A Startup’s Guide to Protecting Trade Secrets

“Secrets, secrets are no fun unless you share with everyone.” You’ve probably heard this popular saying, but you should disregard it when it comes to business. 

Your startup’s secrets aren’t meant for anyone but yourself and a failure to protect these secrets could result in major financial and legal consequences.

Your Trade Secrets Aren’t Safe

We would all like to live in a world where people are honest, trustworthy, and transparent. As you know, this isn’t true – especially when money is king and ambitious people look out for no one but themselves.

Still feel like all of your trade secrets are safe, despite these truths?

Just consider a report from the Ponemon Institute, which found that many people who are laid off, fired, or otherwise choose to leave a company frequently take proprietary data with them on the way out the door. 

The report shows that roughly 60 percent of employees who either quit or are asked to leave a company actually steal company data on the way out. Nearly 80 percent of people who admitted to taking data said they did so, despite knowing it was prohibited under company guidelines.

The most frequently stolen data, in order of prevalence: 

A. Email lists 

B. Non-financial business information

C. Customer contact lists

D. Employee records

E. Financial information


“What’s interesting is more and more people seem to feel entitled to information they create on the job, and an increase in mobility in the workforce means many employees don't have a lasting relationship with their employers,” says Larry Ponemon, the institute’s founder. “Also, as you have more employees working from remote locations and on home computers, the concept of who really controls this data isn't often clear to people.”

As a startup, it’s not just insider theft that poses a risk to your trade secrets. You also have to deal with the possibility that customers, third party providers, hackers, and even investors could compromise your proprietary data and information.

How to Protect Your Trade Secrets

If you’ve never developed a trade secret protection strategy, then the whole idea of safeguarding something that may not even be tangible can be confusing. With that being said, here’s some valuable advice on the subject:

  1. Understand What a Trade Secret Is

The term intellectual property (IP) gets thrown around a lot, but it’s really a pretty vague term that can refer to any number of proprietary entities or rights. The major categories are patents, copyrights, trademarks, and trade secrets.

“A trade secret is the only type of IP that must not be disclosed,” business lawyer Robert Klinck points out. “A trade secret is all about competitive advantage. It is information that is not generally known to all, that has commercial value, and that is maintained in secret through reasonable efforts. A trade secret covers formulas, patterns, compilations, programs, devices, methods, techniques, processes, and the like.”

Because a trade secret isn’t disclosed, you’re only protected against misappropriation. If someone happens to discover your secret by reverse engineering your product or accidentally coming across some disclosure, protection won’t be granted.

In other words, absolute protection is a must.

  1. Do Your Due Diligence When Hiring

Whether it’s hiring a full-time employee for your startup or partnering with a third-party provider for a particular service, make sure you do your due diligence. Conduct background checks on potential hires, explain any rules and over-emphasize the importance of the trade secret protection agreements being signed. You want to avoid the possibility of accidental exposure just as much as you want to prevent purposeful theft.

During the actual onboarding process, be sure to educate employees on the consequences of disclosing trade secrets and document every conversation and educational training program you conduct. This information will prove to be valuable down the road (should something happen).

  1. Use Warning Labels

You absolutely must go to a reasonable extent to protect trade secrets. They can’t just be laying around on a desk for everyone to look at. In most cases, you need to use a descriptive warning label to classify trade secrets as “confidential.”

If the trade secret is contained in written form, always place a cover sheet on top of the document explaining that the information contained within is protected and individuals can be fined and/or prosecuted for stealing, possessing, or duplicating the content.

If trade secrets are stored digitally, a login and password should be required in order to gain access. There should also be prompts to warn users that they are about to access trade secrets.

  1. Have a Plan for Terminating Access

As the study from the Ponemon Institute expressed, the majority of employees will take information with them when they leave. Most of the time, this information will be inconsequential, but it’s possible that trade secrets could come into play in some situations. That’s why you need a very specific plan for terminating access.

As soon as an employee is fired, transferred, or laid off – or as soon as they announce their intentions to leave – you should have your IT team terminate access. If you can’t do so immediately, you should at least prevent the former employee from returning to their office without direct supervision. Take absolutely no risks here.

It’s also important that you conduct an exit interview and manage the off-boarding process with caution. Remind employees of contractual and legal obligations and make sure all company devices, hardware, and email/program accounts are returned.

The Time to Act is Now

You can’t afford to wait days, weeks, or months before fully investing in a protection strategy. Every individual that interacts with your business could potentially be a threat and you need as much protection as you can possibly get.

By the time a trade secret breach occurs, it’s too late. You’ll be out thousands of dollars in legal fees and still may not be able to defend your claims. The key is to focus on prevention so that you can avoid issues altogether and instead spend your time, energy, and money focusing on critical business tasks.