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Tag: legal advice

What Is Trade Secret Misappropriation: Is Your Business at Risk?

KFC’s secret blend of 11 herbs and spices, Burger King’s secret sauce, and Google’s algorithm are all examples of trade secrets. They are things that competitors do not know and, accordingly, provide a competitive advantage.

While it’s easy to name these famous examples, not all trade secrets are so high-profile. Most businesses have trade secrets they take steps to protect, such as the client lists they have built up, sometimes over years and years, and on which they depend on to stay profitable.

So, what happens when these trade secrets are misappropriated? And how can business leaders tell if a business is at risk?

READ — Changes To Non-Compete Rules Also Mean Paying More Attention To Your Trade Secrets

The Law on Trade Secret Misappropriation

Trade secrets generally gain their protection by being “secret” because of how a business manages the information, often through contracts and policies. When violating these contracts and policies leads to litigation, the dispute is usually a state court matter.

However, trade secret misappropriation can sometimes become an issue that is more appropriately resolved in federal courts. This commonly happens when multiple states are involved, like when a business engages in interstate commerce. In this case, 18 U.S.C. § 1839(5) can apply.

Of course, the law is particular and uses specific words that have been extensively discussed in many court cases. Generally, trade secret misappropriation happens when someone improperly acquires a trade secret, improperly discloses or uses it without permission. Misappropriation can occur even if the trade secret was obtained through a mistake or accident, as long as the person who acquired the information knew or should have known that it was not intended to be disclosed by the business.

READ — How to Safeguard Your Business Trade Secrets

Businesses at Risk of Trade Secret Misappropriation

Some businesses are more at risk of trade secret misappropriation than others. Startups are especially susceptible because of their quick growth rate. Often, a startup is created with just a few employees. Because of this, it’s run with fewer formal policies than an established business.

However, by the time formal policies are introduced, one of these employees may have taken action to misappropriate valuable trade secrets.

Reducing the Risk of Trade Secret Misappropriation

There are many ways to reduce a business’s risk of trade secret misappropriation, including developing policies that protect valuable secrets. For example, access can be limited to specific business leaders and protected by passwords. In addition, the secrets can be stored only on secure servers instead of in less secure places, such as laptop computers that can be lost, stolen, or hacked.

Employees and contractors, too, can be required to sign non-compete or non-solicitation agreements that deter them from trade secret misappropriation. If employees or contractors violate these agreements, resolution can sometimes be obtained more cost-effectively by resolving the breach of contract through alternative dispute resolution methods.

The best way to protect a business from trade secret misappropriation is to take these steps and protect the information before it ever leaks. Again, an experienced attorney can guide the company through this process, offering valuable counsel.

For more information about trade secret misappropriation in Colorado, contact Hackstaff Snow Atkinson & Griess, LLC, at 303-534-4317 or visit our website.

 

Aaron Atkinson, Doug Griess, and John Snow of Hackstaff Snow Atkinson & Griess, LLC, are top Denver business attorneys and litigators with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, the firm offers an in-depth understanding and knowledge of general real estate and litigation rules and regulations and are a trusted resource for business owners throughout Colorado.

Domestic violence and divorce: why to hire one attorney who handles both cases

A client in a divorce or custody matter with a pending criminal case must know this could affect their domestic relations case. Dealing with a pending criminal charge can affect anyone going through a divorce or custody case simultaneously.

To prevent a criminal case from affecting the divorce or custody case, a client may want to consider hiring an attorney who practices in both areas of law.

Unfortunately, it is common knowledge in domestic relations cases that if someone has a pending criminal case, this could give the other side a leg up in the domestic relations matter.

There are also instances of poor judgment and criminal behavior that result in a pending criminal case that gives rise to a domestic relations case.

Under either scenario, a client must retain an attorney who knows how to navigate the severity of the criminal case but understands each decision in the criminal case may affect the domestic relations matter.

Domestic Violence and Divorce

A pending domestic violence case may never relate to your client’s divorce. But, that does not mean that the case does not have a possible impact.

For example, a mandatory protection order is issued in a domestic violence case, which may cause issues surrounding the allocated personal property and the marital home. It would help if your client had an attorney skilled in negotiating creative ways to obtain their property.

If the victim objects to any modification of the mandatory protection order, the client may never return to the marital home.

Another time domestic violence may be relevant is if your divorce also involves issues surrounding parental responsibilities.

Domestic Violence and Parental Responsibilities

Parental responsibilities are the orders related to the rights your clients have regarding their children. Even lawyers use the term custody, but the law now refers to those same rights as parental responsibilities. Parental responsibilities comprise two things: parenting time (formerly known as physical custody) and decision-making (formerly known as legal custody).

For example, a Court must allocate parental responsibilities in a pending divorce if it involves children. Or, if the parties are not married but share a child, then the Court will allocate parental responsibilities once a party claiming parental rights files a Petition.

In each instance, domestic violence is usually relevant to the proceedings because the legislature in 1999 amended C.R.S. § 14–10–124, which is the law pertaining to the children’s best interest.

As part of that amendment, the legislature found that domestic violence could be a factor in determining parental responsibilities. Thus, if a client is charged with a domestic violence case, their parental responsibilities could be affected.

A domestic violence case could affect a client’s parenting time if the Court finds them to be a harm to the child or the abused party. The Court must continue to use C.R.S. § 14–10–124 to determine what is in the children’s best interests. This could mean possibly less than equal parenting time or even supervised parenting time, depending on the facts of the case.

Decision-making is usually the most affected parental responsibility if the Court finds that domestic violence is present. Decisions for the children are divided into four major categories: medical, educational, religious, and extracurricular.

If the Court finds by a preponderance of the evidence that domestic violence is present, then “[i]t shall not be in the best interests of the child to allocate mutual decision-making responsibility for the objection of the other party or the legal representative of the child, unless the Court finds that there is credible evidence of the ability of the parties to make decisions cooperatively in the best interest of the child in a manner that is safe for the abused party and the child.” C.R.S. § 14–10–124.

With effective legal representation, a party can show the Court credible evidence that the parties can engage in joint decision-making despite the evidence related to domestic violence.

However, suppose the Court does not find credible evidence that the parties can engage in joint decision-making. In that case, this means a client could not make any medical, educational, religious, and extracurricular decisions for their children.

Therefore, a client needs a domestic relations attorney with the background necessary to effectively present credible evidence to the Court regarding decision-making capabilities among the parties despite any domestic violence.

A client charged with a domestic violence case is already scared and stressed, but the stress and worry only intensify when a domestic relations case is also initiated.

Hence, clients may need to select an attorney with the expertise to handle both. This not only ensures that clients are receiving the best advice across both cases, but it also saves clients the time and money of hiring two attorneys.

Reading Terminal Market, Philadelphia Jamie Paine is an associate attorney at Griffiths Law. Jamie’s practice focuses primarily on domestic relations matters, but given her years of experience as a prosecutor, she helps clients navigate their criminal law issues too. Jamie’s experience as a prosecutor helps her handle the most complex cases with a tactful strategy to achieve the best results.

Starting your own business in a COVID-19 environment

Starting a new business may have been on your mind for some time. Maybe you are tired of waiting on a paycheck from someone else? Or, you’ve lost your job or seen your pay cut during COVID-19? Perhaps you find the idea of building something that will outlast you inspiring?

This challenging economy may actually be the perfect time to flex your entrepreneurial spirit. From a legal perspective, that means choosing an entity, raising capital, and navigating other start-up considerations that will help guide your business decisions, tax efficiencies and ability to scale.

Form an entity

Just like real estate’s three “L’s” (location, location, location), business formation has its own three “L’s”: liability, liability, liability! An entrepreneur who opens shop without operating through an entity is a sole proprietor and is personally liable for all of the business’ liabilities and losses. If two or more entrepreneurs open shop without forming an entity, they will likely be deemed a general partnership and each partner will be personally liable for all of the partnership’s losses and liability including, unfortunately, those arising from the acts of your partner(s), even when those acts are completely unknown to you.

Personal ruin is not a good business plan; form an entity. Single or multiple owner business entities can be formed by filing articles of incorporation or organization, which require little information and a nominal filing fee.

The most common entity is a limited liability company (LLC), which provides personal liability protection for owners between their business and personal assets. Flexible and well-suited for small businesses, a single owner LLC formed with the appropriate state government office does not have to do anything more than properly operate his or her business under the LLC’s name. Proper operation includes keeping business and personal assets separate and maintaining appropriate business financial records. LLC’s with two or more owners should consider negotiating and executing a contractual operating agreement to set forth the economics among the owners, voting rights, and other operational matters.

A corporation is more formal and less flexible. Management, voting and economic rights are set forth by statute and corporations must follow certain corporate formalities to ensure they retain their corporate status and benefits. If going public is part of your dream, then electing corporate status may be the appropriate entity to form. In forming a new corporation, typically Bylaws and organizational minutes are prepared to memorialize how the corporation will be operated, appoint the initial Board of Directors and officers, issue the initial shares of common stock, and adopt other applicable matters of importance to the new company.

And then there are taxes…

Taxes play a primary role in entity selection. Pass-through taxation generally applies to LLCs with two or more members, while single member LLCs are treated as a disregarded entity for tax purposes. By default, an LLC is not taxed at the entity level, although an LLC can elect to be taxed differently. Tax losses from LLC operations can often be “passed through” to LLC members and used to offset income from other sources.

A corporation generally files its own tax return and pays taxes at the corporate level, while dividends paid to shareholders are separately taxed on their personal returns, leading to the “dreaded” double-taxation dilemma. “Check the box” tax regulations give corporations the option to be taxed as a pass-through partnership, thereby avoiding double taxation.

Similarly, a regular corporation can elect a special “S-Corp” tax status and be taxed much like a partnership, with certain differences and limitations. Only individuals and certain trusts can be shareholders. Accidently admitting an LLC as a shareholder and the company has likely blown its S-Corp status and a taxation disaster may follow. The decision to use an S-Corp or an LLC can be complex and generally the advice of an attorney or CPA should be sought.

Finance your startup

If the new enterprise intends to privately raise capital from investors, an entrepreneur should select the entity structure that will be most attractive to potential investors while allowing the entrepreneur to retain control of the entity. Once again, LLC’s tend to be the entity of choice due to their flexibility in creating varying classes of economic interests while separately designating management authority to the entrepreneur. Limited partnerships and its related variations also offer significant flexibility.

For many startups, funding initially comes from friends and family. What’s the harm in selling some equity interests or debt instruments in your new venture to several family members and/or acquaintances, right? Well there can be plenty of problems if what you sell falls under federal and state securities laws. A promissory note might not look like a security (after all, it is debt, not equity), but it might be. Federal and state securities laws define securities broadly to generally include stock, LLC and partnership interests, bonds, debentures, evidence of indebtedness, certificates of interest or participation in any profit-sharing agreement, investment contracts, fractional undivided interests in oil, gas, or other mineral rights, and the list goes on.

Offers and sales of instruments sold to as few as one person can constitute an offer or sale of a security, which must generally be registered with the applicable government regulator or be exempt from registration. There is no “friends and family” exemption in the federal securities law. There are, however, limited offering and private placement exemptions that can accommodate a friends and family offer when certain requirements are met.

Regardless of an exemption, all securities offerings are subject to the anti-fraud rules of the federal securities laws, per the Securities and Exchange Commission:

“This means that you and your company will be responsible for false or misleading statements that you or others on your behalf make regarding your company, the securities offered, or the offering. You and your company are responsible for any

such statements, whether made by your company or on behalf of the company, and regardless of whether they are made orally or in writing.”

Violations of the federal antifraud rules can mean personal liability—regardless of LLC status—for officers, directors, owners and other people who control the entity that violated the rules. Not only are you and your business entity potentially liable for false or misleading statements, you can be held liable if you failed or omitted to tell an investor about an important matter regarding your business. For instance, if in raising money from investors through the sale of a security you “forget” to mention that your company just filed for bankruptcy, you can probably expect to be sued for securities fraud.

So, how can you and your company avoid securities fraud? By assembling a subscription agreement or private placement memorandum that describes your company’s new venture, the risks relating to the company and its business, and other matters that typically would be important to an investor who is trying to make an informed investment decision.

Lest you think your friends and family would never sue you, think again. Years ago, I was called to give a litigation attorney advice regarding a real estate developer client he was representing. Just prior to the 2008 economic crash, the real estate developer borrowed about $1 million in a promissory note from his wealthy sister-in-law and her husband to build a fancy speculation home. The funding agreement included an “equity kicker” in which the sister-in-law would get to share in the profit on the sale of the home.

The developer finished the house just as the real estate market began to crash and the unsold spec house’s value plummeted. The sister-in-law sued the developer and his wife on the simple default on the promissory note and securities fraud, the latter claim which is generally not dischargeable in bankruptcy.

While there are some special circumstances where a promissory note is not a security, the sale of an equity interest or profits interest is almost always deemed to be a sale of a security. This feature attached to the promissory note made it very difficult to defend that there was no offer or sale of a security involved. Had the developer and his wife delivered to the sister-in-law a document outlining the risks relating to investing in spec homes and obtained acknowledgement that she understood and accepted those risks, securities fraud claims could have likely been avoided. Although perhaps awkward at the time of issuance, this document may very well have preserved family harmony down the road.

Multiple owner entities

Starting a new business should also provide for future uncertainties. Businesses with multiple owners should consider entering into an agreement regarding how the owners will deal with each other should certain life events occur. What happens if one of the owners dies or becomes disabled? Does the surviving owner want to be in business with that person’s spouse or adult children? What about a divorce where part or all of the owner’s ownership interest is awarded to the ex-spouse? A bankruptcy of an owner? An agreement with buy-sell provisions and a methodology for determining the purchase price and how it is to be paid in case of a transfer of an ownership interest in the entity is a must to avoid the types of problems that can tear a business apart.

Previous financial crises have seen entrepreneurs enter the marketplace with innovative business ideas. The coronavirus is similarly giving entrepreneurs the opportunity to identify and meet new needs in changing environments and fluid workplace settings. Only you can decide if now is the right time to go into business. But if it is, do it right. Hire the expertise you need to help you tackle the legal foundational issues so you can focus on getting your new business up and running fast.

Dave Thayer Square David A. Thayer, Esq., is a business and corporate finance attorney, and former CPA, that focuses on making deals as he helps clients achieve their business dreams. He can be reached at [email protected].

*THIS INFORMATION IS NOT INTENDED AS LEGAL ADVICE. SEEK SPECIFIC LEGAL ADVICE BEFORE ACTING.