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WinTech Legal Insight for Start-Up and Established Technology Businesses

Trade Secrets: What an investor or acquirer will want to know.

Posted in Technology Transactions, Venture Capital, Private Equity and Other Financings

If you are thinking about raising capital or selling your company, one of the most important questions that the investor or acquirer will want to know is whether you own your IP. One critical part of this is protecting your trade secrets. If you haven’t properly protected your trade secrets, it could kill your deal. Here are a few of the steps you should take to be sure your company’s ownership of its trade secrets meets the mark once due diligence begins:

  • Limit access to your company’s trade secrets to employees who have a need to know the information.
  • Be certain that the employees who receive trade secret information understand that it should be maintained as strictly confidential.
  • Retain trade secret information in places that are not easily accessible to people in the company who do not need to have the information.
  • Create physical or visual barriers to prevent unauthorized viewing of proprietary processes.
  • Prominently label all confidential information “Confidential – Do Not Disclose.”
  • Require all employees to sign a proprietary information agreement. (See our October 3, 2013 post on what provisions should be included in a proprietary information agreement.)
  • Adopt a trade secret policy that instructs employees to maintain the confidentiality of trade secrets and outlines the measures that should be taken if a trade secret is inadvertently disclosed. Be sure the employees are trained on the policy.
  • Remind employees who are leaving the company that the trade secret information is still confidential and be sure terminating employees return all trade secret information to the company and that trade secret information is permanently deleted from any personal electronic equipment that is not returned to the company.

This is not a comprehensive list and the bigger your company gets, the more steps you need to take – such as requiring security badges to enter into the building and regularly conducting an audit of your trade secret information. However, if you take reasonable steps to protect your trade secrets, a prospective investor or acquirer will have a level of assurance that your company owns them and that will take one due diligence issue off of the table.