Responding to Non-Compete Cease & Desist Letters (Strategies and Options)

Over the past decade, I have represented literally hundreds of clients in non-compete matters. I have seen more than 1,000 non-compete cease and desist letters. Several times a week, someone contacts my office who has received a non-compete cease and desist letter. These folks come from every level of every industry. We routinely represent C-level executives, including those from publicly traded companies. We routinely represent doctors, engineers, high-level sales executives. We represent the individuals and we represent the companies that hire these people. We represent serial entrepreneurs who sold one business, sat out for a year or two, and are getting back in. Healthcare. Energy. Transportation. Finance. Education. Law (that’s right – some general counsels of big companies have non-compete agreements). I have seen it all. As a result of this experience, I can offer the following recommendations:

1. Engage counsel sooner rather than later. The old adage goes that a person who represents himself has a fool for a client. That often holds true. I have even seen a Fortune 500 company that insisted on using its in-house labor and employment lawyers absolutely get demolished in non-compete litigation. If you receive a non-compete cease & desist letter, and the stakes are significant, you hire counsel. If you are a lawyer and this is not your wheelhouse, you direct your client to hire specialized counsel.
2. Expertise is mandatory. If a client calls me with a high-stakes divorce, I send them to the best divorce lawyer I know. Because that is not what I do. Some lawyers recognize that high-stakes non-compete (and possibly trade secret) litigation is a specialized arena. And they do not dabble. They refer their client to a specialist. Other lawyers take the approach of, “A non-compete case can’t be that complicated. I can handle this myself.” That usually ends in a disaster.
3. Initial positions set expectations. This is closely connected with 1 and 2 above. Whatever initial position you take plays a massive role in setting expectations. Let me explain: If your initial position is a weak technical defense coupled with an apology and a promise that Mr. X will abide all of the terms of the agreement— Consider how that sets the table. The putative plaintiff now assumes that the non-compete agreement is entirely enforceable (because you basically bought into that assumption). I see this all the time. I see lawyers dabbling in this space, responding to cease & desist letters, and getting involved in complex non-compete/trade secret disputes when they simply do not have the requisite experience.
4. Initial positions set expectations – Part II. This crosses over into litigation. In defending non-compete/trade secret cases, there are two approaches: The first approach is the apologetic, “Awww shucks, it’s probably enforceable, we just want to pay you something nominal to go away” approach. The second approach is the, “Don’t start this. Because if you do, you are paying me” approach. The same thing applies to trade secret litigation (or cases involving both non-compete and trade secret issues). If the plaintiff has a weak case that the defendant could fight and defeat on the merits, then the defendant should not be raising weak technical arguments, apologizing, squirming and offering to pay money to make it go away right from the jump. The impact of that? It emboldens the plaintiff and establishes their initial expectation. Fifty percent (or more) of law is psychology. If you basically tell the plaintiff that they have a case, that they’re right, and that you will ultimately pay them money—- guess what? They will permanently latch onto that. The plaintiff’s lawyer will go tell his/her client, “They know we’ve got them and they’re already talking about paying us money.” The client on the plaintiff side is now emboldened. That client on the plaintiff side may be willing to spend more money on the litigation — certain of their impending victory and payment. If you’re the defendant, good luck changing course. Good luck fighting to overcome that initial expectation. The upshot of all this: You must know the strength of your position. That requires expertise. Dabblers are more likely to take a weak starting position. A weak starting position creates bad expectations (namely that the non-compete is enforceable, that the trade secrets are real, that the other side has a case, and that you will eventually pay them something to go away).
5. Concrete options. You (whether lawyer or client) have the following specific options:

• • Ignore it. Terrible idea. Generally, when you ignore a cease and desist letter re a non-compete agreement, trade secrets, trademark infringement, etc. the problem does not go away. Instead, the other side turns into an echo chamber. There is no intervening dissenting voice. So the (corporate) plaintiff and its lawyer are sitting there saying things like this, “Of course they aren’t responding! They stole everything! They know they’re guilty and they’re running scared! We need to sue them immediately.”
  • Respond to it via counsel. In almost all instances, you respond via counsel who has expertise in this specific arena. As noted above, when you respond via counsel who lack that expertise, you often fail to maximize your position and set bad expectations.
  • Sue first. In rare instances, instead of responding with a letter, you respond with a lawsuit. The higher the stakes are, the more imperative it is to consider suing first. Say there is $10 million at issue. Say there is $20 million at issue— Yes, there are $10 and $20 million non-compete cases. We are in one or two of those right now. If the stakes are that high, then you consider all of the options. It becomes a chess match. With that much money at stake, litigation is almost inevitable. So you move from a posture of trying to prevent/avoid litigation to trying to seize leverage and maximize your position. And that is where suing first enters the equation.

Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He has extensive experience litigating non-compete, trade secret, and unfair competition matters. His office can be reached at 954-332-2380.