Recently, my father got offered the chance to meet with some key investors about the new software he developed. Though he was excited about this opportunity to make a direct pitch, the first thing he had me do was create a basic contract to safeguard the proprietary information he was going to divulge to his audience.
So, what is "proprietary information"? According to USLegal:
“Proprietary information is sensitive information that is owned by a company and which gives the company certain competitive advantages. Proprietary information assets are critical to the success of many, perhaps most businesses. The importance of this property, while too often not yet “formally valued” by many companies, is highly valuable.”
For my dad, the software he developed was proprietary information. Though Dominique Ansel cannot legally stop anyone from trying to replicate his Cronut pastry, I’m sure he would consider his particular cronut recipe to be a trade secret, and as such, proprietary information for his company.
Given the value of proprietary information, why do so many small business people show little to no regard in protecting it? Eric Ostroff, an attorney who specializes in handling trade secrets gives us a few tips to follow if we want to secure your company’s most important asset. They center on using contracts to protect yourself!
As a contracts lawyer, I’ve said it over and over again… contracts are your company’s best friend. They can keep you out of court; and, even if you are sued, a written contract can help to settle the case in your favor. According to Mr. Ostroff, when it comes to protecting your proprietary information, you should:
1. Invest in having a lawyer put together a contract that can protect your proprietary information. (If you can’t afford a traditional attorney, you should at least look into an internet based legal service provider).
2. “At a minimum, [get] every person with access to this information…[[to] sign a nondisclosure agreement.”
a. This includes employees, vendors & contractors. Don’t forget to be like my father and include people to whom you pitch your ideas (only if they include your proprietary information, of course).
3. Don’t forget to have the individuals identified in no. 2 (above) sign and date the agreement. According to Ostroff, “[u]nsigned agreements are often unenforceable and undated agreements can cause enforcement problems.” Also, don’t misplace these signed and dated agreements… missing contracts are also unenforceable contracts.
4. Don’t just keep your proprietary information lying around! Ostroff suggest that you, “keep documents with this information separate and labeled as confidential. That way it's easier to restrict access to them and reduce the risk of disclosure.”
5. Sorry, no exceptions for friends! Ostroff is right; if “you require all employees to sign nondisclosure or noncompete agreements, don't make an exception for someone you consider a friend or who you could ever see using proprietary information against you.” Remember in the real world not all friendships last forever. That is why you never want to leave yourself unprotected.
Your business is special; that is why I’m sure, if you give it some thought, you will probably come up with at least one thing that gives your business a competitive advantage. This is your proprietary information. So, wherever possible, follow the 5 tips outlined above and protect your most valuable asset.
