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Enforcing restrictive covenants to protect intellectual property

Enforcing restrictive covenants to protect intellectual property

On Behalf of | Jan 23, 2025 | Intellectual Property |

When organizations hire new employees, promote existing staff members or sign contracts with outside service providers, protecting organizational assets is typically a top priority. Companies frequently use restrictive covenants integrated into contracts as a means of protecting trade secrets and other valuable intellectual property.

Non-solicitation, non-disclosure and non-compete agreements all have a role in the protection of intellectual property. They help businesses limit what information others share with the public and their ability to use non-public information to compete against a company.

When a party bound by restrictive covenants violates the terms of a contract, the business may need to take legal action to enforce the restrictive covenant. What solutions can the courts offer in a breach of contract scenario related to restrictive covenants intended to protect intellectual property?

1. Awarding the plaintiff damages

In many cases, a former employee disclosing trade secrets or starting a competing business can diminish another organization’s market share. Proof of declining revenue and other economic losses related to the contract breach can help organizations secure economic compensation.

The courts can award damages to those harmed by the contractual violations of other parties. The amount awarded can serve as compensation for losses and as a consequence for the party in breach of the contract.

2. Enforcing penalty clauses

Frequently, restrictive covenants include specific financial penalties. By imposing a sizable financial consequence, a business can deter others from violating the terms of a restrictive covenant.

Provided the plaintiff has clear evidence that violations did occur, the courts may enforce penalty clauses and order the defendant to provide financial compensation to the plaintiff. Penalty clauses can help reduce the long-term economic harm caused by contract violations.

3. Issuing an injunction

The courts also theoretically have the authority to restrict the future activities of the infringing party. The plaintiff can ask the courts to issue an injunction to prevent the defendant from continuing to violate the intellectual property rights of the defendant.

Continued misconduct might result in allegations of contempt of court, which can provide a strong incentive for the defendant in the lawsuit to change their behavior. Injunctions can be an option in addition to other remedies sought by the plaintiff.

Requesting the right remedies from the civil courts can help organizations protect their intellectual property and hold others accountable for the economic impact of their contract violations. Reviewing the terms of the contract and the potential breaches that occurred can help those in leadership roles at impacted organizations choose the best response to contract violations related to valuable intellectual property.

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