Trade Secrets – the Other Intellectual Property

by Paul Godfread

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Trade secrets are the red-headed stepchild of intellectual property.  Patents, copyrights and trademarks always  seem to get all the attention.  Most tech companies will likely encounter all at one point or another – but  for the  startup – a good trade secret policy could be most important of all during the formative stages.

What is a trade secret?

A trade secret is information that has economic value because it is not widely known and is protected from becoming widely known.  Trade secrets include customer lists, marketing plans, original research, databases, source code, operating manuals/procedures, communication records and any other bit of information that is both useful and not widely known.

Big Ideas vs. Useful Knowledge

The reason to protect your trade secrets is not that someone is going to steal your “ideas”. To quote Paul Graham, “The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.”  So, why protect trade secrets or anything else?  Because each day you work to execute against your ” idea”, as it melds from concept to reality, you are probably gaining tangible  information and subsequent knowledge.  These incremental bits of IP are far more valuable than the “big idea” itself because they can only be obtained through actual advancement.  Rarely is the “big idea” actual trade secret; rather the accumulation of the tangible ingredients that make the idea work as a business is trade secret, by definition

In practice, the trick is differentiating between those trade secrets that are worth protecting and those which are worth exposing. While it’s widely accepted that Venture Capitalists will scoff at NDA’s, a startup company should be prepared to flex its legal muscle under the right circumstances, “ideas” aside.

Keeping the cat in the bag

If your product is a new invention/method and hasn’t been brought to market or shown at trade shows it’s still patentable.  In essence, patents only cover ideas that have been “reduced to practice” (i.e. they actually work and can be demonstrated).  Keep in mind that if you have a unique invention/method which your developing, the moment it becomes “widely known”, its patentability becomes compromised.

Trade secrets are governed by state law rather than federal law.  Minnesota trade secret laws follow the Uniform Trade Secrets Act, so they do resemble the laws in many other states.  It is possible to receive damages and attorneys fees awarded, but it is often very difficult to determine (and quantify) what has actually been lost.  Maintaining a proactive trade secret policy offers peace of mind and is far more affordable than trying to win a lawsuit, any day.

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