How to Keep Your Startup's Secrets Private
Q: How can one safely share ideas prior to patent approval? Is a Non-disclosure agreement the only option?
Intellectual property is often the most valuable asset of a startup, so it's important to protect it. But often startups also need to share information to potential business partners. So how do entrepreneurs reconcile these two seemingly conflicting dynamics? Start by understanding the four types of intellectual property (IP), when and how to use non-disclosure agreements and when to apply common sense.
First, there are four types of IP that can be protected, with each one protecting something different:
Copyright protects expressions in an author's or artist's work and can include things like software, photographs and music. By definition, copyrighted work cannot be copied by others.
Trademarks protect any word, name, symbol or device that indicates the source of a product or service. For example, the name, typography and design of "Coca-Cola" is a trademark. Trademark protection prevents others from using your mark (or a confusingly similar mark) to sell products or services.
Patents protect novel inventions including processes, machines and compositions of matter. Patent protection prevents others from making, using or selling the invention. For example, most brand-name pharmaceuticals and numerous aspects of smartphones are protected by patents.
Trade secrets protect information, including a formula, device, method, technique or process that is kept secret and has economic value because it is not publicly available. An example of a trade secret is the recipe for Coca-Cola.
In all cases, except for trade secrets, a company is relatively free to disclose the underlying information to third parties once the relevant protection is obtained through the U.S. Patent and Trademark Office. But what if you haven't patented your idea yet? How can you still protect it?
Utilize a non-disclosure agreement.
Before you share ideas or provide pertinent information, you can have a third party sign a well-crafted non-disclosure agreement. The key word here is well-crafted, as the protection you get through a NDA is only as good as the agreement itself. Agreements should include the length of the agreement, the geographies and types of information covered and all parties within the receiving organization that are covered.
The best agreements from the entrepreneur's perspective have these features: 1) all information provided by the company, whether provided in writing, orally or electronically, are covered, 2) the duty to maintain confidentiality lasts for a long period and 3) only persons that have a legitimate need to know within the receiving organization are provided access.
Each NDA should be customized to the company and situation, so it's important to get expert advice to ensure your agreement gives you sufficient protection.
Use common sense when an NDA isn't feasible. There will be cases where it's not possible or practical to get everyone you meet with to sign a NDA. For example, venture capitalists, generally don't sign NDAs. They are exposed to so many new ideas -- many of which are similar - and don't want to put themselves at risk of frivolous claims of NDA violations. There may also be other circumstances, such as speaking at trade shows or academic environments, where it could be impractical to have audience members sign NDAs.
The best approach in these cases is to apply common sense. Ask yourself, "If I disclose this information -- even under a NDA -- and it subsequently becomes public, what would happen to my business?" If you conclude it would seriously harm your business, don't disclose it under any circumstances before filing a patent application. But that often isn't the case.
Many times, the information investors, customers or business partners need is not the "crown jewels" of your business. Usually, they just need a reasonable level of information to decide whether or not to enter into a transaction with your company. The same goes for venture capitalists. They are likely well-versed in your industry and, as such, will not need to know every detail of your business to make an investment decision.
As an attorney at firm WilmerHale, Peter Buckland focuses his practice on the representation of companies, from start-ups to established corporations, with particular emphasis on software, internet and digital media, devices, energy and clean technologies. Since joining the firm in 2005, Mr. Buckland has counseled numerous entrepreneurs and emerging companies throughout their lifecycle and has advised on complex corporate transactions, including venture capital financings, mergers and acquisitions, public offerings and buyouts.