Start-up confidential: How to keep your business secret
Friday, August 16, 2013/
Have you got a great idea for a new business, your existing business, a new invention or app? If you do have a great idea and want to look for help in the form of contractors, developers, investors, etc, you don’t want them to go out and copy your idea before you even get a chance to get it up and running.
How do you divulge enough information to get it off the ground with their help without telling them your idea?
In starting your new business idea you may need to speak to financiers or engage someone to help develop your concept, such as designers or technology contractors. It is wise and highly recommended to ensure your business idea is protected at the beginning so that it is not copied, stolen or leaked to the public.
So how do you know if you want to hire someone or if they are the right skillset if you cannot tell them about your trade secret? And how do you ensure they will not copy it or tell someone else?
To protect yourself and your idea, you need to have any person you speak to agree to confidentiality before you divulge or provide any information to them. If you can agree this early, you protect yourself and your business idea against anyone disclosing or copying your idea and if they do, you can then sue them for any loss or damage suffered as a result of any breach of confidentiality.
Agreeing a confidentiality agreement can be vital in protecting a new business in its early and most vulnerable stages and before you disclose any valuable trade secrets to another person.
It can be used to protect your new business ideas when hiring employees, contracting specialists, discussing finance, outsourcing, a software program, recipe, plan to make or sell something, and to protect any trade secret. The agreement should describe the trade secret, describe how you may permit the person signing to use the information, make it clear that confidentiality is required and also clearly define the length of time the requirement for confidentiality will last.
Is my secret safe even with the Confidentiality Agreement? Are they effective?
In 2008, a breach of confidentiality cost Sears $25 million, and in January 2013, Hallmark successfully sued one of its former employees for sharing trade secrets with a competitor, thanks to well-drafted confidentiality agreements. So they do work if well drafted and used at the right time, in the right manner.
If you don’t tell people they must keep it secret and that you are only providing the information on the basis that they agree to keep it confidential, they really can do whatever they want with the information you give them. It may not be obvious to them that they need to keep it secret or they may argue that they didn’t know even if it was obvious (or should have been). For your protection, you need to have them agree what the secret is and that they will keep it confidential before you give them the information.
Over a long period of time, trade secrets are difficult to maintain or when you have divulged the secret to several people. Many people have trouble keeping secrets or forget the exact scope of the confidentiality. Proving a breach of confidentiality under common law can be complex and is potentially more costly than defending any registered rights. You should register your IP as soon as possible to ensure your rights are protected as a confidentiality agreement can only go so far and may be difficult to prove.
If your trade secret becomes public before it is protected, you will have a very difficult time registering the intellectual property. You should keep the idea under wraps for as long as you can and ensure anyone who has any information on it is under a duty of confidentiality.
To protect your secret and ensure it is kept confidential follow these legal rules:
1. You need to tell the other person that they are receiving confidential information;
2. Make it clear what constitutes ‘the confidential information’;
3. Have them agree in a written agreement form
One important note: you cannot ask someone to keep something confidential if it is not. If it is already in the public domain, it’s too late. If you have told several people and they are not told it is secret or confidential, it may be too late. No matter what you make someone sign, the information must be confidential in the first place.
You should not think that just because you told them to keep it secret that they will do so. You have a very weak case in court without an agreement as it’s both difficult to prove they knew it was confidential information and difficult to prove they agreed to keep it confidential. It’s always easier to enforce when it is in writing.
If they baulk and don’t want to sign a confidentiality agreement, then you should walk away and not divulge any information. You should not be dealing with people who are not respectful of your right to protect your trade secret. So go to every meeting armed with a few confidentiality agreements just in case.
Different levels of confidentiality agreement can be used depending on your circumstances and level of information disclosure. You don’t need a full, long confidentiality agreement necessarily when you are only having brief preliminary search for information, assistance or to see if someone has suitable qualifications to discuss your confidential project with and if you are not divulging much information. A simple email confidentiality clause and acceptance will suffice.
The more you divulge, the more detailed you become in your discussions, the stronger your confidentiality agreement with the other party should be. During your initial discussions you may wish to have a brief light version but once you progress in detail with your discussions, ensure you protect yourself with a formal confidentiality arrangement.
Here are some examples of when confidentiality agreements should be used:
- Discussing a business idea or any trade secrets between two parties
- Disclosing company secrets or proprietary information to a potential buyer of the business
- Revealing a new invention, idea or process to a developer, sub-contractor or manufacturer
- Employees, consultants or contractors working with you who may be exposed to sensitive or confidential information
- Sharing information to progress the development of a patent or copyright idea before or while it is being registered
- Negotiations or discussions over artistic creations or inventions
- Getting advice on personal financial circumstances