverage, failure to make the claim to the insurer on a timely basis may defeat coverage. It is imperative to recognize the possibility of coverage from the outset and give notice to the insurer. Failure to provide reasonable notice is likely to be a bar to coverage. Most insurance policies require the policyholder to give notice of claims “as soon as is practicable.”

A federal court recently rejected coverage for an infringement claim on the basis of untimely notice where there was a seven-month delay in giving notice even though the policyholder claimed it did not initially believe there was coverage for the claims. In that case, AU Electronics, Inc. v. Harleysville Group, Inc., the policyholder asserted that it needed to undertake discovery in the litigation to evaluate the claims against it to determine whether there was coverage. But unfortunately for it, the information that it asserted caused it to make its insurance claim had been within the policyholder’s control.

This case is a reminder of the importance of recognizing the possibility of coverage whenever a claim is asserted. That recognition, combined with an evaluation of coverage designed around a nuanced construction of the policy read against the infringement claim, is likely to be the difference between the policyholder bearing its own defense costs and its ability to shift that expense to its insurer.

In too many instances, an insurer’s initial response to a claim for insurance coverage for a claim of infringement is likely to be denial. Woody Allen’s 80 percent rule may work in life, but it won’t get you insurance coverage for infringement claims. For that, you need to show up on time and present a plausible construction teased from the dense language in the insurance policy. But if the advertisement itself can be shown to infringe and the claim is timely, the policyholder can shift the cost of its defense to its carrier.

Nearly every day in nearly every city in the United States, businesses and individual citizens are unexpectedly visited by some government agent, and we don’t mean mail carriers. These are local, state or federal agents, inspectors or investigators. They may be special agents for state and federal agencies such as Departments of Revenue, Environmental Protection Agencies or even law enforcement, like the FBI. They may be from agencies like OSHA, the SEC, or the Department of Labor. They may even be from one of the multitude of local, state or federal inspectors general offices, many of which have broad investigatory authority. Whatever their particular title or agency, they are all government agents, and most, if not all, have agreements, formal and informal, to share information and cooperate with each other’s investigations. So what you might say to one agency may as well be said to all of them.

The crucial question is: What do you or your employees do when these government agents appear? How you respond to the visit may have profound consequences, good or bad, for you or your business.

When special agents, inspectors or investigators knock on your door, they will likely be dressed nicely. They often begin by identifying themselves, followed by flashing a badge or other official credential. They appear friendly, and most are. They smile and may ask to come in to speak with you about “a few things.” Appearances aside, when government agents come knocking, you can be pretty sure they are not there to drink coffee, tea or water with you. They are there on business.

Put plainly, your government visitors are almost certainly conducting some sort of official investigation. As part of that investigation, they want information from you, which they may prefer to obtain in person. And whatever you tell or show them, they intend to use it. You’ll notice, for instance, they nearly always appear in pairs so there are two witnesses to whatever you or your employees say or do.

Perhaps they are interested in information about someone you know. Perhaps they are interested in obtaining copies of your business records. Perhaps they wish to speak with you about what one of your employees, co-workers or partners in your business has been doing. Perhaps, worse case, you are the subject of their investigation and they are interested in getting you to say something they can use against you. They are not required by law to tell you what their true purpose is, and the law generally allows them to intentionally deceive you as to their real interests.

Whatever the reason for the visit, and whatever their questions, saying anything to the government agents before you have a chance to consult with a lawyer is an enormous risk and a potentially damaging mistake.

As a citizen or as a business owner, you should be aware that you do have rights. You have the absolute right to not answer questions put to you by the government’s agents, even when politely asked. You also have the absolute right to speak with a lawyer before you respond to any questions from government agents. And, unless they have a search warrant from a court saying otherwise, you have an absolute right to ask the government agents to leave. (Search warrants and subpoenas for records, which government agents sometimes possess when they visit you or your business, are important and complex topics in their own right, which we will address in a forthcoming Insight on Business Rights post.)

As important, you should be aware that anything you say to a state or federal special agent, inspector or investigator may be used against you in a subsequent legal matter, whether civil or criminal. You also need to know that should you decide to answer their questions during their visit, any statements you make that are later deemed to have been knowingly false could subject you to significant penalties and severely compromise your legal position.

But wait, you might ask, what about my Miranda warnings? If they question me without giving those first, aren’t they prohibited from using anything I say against me? In a word: No. To be clear, the triggering event that requires law enforcement to provide you with your Miranda rights is your arrest and placement in custody, meaning you are not free to go. In other words, unless you are actually arrested or placed into police custody and not free to leave, you are not entitled to Miranda warnings. Therefore, any statement you make to government agents at your door or front desk do not have to be preceded by any Miranda rights. These statements, if made, will be treated as “voluntary” statements and can, if the government wishes, be used against you in a subsequent legal matter.

When government agents appear at your reception desk, front gate or front door, you or your employees will inevitably have a number of urgent questions: Am I required to do what the government agents say? What do I say? Should I invite them in? Who should I call? Am I in trouble? Is one of my employees in trouble? If I don’t cooperate, won’t they perceive that to mean that I have something to hide? These are all very good questions.

Perhaps most common, and the cause of more people making a mistake than any other concern, is the notion that if you fail to answer the government agents’ questions and do what they say you will “look guilty.” This is a common belief, but it is, to be blunt, plain wrong. When citizens tell a government agent that they want to speak with their own attorney to get objective legal advice before responding to the government’s question, they look smart, not guilty. We have represented professionals including lawyers, police officers, federal agents and even a few judges over the years, and every one of them, being familiar with the law and how government investigations work, inevitably choose to not answer questions from government agents before speaking with their attorneys. Of course, government agents would like you to answer their questions without taking the time to determine if it is in your interests to do so, but that may not be in your best interest. It is not their job to worry about what is in your best interest; that is you and your lawyer’s job, and that is why it is smart to discuss the matter with your lawyer first.

We are not suggesting it is never in a client’s interest to cooperate with government agents carrying out an investigation. Indeed, we often, after consulting with our client and the government and learning the relevant facts, advise clients to provide known information to the government. The crucial difference is that we only do so after making sure it is in the best interest of the client.

So what should you do when those government agents appear? Our general suggestions and recommendations can be simply summarized:

• Obtain the name and contact information of the government agents, ask them what they want, and obtain as much detail as they are willing to share;

• Inform them that you will have your lawyer contact them to discuss how to respond and that, until then, you cannot provide any information or answer any questions; and

• Contact your attorney as soon as possible. (Indeed, if you can contact your attorney when the government agents first appear, that is preferable because your attorney may be able to handle the interaction with the government for you, though this may not always be possible.)

The above steps will most likely not end the entire matter. As much as you may want it all to end with the closing of the door behind the government agents, that outcome is unlikely absent some sort of follow-up between your counsel and the government. As noted above, it is quite possible that once your attorney does follow-up, you may together agree that there is no risk to you in providing certain information to the government agents. On the other hand, you and your attorney may agree that it is in your interest to not provide the information. But whatever you agree to after consultation, you will have protected yourself or your business from the potentially devastating mistake of just “winging it” with trained investigators.

As set forth above, the answer to the question, “What to do when government agents arrive at your door?” is actually quite simple: Use your legal right to consult with a qualified attorney before deciding how and whether to answer government agent questions. Better yet, consider consulting with your attorney about this issue before government agents ever arrive and work out a simple but clear plan. To be safe and to protect your legal rights, every person and every business should know in advance the answer to the question: “What to do when the government agents arrive at your door?”

Note: This is the first in a series of blog posts from Greensfelder’s Governmental Interactions Group focusing on business rights. Please feel free to contact Patrick Cotter, Ricardo Meza, Richard Greenberg, or David Niemeier with questions or suggestions on future topics.

Two recent appellate decisions¹, one in the Fifth Circuit and one in Illinois, highlight the value to policyholders from the aggressive pursuit of insurance coverage in claims arising from allegations of the infringement of intellectual property rights. In most insurance policies that afford advertising injury coverage, coverage is generally excluded for injuries “arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.” In other words, the policies, on their faces do not provide coverage for the infringement itself. However, this exclusion from coverage does not apply when the infringement is in the policyholder’s “advertisement.” In other words, a claim to coverage, both for the cost of defense and indemnification for settlement or judgment, can be developed to the extent that an argument can be made that the infringement at issue is actually found in the “advertising.” By taking expansive approaches to what constitutes an “advertisement,” the policyholders in Kipp Flores Architects and Creation Supply obtained insurance coverage for their infringement of intellectual property rights by pointing to the use of the infringement in the marketing of the product.

Kipp Flores arose from a copyright infringement claim asserted by the architects that licensed 11 different designs for houses to a homebuilder. The homebuilder infringed the architect’s copyrights by building hundreds of copies of the houses in violation of the licenses granted to it. The homebuilder used pictures of the infringing designs in its web-based marketing, printed marketing materials, and used model homes built from the infringing plans in its marketing. The insurance policy at issue defined “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products, or services for the purpose of attracting customers or supporters.” The insurer contended that the homebuilder’s use of photographs and tours of homes built based on the infringing plans were not “advertisements” arguing that a house cannot be “broadcast” or “published.” Rejecting that argument, the Court noted that the policy did not define “notice” and that the dictionary definition of “notice” includes the imparting of information. Consequently, found that the use of homes built according to the infringing designs constituted “advertisements.” The homebuilder filed for bankruptcy prior to trial, and the insurance carrier was found responsible both for the costs of defense and for the substantial adverse judgment.

Creation Supply arose from a trade dress infringement claim asserted by the manufacturer of a felt tipped marker with a distinctive design. The policyholder in Creation Supply argued that the product, itself, was an “advertisement.” Its unique packaging was effectively an advertisement for the product. Alternatively, the policyholder argued that a floor-stand display that it distributed for use in the sale of its product was “advertising” and that since it included a depiction of the product, was an insured “advertisement.” As in Kipp Flores, the Court in Creation Supply found itself consulting the dictionary to determine the meaning of “advertisement.” While the Kipp Flores Court might have accepted the argument that the product, itself, could constitute the advertisement, the Creation Supply Court rejected that argument. However, it found that the use of a floor display incorporating a picture of the infringing product supplied to stores constituted an “advertisement” and found insurance coverage for the intellectual property infringement claims at issue.

Tours of model homes and floor displays supplied to stores are hardly novel forms of marketing. Yet, in each case, the insurance carrier contended that the use of the infringing product in the marketing did not constitute “advertisements.” The insurers each argued for a far narrower construction of what constitutes an “advertisement.” And it is clear that advertising has evolved at a time when marketing can include the use of social media for product placements as well as a host of alternative ways of giving “notice” of the attributes and value of a product. Thus, by taking an aggressive approach to “advertising” at a time when advertising is evolving, a policyholder can shape a claim to coverage for claims relating to the infringement of intellectual property rights. The value of such coverage cannot be overstated. The takeaway from these two cases is that policyholders should not be too quick to accept “no” from their insurance carriers and should be as creative in their approaches to insurance coverage as they are in marketing their products.

¹Mid-Continent Casualty Company v. Kipp Flores Architects, L.C.C., Case No.14-50649, 2015 WL 795822 (5th Cir., Feb. 26, 2015)(“Kipp Flores”) Selective Insurance Company of the Southeast v. Creation Supply, Inc., 2015 IL App (1st)140152-U, February 9, 2015 (“Creation Supply”).