If your top salesperson walked out the door tomorrow with your startup’s customer list and the blueprints to your cost and margin structure, what protections do you have in place?
Trade secrets are an easy to implement, low cost, and underutilized way to protect your startup’s intellectual property (IP). Trade secrets are legally protected and have no expiration date. They are also the only way to protect certain types of IP, including your cost structure, profit margins, and customer lists. By employing trade secrets, you increase the value of your business while also encouraging employees to keep your confidential information confidential when they depart. You may also pursue legal action against employees if you believe they have violated their agreement.
A trade secret is defined as “formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ascertainable by others, and which the owner takes reasonable measures to keep secret.” (Wikipedia) According to the Government Patent Office, a trade secret “must be used in business, and give an opportunity to obtain an economic advantage over competitors who do not know or use it.”
Here are some examples of things that can qualify for trade secret protection:
- Customer lists.
- Your proprietary customer segmentation data used for marketing.
- Your product’s cost structure and margins.
- Sales processes: for example, prospecting techniques, or perhaps you have a unique method for qualifying customers.
- Methods used in your business to deliver customer value: perhaps you have a spreadsheet to determine customer impact from your product. This spreadsheet, with its bespoke formulas, are eligible for protection.
Trade secrets are my favorite type of intellectual property because they do not expire like patents, and they are free to implement. Patenting an idea can cost upward of $100,000 (if it’s global), and the protection expires after 20 years. For example, the formula for Coca Cola is a trade secret. If it were a patent, it would be public information, and the protection would have expired long ago. The fact that Coca Cola uses a secret formula protected by continuous trade secret protection has contributed to the value and staying power of the brand.
The key to implementing trade secrets into your intellectual property arsenal is that you must take reasonable measures to keep them secret, and you must also inform your staff that the trade secrets exist. Here are some easy steps that one can take to implement trade secrets into their sales operations and hiring process:
- Define trade secrets in your employment agreements with new hires — let them know that they will be exposed to trade secret IP including customer lists, sales methods, etc., and that they have a duty to keep the information confidential. This is generally handled by an NDA (Non-disclose agreement), which your attorney can help you draft.
- When you provide trade secret information to an employee during the ordinary course of business, notify them that the data is a trade secret.
- If an employee leaves the company, you do not need to have them sign a new document. They already signed their original employment agreement, which is sufficient. Instead, provide them with a document that reminds them of their confidentiality obligation, and lists the different trade secrets of your business.
I encourage all leaders to think creatively about what things they are using in their business that can benefit from trade secret protection. Intellectual property is a significant component of the value of your startup, and adding trade secret protection to your IP arsenal is extremely easy, comes at zero cost, and adds value to your business.
