In the Technology industry, individuals leave businesses with a lot of business information, practices, methods, contacts, strategy and plans in their memory. If individuals leave the business, then the transferor (the Old Company) will want to make sure the transferee (the New Company) does not interfere with the transferor’s business – and vice versa.

1. One circle (A) may represent the work of the Original Company
2. Another circle (B) may represent the potential work of the Competitor/ New Company.

1. Business interest(s) at issue. Identify the express business interests that each wants to protect (the shaded areas of the Venn diagram). The whole panoply of businesses and services can be at play so it is important to say/identify what the business actually is – or what it wants to be. Some typical areas of concern are the use of the data and Intellectual property; potential new products and services; relationships with vendors, suppliers and customers. Keep in mind, though, whether there any complementary balances where competition might benefit both sides?
   
   It is essential in technology contracts to understand the full range of technology businesses. The technology industry moves at a pace much quicker and with much more rapid change and development than other industries. In data transfer contracts, for example, it is crucial to know what data (including all the related issues – means of access, updates, etc) gives the other side a competitive advantage.
2. Term. The length of the non-compete clauses. Years and months. Remember that in the Technology Sector, non-compete clauses are coming under increasing attack by the courts. California has abolished the allowance of non-competes, and New York has struck out 1 year time limits.
3. Enabling competition. In a world of reverse engineering and sophisticated technology, any bit of data, can be an opening to competition. It is important to identify the technology of each contracting party so as to understand what tools/means can be used to develop similar technology. These tools/means should be identified for clarity. Careful thought has to be given as to who, on behalf of the Original Company and the potential New Company, understands these tools/means. More than the end result needs to be studied. Similar plans and evaluations of similar business also should be considered.
4. Partners. What other relationships (Parent Companies, assignments to 3rd parties, Employees and Independent Contractors) are covered in the non-compete clause? What can these other relationships do and not do regarding the Intellectual Property? For example, if the Original Company is building a website based on using personal identification statistics (name, address, email, etc) the Original Company wants to make sure the New Company doesn’t (directly or indirectly) allow its employees or partners or customers the ability to access this same data.
5. Define Acceptable and Non-Acceptable Territory. In Non-Technology Contracts a distance (miles) was usually set forth. In Technology Contracts, the easy ability to conduct business online means that businesses can be conducted anywhere in the world. So distinctions have to be drawn between online and offline businesses.
6. Define the Intellectual Property at stake. What data is being referenced? Usually this is referenced elsewhere in the contract. For more on this topic please see the article on Change in Ownership of the Intellectual Property Status (hyperlink)
7. Factors that help favor Enforceability.
   
   A. Broad vs. narrow issues. Contracts can’t limit the right to compete entirely. A person has the right to make a living. The longer the length the more likely it can come under attack. Too narrow though and it loses its utility. Additionally the more restrictive the competition clause the less likely it is to be enforced. Try to focus on what the competition concern is really about. The broad/narrow issue is relevant to all issues in the non-compete clause.
   
   B. Consideration. The terms of consideration may help determine whether the non-compete clause is favored. Items such as fair market value, loss of profits, licensing agreements, and more have to be considered.
8. Less restrictive and thus more enforceable contracts.
   
   A. Non-interference contracts. These contracts focus directly on the business relationship and require the New Company to refrain from activities which would directly hurt the prior business such as interfering with business relationships the Original Company has with 3rd parties (suppliers, consultants, re-sellers, advertisers). It’s best to identify these 3rd parties beforehand. Where is this information about these relationships stored? How is it accessed? There should be some physical record since physical records are always better than oral memory when it comes to disputes.
   
   B. Non-solicitation contracts. These contracts preclude the new competitor from trying to steal your client, customer or employee base. Like the non-interference contract it’s best to identify these clients/customers/employees beforehand.
   
   C. Non-disclosure and non-use agreements. These agreements allow the party leaving (the new competing party) to compete but require her/him/it not to take advantage of Intellectual Property, information, trade secrets, etc. it acquired through work with the first company.
9. Alternatives. Putting aside valid issues like using mediation and arbitration and other dispute resolutions, it’s always best to see if there is a friendly way that things can be worked out.
10. Ways in which both businesses may help each other can be explored. Competition is not necessarily a bad thing. It’s what the American economy is based on. Ways in which the competition can benefit BOTH parties can be explored but be careful – you don’t want to give your competitor any information he can use to hurt you.
11. Termination. Contemplate that the New Company may want or need to split off entirely from the Original Company.
12. The Flip Side. Know that in Technology Contracts there are two sides. Both sides want to make sure they don’t compete with each other. Be sure to think through the other side’s needs and requirements in this area. What is good for the goose may not be good for the gander. * (For an article in which I was quoted on non-compete clauses please click here)
    
    * For more on Change in Ownership and Intellectual Property see - Ownership Change in Tech Companies.
    
    * For more on Technology Contracts see – Tips to Technology Contract Drafting and please view my whitepaper on Best Practices in Technology Drafting. * For more on Contracts see – Contracts Checklist.