2.07 – Protecting Your Interests
Trade secrets often include sensitive company information that cannot be covered by patents, trademarks, or copyrights. Business plans are frequently considered trade secrets. The only way to protect trade secrets is through contracts and nondisclosure agreements (NDAs) that specifically detail the trade secret to be protected. No other legal form of protection exists. If you have concerns about sharing your business plan with anyone outside your circle of trust, including employees or investors, consider creating a contract or an NDA.
Contracts
A contract is an offer or a promise to do something or refrain from doing something in exchange for consideration, which is the promise to supply or give up something in return. For instance, you might ask your employees not to reveal your company’s trade secrets in exchange for their employment (and avoiding legal action if they do reveal them).
In addition to using contracts with employees and others who have access to your trade secrets, ensure that no one has all the components of your trade secret. For example, if you develop a new barbecue sauce that you intend to brand and market to specialty shops, you can:
- Execute a Contract: Bind employees to confidentiality regarding your recipe.
- Provide Premixed Ingredients: Give them premixed herbs and spices so they don’t know the exact recipe.
- Divide the Preparation: Assign different portions of the sauce to different individuals for preparation.
Non-Disclosure Agreements
Many entrepreneurs and small business start-ups protect their ideas through NDAs. An NDA is a document that announces the confidentiality of the material being shared and specifies that the person or persons cannot disclose the information to others or use it personally. Providing an NDA to anyone you’re speaking to in confidence about your business plan or any other trade secret is a good idea. Without it, you have no evidence that you provided your proprietary information in confidence; therefore, it can be considered a public disclosure and no longer confidential.
Work with an attorney to construct your NDA to ensure it fits your situation. Generic NDAs do not exist. To be valid for evidence purposes, an NDA must include the following:
- Consideration: What is being given in exchange for signing the document and refraining from revealing the confidentiality.
- Description: A clear description of what is being covered, avoiding vagueness or broadness.
- Usage Procedure: A procedure describing how the other party will use or not use the confidential information.
Who Should Sign an NDA?
Anyone who will become privy to your trade secret should sign an NDA. This includes:
- Immediate Family: Spouses, children, and parents typically don’t require NDAs, but it wouldn’t hurt to have them sign one.
- Extended Family and Friends: Those not doing business with you may be offered $1 in compensation to meet the consideration requirement.
- Business Associates or Potential Partners: The consideration here is the opportunity to do business with you. For example, showing your business plan to a potential investor or creditor means the consideration is the stake in the business or the return on investment.
- Buyers: Typically, buyers do not sign NDAs because it may preclude them from developing something similar, or they might already be working on a similar concept. For example, a toy manufacturer with a large R&D department may not sign NDAs from inventors as they could be working on something similar.
An NDA is only as good as the person who signs it. Fighting a violation in court is difficult and expensive, so be cautious about whom you share your business plan with.
