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Tips for Protecting Small Business Proprietary Information

By Lisa M. Schaffer, Esq. on July 24, 2022 1:41 PM

In this day and age, business is fiercely competitive. Almost everything can be found on the internet, from confidential information to private business information to trade secrets getting leaked online.

Protecting your proprietary information is more important than ever and could mean gaining a competitive advantage over similar business owners and startups.

Your first step is having cybersecurity and secure computer systems in place. Whether it's information on a patent you are developing, a customer list, or "just" a hamburger recipe, you have a strong need to keep your private information private.

Here's some information on why and how you should do that. It is important when interfacing with third parties, hiring and handling your own employees, or dealing with former employees.

Why Do I Need Any Protection at All?

Let's say you have a worker that one day, for whatever reason, decides to set up a competitive operation. You did not restrict their employee access, so they know your pricing, marketing plans, trade secret information, and other sensitive information. You want to ensure their new company — at the very least — offers a unique product compared to yours. But how do you do that?

If you have to wait to sue the person in court, the damage may have been done by the time the case is determined.

Your best bet is to protect yourself upfront by:

  • Keeping your proprietary information corralled to only those that need to know

  • Having a legal agreement in place in case things go awry

Having confidentiality agreements or other trade secret protections in place is key — consider it a prenup for your employees.

Non-Compete Agreements Aren't Ideal

For better or for worse, non-compete agreements, even non-compete clauses within other agreements, usually don't hold up in court.

America was built on the concept of capitalism. Our legal system believes everyone should be free to do whatever they want, especially when it comes to earning a living. But they can't lie, cheat, or steal.

Most non-compete agreements that eventually do hold up in court are too limited in scope or require too large of a payout. Frankly, this means they aren't worth it. You have better options.

Nondisclosure Agreements Are Better

Nondisclosure Agreements, or NDAs, are a much more effective way of protecting your proprietary information. In essence, this is a contract that both parties sign to agree to keep private information private.

It has a damages clause in place if the information is ever disclosed. NDAs can be one way or mutual.

One-Way NDA Basics

A one-way NDA might be used when you are presenting your idea to an investment banker or contractor, to see if they can offer what you are looking for. This only protects what you are disclosing from being revealed. It doesn't protect what they say.

Mutual NDA Basics

A mutual NDA allows for a deeper conversation. Whatever is said by either party is protected. NDAs will protect information that is not generally known from being divulged. And if it is, the terms of the NDA will secure the damages.

The intellectual property violation discussion basically becomes a contractual issue. This is much easier for a court to determine, and consequently, easier for them to identify violations and declare remedies.

Protecting Your Trade Secrets

It is very important that you protect your proprietary information, even if there are NDAs in place. After all, NDAs only protect information that isn't generally known.

If you've divulged it before, or it leaked out because you haven't protected it, the know-how is already generally known. This means it is outside the scope of the NDA.

A court will only consider private information private if you treated it as such. Therefore, when dealing with NDAs, ensure that as many people who touch the proprietary information have signed NDAs.

Using NDAs Correctly and Effectively

Date the NDA agreements and make sure everyone has a copy. And also make sure to take security measures to ensure that your private information stays private since that will be an issue if it goes to court. NDAs give teeth to leaking proprietary information. But it is every employee's job to protect trade secrets.

If you need help protecting your proprietary information, contact a contracts attorney. So long as you don't need an intellectual property attorney helping you with patents, a contracts attorney can help you create the necessary NDAs that you need to conduct and grow your business. Consider it an investment, not an expense, and call one today.

If your business isn’t fully formed yet, you don’t need an attorney for every step along the way. You can form a business with DIY forms online and get the ball rolling. We can guide you through the entire process of forming an LLC online in Florida, Texas, or any other state. 

You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help

Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.

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