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Can you keep a (Trade) Secret?

Pitfalls and Prospects for the Small Business Owner

In an ever-evolving collaborative economy, business owners find themselves increasingly relying on outside entities to help their business grow. As you grow your business, your reliance on “outsiders” increases; is it hiring employees, outsourcing operations, hiring outside professionals for one-off contract jobs, or looking for strategic partnerships? While there is strength in numbers, it is imperative for a small business owner to protect his or her intellectual property from misappropriation. While federal and state laws allow for the protection of tangible, identifiable, intellectual property (patents, copyrights, and trademarks), trade secrets are a different consideration. Federaland state laws protect trade secrets from unlawful misappropriation; however, trade secrets are only good as long as they remain a secret! While you may be able to recoup damages on the back-end, the value of keeping a proprietary model secret is reduced to zilch once the cat is out of the bag.

Federal law defines a trade secret to be all forms and types of information that “the owner thereof has taken reasonable measures to keep such information secret” and “the information derives independent economic value, actual or potential, from not being generally known…and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information” (18 U.S. Code § 1839).

Given the breadth of information that is considered a trade secret, it is imperative for a business owner to take reasonable steps to protect it. This is an easy but often overlooked component of successful negotiations and information sharing that could end up having dire consequences if implemented improperly (or not implemented at all).

The single, most effective shield going into any communication with an outside (or inside) entity is a non-disclosure agreement (NDA). An NDA is an agreement between parties, whereby the parties agree to not disclose, or otherwise use, information received from one another except for defined, limited purposes. The general rule is simple: if in the course of business you have information that you wouldn’t want another entity to have or use, make the NDA part of your communications arsenal.

An NDA is only part of the battle, though. The inherent value of a trade secret lies in its exclusivity. While an NDA will protect you in the event a party disseminates a trade secret (subjecting the party to liabilities), if a trade secret is leaked – intentionally or not – its inherent value is lost. As such, your precautionary arsenal must also account for proper dissemination: use proper email servers, rely on services that create self-destructing electronic documents (to ensure they are properly wiped after a limited time period) and trust the person you are disseminating the information to in the first place.

In short: collaboration is important to a successful business, but is a double-edged sword. While you may not have the luxury of subjecting all collaborators to extensive vetting, you can help protect your proprietary information by using smart, simple strategies to ensure they’re not misusing the information.

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