I recently walked through the lawsuit by CVS against a former executive who went to work for Pillpack, the online pharmacy company acquired by Amazon. Today, let’s look at some of the implications of the case, on both the pharmaceutical space, and on how tech CEOs should look at the employment agreements in their company.

The case may have far reaching effects in labor law litigation, especially in Rhode Island. It may also give other executives pause as they consider leaving their existing company to move to a competitor. Furthermore, the sensitive nature of the industry specific information contained in this case led to many documents being sealed and CVS requesting that the courtroom remain closed during hearings.

However, this case likely won’t impact the broader market mechanics and is a speed bump in the larger game being played in the space. Amazon will continue to move their strategy forward and interestingly enough, HHS, Centers for Medicare & Medicaid Services has proposed a new Rule to get at price transparency in the pharmaceutical industry. Namely, The Medicare and Medicaid Programs; Regulation to Require Drug Pricing Transparency, 84 Fed. Reg. 20,732, 20,756 (May 10, 2019). I won’t delve into this proposed rule here, but as you’d expect the pharmaceutical industry is fighting it (See litigation filed by Merck et al. here). On multiple fronts, the US pharmaceutical market is under siege.

Let’s move over to the Restrictive Covenant Agreement. As a tech CEO, it is critical that your employment agreements are in place, executed and contain language to protect the company from loss of trade secrets. Referring to the Restrictive Covenant Agreement between Lavin and CVS, you can see that it covers critical elements such as Consideration, Non-Competition, Non-Competition Period, Non-Solicitation, Non-Disclosure of Confidential Information, Rights to Inventions and more.

We regularly educate on ways to destroy value in your company and common deal killers in our Merge Briefing and Selling Up, Selling Out conferences. It’s no surprise that employee confidentiality and theft of IP rank near the top of the list when it comes to company value destruction and potential deal killers. Securing your trade secrets, contracts, pricing, code etc. with your employees should be managed from the day that the company opens its doors and checked regularly to confirm that all employees are complying with procedures. Buyers will look carefully at your employment agreements, so you want to ensure that you have the necessary agreements in place that have been created by qualified counsel, and they remain current.

There are many valuable lessons from this CVS/Lavin case. They include the ferocious nature of the competition in the hundred plus billion dollar pharmaceutical market between the incumbents and newcomers, the criticality of having your employment agreements in place and moving swiftly in the event that you need to take an action in the event that an employee moves to a competitor.