Are you developing a new product or concept in an existing business? Are you starting a new business and want to protect your ideas? Or, do you simply want to ensure your existing business has its intellectual property protected? In this article, we explore how to protect your business ideas at all stages of the business lifecycle.
Can business ideas be protected?
A classic example, when we think of an idea being stolen, would be Facebook. Even a Hollywood movie was made about it. Mark Zuckerberg was not the only person that had thought of the idea of Facebook. In 2004, the Winklevoss brothers sued Mark Zuckerberg, claiming he stole their ConnectU idea.
What this particularly prominent example demonstrates is that an idea is genuinely worth nothing until it is executed. If your idea gets out before you execute, you lose that ‘first to market’ advantage.
Essentially, a business idea on its own does not have any value. If the idea is out there, it can allow someone else who has the means and funds to expedite that development to get to the market first. Particularly if the idea is not something that you can protect through intellectual property rights, such as through a patented invention.
A business idea is not protected as intellectual property. Business ideas are copied all the time by competitors. Uber is a good example of a really novel idea that was copied by multiple businesses around the world after it was launched.
When it comes to new ideas, your only real big advantage, other than your ability to execute, is getting first onto the market. However, there are some protections you can put in place to try to alleviate the risk of your ideas being stolen.
If you patent an invention, no one can copy it. You can expose that idea to millions of people and no one is allowed to copy it for the duration of the patent. However, if before you have patented it, you phone a friend, and they listen to your idea where you disclose information, that is not considered intellectual property. Your friend can go and use that information without consequence.
How to stop someone from stealing your business idea
Get it out into the world! As soon as an idea takes a material form, then the expression of that idea and its material form is usually protected. But if you’re not ready for that just yet, the main way a business can look to keep business ideas as safe as possible is through the use of Non-Disclosure Agreements (NDA’s) or Confidentiality Agreements.
These are agreements where one party or multiple parties agree not to disclose the other’s confidential information/trade secrets or business ideas.
The most famous example of where a trade secret has remained protected for many decades in this way is the Coca-Cola formula. And over the years, as they have tested and tried new product ideas and technologies, they would have ensured that any discussions would be protected in the same way.
When might an NDA be suitable?
NDAs can be very useful in a variety of circumstances where a party is going to be privy to information that is not in the public domain. In particular, where that information is not ordinarily protectable by any other intellectual property law. For example, if you were the founder of Uber and you were at the stage of hiring developers to develop the software, you would want them all to sign an NDA before discussing your plans.
An NDA usually has two components that are equally important:
- The recipient of the information generally agrees both to not disclose the confidential information; and
- They will not use the confidential information.
A well drafted NDA would ensure that they would be bound not to disclose the business idea, before launch.
An NDA is useful in a variety of situations, including:
- When hiring employees who are going to be party to your business’ confidential information such as your marketing strategy, know-how, financial information and costs.
- When hiring third party contractors, such as software developers, who you will be disclosing confidential ideas or information to;
- When you enter into sale of business negotiations which require you to disclose sensitive financial information to prospective buyers;
- When pitching to investors;
- When you enter into a contract with a party and want to keep the terms of the contract itself confidential.
Common mistakes to avoid
The first mistake that we see, particularly in the startup space, is when there are no NDAs in place at all. Perhaps because they are unaware of their importance. The other mistake we see is when someone uses a generic NDA or copies an NDA from the internet, or from someone they know. While that is potentially copyright infringement right there, the bigger issue is that NDAs are very particular documents and can be hard to enforce.
To ensure you absolutely maximise the potential of any NDA, both from a deterrent and an enforceability perspective, the most important thing to do is to make sure it is carefully drafted and tailored to your specific circumstances. If it is too vague or unclear, it ends up being either unenforceable or not a deterrent at all.
A poorly drafted NDA is often the biggest obstacle in getting it enforced. Usually that is because a Court refuses to enforce it, or inadvertently, important information was missing.
How long does an NDA last?
While Coca-Cola has successfully kept its recipe a secret since inception – they may reasonably require an employee or other party that is going to learn of the recipe, to keep it secret indefinitely. On the other hand, asking an employee to keep your financial information secret for 10 years in circumstances where after 2 years the information will have no commercial value, is unreasonable.
On average, NDA’s tend to last between 1 and 5 years, but the duration will depend on the circumstances.
Is an NDA enough? Maximising protection of ideas
One of the most common pitfalls we see in NDA’s is that they do not specifically and concisely define what the confidential information is. If it is too broadly defined, there may be confusion and disagreement between the parties.
The less clear parties are on what their actual obligations are,
the more likely they are to breach them.
NDA’s should be used between partners, shareholders, investors, third party contractors and employees.
You will ideally need different NDAs for contractors, co-founders or potentially, investors. For this reason, it is a good idea to engage the services of an experienced IP lawyer who can assist you in giving yourself the best possible chance of protecting your ideas.
Your chances of successfully enforcing an NDA and the chances of the recipient of the confidential information complying with the NDA are far greater if the NDA is reasonable and realistic. It should be for a period as long as is necessary and reasonable to protect your commercial interests.
A good NDA will state clearly what the reason is for the sharing of the information, without disclosing the actual confidential information. This helps to prevent a party from claiming after the idea or information is disclosed to them, that they were already aware of, or knew the information.
The other mistake we see is businesses not ensuring the NDA is signed before any information is shared. Ensure you have your NDA signed by all parties that are going to be privy to the information – including third parties. For example, if you are in sensitive sale negotiations, you will want the prospective purchaser and their solicitor, to sign confidentiality agreements. Ensure the agreements are signed before any information is disclosed.
And finally, an NDA should not be the only measure relied on to protect confidential information. Clear policies and guidelines should also be in place to prevent unnecessary disclosure of confidential information. Adequate security measures should also be in place, both digitally and physically (e.g. keeping confidential information on a need-to-know basis, storing private documents in locked cabinets, ensuring all sensitive documents are shredded, etc.)
We normally discuss NDA’s as part of a broader Intellectual Property (IP) strategy. It is ideal to have a broad IP strategy at the start of any business, to know what will need to be protected. That protection may be through copyright, trademarks, patents or what will need to be covered separately in NDA’s, to protect both trade secrets and new ideas. Even in existing businesses, it is wise to have an experienced IP lawyer do a health check on your business to ensure you are adequately protected.
In our years of assisting businesses that have experienced stolen business ideas and breaches in confidentiality, we know what needs to happen to avoid these situations. Not all NDAs are created equal, leaving individuals, businesses and brands, compromised. To ensure your business ideas are adequately protected, think of a good NDA as an insurance of sorts. No business can afford for its good ideas to be dead in the water before they are given the chance to fly.
At Level Up Legal we are experts in the area of brand protection, intellectual property and confidential information. Book a complimentary 30-minute call with either Brigit or Zan, so we can learn about your business and get a sense of what kind of IP and contractual protection may be most beneficial. We can also review confidentiality agreements that you have already signed to identify vulnerabilities and resolve them. Book your complimentary call here.