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Congratulations to all winning teams at this past weekend’s Startup Weekend Honolulu.  I look forward to meeting you all. Good job by The Box Jelly for hosting a great event!
So last week was trade name versus trademark.  Today is another area that a lot of startups get confused.  They find a programmer, designer, consultant, and other similar professions to help them bring their idea to reality, but want them only as an independent contractor, and if they have enough capital, possibly an employee.  However, no ownership, thus how do they protect their most sacred moneymaking idea that they slaved over a weekend trying to pitch?

Make them sign a nondisclosure agreement (NDA), is usually the first conclusion, then when a Client comes to me to draft them a NDA. I then ask them what they want to protect with the NDA, and they then to proceed to tell me everything including the kitchen sink . . . isn’t everything internal a trade secret?

No, just because you don’t want your competition to know does not make it a trade secret.

So What IS a Trade Secret?

Where we start off with trade secrets is the legislative definition, which is found in Hawaii at HRS §482B-2. This is the definition section under the Uniform Trade Secrets act and it states the following:

“Trade secret” means 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, and not being readily ascertainable by proper means by, 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.

So right off the bat, the definition indicates why a lot of business owners feel they have a trade secret.  Their information is precious (to them), they created a “new” “method” or “technique” (which was tried already and the market doesn’t think it is valuable), etc . . . . As you can tell by my commentary in the parentheses a trade secret has to be more.

Let’s use the famous example of a trade secret The Coca-Cola Company’s formula for coca-cola. First, it satisfies the first element. It’s a formula.

Second, the formula must have an independent economic value from not being known. In this case, it is clear that it does. No one has successfully replicated Coke’s formula AND it’s major rival Pepsico does not have the same formula.  Through its distribution deals and keeping the formula unattainable by normal means (such as experimenting) they have built a beverage empire.

Lastly, Coke has kept this secret for so many years, which supports the last element, which is the efforts to maintain secrecy.  At this point it may be beyond reasonable, but the efforts by Coke to maintain the correct amounts to the formula are legendary.  From bank vaults, to shopping around to different suppliers, etc . . . you name it, they have probably created an elaborate strategy to foil would be corporate spies.

What does this Mean for a Startup?

If you want to make a sound NDA, then you need to know what your company is all about.  Before, you think that is easy, remember you have gone around itching the idea to get investors, employees, etc . . . what have you told them?  Remember it’s a balancing act of trying to sell the idea without giving up the process, the secret has to be generally not know.

This brings me to another situation where people rely on public data, government information, etc . . . I will give them they have come up with a clever way to put disparate knowledge together, but if someone can readily replicate that “cleverness” on their own their really isn’t anything to protect.

Finally, the shotgun approach to NDA use should not be your method of maintaining secrecy.  Medium and large companies go overboard and have their janitors sign them when the have no intention of enforcing it against them and they aren’t privy to the company’s core secrets.  So for you, don’t make everyone you come in contact sign it, especially investors. They aren’t going to do it.

The rule of thumb is what your trying to protect your core strength and are you deriving that strength because no one else has figured it out.  This includes things like next year’s marketing plan, your competition not knowing how you will expand your product lines is a) valuable b) it is not known and c) if you are keeping it under lock and key, encrypted files, etc . . .  then you do have a trade secret. Obviously, it will no longer be a secret as to when you role out these new product lines, but before that time you need they are worth protecting. Then on the NDA side you only make people sign one if they can make use of your idea on their own (i.e. an engineer who knows the process to make a new material).

Anyway, the lucky winners from Startup Weekend Honolulu will get this information in a lecture and more regarding contracts, HR, Internet laws, and organizing their company as part of their winning package as provided by my firm.  So I urge you participate in Startup Weekend, as you may be the one asking, can I protect my business idea?

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.


Pardon the Delay and IP Law Talk this Week

Hey everyone, I am sorry that this Draw the Law was delayed by a week.  Like many things in the legal world situations develop that require an attorney’s attention and in my mind clients do come first, as much as I love doodling stick figures. Before I get into the post that I was supposed to do last week, please be reminded that I will be having an IP Law Talk tomorrow night, Wednesday, May 23rd.  I will be discussing intellectual property matters (copyright, trademark, and trade secrets) for small business and startup owners seeking to protect their content and brand in this increasingly connected hypercompetitive world.  So here is the information for that event:

  • When: Tomorrow, May 23rd  (Wednesday)
  • Where: The Greenhouse Innovation Hub (685 Auahi Street)
  • Time: 6:00 – 7:00 p.m.
  • Price: $20.00 will get you in for the 45-min talk, discussion period, and the presentation and materials

Please consider coming to check it out if you are a marketer, small business owner, or someone who uses the web frequently to showcase your brand and identity. Click here for further info and reserve your spot.

Today’s Draw the Law: Nondisclosure Agreements

This subject is tied into tomorrow’s talk due to the fact it deals with NDAs and their usage to protect trade secrets.

What is a Nondisclosure Agreement?

Nondisclosure Agreements (NDAs) is a contract where the parties agree to protect a trade secret or confidential information.  Often the “Discloser” will give valuable information to the “Recipient” in order to achieve some business objective. They are frequently used in startups who have come up with a novel business method or possibly a patentable invention, by businesses that rely on consultants and independent contractors who see sensitive information, and for executives that sign have access to confidential business information.

What is a Trade Secret?

I just want to touch a little bit on what constitutes a trade secret.  It is information that has economic value by the virtue of it not being generally known AND is the subject of reasonable efforts to maintain secrecy.

Without those four things, it is NOT a trade secret.  One of the most famous trade secrets is Coca-Cola’s recipe, which has generated a great amount of fascinating articles and discussion.  Here is a couple for you to read at your leisure:

When is a Mutual NDA Appropriate?

More often than not, there is generally one side disclosing information and the other’s expertise or ability to do something with that information is being sought.  So in that case the flow of information is one-sided.  However, in many joint ventures, one company has a piece of useful technology and the other side also has a useful piece of technology.  If the companies share these technologies (they will form a super-awesome robot! Sorry, little geek humor there) both stand to gain from the partnership.  In this case, a mutual NDA would be appropriate because they are sharing secrets together in their collaboration.

For my friends who are marketers, a mutual is also useful, let’s say you have a marketing method that is golden and your client company wants to give you sensitive information or access to their database that dovetails with your method to launch a great marketing campaign.  In this instance, both sides would use a mutual NDA.

What Can I do if the Recipient Violates my NDA?

Well, it depends. First you will probably want to review the contract. Often times, contract attorneys will put some form of damages.  In addition, typically the Discloser will probably ask a court to make the violator stop disclosing and possibly file a suit against the third-party who the Recipient tipped off to have them stop making use of the trade secret, and also possibly give up monies they made off of violating the trade secret.

Final Word: Drafting a NDA

Due to the sensitivity of trade secrets, you want to have an attorney work with you extensively to identify some aspects you want protected and to go over certain provisions. Consider the following:

  1. Define the confidential information that you are protecting (including what is not confidential information);
  2. Describe the duties and obligations of the Recipient; and
  3. Miscellaneous provisions, such as time, jurisdiction, and dispute resolution.

You businesspeople know that some of the information in your head can make you money, and sometimes copyright, trademark, and patent protection will only go so far.  Those are times that you may ask yourself who knows about your information, what can they do with it, and if the information is widespread do you lose your competitive edge? At that point consider a NDA.

See you next week!


*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Admit it, you have checked your Facebook or Tweeted something on your phone while you are at work.  I bet you are even doing it now as you read this blog!  There are some legitimate concerns that an employer, employee, and in general people should be concerned about when working and using social media.
Your boss may use social media at work, but it may be a part of their job.  For you, it may be a different story.  What can an employee do with their social media accounts on the job?  Off the job?

In this post I will discuss what an employee can expect out of an employer’s social media policy, some of the laws surrounding social media policy, and the limitations of a policy.

Handbooks and Social Media Policy 

Most workplaces have an electronic communications, e-mail and internet usage, or some kind of policy in their handbooks that deals with communications in the digital age.   An employee should be aware what the company’s policies are regarding their behavior when it comes to using social media, and often it will be in the handbook.  For an employer, they should be aware that crafting a social media policy is not always easy and should read the following posts in this series where I will discuss crafting such a policy.

In addition, remember from the prior post that Hawaii is an employment-at-will state.  So long as the employer does not fire the employee under protected statuses or activities they can choose any reason or no reason at all to fire you.  Therefore, if they do not want you texting, checking your Facebook, and/or Tweeting about how the surf is up on company time and resources (i.e. their computers) then you should not be.  They can fire you for breaking workplace policy and just because they do not like that behavior.

Employee Must Remain Loyal to their Employer

An employee should be loyal to their employer.  This legal concept has a clear foundation in common law, meaning its been around a while, and a generally accepted view in the legal system.  Specifically, an employee has a duty to act for the sole benefit for his or her employer while engaged in any conduct related to employment.  Generally, social media enters into this equation when it comes to the sharing of company trade secrets and confidential information.

Trade Secrets, NDAs, Non-competes and Customer Lists

 

What is a trade secret? It is a formula, practice, process, design, instrument, pattern or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers.

While an employee is working for an employer they should be loyal, and not be utilizing information they are entrusted with to the detriment of their employer.  To strengthen this concept, employers typically have employees sign Non-Disclosure Agreements (NDA) and Non-Compete Agreements.  An obvious violation of the law and these types of agreements would be if an employee responsible for mixing delicious island pineapple soda, then posted the secret formula on their Facebook for all their friends to be able to make for potluck at the beach.

However, the situation becomes a little bit more unclear when it has to do with customer lists and the connections made through social media.  Recently, two cases touched upon this issue.  The general situation of both cases was an ex-employee would gather information about clients and then leave their job for a competitor.  They would retain that client information and bring it with them to their new job.  The issue that the courts never fully dealt with was that it was through their use of social media, LinkedIn, that they were able to keep this client information.

Businesses usually like to keep their customer/client lists protected, partly for the clients’ privacy, but more for the fact that the business used resources and put together information to keep those clients.  Specifically, with LinkedIn, the service is designed to create connections and for the most part the information about the “links” or “connections” are freely accessible.  In the past, employees that were leaving would turn in their files, Rolodex, Blackberry, etc . . . . keeping no company information, but with LinkedIn, your account stays with you.

For the employer, you should draft a well coordinated social media policy based on your company’s industry and use of information.  For the employee, read the handbook policy, any non-disclosure, non-compete, and non-solicitation agreements you sign.  The general rule of thumb that both parties should be aware of is if the information is readily accessible, easily attainable, and anyone can find it, then it will be less likely to be considered a protected trade secret.  That being said companies should still take active steps to protect any information they gather.

What About Complaints about the Company or Bashing the Boss?

So you hate your boss and like complain about him on Twitter?  Can he fire you?  Are you being disloyal?  This is where the legal water is still a little murky.  Recently, the National Relations Labor Board (NLRB) has filed a string of complaints against company’s that have sacked employees based on their social media posts.  Specifically, the contents of these posts constitute protected activities, as asserted by the NLRB.  Oh good, I don’t have a union, you must be thinking.  No, sorry, rights of employees (union or non-union) are still under the NLRB’s power.

In one situation an employee was fired for basically calling her boss a psych patient on her Facebook page.  The company subsequently fired her, citing their blogging and Internet posting policy.  However, the policy was considered overboard and specifically:

contained unlawful provisions, including one that prohibited employees from making disparaging remarks when discussing the company or supervisors and another that prohibited employees from depicting the company in any way over the Internet without company permission.  Such provisions constitute interference with employees in the exercise of their right to engage in protected concerted activity.

“Protected concerted activity” means the following: discussion of wages, working conditions, and employment related matters and employees are allowed to post, blog or Tweet their opinions on such things, even though the boss or company may not like what you are saying.   However, what does that mean?

In the following situation the NLRB sided with the employer, a newspaper, who fired a reported for posting inappropriate and offensive Twitter.  The NLRB felt that the remarks of the reporter did not involve protected concerted activity.  If you as an employee, post offensive and inappropriate comments that are not work-related, then it is okay to let you go.

However, during the disciplinary meetings management also gave the following restrictions:

  • to stop airing his grievances or commenting about the employer in any public forum; and
  • to not Tweet about anything work related; and
  • to refrain from using derogatory comments in any social media forums that may damage the goodwill of the company.

Ultimately, the NLRB sided with the employer because the newspaper had fired the reporter for Tweeting offensive remarks.  However, the NLRB made clear that if any of these prohibitions were to appear in a social media policy they would be an unlawful restriction and constitute a violation the employee’s rights.  As an employer, do you have some of this kind of broad language in your social media policy?  What are you to do?

That will be the topic for next time, Creating a Social Media Policy: Thoughts and Tips for the Employer-Employee Relationship.  While, social media policy concerns much of itself with a company’s relationship between it and its employees a social media policy is not just for an employee handbook.   A company’s policy position also contains broad implications about how the company interacts with social media, its customers, its competitors, and its own image.  I will also touch upon these subjects in future posts.

See you next time on Social Media and the Law!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.   No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.   Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.