Georgia Senate Sends Restrictive Covenant Law to the Ballot

Readers of the blog know we’ve been following the proposed change in Georgia’s restrictive covenant laws. At the close of this year’s General Assembly, the Senate took the penultimate step toward approval when it voted to send the issue to the ballot. In November, you will see on your ballot a constitutional referendum, which if approved, will enable and trigger the new law.

You will recall that right now, Georgia is one of the most difficult states in which to restrict competitive activity by former employees. The principle is written into our state constitution: any restraint on trade – and these kinds of contracts are considered restraints – are against our public policy. Frequently, what companies thought were carefully drafted agreements come before trial courts on motions to enjoin employees and are then struck down as unenforceable.

Faced with this challenge, the General Assembly proposes to exempt agreements that are consistent with the new law (House Bill 173) from the kinds of contracts that are illegal and void against public policy. Freely negotiated employment agreements designed to protect trade secrets, confidential information and customer relationships would no longer be categorized with “contracts tending to corrupt the legislation or the judiciary” or, perhaps more common “wagering contracts.”

If approved by the voters, the new law will replaces the rigid “geographic scope” test, thereby modernizing restrictive covenant enforcement. Instead of trying to define an employee’s territory based on where the employee physically has done business for the employer, the new law permits a court to accommodate not just geography, but the area where activities are actually conducted. House Bill 173 alternatively allows employers to simply list prohibited competitors instead of a prohibited geographic territory. Thus, employers and employees have more flexibility in negotiating what kinds of post-employment conduct is prohibited, and the employer does not have to worry about constantly having to update the agreement as the business relationship between the parties changes over time. At the same time, the employee is afforded more certainty in the protections negotiated in the event that the agreement has to be enforced.

The proposed definition of “employee” in the new law would extend only to executives, persons with true access to confidential information (such as research and development personnel) and persons with specifically sensitive customer information that is generated from the employee’s tenure with the employer – not every employee. In other words, House Bill 173 is targeted precisely to protect the entrusting of competitively sensitive information by the employer to the employee in exchange for the compensation and benefits attendant to the job.

Moreover, even defined “employees” subject to the new presumptions in favor of restrictive covenant agreements drafted in accordance with House Bill 173 have the legal ability to challenge particular agreements as being overbroad in fact. Unlike the current state of the law where agreements are “good” or “bad” as written and cannot be modified to balance competing interests, the new law gives the courts the ultimate ability to “blue pencil” or “modify” arguably overbroad agreements. Thus, the courts still serve as a check against an employer who has reached too far in fact, but the courts now have to account for the concerns of business as well in evaluating the scope of the restriction sought to be imposed by the employer. At present, lacking the ability to “blue pencil,” courts can only invalidate a restrictive covenant that may reach just beyond what is reasonable.

Businesses drafting restrictive covenants, and the professionals assisting them, will find additional certainty in the bill. For all kinds of prospective restrictive covenants, the Georgia Assembly included presumptions as to the duration of covenants. For covenants provided in the employment context, House Bill 173 states that a period of up to two years is presumptively reasonable. For covenants executed in other situations, the length of the permissible restriction may increase, e.g., for up to three years in a franchise or licensing context and up to five years when covenants are provided in connection with the sale of a business.

If approved by in November, the new law will apply prospectively, that is, to agreements entered after the effective date of HB 173. You can find the text of Georgia House Bill 173 at http://www.legis.ga.gov/legis/2009_10/versions/hb173_HB_173_AP_7.htm and some further discussion of its implications at http://www.agg.com/media/interior/publications/AGG_White_Paper-Georgia_House_Bill_173.pdf.

Andrew Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.

Policing Your Trademark

After acquiring a trademark registration, you may feel that you have done all there needs to be done to protect the name of your company or brand. While a trademark registration affords significant protection, it is not always enough to combat trademark infringement. In certain circumstances, if enough third-parties in the marketplace begin using a mark confusingly similar to yours, your mark may be weakened and consumers may be less likely to be confused by the infringing third-party use. Hence, remaining vigilant in the marketplace and taking swift action against infringing use is an important consideration for your trademark portfolio. As discussed below, there are a couple of efficient ways to accomplish this goal.

New USPTO Applications

A relatively easy way to keep an eye on third-parties that may be infringing your mark is to periodically review new applications submitted to the United States Patent and Trademark Office (USPTO) for marks that have words or phrases similar to your registered mark. There are numerous “watch” services, including those used by this firm, that can review these applications for you and alert you when a potentially infringing trademark application is submitted to the USPTO. Depending upon the circumstances, you may then find it appropriate to oppose the trademark application through a formal USPTO proceeding and/or send a demand letter to the applicant to cease the infringing use.

Under the Radar

Often, however, it is difficult to root out third-parties infringing your mark because some entities may not seek a trademark registration or make their presence known on the Internet. These third-parties may, however, be using your mark or a confusingly similar mark in their business names or brand names. A periodic search for such businesses through various nationwide business directories and government registries (available in report form from the vendors mentioned above) can quickly identify any such third-parties, and help you investigate whether further action against those third-parties is necessary. Through your vigilance, you may discover that a business operating just a few streets away has adopted your trademark, and that it may even be luring away your customers.

Action Plan

While periodically reviewing and protecting your intellectual property portfolio may not be on the top of your list, it should be. Your trademark can be a valuable asset, and perhaps even the only thing that separates you from your competitors in the marketplace. Take the time to ensure that your trademark is not being infringed, and, if it is, be prudent and take swift action to stem any such infringement.

-- Anuj Desai, Esq.

Not If, But How

Arnall Golden Gregory, LLP has significant experience in trademark law. Do not hesitate to contact us if we can be of help to you.

Please visit our web site for more information, www.agg.com.