In my series of posts with advice for start-ups, I think this is the most important one. It is about protecting the heart of your business, i.e. those assets that form its foundation, drive its prospects and distinguish it from its competitors. They may consist of a formula, an algorithm, code, a customer list, the name and logo, or the people (clients or employees).
The asset protection process ideally should start right when you conceive the idea for your business, even before an entity is formed or other legal steps are taken. Develop a strategy, plan for success. This means educating yourself, conducting a careful review of your IP, and developing a strategy and to-do-list, ie: a plan. The plan needs periodic attention, ie: monitoring, updating, TLC, as the business matures and the competitive environment evolves. The following is intended as food for thought for the process:
Patents, Copyrights and Trademarks
Educate yourself about the different forms of IP. A patent is used to protect inventions that are new, useful and non-obvious, while copyrights protect creative works, such as writings and works of art. A trademark is meant to identify and protect the source of goods and services. All three can be protected by making filings with the appropriate governmental agencies. Sit down with counsel to determine what is protectable and to develop a plan. Often it may make sense to conduct a search before you even choose a company name/make a filing to avoid wasting time and money. Some of the tools are for free. For the plan, I would recommend counsel.
Confidentiality and Non-Disclosure Agreements
Everyone receiving non-public information about your business should sign a confidentiality/non-disclosure agreement (NDA). It prohibits third parties, such as consultants, business partners and investors, from revealing your confidential information, including trade secrets. An NDA provides the ground rules for the sharing of data and, if things go sour, it contains the legal remedies should the other party not stick to the terms, including injunctions, liquidated damages, and recovery of legal fees. Most importantly, it acts as a powerful deterrent. The NDA needs to be succinct and well-drafted, so be wary about just pulling some form of the Internet.
Employee and independent contractors should sign some form of invention agreement for IP developed by them during their relationship with you. In addition to confidentiality covenants, the agreement should stipulate that inventions, discoveries and other intellectual property developed by an employee/contractor during his/her tenure with you is your property. It often also contains a clause that prohibits employees/contractors from soliciting clients when leaving the company for a stated period after the end of the relationship.
Data Security and Back-Up
You should take steps to secure your proprietary data internally. Make sure you use password protection, and if you keep tangible copies, keep them under lock and key. Access should also be limited to only those employees who absolutely need it. Lastly, it goes without saying that you should create secure backups of all digital files.
As always, if you have questions or comments, please call, e-mail or tweet me @Bettina Eckerle.
Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz. She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.