Protecting Assets Against the Competition

Starting a successful business isn’t easy. It may require financial risk, long hours at the office, and maybe a bit of luck. The last thing a small business owner needs is to be damaged by the disclosure of its trade secrets to the competition.

Protecting the information that helps make a business successful, then, should be a central part of every business plan. Employees, after all, become former employees, sometimes with an aim of starting a competing enterprise. Through this route, by accidental disclosures, or as the result of careless use of secrets, key inside information can be revealed. The damage such disclosure can cause to profitability can be substantial. At times, it may even threaten a company’s survival.

Preventing a crisis like that requires careful planning. By first identifying critical inside trade information, then taking steps to control its dissemination, small companies can minimize their exposure in this area. The process should include several steps.

Getting Organized

 The starting point for key asset security is strong organization. Businesses must understand the types of information they need to safeguard and be certain they know precisely how and by whom the data is stored and used. Common items meriting protection are customer lists; purchase and sales histories; pricing material; product plans; and marketing strategies. Good organization means that only those who need trade data to perform their duties will have access to it. It should include rules for data use and mechanisms for tracking who touches it, when, and for what purposes. Whether, for when, and in whose hands key assets leave a business’s offices should be mapped out.

Confidentiality Agreements

Employees with access or potential access to important trade material should be asked to sign a confidentiality agreement. The document will help solidify rights concerning the use of private material and, perhaps as importantly, provide a mechanism for enforcing rights in court. Confidentiality agreements should include provisions for injunctive relief and for repayment of legal fees in cases where trade data is improperly taken or disclosed. They should be tailored to address particular company needs. When employees get new jobs or leave the company, new signatures may be required.

 Non-Competition Agreements

 Non-competition agreements can be useful tools. While they are difficult to enforce literally in Massachusetts, they serve an important purpose in many circumstances. Non-competes are not, however, the panacea that many business owners seem to think they are. Simply creating a form agreement and requiring all new employees to sign it does not effective trade protection make. As in other areas of key asset protection, non-competes should be carefully drafted and judiciously used.

The goal of a non-competition agreement should not be to keep a former employee from working for a competitor. Instead, effective forms aim at ensuring that former workers do not improperly use important inside trade information at a new job. Massachusetts courts do not enforce non-competes for any other reason. The documents should be tailored to restrict workers only to the extent needed to protect key assets. They should be signed as part of the initial hiring process by employees who require them, then re-signed whenever a worker is promoted or has substantial job duty changes