The protection of trade secrets involves a combination of business and legal acumen.
The best way to protect a trade secret is not to disclose it to anybody. This should be the default position – keep it secret! But, in the real world, that is rarely possible or practical. Often, trade secrets must be disclosed to be able to benefit from them.
Trade secret disclosures can generally be broken down into three categories: (1) Disclosure to employees; (2) Disclosure to potential strategic partners and (3) Disclosure to potential sources of financing.
1. Disclosure to Employees
Employees should be required to sign agreements upon commencement of their employment protecting the company’s intellectual property and business secrets. Courts generally do not react favorably to agreements that restrict employees from using the knowledge they’ve acquired to earn a living after they leave a company’s employment and so these agreements must be written with great sensitivity to this concern. Generally, Courts will enforce reasonable restrictions intended to narrowly protect a company’s trade secrets, but will not enforce agreements that appear to be intended to limit an employee’s future employment options.
2. Disclosure to Potential Strategic Partners
Great care and forethought must be exercised in determining the scope and timing of disclosure. Disclosures should be limited to the minimum necessary to achieve the objective of the transaction. Carefully crafted non-disclosure agreements (“NDAs”) must be executed before disclosures are made.
These must be written with an eye towards minimizing the chances of genuine misunderstandings between the parties as to what is confidential and as to what the rights of the recipient are with respect to the non-confidential information. They must also be written with an eye towards enforcing the disclosing party’s rights in the event of a deliberate or inadvertent misappropriation.
3. Disclosure to Potential Sources of Financing
Business plans should be marked Confidential and written, to the extent possible, in a way that minimizes disclosure of critical trade secrets – those that constitute the company’s true innovations and are intended to provide it with its key business advantages. NDA’s should be executed prior to disclosure of these critical trade secrets.
Some venture capital firms will take the position that they refuse to sign NDA’s as a matter of policy. If a company decides that it is willing to make disclosure without an NDA, it must understand the potential risks and must rely upon the confidentiality legends in its business plan and other documents transmitted to the recipient.