Understanding Non-Piracy Agreements: Safeguarding Your Business Assets

Defining a Non-Piracy Agreement

A non-piracy agreement is a form of agreement – typically a written document – between an employer and an employee, wherein the employee agrees not to actively solicit or hire other employees of the employer within a certain period of time after termination of employment.
Non-piracy agreements are related to but generally less restrictive than non-compete agreements. Non-piracy agreements are not designed to hinder an employee’s ability to earn a living , as is the case with non-compete agreements; rather, the purpose of non-piracy agreements is to prevent the former employee from utilizing his/her knowledge of the employer’s employee roster to pick off the most desirable employees. Non-piracy agreements are effective in preventing the poaching of employees, as opposed to hindering an employee from seeking employment.
Accordingly, it is not surprising that the black letter law is trending against non-compete agreements, in favor of non-piracy agreements.

Key Components of a Non-Piracy Agreement

Without being comprehensive, the key elements of a non-piracy agreement include: a description of the scope of the non-compete, a duration of the non-compete, geographic limitations of the non-compete, and what acts are prohibited by the non-compete.
The scope of the non-compete should be stated clearly with respect to the type of products and/or services, the market and whether there are any particular customers or suppliers which are restricted by the non-compete.
Duration is typically for one (1) year after the termination of employment. However, longer durations are not uncommon. For example, HP has a 18 month non-competition period. Longer durations for senior executives are also common.
Geography will vary by an individual’s sales territory or business region. A sales territory is typically within one (1) state in which the individual has done business. For example, a sales representative with a territory in Maryland will be nondisclosure for Maryland only.
What is prohibited by a non-piracy agreement varies by company. Many companies include restriction of solicitation of customers, suppliers, other employees, and customers from the time of termination until the non-compete ends. Depending on the type of business, a restrictive covenant agreement may also restrict an employee’s ability to conduct business in the industry after termination with knowledge of the employer’s trade secrets or confidential information (e.g., customer lists, pricing).
In order to ensure your agreement is enforceable, consult an attorney experienced in restrictive covenants.

Advantages of Non-Piracy Agreements

The implementation of non-piracy agreements provides several specific benefits that make it a more effective option for the protection of a business’ legitimate interests. Non-piracy agreements are an excellent way to ensure that clients’ interests are not compromised by employees seeking to take a substantial amount of business to a single client after leaving their jobs. A well-designed non-piracy agreement can contain well-defined terms, which can include the definition of important terms, such as "client" or "noncompete", non-solicitation of all employees/clients/friends through applicable time periods, the definition of any required geographic area, and a limitation to only those that are necessary to protect legitimate interests. By drafting a non-piracy agreement in this manner, the courts will be more likely to enforce a non-compete in the event of a violation by an employee and that employee will not be able to claim that the non-compete is overbroad. This means that non-piracy agreements often provide the ability to prevent former employees from taking a significant amount of work to a single client. In many cases, businesses are able to specified in such an agreement the types of clients that are off limits to departing employees, thereby relatively easily defining the limits of a non-compete agreement. With a non-piracy agreement providing the ability to limit the competition of former employees, a business can experience confidence in its ability to successfully protect its legitimate interests.

Legal Implications and Boundaries

As is often the case in drafting non-competition, confidentiality and non-solicitation agreements, jurisdictions within the United States view the reasonableness of the restraint or balance of the competing interests somewhat differently. While parties are free to enter into a non-piracy agreement, whether that agreement will be enforced will depend upon its geographic scope, the nature of the business to which the agreement applies and the totality of the surrounding facts. For instance, as stated in Inzer v. Shaw, 50 So. 3d 13, 18 (Ala. Civ. App. 2010) "[t]he scope of a [non-piracy agreement] must be limited to relevant markets in order to be enforceable." However , Alabama courts have been clear that the reasonableness of the restraint "is measured by the actual business operations of the parties to the agreement even if those do not give rise to a protectable interest at the time the agreement is made." Id. If a non-piracy agreement between a company and its employees is too restrictive in its scope, it may be challenged by the employee in court as unenforceable under applicable non-compete laws. Such a court challenge can be costly to both parties, as not only could the agreement be found to be truly unenforceable, which could result in the employee being entirely released from her or her obligation not to steal customers, but the employer may be required to pay such attorneys fees and even damages as the court sees fit under the circumstances.

Crafting a Comprehensive Non-Piracy Agreement

When creating a non-piracy agreement, it is important to clearly define the rights and obligations of both parties. Here are some specific tips to keep in mind when drafting such a document:

Clearly define the confidential information that is being protected against pirating. This could include customer lists, or any other information that is owned by the creator of that information.
Make a list of all the things you want to be covered by the agreement and to clearly and specifically list them within the agreement.
Create a general provision that covers anything related to trade secrets.
Put a time limit on how long the agreement will be in effect. Typically, grandfather the agreement as lasting indefinitely if the pirates have not discontinued their use of the confidential information within the time limit.
Non-piracy agreements are most effective when they are customized for the business issuing them. It is essential to thoroughly discuss your needs and goals with your legal professional to ensure that the language used in the agreement provides the business with the sufficient protection it requires.
Be sure to have a legal professional review the non-piracy agreement to ensure that it complies with all applicable laws and could stand up in court in the event of a dispute.

Case Studies: Real-Life Examples of Non-Piracy Agreements

Imagine a small software development company that has unique code for Internet applications. The company has a competitor that is constantly copying their code line for line, easily outpricing them on similar projects, and winning the bids every time. In frustration, the small company calls Davison Law Group really mad about the competitor’s constant copying. While no specific "non-piracy" agreement exists between the two companies, the competitor has signed the terms and conditions of the software contracts in the past which include a limited license to use and make a copy of the code "strictly for purposes of developing non-competitive technology under [the competitor’s] control and not using, distributing, creating derivative works from or publishing the resulting technology or any of [the small company’s] proprietary material." Given this contractual language, the small company has some hope of bringing an action against the competitor .
Or consider this situation: A medium sized entertainment company specializing in video gaming butting heads with their largest competitor on a video game platform. Our client has noticed that their largest competitor’s game design has very similar motion animatics to their platform technology and iterations of specific characters look identical to those they have been implementing for years. The client has a monthly development call for release dates and new game designs where both client and competitor share information and design concepts. Barely a month has passed, and the competitor is ready with a full game launch. Without a non-piracy agreement in place, it will be extremely difficult for our client to prove that copying has occurred. However, since our client has kept a record of the monthly design updates including a meeting agenda item that includes a discussion of proprietary software, it may be possible to stop the competitor.