Extra Credit Opportunity: Exam #1
How you would draft a covenant not to compete for employees of an internet company that takes into consideration: If Mark Zuckerberg was to be fired from Facebook, he could potentially go off and form even better company that could become competitor of Facebook. This would not be good for Facebook, so the company could ask Zuckerberg to sign an agreement to not compete, known as a covenant not to compete. Covenants not to compete are important internet based industries because these companies hold trade secrets that can generate immense revenues and can cost a company a lot if they are shared. Companies that earn revenues from the Internet and other related industries are growing faster with time and the restrictions that companies put on their departed employees must change with time as well. Covenants not to compete usually include a time period in which the former employee or the seller of the business is restricted from engaging in any competitive businesses. Specially, companies may ask former employees or previous business owners to not compete for a restricted amount of time. In the context of an internet company, the time period should be reasonable for the former employee or the seller of a business. Time restrictions are necessary to protect the company’s continuance of business. With internet based companies, the time period set in a covenant not to compete is very important and may be crucial to a companies’ success. If a company like Google recently fired an employee who developed a new trade secret for search engines, and Google began using it, they would want that former employee to refrain from sharing that secret for as long as possible. The time restriction set on the employee must be reasonable, so the employee does not lose their standard of living due to lack of employment. Several months may be an appropriate time for time restrictions in the internet context, but anything longer could be deemed unreasonable. In the case EarthWeb, Inc v. Schlack, Schlack signed a covenant not to work for any competing company for one year. The courts held that the covenant was unenforceable because of the given nature of the internet and it interfered with the defendant’s, Schlack’s, employment for a lengthy amount of time. If I were to draft a covenant not to compete for a web based company, I would make the time restriction as short as possible to be reasonable for the former employee or the seller of a company. In a covenant not to compete, the buyer of a business will usually require the seller to refrain from any similar business practices in a certain geographic area surrounding the old business. This covenant can be fairly simple for former business owners to get around because they can move and start a new business in another region or state that is not restricted by the covenant. For internet based businesses, geographic restrictions may be difficult for the seller of a business or a companies’ former employee. The internet has no physical borders, as the courts said in the ruling of EarthWeb, Inc. v. Schlack, in 1999. This leads to great dispute over whether a covenant not to complete implemented by web based company is even reasonable. Leaving out a geographic restriction in a noncompeting agreement has been seen as a way to keep a covenant as being enforceable. For example, in the case West Publishing Corp. v. Stanley, Stanley was former employee and founder of West Publishing Corp’s FindLaw website. He was fired and issued a Separation Agreement by the corporation. In the agreement, Stanley was required not to compete with FindLaw for a one-year period after his termination and in exchange Stanley would receive one year’s salary. There were no geographic restrictions in the Separation Agreement between Stanley and West Publishing Corp. Not even a month after his termination, Stanley went against the agreement and incorporated a new online company Justia.com. The