Keep the Barn Door Closed

Posted on Monday, November 19, 2018

You spend a great deal of time and money developing unique ideas, products and services. But the more people who know about your plans, the more you risk losing your secrets. To help protect intellectual property (in other words, your vital assets), it's important to require confidentiality agreements.

The Basic Accord

Typically, a firm will use several formats, depending on how the agreement is to be used. In all cases, it should identify the parties involved and include a starting date and length of non-disclosure.

Check with your attorney to ensure that your company's confidentiality agreements meet legal requirements.

Sometimes referred to as non-disclosure agreements, confidentiality agreements let you talk more freely with suppliers, advisers, customers and employees. You'll have a clear understanding that they won't talk about your company to anyone without your permission.

Confidentiality agreements come in all shapes and sizes: In some cases, they involve a short "catch all" paragraph on the back of a visitor badge or sign-in form. More detailed agreements are also included in employee contracts or handbooks. One restaurant chain prints a statement on its employee application form. Prospective employees agree that if they're hired, they will keep the restaurant's recipes a secret.

Confidentiality agreements can even involve a document discussing new ideas or yet-to-be-released products or services. Whatever the format, if your company can prove a violation of a confidentially agreement, they may be entitled to injunctive relief, damages and compensation for lost profits.

Here are four situations where a confidentiality agreement should be considered:

1. Developing a prototype. Before you decide whether to move forward with a new product, you'll need cost estimates from several suppliers. A confidentiality agreement makes them liable for financial damages if they reveal the details to others.

2. Seeking investment. Potential investors who sign a confidentiality agreement are liable if they develop the product or service on their own.

3. Selling your company. A prospective buyer wants detailed financial and operational information. If the sale doesn't happen, you don't want them using your ideas or disclosing the information to someone else.

4. Bidding on a project. You look for outside advice to help prepare the documents. A confidentiality agreement tells the outsider not to share your pricing and proposal information with anyone.

Confidentiality agreements are legally enforceable if they are reasonable in scope, duration and geography. They must also document a legitimate business interest -- not just general knowledge or skills. If the agreements are violated and you decide to take legal action, your company must show economic hardship.

However, the agreements are by no means foolproof. Generally, the ability to enforce them depends on:

The value of the information.

How the agreement was violated.

If the information was available from another source.

There's an old saying that applies here: "It's too late to close the barn door after the cows have escaped." A nondisclosure accord is an easy, effective way to make sure your employees and other contacts keep your trade secrets, ideas and other information confidential.

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Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.