Protecting Trade Secrets with Non-Disclosure Agreements
You run a burgeoning business. You have a great idea for a new product you want to take to market. In order to turn this idea into a reality, you may need to partner with other businesses. If your idea is to create some new tech gadget, you may need to work with an engineering firm to build the prototype and then you may to need to partner with a manufacturer who can tool up the machines and crank out the product. If you’re in the food industry and you want to sell a new type of barbeque sauce, for example, you may need to partner with a factory so you can scale up production.
Some new ideas can be protected via patent applications, and if you have something patentable, you should consult with an experienced patent attorney. However, some ideas are not patentable, but still hold important competitive advantages if kept secret. Your “special something” may lie in the recipe of your sauce, the logistics of the distribution chain for your gadget sales, the customer service model for your travel agency, or any number of business processes that make you stand out among your competitors. These are called trade secrets. They are valuable, and can only be protect via secrecy (exactly as the name implies).
Of course, partnering with other businesses may require you to share some of those secrets. Before you even begin to share ideas and enter into a partnership, you need to protect your trade secrets via a Non-Disclosure Agreement (NDA).
An NDA is an agreement that imposes harsh penalties on partners who betray your trust and share your trade secrets. A good NDA will clearly define the categories of your secrets without revealing the actual substance of those secrets. A good NDA will also allow you to file for an injunction without posting bond, which means you can petition the court to order a violating party to stop sharing your secrets and you will not have to pay any money up front in the form of a bond (which is often required for injunctive relief).
Sometimes it makes sense to couple an NDA with a non-compete agreement. Most people are familiar with non-compete agreements in the employment setting, but they can be used for business partnerships as well. Oftentimes, if you are partnering with an organization whose business model relies on volume (e.g., an engineering firm who contracts to design your gadget), it won’t make sense to them to sign a non-compete agreement. However, there may be times where both businesses want to “wed” themselves to the other, which serves as an extra buffer against the potential disclosure of your secrets. Just be sure to consider whether you also want to be stuck with this new business partner, since they’ll likely want you to submit to similar terms of exclusivity.
Most importantly, remember to get your NDA signed before you start sharing your ideas. Doing so can protect your competitive edge and make for a successful partnership.
