Jonas Jacobson

Shh. My business is in stealth mode! ...what are we doing? er, well, ok, I'll tell you, but don't tell anyone else, okay?

The foregoing was a great example of how to lose trade secret protection status for your business. More on how to avoid doing it after the jump.


A trade secret is defined a lot of ways in a lot of different places. But basically, the idea is that your business idea has to be secret, and it has to be something useful. Your diary is not a trade secret because probably, it's not useful to anyone - except maybe your kid brother. If you're in stealth mode, you are, whether you know it or not, trying to keep your burgeoning business as a trade secret.  In a lot of ways, a trade secret is like a trademark, if you don't employ the protection it affords, you lose the protection.

So what can trade secret protection to for you? Well, it can protect you in the event someone tries to steal your idea. If you've gone to the trouble of keeping something a secret, I think the idea goes, you should have the right to develop it free from the machinations of outside evildoers. This flies in the face of many accepted mantras. While it's important to listen to your customers, if competitors and former employees are all starting up projects based on your idea, the field gets competitive and confused - even if your product is the best on the market.You've got to hold on to your hype. Your customer base has to be there. And if possible, it's nice to be the only player in a space.

Generally speaking, in order to have a trade secret, you have to have some kind of plan of protection in place for your trade secret. Since secrecy is the sine qua non  of trade secret protection, there has to be some evidence that the protection was sought. While I would, naturally, recommend you talk to an attorney about this plan, as a start-up, you might not have the resources to do that. So here are a few things to consider (for your information only, use at your own risk, no attorney client relationship created blah blah blah):

(1) The extent to which you tell people outside the company about your trade secret. Let's simplify that: don't tell anyone outside the company what you're up to inside the company.

(2) Have a plan to preserve the secret internally. Even if that means setting forth in a writing: "the founders agree not to work on this sensitive part (X) of the project in cafes, and not to tell anyone about it. All computers will be locked down, the office will be locked, etc. etc." It doesn't have to be in legalese, but it does have to set forth the responsibilities of the founders to keep things secret, and make it clear.

(3) Putting a monetary value on the secrecy is one way to insure that, if the secret is breached, inadvertently or not, by a founder, the secret will be perceived as valuable. So if revelation of the secret will cost a founder $X - we know essentially, what the secret is worth; a different amount may be stated if the secret is stolen by a competitor; you may state the value of a secret revealed in a variety of different fora (e.g. revealing a secret to your beloved grandmother is very different from blogging about it). ...naturally, founders may balk at this, and well, that's to be expected.  It's also what you hire a lawyer for: to craft a sane trade secret policy.

(4) You should keep track of your time spent in developing the secret, and have some basis for the value of your time so that, if anyone takes your secret, there's a value attached to it. You should also consider, in terms of future valuation, how you intend to monetize the secret, and what the prospective value is of that monetization.

(5) Also consider how easy your idea is to copy or acquire. If you're making a large hadron collider I would worry less than if you were making the latest iPhone app.