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1. Restrictive Covenants There are a variety of restrictive covenants available to business owners that, generally speaking, prevent your employees and business partners from misappropriating your confidential infor- mation, from stealing your customers and from unfairly competing against you. The permissible scope of these clauses varies from state to state, but they should be a critical component of your litigation risk reduction strategy. 2. Intellectual Property Your contracts should clearly define who owns intellectual property that is cre- ated in the course of your day-to-day operations. In this sense, intellectual property includes not just patent rights, but also such things as research, business plans and ideas. After all, even good peo- ple might inadvertently use your intellec- tual property for the next quantum leap in innovation. Resolving expectations up front is essential to risk reduction. 3. Injunctive Relief Injunctive relief is a court order that can prevent your former employee or business partner from unfairly competing against you while a lawsuit against them is still pending. Injunctive relief is critical because once an employee leaves with your confidential information, it is very difficult to put the toothpaste back in the tube. To protect against the misuse of your confidential information during the course of a lawsuit, your contracts should stipulate that any breach would result in irreparable harm to your business (i.e. harm that could not be remedied by money alone), and that you are entitled to preliminary and permanent injunctive relief to prevent misuse. Often times, the mere existence of an injunctive relief clause in a written contract will discour- age unfair competition, and thereby reduce your litigation risk. 4. Liquidated Damages If the worst case scenario were to occur, and an employee were to steal your confi- dential information and use it to compete against you, determining the amount of damages you're due could be very diffi- cult. A liquidated damages clause attempts to quantify that harm, and it can be substantial (e.g. $500/day to $10,000/day). While this is merely an attempt to estimate damage that cannot be fully remedied by money alone, it also can provide a powerful economic disincentive to somebody who might otherwise think about doing the wrong thing. 5. Forum and Law You may want to include a clause that specifies the state law that will govern the contract, or the state in which any dispute would be litigated. While such clauses can provide powerful protection for your business, you should be wary of including them without the advice of an attorney. The law applicable to trade secret protec- tion and restrictive covenants, for exam- ple, can vary substantially from state-to- state. Square Pegs and Round Holes You may be tempted to rely upon off- the-shelf guides (such as How to Draft Contracts for Dummies), or form agree- ments that you find in the library or on the internet. You also may be tempted to can- nibalize a contract that your attorney pre- pared for you in connection with a prior transaction. You should be wary of form agreements, no matter their origin - as already discussed, applicable laws can vary from state-to-state and also may be modified year-to-year. What made good legal sense five years ago in a similar transaction may not make good sense today. And, if you do rely on form agree- ments, you should be equally cautious about modifying them without the advice of an attorney. The clauses in form agree- ments - ship construction is an excellent example - can have specialized legal meaning, and adding or dropping seem- ingly innocuous language can have signif- icant legal consequences. How do you know which transactions require legal advice? There is no simple answer to that question, but there are a few guidelines you should consider. First, how much is the contract worth? Is it a "bet the farm" transaction? If your com- pany's future viability depends on the pro- ject's success, that's probably a good indi- cation that your lawyers should be involved. Similarly, if the contract will involve sharing information that could be used to obtain a competitive advantage against you if it were to fall into the wrong hands, that also is a situation in which you probably should consult your attorney. Finally, if your prospective contract part- ner has an attorney, you definitely should involve your own counsel. And, if a dis- pute seems to be brewing after the con- tract already is in place, you're probably better off getting your lawyers involved sooner, rather than later. It is, frankly, more expensive to get your lawyers involved after the dispute already has got- ten out of hand. Corporate divorce is an unfortunate and occasional cost of doing business. But properly drafted contracts can minimize the collateral damage, and leave you well- positioned for future success. Alan M. Freeman is a partner in the Washington, D.C. office of Blank Rome LLP, where he concentrates his practice on civil and commercial litigation in both federal and state courts. His background includes representation of individuals and companies in connection with contract disputes, business tort litigation, employ- ment and discrimination cases, and civil environmental claims. He has particular experience representing companies engaged in the marine transportation industry with respect to general commer- cial disputes, admiralty claims and feder- al agency litigation. 16 • MarineNews • December, 2005 Circle 215 on Reader Service Card LEGAL BEAT DECEMBER MN2005 2(9-16).qxd 12/5/2005 3:42 PM Page 16
