View non-flash version
December, 2005 • MarineNews 15 By Alan M. Freeman These days, there seems to be a "How To" book for "Dummies" covering just about every topic imaginable, including everything from playing the guitar to managing irritable bowel syndrome. Drafting contracts is no exception, and the temptation for small and large businesses alike to "do it yourself" is significant. While not always a bad idea, the tendency to be your own lawyer - particularly in the operation of a business - presents signifi- cant risk for the unwary. To be sure, con- sulting counsel is an excellent way to reduce your litigation risk and protect your business, but consulting an attorney will not always be cost effective in the context of a particular transaction. So, how do you protect yourself when you can't afford to consult an attorney? Sources of Litigation Risk Litigation risk presents itself to busi- ness owners everywhere from parking lots, where a failure to provide sufficient lighting could lead to visitor injuries, to human resources, where the failure to abide increasingly complex state and fed- eral regulatory regimes can have signifi- cant consequences. Books have been written about these subjects and, depend- ing on your circumstances, there may be no prudent alternative to consulting your attorney. But another source of litigation risk is the network of relationships - often per- sonal relationships - that you rely upon every day. These include relationships with your business partners, subcontrac- tors, employees and customers. In the case of a small business, these relation- ships can be decades old and premised on nothing more than a handshake. Business relationships increase your lit- igation risk in several ways, but the focus of this article is the fact that operation of your business probably requires you to share trade secrets - everything from cus- tomer lists and business plans to propri- etary formulations and methodologies - with your employees, your subcontractors and your business partners. In most cases, disclosure of this information to the wrong people could be devastating for your business. Unfortunately, however, employees have been known to leave their employers, subcontractors have been known to change their alliances and joint venture partners have been known to go out on their own. And all of them have the ability to compete against you in the marketplace given the proper economic incentives. For example, I once repre- sented a government contractor whose employees suspiciously left virtually en masse for a competitor in the middle of a very important competition. It turned out they were being drawn to our client's competitor by a formerly loyal employee. The fact of the matter is that business and employment relationships are a lot like marriage - nobody expects to get a divorce, but divorce happens among even the nicest people with the best of inten- tions. Contracts, Not Handshakes How does a business owner protect his or her trade secrets in a world marred by corporate divorce? The first step is to reduce your business and key employ- ment relationships to writing - written contracts, not handshakes. Written con- tracts are important because they can resolve your and your counterpart's expectations in advance, and they can provide mutually agreeable exit strategies when disputes arise. There's no surprise in that. But written contracts also have the ability to protect your confidential information and trade secrets by setting up disincentives for your counterparts to steal from you, and by establishing effi- cient and effective dispute resolution processes. Simply having a written contract is not enough. Your contracts must be compre- hensive and tailored to anticipate the worst case scenario. They should antici- pate unintentional acts - such as hurri- canes and labor strife - as well as inten- tional acts - such as a competitor seeking to lure your top employees away to com- pete against you. While there is no way that this article could contemplate all the circumstances that might present them- selves, there are several contract provi- sions that you should be aware of because, when properly drafted, they can provide powerful protection for your confidential information: DIVERSIFIED Engine Exhaust Systems All of our cylindrical, low profile and spark arresting series engine exhaust silencers are available in limitless configurations and designed with the highest quality craftsmanship, performance, longevity and customer space constraints in mind. HARCO MANUFACTURING CO. 7700 SW 69th Ave • Portland OR 97223 800-394-7571 • Fax: 503-244-7589 www.harcomanufacturing.com email: sales@harcomanufacturing.com ENGINE AND ENVIRONMENTAL PRODUCTS ABS Certified Bureau Veritas Qualified Circle 214 on Reader Service CardCircle 212 on Reader Service Card LEGAL BEAT How to Minimize Litigation Risk by Planning for Corporate Divorce DECEMBER MN2005 2(9-16).qxd 12/5/2005 3:41 PM Page 15
