Community Blog / MISTAKES ENTREPRENEURS MAKE IN PROTECTING PROPRIETARY INFORMATION (OR FAILING TO)

No entrepreneur wants to engage in litigation, but a surprising few take the measures to avoid legal problems. Attorneys who litigate noncompete cases or have related experience say that business owners often do not do enough to protect their proprietary information and the company as a whole. This could be because entrepreneurs dislike investing time and money in legal fees (especially if they are perceived to be unnecessary). 

However, these entrepreneurs later learn that the fees associated with protecting proprietary information is a fraction of the costs of lost proprietary information or litigation to remedy the situation. Below are the primary mistakes made by entrepreneurs in protecting their information and company.

1. Neglecting the issue: Entrepreneurs tend to focus on the now because they are so overwhelmed by everything that must be done immediately. This army-of-one (or of a few) is responsible for a myriad of things, including driving revenue and putting out fires as they pop up. Protecting intellectual property often goes by the wayside with other important tasks. 

Meeting this expense head-on will save you trouble and cost in the long run, and you should periodically renew your attention to the issue. Just like you need a regular checkup by the doctor and your car needs a tune up by a mechanic, you should work with a legal professional to periodically review and update your business’ protections. 

2. Lacking contracts: Contracts are the defensive front line in protecting proprietary information. Nondisclosure, non-solicitation and non-compete agreements with your employees can be very valuable. Lacking these contracts can leave your business vulnerable. 

Just as with any relationship, the one between employer and employee should be based on trust, but caution is still important. In a perfect world, trust would never be broken and verbal agreements would mean something. However, in reality, it is important to strive for the best while preparing for the worst. The point is not to be cynical, but realistic. Are you ready and willing to lose it all (or most of it) because someone broke your trust? The sad fact is that it happens and companies are caught in a bad place.

Professional relationships that many entrepreneurs overlook are those with vendors and consultants. Third parties, like vendors and consultants, have access to your proprietary information, and  it may be appropriate to ask for nondisclosure agreements.  

 

3. Overlooking details: Like most things in business, and in life, the devil is in the details.

Unsigned agreements are typically unenforceable and undated agreements pose their own problems. Missing or lost agreements are usually worthless. Be sure to implement a system to ensure that all forms are signed, dated, and filed correctly.

4. Mixing proprietary and routine information: Proprietary information is not public knowledge, but typically includes financials, test results, trade secrets, or other private data, and it is viewed as the property of the holder. It is your secrets and your special sauce that makes your company stand out from its competition. Therefore, these documents should be stored separately from regular, routine documents and clearly marked as confidential. You can take it a step further and implement a confidential-documents policy with security controls.

Creating protections is not necessarily complicated or expensive. Simple measures implemented consistently can significantly reduce the risk of disclosure. If you have questions, consult with a qualified attorney.


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