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are contracts used to protect trade secrets and know-how from being misused or misappropriated by those who have access to them. When they are used, they can help companies prevent competitors from learning valuable secrets. For many start-up and technology-based companies, the secrets these agreements help protect are among the most valuable properties they own. Often, those secrets constitute the essential difference between them and their competitors. Having written contracts that obligate employees to maintain the secrecy of a company's techniques, processes, or know-how can mean the difference between maintaining a competitive advantage or giving it away to competitors. In some cases, confidentiality agreements can even cover "negative know-how." That is, they can prohibit the transfer of information about mistakes the company made while it perfected its technology or project, information many would not normally think of as secret or important. Restricting negative know-how, however, can help insure that a company's competitors will have the opportunity to make the same time-consuming mistakes the company made, and thereby delay the introduction of competitive products. State laws generally permit companies to prevent others from using their secrets only as long as they treat the secrets as confidential and take reasonable precautions to prevent them from being disclosed to others. Depending upon the nature of the secrets, these necessary precautions might include restricting access to confidential data or setting aside a safe or room for storage of secret documents. In most cases, written confidentiality agreements should also be required from everyone who has access to company secrets. These agreements and the secrecy procedures enforced by a company create the legal basis for using the courts to prevent others from misappropriating important company information. The importance of these agreements and of complying with the company's secrecy procedures should be impressed upon new employees and consultants. Departing employees should be reminded of their secrecy agreements. No one should be given access to a company secret before he signs a confidentiality agreement. No venture capitalist wants to invest in a company that has not taken steps to protect its valuable secrets. Most will carefully review a company's arrangements to protect its secrets. And most will expect management and other company employees to be bound by written confidentiality agreements. Many will engage local counsel to be sure the agreements are enforceable. Because of this and the fact that the state laws that govern the enforceability of these agreements vary widely and are quite specific in their requirements, care should be taken when drafting a confidentiality agreement. To be sure of its enforceability, it should be prepared or reviewed by experienced legal counsel. See: Employment Contracts, Patents, Software Protection, Think Capital, Trade Secrets. |
