Top 10 Ways to Protect Your Ideas and Your Business

By: , September 18, 2007 | Legal Articles

Top 10 Ways to Protect Your Ideas and Your Business on AdultChamber.com Webmaster Resources

By Judith Silver, Esq. of CoolLawyer.com | Reprint by permission only.

Number One:  Shut Up

If I had a dollar for every time I heard about the ideas carelessly disclosed, I'd be so rich, I wouldn't have time to write these articles.

Bragging, brainstorming, trying to impress the opposite sex and blowing off steam, are all bad reasons to be disclosing information you are trying to protect.  Think before you talk.

Number Two:  Look Who's Talking

Consider who you are talking to about your product or information.  Is the person a competitor who would greatly benefit from the stealing the idea or product, a customer who will be helped by the idea or product, or a business partner whose own business would be complemented by your success?  The other side's interests should always be kept in mind.  Also, be aware of who at a company you are dealing with.  Dealing with a CEO is entirely different than dealing with a programmer or sales person.  Remember to also consider an employee's personal interests in having the information.  For example, the head of product of development might think she would get a promotion if she presented your idea to the company as her own for a new product line.

Number Three:  Know When to Talk

Do not disclose everything in the first meeting.  Disclose information in increasing amounts as the deal progresses.  Be sure that the balance of power in the deal remains relatively even in terms of oral commitments, commitments through information disclosure, money or contracts.  The information disclosure should start with general concepts and progress to detail at the contract stage. 

Number Four:  Take Note and Don't Ramble

If you really want to protect information, be sure to keep careful notes on what, when and where information was disclosed and who else was present at the meetings.  These records can be extremely helpful if you ever end up in court and virtually no one keeps them.  If you do, you'll probably be the only one with a written record.

Always disclose the minimum necessary to close the deal, without being fraudulent or misleading.  This allows you maintain the most control over your product or idea, as well as protecting your options for changing the timeline or details if needed.   However, saying the minimum needed does not mean withholding material information that substantially affects the deal.  For example, if your idea requires FDA approval, does not have it, and no one brings this up, it would be wiser to disclose this up front rather than to wait for this bomb to blow up after the deal is nearly or totally completed.  If a party feels angry or mislead, then trust is broken, and, contract or not, it will be hard to proceed productively.

Number Five:  Understand the Risks of Disclosing

 The disclosing party risks (a) disclosure of such information to its competitors; (b) disclosure of the information to the public; and/or (c) use of such information to compete or gain market advantage against the disclosing party. 

Number Six:  Understand the Risks of Receiving

 A surprising fact is that the party receiving information is often taking a greater risk than the party disclosing information. 

A good example of this risk is a movie studio.  Script writers are dismayed to discover that studios not only refuse to sign a confidentiality agreement, but typically make the submitter sign an agreement stating that if the studio later develops something that looks like his or her idea, the submitter agrees not to challenge this. 

Consider the studio's perspective.  Studios are in the business of coming up with ideas and making them into movies.  Every time the studio receiving a script or a pitch, it is receiving an idea.  If a studio were to agree to keep this information confidential and that the submitter owned the idea, the studio would be subjecting itself to potential law suits for every idea submitted, even those already developed by employees who have never seen or heard of the submission.  In court, the studio would have the burden of showing that despite the receipt of the submission, its employees who developed the similar idea never saw or received any information from the submission.  This would be virtually impossible for the studio to prove and costly when multiplied by the huge number of submissions received.  For studios, venture capitalists and other groups that work with large numbers of ideas, it may simply be too risky for them to sign a confidentiality agreement.  Remember that in these circumstances you are usually the less powerful party and thus the other side forces you to assume more risk.

Number Seven:  Understand How Using a Confidentiality Agreement Helps

Confidentiality Agreements give a contractual legal remedy for disclosure or misuse of information.  Depending on the information discussed, you may also have other legal remedies available, such as under the trade secret or copyright law.  Trade secrets are ideas or information which the creator used financial resources to create and made efforts to keep secret.  Trade secrets are protected by both state and federal laws.  If you have disclosed written information or source code, copyright can often help if the other party's disclosure or misuse involved making a copy of the information.  These remedies may be in addition to the contractual remedy in a Confidentiality Agreement.

Number Eight:  Use an Agreement Before Disclosing

If you are going to disclose information and use a confidentiality agreement to protect it, be sure the agreement has the following:

  • As broad a definition of confidential information as possible, without any restrictions or exceptions.

  • A clause stating to whom, when and how, disclosure and/or use is permitted.

  • A clause stating that the information must always be kept confidential.

  • Clauses regarding destruction of the information, return of the information, legal remedies for disclosure, and others.

Number Nine:  Read the Confidentiality Agreement Before Signing Before Receiving

If you are asked by another party to sign a Confidentiality Agreement to cover the information he or she is about to disclose, read the agreement before you sign it.  Be sure that it contains the following clauses, which protect your business by restricting it as little as possible in the future:

  • A narrow definition of "confidential information" so that as little information as possible is covered by the agreement

  • Defining confidential information in the agreement or as items labeled "confidential" in writing, so that what information is covered by the agreement and what is disclosed is more easily proven. 

  • Exceptions to the definition of "confidential information" which include necessary disclosure to the government if required (SEC filings, investigations, etc.); information developed by your employees without reference to the disclosed information; information already publicly known (it's posted on the internet, has been already issued in a press release, etc.), and others.

  • A "residual knowledge" clause which states that anything your employees remember in their heads, they can use.  This is based on the presumption that it is  impossible for people to entirely keep straight in their minds what information came from where.

Number Ten:  Remember Business Reality

If you find yourself negotiating heavily over confidentiality agreement language, try to step back and consider how great the risk really is. 

Would the costs of litigation be greater than the value of the idea, so that even if the other side breached the agreement, you wouldn't sue them?  Will the information be of any value in six months?  Are lots of other parties working on the same ideas so that six months from now, there will be many ways to accomplish the task which the information addresses?  Will the information be available from your company, the government or from other sources six months from now? 

Questions? Contact JSilver@CoolLawyer.com

The information on this site does not substitute for discussion with an attorney. Do not rely on this as legal advice.  

This article is not legal advice and readers should discuss the particulars of their situation with a licensed attorney. Judith Silver is an attorney licensed in CA, FL and TX with her practice virtually located on the web at www.coollawyer.com. Copyright (c) 2001 Judith Silver. All rights reserved.

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