Companies of all sizes seek to focus on business development rather than on patent proceedings. Patents and the implementation of patents are a fundamental part of the ordinary operations of many businesses outside of the pharma/tech industries. Development and implementation of patentable technologies drives the innovations that set these businesses apart from their counterparts. When these types of businesses are considering filing a patent infringement action, it is because they face actual current issues in the marketplace that threaten the success, the growth, and sometimes the lives of their business, their innovations, their brands, and their investments in R&D. Consequently, if there is to be patent “reform,” it is important to focus on the needs of businesses outside of the pharma/tech divide. Those businesses have broad investment in their innovations and in obtaining patent rights, and they need to be assured of their ability to rely on those rights. Current and proposed “reform” is preventing many of these businesses from enjoying any benefit from their patents.

On March 18, the U.S. Senate Judiciary committee conducted and broadcast a full committee hearing on “The Impact of Abusive Patent Litigation Practices on the American Economy.” During the proceedings, a concern was raised about whether the “reform,” (which was intended to curb abuse of the system by the “patent troll” non-practicing entities), actually posed a barrier for seed, start-ups, small businesses and “non-troll” non-practicing entities to obtain capital or to enforce the patents obtained through their investment. On March 19^th the Committee on Small Business and Entrepreneurship debated the need for a “balanced approach” on patent litigation reform, with the representative from the Small Business Technology Council characterizing the proposed legislation as the “Ending the American Dream Act.”

To read the full white paper, click here.

As two federal courts recognized in February 2015, Illinois law is unsettled as to the duration of continued employment that is sufficient consideration to support a non-compete agreement. In Bankers Life And Casualty v. Miller¹,a February 2015 federal court decision applying Illinois law, the court held that there is no bright line test for the length of continued employment sufficient to support a post-employment restrictive covenant specifically rejecting the argument that employment less than two years is inherently insufficient consideration under Illinois law. And in Cumulus Radio Corporation v. Olson and Alpha Media, the court recognized that the Illinois Supreme Court would likely embrace the same sort of fact specific approach to assessing the adequacy of consideration that it applies to determine whether the restrictions are reasonable.

The Bankers Life decision highlights two problems inherent when the only consideration for a post-employment restrictive covenant is continued employment. First, there is uncertainty concerning the duration of continued employment sufficient to support such a restriction. Second, courts have held the duration of employment insufficient to support the restriction even where the employee quit to take a position with a competitor to compete in violation of the restrictive covenant. An employee may avoid post-employment restrictions by voluntarily taking a position with a competitor before he has been employed for a “sufficient” duration. The court in Cumulus Radio Corporation v. Olson and Alpha Media, underscored the illogic of the failure to give weight to the reason an at-will employee’s employment noting that allowing an employee to void the consideration by quitting for any reason at any time makes restrictive covenants voidable at the employee’s whim.

The approach taken by Illinois courts with respect to continued employment as the sole consideration for post-employment restrictions poses two challenges for employers relying on restrictive covenants to protect their businesses. First, what constitutes a “substantial” period of time sufficient to support an enforceable restrictive covenant in an at-will employment relationship under Illinois law is anything but clear. And second, the employee may be vested with too much control over whether the restrictions on post-employment competition will be enforced. The Illinois Supreme Court has not defined the length of employment sufficient to support a restrictive covenant. The majority of the federal courts that have attempted to predict how the Illinois Supreme Court would resolve the issue have concluded that it is unlikely that the Illinois Supreme Court will establish a bright line test.

An objective of post-employment restrictive covenants is to prevent an employee from taking an employer’s business assets that she obtained solely by virtue of her employment. A goal in drafting contracts is to limit transactional risk. Consequently, without addressing whether continued employment may provide sufficient consideration for an enforceable post-employment restrictive covenant, pragmatism dictates drafting such an agreement to reduce the uncertainty over whether the duration of continued employment is “sufficient” to support enforcement of the restrictions.

The transactional uncertainty inherent when post-employment restrictions tied solely to continued employment is a problem that can be prevented by tailoring the restrictive covenant to the specific employment relationship rather than leaving it an open-ended proposition. There are many different ways of addressing this issue, and there is no one size fits all solution. For example, an employer “pay” for the restriction by earmarking some portion of the compensation to be paid to the employee as payment for the post-employment restriction. This solution avoids the issues associated with tying the restriction to continued employment. Although this may avoid the issue of uncertainty, a downside of this approach is that in the event of a breach, the employee may argue that the amount paid for the restriction is the measure of the damages associated with breach. Alternatives include providing employment for a specific duration rather than on an at-will basis or tying the restriction to benefits to be conferred on the employee with the employment such as training. Best practices dictate an evaluation of the assets to be protected through the restriction and tailoring the contract, including the consideration for the post-employment restrictions, to that objective. And there is no time like the present to revisit your company’s post-employment restrictions to re-evaluate whether they need to be fine-tuned to better protect your business.

¹Bankers Life And Casualty Company v. Miller, Case No. 14 cv 3165, 2015 WL 5151965 (N.D. Ill. February 6, 2015). See Cumulus Radio Corporation et al v Olson and Alpha Media LLC, Case No. 15 CV 1067 (C.D.Ill. February 13, 2015)

The situation where a corporate employee is being interviewed by the attorney representing the corporation raises special attorney-client issues. Such interviews are common place in most internal investigations carried out for the purpose of providing legal advice to a corporation. In Upjohn v. United States, the Supreme Court provided important guidance to all attorneys who find themselves interviewing corporate employees. The purpose of the “Upjohn Warnings”, as they have come to be known, is to make sure that the individual employee being interviewed understands that the attorney-client privilege, as commonly understood, does not apply to their interview with an attorney representing the corporation. Making sure that the employee being interviewed is aware of this fact is a necessity that establishes the ethical character of the attorney’s actions while also preserving the corporation’s legal ability to control and use the statements by the employee in the manner best suited to its legitimate interests.

The Upjohn decision, and professional commentary regarding it, advise that in any situation when an attorney; either in-house or outside counsel representing a corporation; determines that a conflict, or even a potential conflict, may exist between the interests of the individual employee being interviewed and the corporate client, the lawyer should advise the employee witness of the following:

• The lawyer represents the corporation, not the employee being interviewed;

• The purpose of the interview is an attempt to obtain truthful information to assist the lawyer in his representation of the corporation;

• The employee being interviewed may wish to obtain independent legal advice; and

• Any attorney-client privilege that may exist in connection with the interview belongs exclusively to the corporation, not to the employee being interviewed, and the corporation may, at its sole discretion, waive the attorney-client privilege and disclose the content of the interview if it should so determine.

Some lawyers have added additional warnings to their version of the “Upjohn Warnings.” Common additions include: explicitly informing the employee that the attorney conducting the interview may not provide any legal advice to the employee because he represents the employer organization; and, a statement to the employee that while the employee has the right to decide whether to answer the interviewer’s questions, the terms of the employee’s employment and the continuation of that employment require the employee to cooperate in all reasonable internal investigations carried out by the corporation. These “additions” are not required by the Upjohn ruling itself but may well provide a stronger basis upon which to allow the corporation to later use interview statements made by an employee because the additional statements provide relevant and important information to the employee which makes all the clearer the employee’s understanding of the terms under which the interview is conducted. These additions highlight that the interviews are undertaken solely for the benefit of the corporation so that it can obtain the benefit and protection of the advice of its legal counsel.

Because it is the rare situation where before interviewing a particular employee the lawyer representing the corporation in an internal investigation can rule out the possibility that the employee’s interests “may differ” from the corporation’s, the provision of the Upjohn Warnings is strongly recommended in all instances where employees are being interviewed. The risks that flow from not providing adequate Upjohn Warnings can be serious, and include, suppression of witness statements, counsel disqualification, witness confusion, malpractice claims and even referrals for bar disciplinary action. It is, therefore, highly recommended, as well as widely accepted practice, to administer Upjohn Warnings before virtually every employee interview, even if it seems clear at the time that the employee to be interviewed is most likely a mere witness, as opposed to a potentially culpable participant in, the conduct under investigation.

In-house lawyers owe the same professional obligations with respect to the preservation of privileged communications as outside counsel. However, in-house counsel may confront challenges relating to the application of the attorney-client privilege that differ from those faced by outside counsel. The attorney-client privilege and work product doctrine apply to in-house counsel in the same manner that they apply to outside counsel. To understand the difference in the challenges faced by in-house counsel and outside counsel, one need not look much farther than how the attorney-client relationship giving rise to the privilege is formed. For example, as the resident lawyer, in-house counsel are often confronted with questions prefaced with the phrase “as my lawyer.” But does that title really fit? When is in-house counsel representing the individual as opposed to the entity? How should one draw the line between the provision of legal advice which is potentially privileged and business advice which, while possibly confidential, is not privileged? Understanding the parameters of the attorney-client privilege and the work product doctrine is essential to being able to maintain the trust that forms the basis of the attorney-client relationship and to protect the client. This paper is intended as an overview of some of the issues in-house counsel face relating to the preservation of confidentiality.

For a copy of the entire white paper, “Managing the Attorney-Client Privilege and Work Product Doctrine: Considerations for In-House Counsel,” please contact Greensfelder’s marketing department at 314-345-5456.

Buyer beware as the asset protection afforded by non-disclosure and non-solicitation agreements signed by prospective purchasers may not survive the sale. This issue was addressed in a recent federal decision in Illinois offering some cautionary reminders for business buyers. In this case, Keywell LLC (“Keywell”) sought to sell its assets. Croniment Holdings, Inc. (“Croniment”), a bidder for Keywell’s assets, signed a non-disclosure agreement (the “NDA”) which prohibited Croniment from disclosing Keywell confidential information and prohibited Croniment from hiring any of Keywell’s employees with whom Croniment came into contact during negotiations. Keywell and Croniment entered into an asset purchase agreement by which Croniment would serve as the stalking horse bid for Keywell’s assets in bankruptcy.

Keywell filed for bankruptcy, but a third party other than Croniment prevailed and purchased Keywell’s assets. The bankruptcy court order authorized the sale of Keywell’s assets to the third party, but the order was specific that the sale was not a consolidation or merger and that there was no continuity of enterprise between Keywell and the third party purchaser. The third party purchaser did not assume any employment or similar agreements to which Keywell was a party.

After the sale, Croniment offered employment to two Keywell executives. The two Keywell executives had non-compete agreements that prohibited them from disclosing confidential information and from being employed by certain companies, including Croniment, for two years after the termination of their employment. Croniment filed a lawsuit that sought a declaration that the third party purchaser of Keywell’s assets could not enforce the NDAs and or the non-compete agreements. After the lawsuit was filed, Keywell assigned all of its rights under the NDAs and the two non-compete agreements to the third party purchaser.

The main issue before the court was whether the NDA and the non-compete agreements were assignable to the third party purchaser. Focusing first on the NDA, the court recognized that a non-disclosure agreement is essentially a restraint on trade and its validity and enforceability are analyzed in essentially the same way as if it were a covenant not to compete. Thus, the NDA and the non-competes were only enforceable if they protected Keywell’s legitimate business interests.

The court found that following the sale of its assets, Keywell had no interest in customers, confidential information, trade secrets, or in retaining a stable workforce. Those interests were all transferred in the asset sale. The assignment of the agreements after the sale was not effective because the sale terminated Keywell’s existing legitimate business interests effectively terminating those agreements. Therefore, the third party purchaser could not enforce any of the agreements.

When relying on NDAs and restrictive covenants, ensure that they provide the protections you require, and if you are relying on them as a business purchaser, confirm that those protections flow to you.

What is the Illinois Pregnancy Fairness Law?

Effective January 1, 2015, the Illinois Pregnancy Fairness Law provides workplace protections to all expectant mothers, regardless of an employer’s size. The Illinois Pregnancy Fairness Law amends the Illinois Human Rights Act, adding “pregnancy” as a protected class under state law. “Pregnancy” is defined broadly to mean “pregnancy, childbirth, or other medical or common conditions related to pregnancy or childbirth.” Accordingly, effective 1/1/15, the IHRA prohibits discrimination on the basis of “pregnancy” against applicants and employees and also requires employers to provide accommodations to expectant mothers to enable them to perform the job the job held or sought unless the employer can establishing that doing so would cause an undue hardship on the ordinary operation of the business. The Illinois law also prohibits retaliation against individuals who exercise their right to an accommodation under the law.

What are the differences between the new Illinois law and federal law?

The new Illinois law applies to all employers regardless of size and not only prohibits them from discriminating against any woman coming within the broad definition of pregnancy, but also requires employers to provide accommodations to expectant mothers that are needed to perform the job held by an employee or sought by an applicant, unless the employer can establish that doing so would pose an undue hardship. In contrast, the federal Pregnancy Discrimination Act (PDA) is part of Title VII of the Civil Rights Act of 1964, and only applies to employers with 15 or more employers. In addition, it is not yet clear that the PDA requires workplace accommodations for pregnant women who do not have a condition that would constitute a disability under the Americans with Disabilities Act Amendments Act (ADAAA) of 2008. Although the U.S. Equal Employment Opportunity Commission issued guidance on July 14, 2014, opining that the PDA does require an employer to provide reasonable accommodations to all expectant mothers, this issue will actually be decided by the United States Supreme Court this term in Young v. UPS. Oral Arguments in the case are scheduled for December 2014.

Which employees are protected by the law?

The law applies to all women who meet the broad definition of pregnancy regardless of whether they work full or part-time. In addition, the accommodation requirement applies to any woman experiencing “pregnancy, childbirth, or other medical conditions related to pregnancy or childbirth.” It is unclear whether the law would extend protection to a woman who is not yet pregnant but who is has a medical condition that impacts her ability to conceive.

What is a reasonable accommodation under Illinois law?

Reasonable accommodation is defined by the law to mean “reasonable modifications or adjustments to the job application process or work environment, or to the manner or circumstances under which the position desired or held is customarily performed, that enable an applicant or employee affected by pregnancy, childbirth, or medical or common conditions related to pregnancy or childbirth to be considered for the position the applicant desires or to perform the essential functions of that position.” The non-exclusive list of reasonable accommodations identified in the Illinois law are:

• more frequent or longer bathroom breaks, breaks for increased water intake, and breaks for periodic rest;
• private non-bathroom space for expressing breast milk and breastfeeding;
• seating;
• assistance with manual labor;
• light duty;

• temporary transfer to a less strenuous or hazardous position;

• the provision of an accessible worksite;

• acquisition or modification of equipment;

• job restructuring;

• a part-time or modified work schedule;

• appropriate adjustment or modifications of examinations, training materials, or policies;

• reassignment to a vacant position;

• time off to recover from conditions related to childbirth; and

• leave necessitated by pregnancy, childbirth, or medical or common conditions resulting from pregnancy or childbirth.

What is not required by the new Illinois law?

The new Illinois law does not require an employer to create a job, unless the employer does so or would do so for other classes of employees who need accommodations. In addition, an employer is no required to discharge any employee, transfer any employee with more seniority, or promote any employee who is not qualified to perform the job, unless the employer does so or would do so to accommodate other classes of employees who need it. As a practical matter, an employer will have to ensure that it is treating pregnant workers the same as it treats any other workers to which it provides accommodations, including workers who have experienced a workers’ compensation injury and workers who have a disability under the ADAAA.

What does undue hardship mean?

Undue hardship means an action that is prohibitively expensive or disruptive when considered in light of the following factors:

• the nature and cost of the accommodation needed;

• the overall financial resources of the facility or facilities involved in the provision of the reasonable accommodation, the number of persons employed at the facility, the effect on expenses and resources, or the impact otherwise of the accommodation upon the operation of the facility;

• the overall financial resources of the employer, the overall size of the business of the employer with respect to the number of its employees, and the number, type, and location of its facilities; and

• the type of operation or operations of the employer, including the composition, structure, and functions of the workforce of the employer, the geographic separateness, administrative, or fiscal relationship of the facility or facilities in question to the employer.

The employer has the burden of proving undue hardship and this is a very high threshold that will be extremely difficult, if not impossible for large employers, who are already subject to the Americans with Disabilities Act (ADA) accommodation process. Under the Illinois law, the fact that an employer provides or would be required to provide a similar accommodation to similarly situated employees creates a rebuttable presumption that the accommodation does not impose an undue hardship on the employer.

What information can an employer request from workers requesting accommodations under the Illinois law?

Employers are limited to obtaining certain information in support of a request for accommodations under the new Illinois. Employers are permitted to request documentation from a treating health care provider concerning the need for the requested reasonable accommodation or accommodations to the same extent that documentation is requested for individuals with disabilities if the employer’s request for documentation is job-related and consistent with business necessity. However, employers may require only the following information, which individuals requesting an accommodation must provide:

• the medical justification for the requested accommodation or accommodations

• a description of the reasonable accommodation or accommodations that are medically advisable

• the date the reasonable accommodation or accommodations became medically advisable, and

• the probable duration of the reasonable accommodation or accommodations.

The law further requires the employer and employer to engage in a “timely, good faith, and meaningful exchange to determine effective reasonable accommodations.” Importantly, the law also prohibits an employer for imposing an accommodation on an employee that has not been requested or that has not been accepted by the employee. This provision has the potential to create significant issues for employers. One can easily envision a situation in which an expectant mother is rejecting accommodations that are actually sufficient to meet medical restrictions and reasonable to accommodate the worker. Yet, under the law, an employer will have to continue to engage in dialogue with the employee until the employee agrees to the accommodation.

What posting or publication requirements does the Illinois law impose?

It is a violation of the Illinois law if an employer fails to post or keep posted in a conspicuous location where notices to employees are customarily posted, or fail to include in any employee handbook information concerning an employee’s rights under the law. 

Today the Office of the General Counsel of the National Labor Relations Board (“NLRB”) took its next step in the investigation of labor practices within the McDonald’s franchise system and issued consolidated complaints against McDonald’s franchisees and the franchisor – McDonald’s USA, LLC on the theory that the franchisor is a joint employer with its franchisees. Consistent with General Counsel’s amicus brief in the Browning-Ferris matter that was filed this summer, the focus of the complaints appear to be on the use of technology and tools that allows franchisors insight and potential control over franchisee operations.

According to the NLRB website:

“Our investigation found that McDonald’s, USA, LLC, through its franchise relationship and its use of tools, resources and technology, engages in sufficient control over its franchisees’ operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations of our Act. This finding is further supported by McDonald’s, USA, LLC’s nationwide response to franchise employee activities while participating in fast food worker protests to improve their wages and working conditions.”

The NLRB faces an uphill battle in seeking to consider franchisors joint employers with their franchisees. The Browning-Ferris amicus brief signals a desire to revise the joint employer standard under the National Labor Relations Act to a former, more permissive standard than the one currently applied by the NLRB. However, case law applying the old standard has found that franchisors of typical franchise systems are not joint employers with their franchisees. The case law, however, dates back to the late 70s and it appears that the NLRB is trying to look deeper to differentiate the franchise system of old with modern operations.

More information is available on the NLRB website: http://www.nlrb.gov/news-outreach/fact-sheets/mcdonalds-fact-sheet

A recent decision from the Seventh Circuit is a reminder that if a business wants trade secret protection for certain information, it must actually implement reasonable measures to protect the secrecy of that information. While what is “reasonable” depends on the facts of each case, a business should take basic steps such using confidentiality agreements with employees and third parties, marking of documents with “confidential” stamps and restricting access to and securing documents that are or contain confidential information. While these steps may seem obvious, the failure of the plaintiff in this case to take these steps allowed the defendant to design a product similar to plaintiff’s product and freely compete against the plaintiff.

The plaintiff was an industrial design firm that designed, among other things, metal enclosures for electronic tablets, such as iPads. One of its designers, an independent contractor, designed a metal enclosure known as the Rhino Elite. The defendant, a manufacturer of metal devices, approached the plaintiff about a potential business relationship.

The plaintiff and defendant entered into a confidentiality agreement under which the plaintiff agreed to disclose confidential information to the defendant that would be used by the defendant solely for evaluating a potential business relationship with respect to iPad enclosures. After the defendant signed the confidentiality agreement, plaintiff provided it with the design files for the Rhino products. The plaintiff and defendant subsequently attempted to negotiate a written manufacturing and sale agreement, but were unsuccessful. Instead, plaintiff and defendant reached an oral agreement under which defendant would manufacture the Rhino Elite and sell units to plaintiff.

After the defendant began manufacturing the Rhino Elite, various design problems were discovered and defendant’s engineers designed improvements for the Rhino Elite. At the same time, defendant developed a design for its own tablet enclosure. Thereafter, defendant terminated its business relationship with plaintiff and proceeded to sell its own tablet enclosure. Plaintiff, in turn, filed suit against defendant for trade secret misappropriation, among other things.

The court recognized that in order to enforce a confidentiality agreement, the information that plaintiff sought to protect must actually be confidential and the plaintiff must have taken reasonable efforts to maintain the confidentiality of that information. However, the court found that the efforts that the plaintiff took to protect the confidentiality of design files of the Rhino Elite or its predecessor were inadequate.

Among other things, the plaintiff did not have the defendant sign a subsequent confidentiality agreement when it began to manufacture the Rhino Elite; did not require defendant’s other employees to sign additional confidentiality agreements to access the Rhino Elite design files; did not require its independent contractor designer, who designed the Rhino Elite; to sign a confidentiality agreement; did not require the manufacturer of the Rhino Elite’s predecessors to sign confidentiality agreements; did not mark the design drawings with the words “confidential” or “contains proprietary information”; did not keep the design drawings under lock and key; and did not store the design drawings on a computer with limited access. The failure to insist on these common sense steps proved very costly for the plaintiff.

At a minimum, businesses should have two different confidentiality agreements. One drafted for use with employees and independent contractors and the other drafted for use with third parties. In addition, a business should have a “confidential” stamp to use to mark documents and should store those documents in locked file cabinets or on password protected computers. By taking these steps, a business will be on its way to protecting its confidential information.