Protecting Your Trade Secrets When Working With Third Parties

This is how this works, this is how that works.

A common concern when starting a new business is how to protect your trade secrets. Maybe you have come up with a great business concept or developed a fantastic new product or service. How do you make sure the people you’re dealing with don’t steal your product or copy your idea?

The Uniform Trade Secrets Act (“UTSA”) has currently been adopted in every state except Massachusetts, New York, New Jersey and Texas. These states instead have independent statutes in place to protect trade secrets. The Act defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique or process, that (1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

The purpose of the Act is to prohibit misappropriation of a company’s confidential information primarily by an independent contractor or a former employee. We’ve already discussed the difference between hiring an individual as an independent contractor as opposed to an employee in a previous post. Strategies for dealing with preventing former employees from disclosing proprietary information and how to perform exit interviews will be discussed in a separate post but for now, we’ll focus on ways you can protect your trade secrets when dealing with independent contractors or other third parties.

To bring a claim under the UTSA, you must be able to show you have taken reasonable measures to maintain the secrecy of your company’s confidential information. An obvious way to protect your company’s confidential information is to limit its disclosure to others in the first place. Third parties should only be given access to information that is absolutely necessary for them to carry out the specific work they have been hired for. Take measures to ensure that any data that they do not need is sufficiently protected, whether this means securely locking it away or keeping electronic data password protected. Any confidential information you do need to disclose should be clearly labeled ‘CONFIDENTIAL’ and ‘PROPRIETARY’.

We’ve already covered the basics of confidentiality or non-disclosure agreements in a previous post. Not only should you use such agreements with all new employees, it’s also crucial that any third parties you deal with agrees to handle and maintain confidential information appropriately in order to prevent the disclosure of your confidential information during their relationship with you or your company. These agreements should clearly outline the steps a third party is required to follow upon the termination of the working relationship including the return or destruction of any of your proprietary information they received. Entering into such an agreement should be your initial step before beginning any preliminary discussions with a third party. The only third party you do not need to enter into one of these agreements with is your attorney because your attorney is legally bound not to disclose any of your trade secrets he or she may learn in the process of giving you legal advice.

There are plenty of other measures you can take to protect your trade secrets but these are just some of the more basic ones. Most importantly, remember that these are preventative steps and you should make sure that from day one you have a consistent, written confidentiality policy in place to protect your confidential information.

Image by Flickr user Nadya Peek (Creative Commons)


Contract Basics – A Common Sense Guide for Business Owners


Having a basic understanding of contracts law will help you to negotiate your contract more effectively, whether you’re signing a contract for janitorial services for your company or agreeing to use a third party vendor to sell your services.  For transactions of even moderate complexity, it is highly recommended that you consult with a legal professional, since a good negotiator can likely help you to obtain favorable terms which can translate into big bucks for your company.

Here are a few suggestions, in a step-by-step guide, to help you to understand contracting so that you may use that information to your advantage.

1. Objectives.  Does the contract clearly explain the objective of the contract, what you are trying to achieve, the requirements of each party, and clearly state your goal for having a signed agreement.  If you can’t tell, put it down and read it again later for a fresh perspective.

Clearly define all terms.  This sounds simple, but when you read the contract, from a common-sense perspective, make sure all key terms used in the contract are defined, so that there is no question later as to the scope of what is covered.

Dates.  Pay attention to all dates written in the contract.  This includes effective date, termination date, delivery date, even contract date.

Dollars.  Make sure any amounts are clearly stated so as to leave no question on the issue of compensation.  It should be clear what the amounts are and how that ties to the service being paid for.

Anticipate a law suit.  Read the contract with an eye for which clauses could be invoked in case something goes wrong.  Assume the worst.  Here are some clauses that become relevant in case of a dispute:

a. Indemnification clause – this means that one party holds harmless the other; they cannot sue the other party if something goes wrong. (See earlier post on indemnification clauses for a detailed explanation).

b. Confidentiality clause – if the other party will be exposed to information about your company that is confidential, make sure you have this clause that requires that they not share this information, with a punitive measure in case of disclosure.

c. Attorneys Fees – pay attention to which party pays attorneys fees in case of litigation or any dispute.  Ideally, it would be the other party.  Sometimes it’s the party that initiates the suit.  And sometimes it’s just everybody pays their own fees.  Assess your business and consider which structure is best for you.

d. Choice of Venue – read this to find out where you and your attorney would have to go to court in case of a law suit.  For example, if you live in Virginia and the janitorial service that you selected is based in California, it would be to your advantage to have the venue be Virginia.

e.  Arbitration - this requires parties to go to arbitration instead of a court in case of a dispute.  Some arbitration clauses are more detailed than others, and can include which arbitration organization will be used, where arbitration is to occur, and other relevant details.  Consider your business and whether this type of forum works for you.

6. Don’t try to sound like a lawyer.  The best contracts are those written in plain English and understood by both parties. 

7. Number the pages.  Seriously. Make sure it doesn’t look like pages were added on or taken out.  You don’t want a dispute later on about which pages were even part of the contract.

Make sure it’s signed by both parties.  A contract isn’t valid and enforceable without the signature of both parties.

This is just a start.  If any of this is confusing or if during the course of the negotiating process you have questions, contact a professional.  It will be worth it in the end.

Image by Flickr user NobMouse (Creative Commons)


Federal Trademark Registration

The Trade Mark News

Trademarks are an important tool for protecting your company’s reputation and making sure imposters aren’t trading off the success and goodwill of your business. You can apply to register a trademark to protect any word, name, symbol or device if it’s unique and used to distinguish your goods from those of another seller or service provider. Having a brand name or logo that uniquely identifies your goods or services is what’s important here. If your brand name is one that is commonly used in your industry, it’s unlikely that you will be able to register your mark. When deciding upon a name and/or logo for your company, your first step should be to perform a trademark search to see if anyone else is already using your proposed name/logo in a industry similar to the one you are looking to enter. You can do this by visiting the U.S. Patent and Trademark Office website and searching their database of registered trademarks.

Trademark applications can be tricky and it’s always advisable to have an experienced trademark attorney file your applications for you. Ensuring that a trademark search has been thoroughly carried out and that your trademark is registered for all potential goods and services you intend to use it for is crucial. This early expense can save you from serious headaches down the line not to mention expensive legal fees. If you choose to file the application yourself, the easiest way to do so is to use the U.S. Patent and Trademark Office’s online application process.  The Office’s website includes comprehensive instructions for completing the application along with helpful instructional videos covering basic information about trademarks, common mistakes and issues that arise when filing applications.

Even before you receive a federal trademark, you can alert others to the fact that you are claiming rights to your brand’s mark by using the symbol ™ directly after the mark whenever you use it. Once your trademark is approved and registered by the U.S. Patent and Trademark Office, you should always use the ® symbol directly following your mark any time you use it in connection with the goods or services listed in your federal trademark registration.

If you plan on operating your small business solely in a particular local market, and have no intention of expanding to other regions, you may find that state registration of your trademark is all the protection you need. State registration is usually cheaper and faster than federal registration but obviously, will only offer you protection against other businesses or individuals in your state. You can find the specific requirements for your state at the U.S. Patent and Trademark Office website.

Image by Flickr user DoubleM2 (Creative Commons)


Responding to a Request for Proposal (RFP) from a Prospective Client

Dr. Andrei Dmitrievich Sakharov

Small businesses often receive a Request for Proposal or “RFP” from large clients inviting them to submit a bid to work on a certain project or provide services.  There are a number of online resources providing tips to prepare a well-written RFP response.  From a legal standpoint, here are two important issues to think about in your RFP response

1.  Disclaimer.  Many RFPs state that the responding business is bound by all the information provided in the RFP response.  Keep in mind that throughout the negotiation process, you may receive additional details from the prospective client that can affect the information/pricing provided in your response.  Disclaimer language such as the paragraph below should be included in you RFP response to protect your business:

The information and pricing data submitted by YOUR BUSINESS in response to the PROSPECTIVE CLIENT’S RFP is non-binding and for evaluation purposes only and is subject to adjustment or modification by YOUR BUSINESS after its review, consideration, and negotiation of the terms and conditions of a definitive final contract.

2. Confidentiality.  Remember to safeguard the information you are sharing about your business and its capabilities as well as the price quotes in an RFP response.  Make sure your RFP response includes Confidentiality language such as:

All data and information contained herein and provided by YOUR BUSINESS in response to a PROSPECTIVE CLIENT’S RFP is considered confidential and proprietary.  The data and information contained herein may not be reproduced, published or distributed to, or for, any third parties without the express prior written consent of YOUR BUSINESS.

Most importantly, distinguish yourself from the competition but do not promise more than you can deliver in an RFP response.

Image by Flickr user dbking (Creative Commons)


Can I Monitor My Employees Emails, Web Usage, and Phone Calls?

My monitor with weiner

Can I read my employees emails?  What about phone calls?  Can i look at the web sites my employees are going to?

In short, yes.  Employers can set the rules regarding the privacy or non-privacy of emails on company systems.  You should as a best practice, state in your company handbook and/or policies that emails may be monitored.  One situation where you may run into trouble is if you tell your employees that email is confidential, and monitor it anyway.

Similarly, you can monitor employee phone calls without warning or announcement so long as you have a legitimate business need to do so.  For example, you can monitor employees’ conversations with clients, vendors, other co-workers.  However, once you realize that the conversation is personal in nature and not business related, you may no longer have the right to monitor.

And yes, you can monitor your employees’ web site usage, including history and downloaded files. In fact, many if not most, employers do monitor internet usage.

A best practice for all employers is to have a written policy setting forth that employees have no expectation of privacy when using company equipment and resources for communication, including any email, text messages, instant messages, web site usage and cell phones.  Have each employee acknowledge that they have received the policy, read it, and understand it.

Image by Flickr user Carolyn Coles (Creative Commons)


Blogging on Your Small Business Website: Legal Snafus to Avoid

Image by Flickr user Bennylin0727 (Creative Commons)

Adding a blog to your small business website is a great way to connect with customers, promote your products/services, and show up in search engines.

Below are points to remember from the legal side as you are blogging:
a. Any promotional information you are sharing should be accurate.  Do not over-promise on your products/services, make misleading statements, or “bait and switch” with offers that have a catch.  Review the Federal Trade Commission’s “Advertising FAQ’s: A Guide for Small Business” to make sure ads and claims on your blog and website comply with the rules.

b. Provide attribution for any content that is not yours.  If you are quoting someone else’s writing, use quotation marks and provide the source.  If you are relaying stats or other information obtained elsewhere, provide the source (preferably with a link) to avoid copyright infringement issues.

c. Make sure you have proper rights to any images you place on your blog.  See my previous post: Copyrights and the Images on Your Small Business Website on this point.

d. Do not bad-mouth your competition (or anyone for that matter).  Making disparaging comments about other individual or businesses on your blog can leave you open to a potential libel suit.  Avoid this, even if the statements are true.

e. In 2009, the FTC issued new guidelines applicable to blogs .  If you are blogging about and endorsing a product that is not your own, you must disclose any connections you have to the seller of the product.  For example, if Beauty Blogger received free facial moisturizer from Company X and writes a post raving about Company X’s facial moisturizer, Beauty Blogger is obligated to disclose that she received free facial moisturizer from Company X.  In her blog post, she would say something to the effect of:

“In the interest of full disclosure, I received free products including facial moisturizer from Company X.”

f. Maintain confidentiality of your relationships with clients and partners.  Even the fact that a relationship exists should not appear in your blog without their express written permission (via email or otherwise).

Happy blogging!


The Family and Medical Leave Act – Eligibility and Requirements


The Family and Medical Leave Act (FMLA) provides federally required protection to certain covered employees who:

  1. Works for a company with 50 or more employees, AND
  2. Has worked for more than 1 year for that company (at least 1,250 hours over the last 12 months)

FMLA may be used by employees for the following reasons:

  1. Birth of a child, bonding with a newborn, or to care for a child with a serious health condition
  2. Adoption of a child
  3. Serious illness of the employee,
  4. Serious illness of the employee’s spouse, child or parent
  5. Any
    qualifying circumstance arising out of the employee’s spouse, son,
    child or parent being a covered military member on covered active duty .

employees are entitled to twelve weeks of leave in any 12-month period.
The FMLA does not require that the employee be paid during this time,
simply that the employee be allowed to take leave, unpaid, and that
their job be protected during this time.

Some Facts to Keep in Mind:

  • The definition of child is broad, and includes legal, biological and other children in the care of the employee.
  • For members of the military , the employer may be required to provide an extended period of leave of up to 26 weeks.
  • For the care of children, the child must be under 18 years old.
  • Employers are not required to pay the employee while they are taking FMLA leave.
  • Employers are required to maintain the employee’s group health benefits during the time they are taking FMLA leave.
  • The FMLA only applies to companies that have 50 employees or more within a geographic span of 75 miles.

For more information on the specifics of the FMLA, the Department of Labor provides guidance, including fact sheets, posters and FAQ’s.

Image by Flickr user (Creative Commons)


Important Clauses in Supplier Contracts

Industrial Processes

Image by Flickr user Lauren Keith (Creative Commons)

Many small businesses hire other businesses as suppliers for materials.   Below are several contract clauses that warrant special attention:

Term.  The duration of the contract should be very clear.  It should end on a specific date like “one year from the (defined) contract effective date.”  If this is a supplier that you foresee a continued relationship with, the contract could “automatically renew.”  For example, the language could read:

“The term of this Contract is one year from the Contract Effective Date (“Initial Term”).   This Contract will automatically renew after the Initial term in subsequent one-year terms unless either party provides the other with XX days advance written notice of termination prior to the end of the then-current term.”

Termination.  Think about how long you would need to find a new supplier if your current one stops providing materials to you every month.  Is the material rare?  Will it take fifteen days to find a new supplier?  Thirty days?  More than thirty days?  After you determine this, make sure the contract does not allow the supplier to terminate the contract without giving you advance written notice of termination for that amount of time.

The termination clause could read:

Either party may terminate this Contract by providing the other with XX days advance written notice of termination.”

If you are bearing more risk in the relationship, you can make the termination clause non-mutual so that you are able to terminate immediately BUT the supplier can not.

For example:

Acme may terminate this Contract immediately at any time, for any reason whatsoever, by providing Supplier with notice.  Supplier may terminate this contract for any reason whatsoever by providing Acme with XX days advance written notice.”

Payment and payment terms.  Here the price, quantity, and description of materials should be extremely clear.  Also, request a discount for future orders (especially if your order volume is likely to increase).  Put this discount amount in the contract up front.  Payment terms should also be laid out.  Will the supplier invoice you?  If so, a clause such as the one below would work. (Acme is a hypothetical small business).

Acme agrees to pay supplier the fees detailed in this contract within thirty (30) days from Acme’s receipt of a correct invoice from supplier.  Acme will make payments via ________________ (specify check, credit card, wire transfer)”
Most small businesses rely heavily on uninterrupted delivery of materials from their suppliers.  Ensure that your contract protects you.


The Indemnification Clause. What does it mean?

Many commercial contracts have a provision called the indemnification clause.  Essentially, the indemnification clause is Party A agreeing to step in the shoes of (or “indemnify”) Party B to protect against any losses that Party B may suffer from using Party A’s services or products.  The clause can read something like this:

“Software Company agrees to indemnify and hold harmless Web Design Company against any third party claims arising out of (1) Software Company’s breach of this Contract (2) Software Company’s violations of a third party’s intellectual property rights…” and so on and so forth.

Here is an example of a situation where an indemnification clause can offer protection:

  • Software Company sells Software to Web Design Company and they sign a contract (with software licensing terms, payments terms, and an indemnification clause like the one above).
  • Engineering Company (a third party) comes out of nowhere and sues Web Design Company claiming that the Software was created by Engineering Company and that Web Design Company is violating their intellectual property rights by using it without permission.
  • Well, this leaves Web Design Company in a pretty bad situation.  Web Design Company thought they had proper rights to use the Software!  Now Web Design Company has to fight a legal battle with Engineering Company just for using the Software that they contracted with and paid Software Company for.

How does the indemnification clause play in?

Because Web Design Company was smart and had an indemnification clause in the contract, Software Company would have to step in and deal with the lawsuit on Web Design Company’s behalf including covering the costs of litigation and/or settlement.  This protects Web Design Company just in case Software Company stole the Software from Engineering Company (or even if Software Company didn’t but their product is the subject of an unfortunate legal dispute).

Image by Flickr user Vectorportal (Creative Commons)

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