How to protect your business idea when dealing with third parties

A third party can be anyone along the lines of a supplier, vendor, manufacturer, independent contractor, or any other party involved in the handling of the product of a trade secret. It is important to remember that your direct competitors may not the only parties with vested interest in your trade secrets; other individuals, who may not even be in the same line of business, may benefit from selling your trade secret to third parties. In the event of a claim of breach, the courts will consider what measures the plaintiff took to safeguard the confidentiality of the matter. The other party should have been made reasonably aware of the reception of any relevant information constituted as trade secrets, otherwise it may not be fair to make demands of a party to keep in secret each and every piece of information that party comes in contact with. Therefore, it is important to take the appropriate measures in order to protect your trade secrets from third parties. Some of these measures include:

  • Due diligence on background checks and past history to ascertain potential risk - check the party’s track record to see if they have bad history with other businesses or have possibly been involved in the misappropriation of trade secrets; 
  • The creation of legally binding documents such as non-disclosure agreements - contractual obligations that can stop a third party from disclosing your trade secrets. 
    - For example, a non-disclosure agreement is a contract between two or more parties that prohibits disclosing any information that is shared between the two parties for a business venture. The agreement must clearly state that a particular key piece of information is protected. When writing up the agreement, include clauses, which will prevent the trade secret from being used in any unauthorized way. The disclosure of the trade secret must be clearly prohibited in the agreement. There should also be a part of the agreement that states that the information should be returned or destroyed upon the end of the project between the businesses; 
  • Developing a comprehensive policy towards the protection of the company’s confidential information, educating the employees about this policy, and strictly enforcing it; 
  • Making sure the information is not disclosed to a wider circle than was intended (for example, passed from the manager to his subordinates) – require the receiving party to sign an agreement, memo or other instrument stating that the party will use the same preventative measures as its owner or more in the protection of the information.  
  • Placement of prominent notices on the confidential materials to let the other party know that you intend to keep it in secret - the information that is considered the trade secret should be clearly defined when it is shared. For example, giving a password to access the information or writing “confidential” on the envelope that includes the trade secret will make obvious that the information is not for sharing. There needs to exist general communication between the two parties regarding what kind of information cannot be disclosed. Verbal reminders, email memos, and physical signs can all be used to remind the third party that this trade secret is not for disclosure. This not only helps prevent the third party from inadvertently sharing the information, but will also back you up in court if you have to file a trade secret claim. 
  • Tracking all uses of the trade secrets during and after the length of the professional relationship – you should oversee that the use of the trade secret stays within the company even after the relationship or project with the third party ends. At the end of your professional relationship with the third party, make it clear that the trade secrets shall continue to remain undisclosed and that all mediums carrying the information must be returned to the company and that no copies or duplicates should be made..

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