NDA and Trade Secrets vs. An Intellectual Property Plan

I get requests for free Non-Disclosure Agreement (NDA) templates all the time. If contracts were food, template NDAs would be junk food: They fill a limited purpose, but they’re not the basis for good  business (or dietary) practice. Nearly everyone seems to know that they should use a NDA when they encounter a need to discuss sensitive information. But why?

One way to protect ideas is to convert them into a form of intellectual property called a trade secret. A NDA can help you help protect your ideas, but by themselves NDAs can mislead their users into thinking their ideas are fully protected trade secrets.

Succinctly put, your trade secrets are the information inside your business that (i) give you a competitive advantage, and (ii) you take reasonable efforts to keep secret. While everyone has some secrets (for example, customer and prospect lists, internal procedures, forms and manuals, and sometimes even formulas), those secrets are not trade secrets unless you take the required reasonable efforts to them keep secret. If you follow that rule, state law and courts treat your secrets as property and will help you recover your property if someone tries to misappropriate it.

The NDA is merely one tool that falls within the ambit of reasonable efforts to them keep secret. You should have an overall plan of protection. To be trade secretes, your secrets must actually be kept secret, to the maximum extent possible.

For example, you probably know that Coca Cola protects its soft drink formulas with trade secret rights, not patent rights. Do you think they rely solely on non-disclosure agreements to keep that secret? Of course not. They have a specific plan in place to keep those formulas secret. Coca Cola treats their secrets with the same respect as the owner of a valuable building with VIP tenants. They have a process to ensure their property is not compromised.

Similarly your Non-Disclosure Agreements should be just a part of your overall plan to keep your trade secrets.

Furthermore, trade secrets should be just part of your overall portfolio of intellectual property. Because there is more to intellectual property than protection. After all, you aren’t in business to protect your ideas. You are in business to exploit your ideas to make more money. That is where an Intellectual Property Plan comes in. For example, in addition to keeping their formulas trade secret, Coca Cola uses trademark as a major protector of their brand.

So while you should definitely obtain a relevant non-disclosure agreement to help you protect some of your ideas, what you really must have is a plan of developing and exploiting a portfolio of intellectual property, including more than just your secret information.

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