Mark J Guay, P.C.'s Blog

Protecting Your Trade Secrets in Massachusetts ("MUTSA")

The Massachusetts Uniform Trade Secrets Act was enacted in Massachusetts (MUTSA) in 2018 after almost two decades of review and analysis. Essentially it is very much the same as the national Uniform Trade Secrets Act, enacted by 48 other states in various forms (except the State of New York). This Trade Secrets Act protects such things as (1) a broader range of Business Confidential Information (“BCI”), including BCI not currently used by its owner, negative information (i.e., what NOT to do), and BCI threatened to be used (i.e., inevitable disclosure) where use is unavoidable. It is now the law in Massachusetts.

So how can a business owner protect their “trade secrets” from “misappropriation” under MUTSA? Let’s take a look at two (2) key statutory words you need to know for discussion purposes:

(1) “MISAPPROPRIATION” is (a) an act of acquisition of a trade secret by someone who knows (or has reason to know) that it was acquired by improper means, or (b) an act of disclosure or use of a trade secret without the owners express or implied consent when then (i) used improper means to obtain same, or (ii) at the time of misappropriation knew or had reason to know it was derived from improper means or had a duty to limit the disclosure at said time under the circumstances (either because it was limited by the confidential relationship or knew or had reason to know it was acquired by accident or mistake from another who had misappropriated same). Finally, misappropriation can be based on “inevitable disclosure” based on release of BCI in a specific employment situation.

(2) “TRADE SECRETS” means BCI, regardless if it is fixed in a tangible form or thing, such as formulas, patterns, compilations, programs, devices, methods, techniques, strategy, processes, customer lists, inventions, and all types of company data, etc. that AT THE TIME of the misappropriation (1) provided an economic advantage (actual or potential (new)) for it being kept a secret, and (2) the owner’s efforts to protect the trade secrets were “reasonable under the circumstances” (e.g., reasonable notice to prevent misappropriation).

(Conversely speaking, trade secrets DO NOT INCLUDE information such as the discovery of BCI by independent invention, reverse engineering, or legally licensed information, public observation, or known from public literature, etc.)

As the owner or a manager of your company, how should you review your BCI systems annually for compliance with MUTSA? My basic recommendations are as follows:

1.Identify how your trade secret systems actually work right now.

2.Ask yourself, what reasonable protection strategy should you have in light of MUTSA? (N.B. Your computer system is just one part of your strategy, and by no means comprehensive.)

3.Send your Trade Secret draft plan to an attorney to see if it passes muster in light of the MUTSA requirements.

MUTSA may have taken the complication of searching many laws to find out how to comply, but compliance is about comparing what you are doing with what MUTSA requires you must “reasonably” do. For example, if you spend a negligible amount of money protecting your trade secrets, good luck trying to convince a court that your allegedly misappropriated trade secrets are “priceless.” A judge will likely respond: “if it was so priceless, then why didn’t you spend more time and money to protect it”?

Remember, your biggest risk is, as the saying goes, “you don’t know what you don’t know.” Trade Secret protection is one of the most important legal risk management strategies to ensure it is done properly. It depends on your specific situation.

You should review your plan annually. Don’t wait until it’s too late!

On Practical Drift & Intentional Ignorance

When making critical legal decisions for an organization, two major pitfalls to be especially aware of are the concepts of “intentional ignorance” and “practical drift.”

Generally speaking, “intentional ignorance” [originally referenced as “willful ignorance” by Noam Chomsky] is the theory of “truth shrouding” or myth-making. The unwillingness, in an organizational setting, to address an organization’s senior-level knowledge gap over time can have serious consequences. Running contrary to the model of “lifelong learning,” intentional ignorance can often simply start with the inability or unwillingness to ask strategic questions on long-term goals.

A simple example we are all familiar with, when confronted with a new idea or construct, is when someone responds with the time-honored rejection by simply saying, “but that’s not the way we have always done it.” They then use that way of thinking to not pivot towards a better understanding of the current facts and circumstances in order to reconsider the situation. It is also referred to as “informational denial.” By analogy in policy matters, in the FOREIGN AFFAIRS article [March/April 2017] entitled “How America Lost Faith in Expertise,” Professor Tom Nichols of the U.S. Naval College wrote that the lack of “metacognition” [i.e., the ability to think about the way you think] results in “ignorance – at least regarding what is generally considered established knowledge in public policy – is seen as a virtue.”

On the other hand, “practical drift” was a theory originally coined by Lt. Colonel S.A. Snook in his seminal book “Friendly Fire – The Accidental Shootdown of U.S. Black Hawks over Northern Iraq” to describe the gradual decoupling of practice from written protocols and procedures that can result in catastrophic disaster in a military setting and other complex environments. Simply put, over time, an organization’s actual practices begin to “drift” from its written procedures. When reviewing the root cause of the drift, it is too often discovered that what some in the organization have considered an “efficient adaptation,” or a pragmatic fix, too often is simply an oversimplified adaptation of a standard protocol, based on a misunderstanding of how one’s actions impact other units.

From a strategic legal perspective, an unwillingness to learn new legal compliance requirements, or creating short-cuts to existing legal compliance procedures, may appear to be “efficient” in getting a project done short term, but it is ultimately “ineffective” or even disastrous long term. As we all witnessed in the Deepwater Horizon drilling rig explosion in 2010, poor decision-making comes about in many ways, including intentional ignorance and practical drift. An organizational meta-dialogue on both theories and how they impact your company is important to avoid the catastrophic results of such decision-making errors. Are you drifting or simply ignoring new data points? Good corporate governance requires addressing both these important decision-making constructs. As a member of a company’s outside team of professional advisors, we are both willing and able to help you navigate these risk matters.

The "Hedgehog and Fox" Contracts Strategy

In the seminal book, “The Hedgehog and the Fox,” the author Isaiah Berlin writes about the tension in Tolstoy’s life between his philosophy of a unitary defining concept (i.e., the hedgehog) but in real life embraced his many relational experiences (i.e., the fox). Tolstoy, the author submits, had limited success in reconciling the two views. The author then expounded on this theme to divide famous writers and thinkers into these two groups. Quoting the Greek poet Archilochus, “The fox knows many things, but the hedgehog knows one big thing.”

So how would this paradigm apply to, say, a company contracts management process? Contract administrators learn quickly that, regardless of whatever “system” is in place in their company, there is no “one size fits all” when it comes to the contract process. Instead, it’s a “one size fits one” in many situations, and rightfully so. Contracts officers learn that whenever contract management decisions are made “top-down,” they need to eventually revise and rethink the process as real facts evolve. So how should a company reconcile the hedgehog and the fox dilemma? The answer is by implementing a strategic contract system.

How do you start a strategic contract system? First, you need to go beyond the top-down contract model system of drafting and negotiations, approval and execution, performance, pricing, renewal or termination, and dispute resolution, inter alia, type contract clause review. All are very important and must be done correctly, but such a contract review should be looked at as only the start of a strategic contract analysis. How? You need to begin by asking strategic questions such as the following: Does the risk shifting in the agreement reflect the current business environment? Does the agreement advance the company’s reputation, values, and culture? Does the agreement embrace collaboration? Is the agreement process flow both efficient and effective? What are the current trends in the relevant market sector that impact the success of the company’s service or product? How does the agreement fit into the long-term growth strategy of the company?

Some may say, “but we already do that.” If so, then ask yourself how often does senior management meet with the “front line” contracts team to find out what is really happening in the trenches? Why? Andy Grove, CEO and legendary deceased leader of Intel, once said: “when spring rain comes, snow melts at the periphery.” The contract administrators are on the periphery, and like a fox, they are adapting to market forces weekly. The hedgehog contracts officers need to meet regularly and learn to adapt from them.

More recently, Clay Christensen, the author, and HBS educator, wrote the popular book “How Will You Measure Your Life.” In it, he talks about “deliberate” and “emergent” strategies to be applied to both your work and your life. To evolve, you need to find their nexus. We can all learn from Tolstoy’s struggles by embracing the hedgehog and fox as positive-sum strategies.

A THREE-LEGGED CABIN STOOL STRATEGY

Henry David Thoreau once wrote, “In the long run, men hit only what they aim at. Therefore, though they should fail immediately, they had better aim at something high” (from the Henry David Thoreau book, Where I Lived and What I Lived For”). Not all of us can or even want to, live in the woods, but we can strive to live modern daily life “deliberately.” To do so, the three (3) core concepts of business that you need to get control of, and thereby not let them control your personal life, are as follows:

(1) ASSET PROTECTION LAW

(2) FINANCE, and

(3) ACCOUNTING.

Many people think that finance and accounting are similar, but that is a myth. Accounting works with balance sheets and income statements, so it deals primarily with the past. When you do your accounting, you are “looking back” [e.g., tax returns]. Finance, on the other hand, is primarily “looking forward.” It starts where accounting ends – then projects forward to what your worth will be in the future. That leaves the third leg – Asset Protection law planning. Like finance – it looks forward and addresses risk. But whereas finance focuses on creating and measuring future value, asset protection law focuses on managing risk, and preserving ownership interests, in all your assets for future generations. All three (3) plans overlap, but they all have discrete functions. So even if you have a good current balance sheet and a good future financial plan, the question is, do you have a good asset protection plan, including a business exit strategy? If not, all you have is a shaky two-legged cabin stool.

In his book, Henry David Thoreau quotes Confucius by writing, “To know that we know, what we know, and that we do not know what we do not know, that is true knowledge. ” Creating your own business legacy takes various trusted advisors with the knowledge to help you plan what is really important in your personal life. Even Thoreau entrusted Emerson for stability along his journey. Who is helping you live deliberately?

DARKNESS AND DECISION-MAKING MODELS

The famous psychologist Carl Jung once said that “enlightenment is not imagining figures of light but making the darkness conscious.” So how can business people do that? Every business decision is based on a model of projected facts and circumstances and then ultimately a strategy to resolve the matter. But to create a great strategy requires a great decision-making model. Simply stated, decision models are designed to create a structure of thinking and dialogue so that you are better prepared to create a sustainable competitive strategy. Have you ever heard of the expression “that’s a solution in search of a problem” or “we’re climbing the right ladder but up the wrong wall”? These expressions come about because, too often, the decision-making model is not known, much less ever discussed. So a critical decision model is replaced sometimes with such a superficial approach, such as the “traditional” model of “that is the way we have always done it” to the “different” model of “its new and improved” – and every construct in between. Yet, looking back, it’s the decision-making model itself that sets the course for the ensuing disastrous results [i.e., think Titanic].

So what are some of these key decision models? Some of my preferred decision models are the following:

1. Johari-window
2. Flow
3. Long Tail
4. Black Swan
5. In-On Model
6. Avoiding Practical Drift
7. Mechanism Design Model
8. Balcony – Dance Floor [or System 1 & 2]
9. Deciding How to Decide
10. De Bono 6 Hat Model

It is important to know is that these are key tools to help you make decisions beyond what you are perhaps unconsciously using now. So if you don’t know, don’t use, or don’t KNOW HOW to use these various models, then you are perhaps accepting more risk by not taking advantage of some key tools that will allow you to make better decisions.” So what” you may say? Have you ever said to yourself, “What happened”? The more tools you have at your disposal, the less often you will need to ask the question.

Carl Jung would concur that decision-making requires one to shine the light on the darkness of the way you think.

BAD NEWS PIVOT

In his seminal book, the author Mark Nepo quotes a well-known African saying, “If you don’t know where you’re going, turn around and make sure you know where you’re coming from.” So, where is your business coming from the last six months? Here is a simple “look back” test that I call the “bad news test.” Take some recent bad news at your company and carefully analyze how it was addressed at all levels. From the minute the bad news was learned, ask the following questions: How did you get the bad news in the first place [e.g., customer, an employee, a report]? How did your organization handle the bad news initially? After more information was uncovered, what bottom-up system was enabled to address it specifically? Was there also a top-down, high-level strategy to address this particular bad news in relation to other bad news throughout the year? Who was invited to those strategy sessions? What was the follow-up to see if the specific fix was accomplished? Finally, what overall new organizational system [“lesson learned”] was instituted to avoid a similar pattern. Bad news is possibly the single most important front-line means to improve your company. Why? You really can’t do quality strategic planning without looking back at your bad news data.

The Fourth of July holiday is an important holiday for many reasons. Time to celebrate and recalibrate. As Ron Heifetz and Marty Linsky say in their book “Leadership on the Line,” make time to get off the dance floor and instead get on the balcony. Put another way, having just spent half a year working IN your company, you need to spend some time working ON your company. A serious mid-year review provides the opportunity to look at your operational, organizational, financial, asset protection/estate, and strategic/risk management plan. How are you doing so far this year?

So celebrate your successes, and search for objectives that have not tracked your mid-year goals. The good news is that there is still half a year left to make the corrections you need to achieve your annual goals. The bad news is that you realistically can’t delay any longer. So really declare your independence by taking stock of where you are – and compare that data to where you want to be by year-end. Ask, “What are your mid-year top three [3] challenges”? Then really make them a top priority by meeting with your team of trusted advisors. Why? Your greatest risk is simply what you don’t know. So start by simply asking strategic questions to your strategic teammates.

This entry was posted in Corporate Governance, Estate Planning, Strategic Planning and tagged legal review, mid-year review, risk management, strategic solutions on June 19, 2013, by mjgpc.

Are You a Strategist for a Different Tomorrow?

The question that Cynthia Montgomery poses at the beginning of her Harvard University Entrepreneur, Owner, & President Program [“EOP”] for business owners and senior executives is simply “Are you a strategist”? Why? Her mission is to take her class of executives and show them, through the many case studies she has written about in her book “The Strategist – Be the Leader Your Business Needs,” how to create a sustainable strategy for your company. So what is a strategist, and why become one?

A strategist is not a “super manager,” as the author calls it. A super manager is an “action-oriented problem solver for whom difficulties are daunting but solvable challenges.” The biggest risk of believing in the myth of the “super manager” is that super managers “tend to focus on what they can control and ignore what they cannot control.” Put another way, the Nobel Laureate Daniel Kahneman, in his book “Thinking Fast and Slow,” may have called this the “inside view” – the tendency to ignore outside data to engage in independent decision-making. Super managers choose to ignore fierce competitive outside forces as not as important as their management inside capabilities to overcome them.

So how do you “become” a strategist? The author believes that you must first begin with creating a company’s “purpose . . . why it exists, the unique value it brings to the world, what sets it apart from other companies, and why and to whom it matters”? At its core, it’s your sustainable competitive advantage. One way to determine if you have a core purpose is to ask yourself, “if your company disappeared today, would the world be different tomorrow”? Once you ascertain your core purpose, you then must plug in each component of your company and ask yourself, in a binary fashion, does the specific business activity advance your purpose, or does it detract from your purpose of creating a real system of value creation. If it detracts from your purpose, stop doing it.

So how do you “own” your strategy? The author calls it the “strategy wheel.” It consists of your Products and Target Markets, Marketing and Service, Sales and Distribution, Manufacturing, Procurement, Human Resources, Information Systems, R&Ds, and Finance. Each “system” needs to be impacted by the center of the wheel – your core purpose. To digress, your “purpose” answers the question of why you exist. Your “strategy wheel” is HOW you are unique in each component. Without a core purpose tied to each component of your strategy wheel activities, you will be ineffective.

To be a strategist, you must be a leader. At least once a year, a company’s board of directors or LLC managers/members meet to look back at what happened over the past year and then look forward to how it wants to operate the company next year. Too often, it is a mechanical exercise that involves reviewing the financial statements and tax considerations but not much else beyond asking how you can save money. A good way to avoid this mechanical approach is to first ask yourself, “are you the company strategist”? If so, then ask what is your company strategy for a different tomorrow?