Chicago Business Lawyer Blog

This week I attended the annual dinner of the Chicago chapter of the Association of Corporate Counsel, which is an international organization of in-house attorneys. The Chicago unit is one of the largest units and I would estimate there were approximately 1,000 people in attendance at the Hyatt on Wacker Drive. As a former in-house attorney, I have attended a number of these and they usually have excellent featured speakers.

This year's was no exception. The main speaker was journalist and writer Malcolm Gladwell. I had enjoyed several of his books, Blink, The Tipping Point and Outliers, which are both very readable and thought provoking. I was interested to hear what he had to say these days.

The gist of his remarks really was to never take anything for granted or be too impressed by credentials. The starting point was the Wall Street meltdown, such as the blazing flameouts by such titans as Bear Stearns, Lehman Brothers and AIG. How could such disasters happen at firms populated by "masters of the universe" and Ivy League M.B.A.'s? Presumably these best of the best had access to the best information and the best advice. The answer essentially is that age old threat, hubris, and being too insulated and not challenged enough.

Gladwell underscored his theme with some comparable events from the Great Depression. But, he spent most of his time, and illustrated his research and story telling skills, by focusing on Union General Joseph Hooker and the Battle of Chancelorsville from the Civil War. Gladwell reviewed the overwhelming force at Hooker's disposal and exhaustive intelligence he gathered on the position and plans of his adversary, Confederate General Robert E. Lee. Hooker believed he had outflanked Lee in every way and done everything to prepare for an overwhelming victory to start the next morning.

Yet, though highly outnumbered, Lee launched an attack the preceding night, somehow catching the Union army completely offguard and in disarray, leading to a chaotic retreat. What had seemed a sure victory, became an inexplicable and embarrassing defeat.

So, to me, the takeaways were to always be careful to prevent overconfidence and never put to much faith in the purported experts. In other words, as we like to say around here, whether for business or law, never be afraid to challenge the conventional wisdom, when the facts or common sense guide you to do so.

Contact Chicago and Deerfield business lawyer, Jeremy A. Gibson, to discuss your favorite books or resources with good teachings or guidance for business law.

There is another example of the importance of paying close attention to proprietary details when negotiating business deals. Last week brought the curious case of HP's former CEO Mark Hurd joining Oracle right after entering into a substantial severance agreement, leading HP to file suit immediately. It seemed very odd that Hurd's arrangement wouldn't have been structured so as to prevent Hurd from so quickly joining a potential competitor and possibly benefiting from HP's confidential information.

This week brings news of an apparent puzzling gap concerning trade name and trademark issues in a merger & acquisition transaction from 15 years ago involving a Chicago area funeral business. The essentials of the story involving Lloyd Mandel are as follows:

When he sold his funeral business in 1995, Lloyd Mandel Levayah Funerals, Mandel agreed to stay out of the Chicago-area funeral industry for 15 years. But on July 21, the day after that clause expired, Mandel opened a new shop, this time from a high-rise office building in Deerfield, operating as Lloyd Mandel Mitzvah Memorial Funerals. . . .

The new business has brought the ire of Service Corp. International, the company that paid him some "millions," as he estimates, for his old business.

So, Levayah, owned by Texas-based SCI, began buying weekly quarter-page ads next to the death notices. Billed as an open letter to clients, the ad describes the history of the business and warns customers that they are the original Lloyd Mandel funeral home -- not to be confused with the new venture by their namesake.

. . .

To Lloyd Mandel, there was only one thing to do: He had to reply. He bought a quarter-page ad in the Tribune, hoping Levayah would continue advertising on Wednesdays.

On Sept. 1, the fourth Levayah ad appeared, and Mandel's ad appeared right below it. In his rebuttal ad, Mandel disputed the competitor's advertisement and denounced their use of his name.

So, after 15 years, the purchaser of the acquired business now faces the original seller competing in the same market for the same clients with a very similar name. There seems to be a real possibility for confusion in the marketplace and it would not be at all surprising if this winds up in litigation eventually.

This is a very puzzling outcome. Mr. Mandel says he is entitled to use his own name. And, depending upon the terms of the business sale agreement that may be the case. If the documents are silent on the use of his name, then he may be right. However, from a purchaser's perspective it would be unfortunate if in all the legalese and negotiations regarding the deal, this specific issue was not addressed. One would expect in the case of an acquisition of a business with a founder's name, such as Bob Evans or Jenny Craig for instance, that more often the not the transaction documents would provide for the founder to not engage in a competitive business using his or her name.

Nonetheless, this is not to second guess whoever handled the deal here. Concessions often are made in the interest of obtaining another important objective or reaching a closing. And, there may have been higher priorities than worrying about what would happen 15 years later. (That is a very long non-compete covenant; the purchasing team may have very happy to leave well enough alone.) Still, determining and negotiating permitted and restricted business activities can be deceptively tricky, so great care is warranted to prevent an unfortunate surprise.

Jeremy A. Gibson is a Chicago business lawyer very experienced in the trademark, non-competition and other proprietary aspects of buying and selling of businesses. We would be happy to review your merger & acquisition situation. We can assist business buyers or sellers throughout the area, including Arlington Heights, Buffalo Grove, Chicago, Deerfield, Des Plaines, Evanston, Glenview, Highland Park, Hinsdale, Lake Forest, Libertyville, Mount Prospect, Naperville, Northbrook, Oak Brook, Palatine, Rolling Meadows, Schaumburg, Skokie, Oak Brook, Oak Park, Vernon Hills, Waukegan, Wheeling and Wilmette.

The commentary that I've observed so far suggests that HP's lawsuit in California against its former CEO, Mark Hurd, for joining Oracle in a president position is weak at best. (For background, here's a good article.) However, even if so, if I'm HP, then I would still be pursuing this action. That's because I can't think of a better set of facts for trying to protect trade secrets and other confidential information or intellectual property.

Here's why:

• Hurd was terminated for conduct that goes to his judgment, handling of information and veracity. (He allegedly misrepresented or omitted information from his expense reports concerning his dealings with an attractive marketing consultant.)
• Hurd presumably had access until just a few weeks ago to HP's most sensitive information including that concerning the markets and businesses with which it competes or will compete with Oracle.
• Hurd's new position at Oracle seems very likely to involve the exact sames markets and businesses as those he oversaw at HP.
• Hurd received millions and millions of dollars in compensation at HP, including as part of a generous severance package, and doesn't need this particular position or role to make a living.

HP's case has its challenges. Hurd, surprisingly, apparently is not subject to a non-compete covenant or similar restriction. California law typically errs on the side of protecting an individual's right to work in this context. It has not been alleged that Hurd has actually breached any confidentiality obligation he owes HP. And, Oracle and its chairman, Larry Ellison, are known to be tough negotiators and no doubt anticipated such a fight when they brought in Hurd.

That said, it is difficult to imagine ever having a stronger set of circumstances to present to a court for arguing that, at least for six or 12 months, an individual cannot possibly fulfill his or her duties without disclosing or using his previous employer's protected information. My guess is that HP's litigation efforts probably will result in delaying in Hurd's work or effectiveness for Oracle for a limited period of time. For example, whether by virtue of caution, settlement or court order, Hurd likely will have to limit the commencement or scope of his work.

The Chicago business lawyers of Jeremy A. Gibson & Associates, PC frequently advise companies and employees on confidentiality, trade secret and covenant not to compete issues. We are available to meet at offices in Chicago, Deerfield, Rosemont, Schaumburg and Oak Brook and elsewhere in Illinois. Contact us to schedule a consulation.