Avoid Common Legal Pitfalls of Start-up Businesses
You have a vision for a product or service. So, you create a start-up business and start plowing ahead, ready to make that vision a reality.
But did you take a moment to stop and protect your vision?
You cannot protect an idea itself, but there are many important ways you should safeguard confidential information related to your start-up.
- Ask recipients to sign a non-disclosure agreement (NDA) before sharing sensitive information.
- Mark communication and documents containing confidential information or trade secrets as “confidential”.
- Limit the number of people who have access to confidential information.
- Maintain a log on who has access to confidential information.
- Disclose only what confidential information is necessary.
What Is a Non-Disclosure Agreement (NDA)?
An NDA is essential for every start-up. It protects your company and also showcases your professionalism and business acumen.
The binding contract allows a business to contractually protect sensitive commercial information that is shared with other parties.
To further the progress of your start-up, it will be necessary to share confidential information with various individuals. An NDA helps ensure the recipients do not try to misuse the information.
For example, a start-up should ensure appropriate contractual confidentiality obligations are in place when:
- presenting ideas to potential investors, partners, or licensees;
- disclosing financial data;
- sharing marketing information;
- looking to sell; and/or
- entering into a bidding process.
Typically, this confidentiality obligation is included in employment contracts for new employees and in the shareholders agreement (or other agreements governing the business relationship) for co-founders. If not, the situation should be rectified with a separate NDA.
The NDA should be carefully worded to ensure it provided the necessary protection. In particular, there are three main concepts in an NDA or other similar confidentiality obligations.
1. Confidential Information
What information exactly is confidential?
The agreement should also take into account possible future disclosures of information. For example, your business may seek to protect source code, designs, recipes, algorithms, etc.
Why are you disclosing these trade secrets to this recipient?
There should be a clear obligation to only use the information for this purpose to prevent the recipient from using it in a different way, such as developing a similar competing product or service.
3. Authorized Recipients
Who is allowed to see this information?
List the categories of people and/or entities to whom the recipients may disclose the information. This creates a clear chain of responsibility. You are ensuring the recipient is responsible and liable for the acts and omissions of anyone to which it discloses your information.
While NDAs are essential for protecting your start-up’s confidential information, they are not a silver bullet. NDAs can be difficult to enforce, and litigation is typically complex, time-consuming, and expensive, especially for start-ups.
The best approach is to have that contractual precaution in place, but also ensure you follow the other recommendations about limiting the information you disclose and the people you disclose it to.
If you have concerns, reach out to the Marks Gray Intellectual Property team. There may be other ways you can protect your company’s sensitive information.Share