Answer

Case Study of Sheila Mason & Craig Shepherd

Brief Summary of The Case-Study

The case presents Sheila Mason and Craig Shepherd, a sales and marketing executive at American Telecommunication Software, Inc. (ATS), and a manager for documentation and support at Nova Software Company respectively. The two seek to start a company together for the design of a new “translation engine” (a translation software) (Roberts & Thedinga, 2012). The two business partners felt uncomfortable at their current positions in their organizations and thus decided to create their own venture. However, both of them are still employees at their organizations and are unsure of the best way to leave and focus on their innovation. Additionally, they have signed two different types of agreements. Notably, Sheila Mason had signed an employment contract which contains non-competition, non-solicitation, non-disclosure and even development clauses which prohibited her from undertaking various activities (Roberts & Thedinga, 2012). Similarly, Shepherd had also signed an agreement on the aspects of inventions and non-disclosure. The issue which they grappled with is whether their new products was a contravention of their employment agreements. Additionally, they were concerned whether the new technology would offer competition to their employers which would then make them liable for the breach of their non-disclosure and non-competition agreements. Moreover, both Mason and Shepherd are not sure whether to hire lawyers who represent their employer companies as this would potentially lead to a conflict of interests. Their employers have written them letters reminding them of their obligations under the various agreements. This paper provides preliminary thoughts on the themes and concepts addressed in the case study as well as an assessment of the strategic choices. Finally, a strategy recommendation will be made.

Preliminary Thoughts on Themes, Concepts, Or Rules in The Case-Study

One of the themes presented in the case study is that of intellectual property rights. Notably, intellectual property rights (IPRs) refers to the right held by a person or organization/company to have exclusive rights for the use of its own ideas, inventions, intangible assets, and plans without the fear of competition for a specific period (Bently & Sherman, 2014). One of the examples of IPRs is design patents for some ideas and software. The theme of intellectual property is presented in the case whereby Sheila Mason is concerned that the software that he has developed with Shepherd could infringe on the IPRs of ATS (Roberts & Thedinga, 2012). In specific, she was worried that developing a similar product would provide competition to ATS’s products. However, she concluded that the translation engine that they were about to generate was a generic product and thus could not be restricted by a claim of IPR. My preliminary thoughts are that the products intended to be designed by the partners offers direct competition to ATS which would present legal liability due to the infringement of intellectual property rights. Additionally, I think that it could have been wiser for both Mason and Shepherd to establish what is patented by ATS before determining whether their product would be an infringement.

The other concept in the case study is that of non-disclosure, non-competition, and non-solicitation agreements. A non-disclosure agreement (NDA) is also known as a confidentiality agreement or secrecy agreement and seeks to obligate a party to keep certain information confidential and revealing it results in legal consequences. According to Bently & Sherman (2014), An NDA aims to protect the trade secrets and the intellectual property rights of an organization. A non-competition agreement; also known as a non-compete clause, on the other hand, is an agreement not to compete whereby the party bound by the agreement agrees not to enter into or even start a similar profession or trade in competition to that of the party issuing the agreement (Fitzgerald, 2017). Non-compete clauses are restrictive covenants. Non-solicitation limitations are those contracts whereby a party agrees not to solicit the clients and customers of the employer for his/her own benefit or even for the benefit of a competitor.  Such concepts are presented by the contract signed by Sheila Mason where she agrees not to disclose ATS trade secrets, compete with it after leaving the organization, and even solicit ATS’s employees, clients, and customers. My preliminary thoughts are that such agreements are beneficial to business organizations as they ensure their sustainability but detrimental to employees who are restricted from progressing after they have left their employment.

The case addresses the concept of patents, copyrights, trade secrets, and trademarks as crucial aspects of intellectual property. Whereas a patent gives the owner the right to exclude others from the making, suing, selling, and even the importation of an invention for a specific time, a copyright gives the owner the exclusive rights of printing, publishing, and using specific materials consistent with the terms of the copyright (Bently & Sherman, 2014). Trade secrets consist of information including design, formula, instrument, patterns, and even practice owned by one party and in which revealing it would provide an economic advantage to competitors. Finally, a trademark is a recognizable sign or design by which particular products or services are identified. The issue of patent arises where both Mason and Shepherd contemplate on patenting their new translation software such that their idea will not be copied (Roberts & Thedinga, 2012). Copyright arises with the case of ATS where the company has exclusive rights over specific technologies. In my view, the issue of Mason and Shepherd patenting their innovation is right to ensure that competitors do not steal it. Additionally, the fact that ATS protects its trade secrets is vital in ensuring its continued profitability.

The rule about conflict of interest arises whereby Mason wants to hire an attorney and contemplates on asking her VC friends about the names of the law firms that they like to work with on legal issues. However, she decides against it as she is aware that it would present a conflict of interests where it will not be clear as to where their loyalties will lie (Roberts & Thedinga, 2012). Notably, a conflict of interest arises when the representation of one client by an attorney has a direct adverse effect on another. According to Gillers (2014), where a lawyer’s representation of one client negatively impacts the duty of the lawyer to another client or former client, then a conflict of interest arises. Lawyers must ensure that they do not place themselves in situations which involve a conflict of interest. My preliminary thought on this rule is that it is an appropriate rule to prevent attorneys from acting for both parties and thus failing to make good representations. Additionally, in such a situation, a lawyer can use information obtained from one client to advance the case of the other. Having two loyalties should thus not be allowed for attorneys.

Assessment of Strategic Choices Presented by The Case Study

            A strategic choice refers to a systemic theory of strategy where organizations interact in a manner which enables them to adapt to their environment in a self-regulating manner. Strategic choices aim to ensure the effective achievement of organizational goals. Strategic decisions are affected not only by competition but also by organizational factors such as leadership, culture, technological advancements, and structure (Bently & Sherman,2014). One of the strategic choices present in the current case is that of ATS deciding to provide non-disclosure, non-competition, and non-solicitation clause to Mason (Roberts & Thedinga, 2012). Notably, to ensure that business organizations maintain their competitive advantage, they ought to keep working on new innovative ideas and exciting products. The decision for the ATS to provide the agreement to Mason was strategic because it ensures that the trade secrets of the organization do not fall into the hands of a competitor. Additionally, the non-solicitation agreement provided to Mason was a strategic decision on the part of ATS because it ensured that the employee could not solicit the clients of the employer if she left the organization. Protecting the trade secrets from being stolen and providing an economic advantage to competitors was a strategic decision for ATS for continued business success.

The strategic choice by Mason and shepherd not to patent their idea of developing a translation engine has various advantages and disadvantages. One of the benefits is that the two partners saved on the costs which would be used in the patenting process. Notably, they wanted to find out from potential customers whether the business opportunity was really feasible before they could commit their funds to patent the idea and thus acquiring intellectual property rights over their translation engine. However, such a decision could also have a detrimental effect on their concept. In specific, failure to patent, the translation engine concept could make is susceptible to theft especially from their competitors (Fitzgerald, 2017). The fact that they were sharing their idea with persons who have failed to sign a non-disclosure agreement makes their strategic decisions to have adverse effects. In Rubber-Tip Pencil Co. v. Howard [1884], the US Supreme Court held that an idea of itself could not be patented but the new device by which such an approach may be made practically useful. Additionally, Title 35 of the United States Code gives the US Congress the power to promote the progress of science and useful arts and secure the exclusive rights of inventors to their respective discoveries (Lobel, 2016). As such, failure by Mason and Shepherd to patent their concept exposes it to theft.

            ATS made a correct strategic choice to institute a legal case against Mason for the breach of the various clauses in the agreement related to non-competition and non-solicitation. Notably, the organization ensured that it protected its interests. However, the choice of such a restrictive non-compete clause could present various difficulties. Notably, according to Dosi, Grazzi, & Moschella (2017), for a non-compete agreement to be enforceable, it should be supported by specific and legitimate business interests. Additionally, the scope of the non-compete agreement should not be unreasonable in terms of what it covers as well as the duration. Although the noncompete agreement signed between ATS and Mason is limited in duration in that it requires Mason not to accept employment by a company that is in direct competition with ATS, it is extremely broad in its scope as it provides lots of positions that Mason cannot hold. Additionally, if a non-solicitation agreement would be sufficient to support the interest of the company, then there is no need for a non-compete clause (Mezrich & Siegel, 2014). Such a position as held by the Ontario Court of Appeal in Lyons v. Multary [2000] where it was stated that non-competition agreements tend to be much more drastic weapons and should not be used where non-disclosure and non-solicit agreements are sufficient.

Strategy Recommendation

Based on the assessment of the strategic choices made in the case study, the strategy recommendation which ATS should adopt is only protecting its trade secrets through non-disclosure and non-solicitation agreement and dropping the non-compete agreement. The organization should drop its strategy of using the legal channel to require Mason to abide by her obligations based on the non-compete agreement. One of the reasons for the recommended strategy is to ensure that the organization does not spend vast sums of money in trying to defend the unreasonable non-compete agreement. Notably, a non-compete agreement found to be overly restrictive has been struck down by the courts and help to be non-enforceable (Bishara, Martin, & Thomas, 2015). The non-compete agreement coupled with the non-disclosure and non-solicitation clauses in the contract prevents Mason from earning a living if he has resigned or her contract terminated. As such it is unlikely that the court will enforce the agreement.

The strategy of dropping the non-compete agreement and protecting the IPRs only through the non-solicitation and non-disclosure agreement is based on the holding of the court in Lyons v. Multary [2000] that noncompete agreements which are drastic should not be used if non-solicitation clauses could serve the same purpose. Additionally, recently in Tradition Financial Services v Gamberoni & Others [2017], it was held that employers should be reasonable when setting their non-competition clauses by considering the circumstances of the employees and only doing so for the reasons of legitimate business interests. Additionally, since the noncompete clause was part of the employment contract, then there is a probability that Mason would breach it. Moreover, Mason would not be able to earn a living as long as the noncompete agreement remains in place. Based on the disadvantages of the non-compete agreement and the probability of the agreement failing in court, it is only probable that ATS changes its strategy and removes the provision of such a clause to save it from litigation costs and also ensure that the goals of protecting itself from the theft of trade secrets are achieved.

Series of Questions Presented to Be Explored in Class

1. Do you think that it was right for ATS to require Mason sign the non-disclosure, non-compete, and no-solicitation agreements?
2. Should Mason and Shepherd have patented their idea before they determined its feasibility?
3. What do you think was the most appropriate way for Mason and Shepherd to level their cuttent job positions and work on their idea?
4. Should non-compete clauses be entirely disallowed in a contract of employment?
5. Which other ways can business organizations protect their trade secrets?
6. What is your view on the strategic decisions and choices made in the case study?