Category Archives: Business and Transactions

In a previous post on IP Spotlight, I provided a few tips for negotiating non-disclosure agreements. In the post, I noted that a “form” NDA should only be considered a starting point. The parties should modify it as appropriate to fit the business situation and the type of information that is being disclosed.

Here’s an additional tip if the other party to the NDA is not a U.S. company:  if the other party breaches the agreement, you may be able sue that party in the U.S. and win, but the U.S. court’s judgment may be difficult to enforce in the other country.

This is a particular issue in China. Chinese courts typically will not enforce judgments of U.S. courts, and they may not enforce an NDA written in English and subject to U.S. law.

So how can U.S. companies obtain an enforceable NDA with a Chinese company?

One way is to make it in Chinese (or bilingual, in English and Chinese, with the Chinese version controlling), and make it governed by Chinese law and subject to jurisdiction of the Chinese courts, or perhaps Hong Kong law and courts. Although this can be inconvenient for the U.S. company, the inconvenience may be a worthwhile.

Another option is to consider arbitration. While arbitration is not typically an ideal option for an NDA because only a court can grant a quick injunction to stop further disclosure of the information, foreign arbitration awards are generally enforceable in China. Most countries (including the U.S. and China) have signed the New York Convention for the Recognition and Enforcement of Arbitral Awards (http://www.newyorkconvention.org/).

So, consider a binding arbitration clause, and if the agreement will include an option for an injunction, that should be governed by Chinese law and issued by a Chinese court. Also, make it a bilingual agreement, with versions in English and Chinese.

This week the Obama administration issued a “call to action” statement in which it urged state governments to restrict many of the non-compete agreements that employers often impose on employees. The statement calls on state legislatures to adopt certain “best practices” for regulating employee non-compete agreements, including:

• banning non-compete clauses for certain categories of workers, such as workers under a certain wage threshold, workers in certain occupations that promote public health and safety, and workers who are unlikely to possess trade secrets;
• refusing to enforce non-compete clauses against workers who are laid off or terminated without cause;
• disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted;
• requiring employers to give additional consideration (i.e., more than just continued employment) to workers who sign non-compete agreements;
• encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work; and
• encouraging the elimination of unenforceable provisions through the use of legal doctrines that make such provisions (or contracts containing them) void.

The statement follows the administration’s May 2016 report titled “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” The administration stated that the May 2016 report was intended to address “issues regarding misuse of non-compete agreements and describe[] a sampling of state laws and legislation to address the potentially high costs of unnecessary non-competes to workers and the economy.”

The statement noted that the laws of three states (California, Oklahoma, and North Dakota) already contain significant restrictions on non-compete agreements signed by employees, and at least a dozen states have considered legislation in this area during the past year.  To accompany the report, the White House also published a “state-by-state explainer” of existing state non-compete laws to help interested parties understand the restrictions that are already in place across the country.

The proposal is certain to attract a significant amount of attention, both pro and con. Regardless of whether states adopt the statement’s recommendations, the statement does highlight the fact that many different standards for employee non-compete agreements exist across the country. Because of this, employers should be careful to note that a particular form agreement may be fine for employees in some states but less-than-ideal for employees in a different state.  The “explainer” document can be a helpful tool to help employers understand those differences when they hire new employees across the country.

[Image credit:  Kittisak Jirasittichai]