Protecting Trade Secrets: 5 Things Every Start-Up Needs to Know

Confidential Information

A basic understanding of trade secrets, and how to protect these intellectual property assets, can be of real value to a startup business. If properly managed, trade secrets can help a business maintain continued funding and increase the likelihood of success for the venture, as well as preserve the ability to stop competitors from using them without your permission.

What is a Trade Secret?

A trade secret is confidential know-how that has value to the success of a business. By definition, it is any information that can be used in the operation of a business and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others. Its value is derived from the hightened secrecy of the information. Once lost, it is lost forever.

In contrast to the legal rights granted to patent holders (which require an inventor to disclose to the public how an invention works) owners of trade secrets can lose certain legal rights and remedies if they fail to maintain adequate safeguards, protections and confidentialilty restrictions for their most secret and sensitive business information.

1) Identify Trade Secrets

Start by taking a hard look at your company's assets. Identify, protect and account for confidential and valuable information using administrative tools to their fullest extent. Startups should take an inventory of all of their assets, identify those assets that are worthy of being protected, and establish a valuation for them. Maintaining trade secrets is just as important as a start-up can lose trade secret assets if not properly protected.

Existence of a trade secret depends entirely on the high standard of care applied by the owner. If the owner uses appropriate due care to protect the information properly, it will live on perpetually. If the owner fails to meet the appropriate standard of care, the legal protections afforded to such information, most likely, will be lost. Any start-up company can lose legal rights to its most secret and valuable information, or an entire portfolio of trade secrets, based on the lack of heightened care the company uses to maintain such information.

2) Maintaining Trade Secrets and Confidential Information

How do I keep my valuable information from walking out the door? While trade secrets can be your most valuable asset in creating the value of the start-up, they are also the most ethereal, intangible asset you have. Special care needs to be taken to prevent them from "walking out the door" and following these simple guidelines can help:

  • Collaborative efforts with third parties (i.e., development partners, manufacturers, funding partners, etc.) should be carried out under a confidentiality agreement.
  • Employees, independent contractors and third party vendors should sign appropriate non-disclosure agreements & invention disclosure agreements (and, under certain circumstances, restrictive covenants).
  • Lock important folders, document management systems, storage drives and documents with password protections using administrative privileges. Track those who access this information.
  • Report periodically on the status of the trade secrets. Over time some secrets may inadvertently find their way into a product launch and become made available to the public. Regular proper accounting of your confidential information will help you to maintain them appropriately.
  • Use a notice on documents that can leave your business. Marking your work with a notice is a standard of care that will help to maintain the trade secret or confidential status of the information. Use this notice consistently on emails, documents, drawings, or other information, for example, "IMPORTANT NOTICE: This information & communication and any attachment: (A) is a trade secret/private/confidential; (B) is intended only for the named recipient(s); and (C) may be subject to the attorney/client privilege or other legal status". This notice is relatively easy and also serves as a stopgap measure for any resulting loss of trade secret status due to improper care, which would mean that without it you would have little, if any, legal recourse.
3) Exclude Confidential Information from Certain Filings

The decision to protect confidential information as a trade secret or file for copyright or patent protection can be determined in the process of identification, inventory and valuation. Some information you have developed has a high valuation but is not suitable for copyright or patent protection. You would lose trade secret rights by any disclosure in a copyright or patent application filing. It, simply, would be a gift to your competition.

4) Realize the Value of Trade Secrets to Your Business

Trade secrets can increase the value of a business. Sometimes the value is in the actual knowledge and information discovered. Other times the value is in the aggregate information of what did not work. Over time information and know-how on "what not to do" is not generally known by your competitors. What efforts failed to solve the problem? What is the value of that information? Our business does not need to waste resources and time going down that road again.

5) Create Employee Awareness of Trade Secrets

Establish and employ business processes that enable your employees to protect your valuable information in their daily routines. Uncertainty can kill a trade secret - your employees should never be confused when it comes to understanding what information is a company trade secret and what information is not.

Create awareness of importance of trade secrets and intellectual property with your employees. Talk openly about the standards of care that you have established for your trade secrets and IP. Establish safeguards to inadvertent disclosure of protected information. A start-up is uniquely empowered when everyone is working to build value in its future.