IP Basics: What are “Trade Dress” and “Trade Secrets?”

Mar 06, 2017


[This post is part 2 of a 3 part IP Basics Series]

In the last post, we discussed copyrights, trademarks and the difference between them. In this post, we will consider the concepts of “trade dress” and “trade secrets.”

Trade dress refers generally to “the total image, design, and appearance of a product and ‘may include features such as size, shape, color, color combinations, texture or graphics.’”  Clicks Billiards, Inc. v. Sixshooters, Inc. (9th Cir. 2001) 251 F.3d 1252, 1257. The “look and feel” of a particular restaurant’s design or of a particular manufacturer’s packaging are common examples of protectable trade dress. Proving trade dress infringement requires that a party show (1) that its claimed trade dress is non-functional; (2) that its claimed trade dress serves a source-identifying role either because it is inherently distinctive or has acquired secondary meaning; and (3) that the offender’s product or service creates a likelihood of consumer confusion. Id. at 1258. The concept of secondary meaning refers to the circumstances in which the purchasing public associates the trade dress with a particular source. Id. at 1262. Think of something like an Apple store design with a distinctive architectural style and visual elements that the public may well come to associate with Apple as a particular vendor.

A trade secret is information, including a “formula, pattern, compilation, program, device, method, technique, or process,” that (1) has economic value due to the fact that it is not generally known to the public or others that might use it where (2) the owner makes reasonable efforts to maintain its secrecy. See Cal. Civ. Code § 3426.1(d). A trade secret must also be non-obvious and not readily ascertainable to competitors.

Think of the classic example—a secret recipe or formula. It has value to me, the manufacturer, precisely because I am the only one who knows that recipe and can sell that particularly formulated product into the marketplace, and my product commands a premium price for that “authentic” product.

Among the most basic of the rights conferred by ownership of a trade secret is the right to prevent its acquisition, use or disclosure by a competitor. There are nuances as to what can constitute a trade secret and the scope of protections depending on whether state or federal trade secret law is applied.

Unlike a copyright, the information protectable as a trade secret can be an idea or method. Unlike a trademark, the information protected is not an expression of the source of a product but rather, most typically, a formula or method for producing the product itself. Thus, the “Coca-Cola” name is a trademark, while the formula for its soft drink is a trade secret (and apparently kept locked up in a vault in the company’s museum in Atlanta, Georgia). The artwork on a “Coca-Cola” can or bottle might well be protected by copyright. The shape of the classic glass bottle might be protected by trade dress.

Glass bottle of Coca-Cola
By Hariadhi [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

In the next post, we will consider some of the symbols used by owners of different types of IP to identify their IP and, in some cases, to enhance their ability to protect that IP.


IP Basics: Copyrights, Trademarks and Trade Secrets, Oh My!

Feb 10, 2017


[This post is part 1 of a 3 part IP Basics Series]

When discussing intellectual property (IP) it is sometimes easy to confuse the blurred line between the various species of IP such as copyrights, trademarks and trade secrets. But with a little background and understanding of the different works and types of information that are protected, the distinction between copyrights, trademarks and trade secrets becomes clearer.

A copyright is, essentially, the bundle of rights that an author has in an original creative work of expression. Those rights include the right to control the duplication of the work and to sell it for profit. A common type of work protected by copyright is a written work such as a novel. However, copyright can protect other types of works as well, such as paintings, movies, music, sculpture, works of architecture and design.

Among the important and fundamental limitations on the scope of copyright protection is the principal that a copyright protects the expression of a work and not abstract ideas. A copyright differs from other IP protections in that regard (compare this to patents and trade secrets which may protect original ideas and methods). Thus, copyright will protect the words of my written novel, but generally will not protect the abstract ideas or themes expressed in the story. For example, I could not put my name as author on the Harry Potter series of books and attempt to sell the books to the public. I could, however, write my own novel about an orphaned  child wizard who overcomes his evil arch nemesis. Of course, there are nuances and limitations that are beyond the scope of this post, such as the right to control “derivative works” and the point at which a knock-off character (say, my orphaned child wizard) might be so similar to the original that it infringes upon rights in a copyrightable character in a work. For example, Comedy Central recently attempted to prevent Stephen Colbert from bringing his Stephen Colbert character to the CBS The Late Show.

A trademark protects a “mark,” which may be a word, name or symbol, used by a particular proprietor to identify and distinguish the goods of that proprietor. See Cal. Bus. & Prof. Code § 14202(a). A trademark serves as identifier of the source of goods, as against competing products, and functions as a means of preserving a product’s reputation in the market place. Sun-Maid Raisin Growers of California v. Mosesian (1927) 84 Cal.App. 485, 494.  Examples of trademarks are the “Coca-Cola” name or a logo like the familiar Starbucks icon.

A “trade name” is a related but distinct concept. It connotes the identifier of a particular business, including what is often described as the goodwill—that is, the reputation built up in the marketplace—associated with the “good name” of the business. See Cal. Bus. & Prof. Code § 14202(d) (“‘Trade name’ means any name used by a person to identify a business or vocation of that person.”).

Thus, a copyright and a trademark protect distinct types of intellectual property. Copyright, simply put, protects original works of expression from copying for a limited period of time while trademarks protect expressions used to identify the source of goods in the marketplace and can last in perpetuity. Phoenix Entertainment Partners, LLC v. Rumsey (7th Cir. 2016) 829 F.3d 817, 825. Sometimes a company logo can be protected both by copyright and trademark law.

In the next post, we will consider the concepts of “trade dress” and “trade secrets.”


Three Types of IP You Don’t Know You Have

Jan 05, 2017

Often, when one thinks of the intellectual property (IP) owned by a business, it is common for things like a name, a logo, or other advertising or branding related trademarks to come to mind. Some small- to mid-sized businesses may put little emphasis on IP protection, given that they do not regularly manage a substantial portfolio of marketing related trademarks and other IP, as is often the case with larger businesses. Yet, even smaller businesses have valuable IP worth protecting.

Customer Lists / DataIP Checklist

A business’ customer list can be a trade secret when it contains information with economic value from not being generally known to the rest of a business’ competitors in the industry. Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514. The court in Morlife, Inc. v. Perry observed that the customer list at issue in that case was protectable as “a compilation, developed over a period of years, of names, addresses, and contact persons, containing pricing information and knowledge” about particular customer needs. Id. Often important in customer list cases is how readily available (or not) the customer data may be. If the business “expended time and effort identifying customers with particular needs or characteristics,” the courts are more inclined to protect such data to prevent competitors from using this information to capture market share.

Business “Know-How”

Any proprietary information that derives economic value from not being generally known can be protectable as a trade secret under California and Federal law. A business’ technical “know-how” is the quintessential type of trade secret. Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1456. That may include formulas, methods, techniques, or processes. Id.  Business “know-how” may extend to many different types of secret information used in small businesses. If you operate a restaurant, for example, your “secret” recipe with unique ingredients for a hit dish could be protectable as a trade secret. See e.g. Uncle B’s Bakery, Inc. v. O’Rourke (N.D. Iowa 1996) 920 F.Supp. 1405. Beyond technical information, other business “know-how” can include things like cost and pricing information in the form of markup rates and profit margins unique to a particular business operation (as opposed to commonly used industry formulas for setting prices). Whyte v. Schlage Lock Co., supra, 101 Cal.App.4th at 1455-1456.

Business Plans and Marketing Strategies

Even small businesses often have business plans and other internal marketing materials that include strategies for growing the company’s business in particular markets. Such business plans and marketing strategies, plans, and techniques can be protectable trade secrets. See Lizalde v. Advanced Planning Services, Inc. (S.D. Cal. 2012)  875 F.Supp.2d 1150, 1165-1166 (a booklet amounting to a “roadmap” of how to “market and implement” a business model can be a trade secret); see also Whyte v. Schlage Lock Co., supra, 101 Cal.App.4th at 1456 (advertising and marketing strategies, plans, and techniques and company’s five-year strategic plan are protectable as trade secrets). Of course, published advertising and other marketing materials not otherwise amounting to a trade secret may be protectable by copyright law.


The above categories are by no means exhaustive. They are, however, illustrative of the varied types of IP that even small- to mid-sized businesses may have. Recognizing that these types of information and materials are potentially protectable is a first step. Many of these issues may seem academic until an employee leaves and takes information and materials to set up a competing business. You should consider consulting with IP counsel about what may be protectable in your own business and, if protectable, what measures ought to be taken to do so.


Food Fight: America’s Test Kitchen v. Chris Kimball

Nov 21, 2016

If, like me, you’re a fan of PBS and its soothing, soft-focus, food-related shows (ahem, Great British Bake-off), you were probably devastated when you heard that longtime host Chris Kimball, was leaving America’s Test Kitchen. If you’ve never seen it, the premise of America’s Test Kitchen (“ATK”) is that a “test kitchen” comprised of several cooks experiments with and tweaks recipes for everything from roast chicken to chocolate cake to figure out which combination of ingredients and cooking methods will achieve the best outcome – the flakiest crust, the most flavorful stew, the perfect chewy chocolate chip cookie. These recipes are then demonstrated to viewers on the show. Kimball was the bespectacled, bow-tied host that brought his brand of quirky, nerdy humor to an otherwise straightforward cooking show. ATK also publishes print magazines, Cook’s Illustrated and Cook’s Country, and has an online cooking school.



Around this time last year, Kimball announced that his employment with ATK was ending, apparently on good terms. Earlier this year, Kimball started a new project called “Milk Street” in Boston, which involves…a television show, print magazine, and an online cooking school. Now it’s gotten ugly.

On October 31, America’s Test Kitchen Inc. sued Kimball and some of its other former employees for misappropriation of trade secrets, breach of fiduciary duty, and breach of contract, among other things. The lawsuit claims that Kimball “literally and conceptually ripped off America’s Test Kitchen” and had planned to start his own competing business using ATK’s confidential information and trade secrets while he was still employed with ATK. The complaint identifies several alleged similarities between ATK and Milk Street’s media content and design aesthetic, and accuses Kimball of stealing ATK’s employees, media contact lists, and magazine subscriber information, and usurping or interfering with ATK’s business opportunities with television and radio stations.

ATK filed its action in Massachusetts, which is one of two states that have not adopted the Uniform Trade Secrets Act. ATK did not file claims under the recently adopted federal Defense of Trade Secrets Act. To prevail on its trade secret claims, ATK will need to prove that the alleged trade secret information is not generally known, has independent economic value and ATK took reasonable steps to protect its secrecy. (See the 1972 Massachusetts case Jet Spray Cooler, Inc. V. Crampton.)

With regards to ATK’s allegations that Kimball breached his fiduciary duty, employees like Kimball are generally allowed to prepare to compete with their current employers, so long as they don’t actively compete by soliciting customers or fellow employees.

In many such actions, employers like ATK promptly seek temporary restraining orders or preliminary injunctions, seeking to prevent the former employee from using the alleged trade secrets. ATK’s failure to do so may indicate that it does not feel it has sufficient evidence, at least at this early stage, to obtain such extraordinary relief.

Kimball’s response to the complaint is due later this month.  I can’t wait to see what his attorneys cook up.


Making a Federal Case Out of Trade Secret Misappropriation

May 12, 2016

It’s official.  Defying all odds, the Senate and House passed the Defend Trade Secrets Act (DTSA) with bipartisan support and President Obama signed it.  Now what?


Same Standard, + 1

Under the DTSA and under most state laws (48 states adopted the Uniform Trade Secrets Act-get with the program NY and MA), the standard is the same, a trade secret is: (A) information that derives value from not being generally known and (B) owner took reasonable steps to keep information secret.  However under the DTSA the secret information must also affect interstate commerce.

Likely Major Effects of Federal vs. State Court Venue

State courts are generally perceived to be more lenient about allowing questionable cases to survive the initial pleading stage, whereas Federal courts apply the stricter Rule 12(b) standards for dismissal and are often considered more likely to weed out unmeritorious claims.

State courts tend to permit more discovery gamesmanship and delay, whereas Federal Rule 26 mandatory disclosures require parties to initially disclose key information near the outset of the case.

Similar Penalties + The Nuclear Remedy

Like the UTSA adopted by most states, the DTSA allows injunctions, damages, disgorgement of ill-gotten gains and a multiplier (double the penalties for “willful or malicious” misappropriation).  Also like the UTSA, the DTSA allows the courts to award attorneys’ fees either against a defendant who willfully or maliciously misappropriated or against a plaintiff who brought a trade secret claim in bad faith.

However, under extraordinary circumstances, the DTSA authorizes ex parte seizure of “property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

Carve-Out for State Law Employee Protections

Many observers were concerned that the DTSA might replace state laws protecting employee’s rights, but the DTSA expressly provides that it is not intended to supersede “an applicable State law prohibiting restraints on the practice of a lawful, trade or business.”

What’s Next

The DTSA requires trade secret owners to include language giving notice regarding a whistleblower exception, so trade secret owners who intend to rely on the DTSA should be scrambling to amend their employment agreements and non-disclosure agreements to include the whistleblower exception language. 

The whistleblower amendment immunizes employees from civil or criminal prosecution if, in the course of reporting their employer’s wrongdoing, they disclose their employer’s trade secrets confidentially to government agency or in court, under seal.

Once the required language is in place, we should expect trade secret owners and their counsel to weigh the tactical pros and cons of litigating their trade secrets claims under the DTSA in federal court vs. bringing them under the applicable USTA in state courts.


7th Circuit Grants Partial Reprieve to Trade Secret Thief Who Couldn’t Shoot Straight

Mar 11, 2016

Crime Does Not Pay

You have to feel a little sorry for Yihao Pu. Pu was a finance engineer who worked for two companies with proprietary systems for executing high frequency stock trading (HFT.)  Pu illegally downloaded his employers’ software, but instead of selling it to a competitor, he decided to use it to further his own investments, and promptly managed to lose $40,000 of his own money.


Somehow this criminal mastermind got caught, and Pu faced federal indictments for wire fraud, transmission of trade secrets, unauthorized access of a protected computer and obstruction of justice. Pu pled guilty to possession and transmission of trade secrets.

Pu’s Sentencing

At sentencing, Pu argued that since he hadn’t gained anything (remember he lost $40,000) and his employers hadn’t suffered any actual loss, he should not have to pay restitution. The district court disagreed, finding that Pu’s employers had spent more than $12 million developing their respective HFT algorithms, and this represented the “intended loss amount.”  Using this intended loss amount, the trial court applied the sentencing guidelines and sentenced Pu to three years in prison, three years of probation and ordered him to pay $759,649.55 in restitution.

Pu’s Appeal

Pu appealed the restitution order, and his luck must be turning because the 7th Circuit agreed.  The 7th Circuit held the district court erred in finding that “it was more likely than not that Pu intended to cause a loss to the victims that equaled the cost of development [$12 million].”  The 7th Circuit noted that there was no evidence that Pu had some grander scheme other than his own inept attempts to use the HFT system for his own trading.  The 7th Circuit criticized the district court for failing to consider Pu’s argument that he only stole the outputs and not the source code and thus “the intended loss should be zero, or at most $2,000.”

On appeal, Pu further argued that the district court mistakenly believed that because Pu had pled guilty, it was required to find intended loss and impose restitution. The 7th Circuit agreed that “the guidelines do not require a loss calculation greater than zero,” and left it to the district court to determine the proper restitution award on remand.

Finally, Pu objected that the district court appears to have ordered restitution based on his employers’ conclusory summary of their costs investigating Pu’s misdeeds, which (not coincidentally) totaled $759,649.55. The 7th Circuit agreed, noting that “the district court is required to base its restitution order, the extent practicable, on a complete accounting of the loss” and that Pu’s employer’s conclusory summary was not sufficient.


Senate Judiciary Committee Approves Federal “Defend Trade Secrets Act”

Feb 12, 2016

In a prior post, Feds Focus on Trade Secrets, we noted that federal lawmakers had introduced two bills designed to provide a federal civil remedy for trade secret theft.

top secret envelopeIn late January 2016, the Senate Judiciary Committee approved the Senate version of the legislation (S. 1890) called the Defend Trade Secrets Act (“DTSA”).  The bill will likely be brought to the Senate floor for a vote, and is expected to pass.

This is a big deal, since previously trade secret claims could be pursued only under state law.  (Most states have adopted some variation of the Uniform Trade Secrets Act.)  One legal commentator has stated the impending DTSA passage will be a “watershed event in trade secret law” and “will be to trade secret law what the creation of the Federal Circuit was to patent law.”

Here is a re-cap of the final amendments made by the Senate to the DTSA:

  • The language allowing ex parte seizures has been tightened; seizure is now available only in “extraordinary circumstances” and the court must find that the person against whom seizure would be ordered has “actual possession” of the trade secret material.
  • Injunctions must be supported by proof of an “actual or threatened misappropriation” and an injunction cannot “prevent a person from entering into an employment relationship.”
  • Exemplary damages were reduced from up to three times actual damages to up to two times actual damages.
  • Whistleblowers who disclose trade secrets either in confidence to government officials or in a lawsuit alleging retaliation by an employer are now protected by “safe harbor” provisions.
  • The statute of limitations has been reduced from five years to three years.

Stay tuned for further developments.


Trade Secrets Case Against Zillow Gains Steam

Sep 09, 2015

scoreboard showing tie gameThis is a short update to a previous post, Zillow Case Shows Danger of Unprotected Trade Secrets During Business Negotiations, posted on May 8, 2015.

In that post, we described a trade secrets lawsuit filed against Zillow by a competing online real estate information company, Top Agent Network.  Zillow prevailed in an early skirmish in that case when the District Court issued an order dismissing Top Agent’s core trade secrets claim.  The court held that Top Agent failed to allege sufficient detail showing that its alleged trade secrets were, in fact, trade secrets instead of mere non-protectable ideas, features, and functions of design and operation.

But the dismissal order allowed Top Agent leave to amend (i.e., to try to state a proper trade secrets claim).  Top Agent amended, and now its trade secrets claim is back.  Score round 2 in this bout to Top Agent.

The amended trade secret claim

In its amended complaint, Top Agent specified its alleged trade secrets in far greater detail.

The amended complaint focuses on slides distributed at a March 12, 2014 meeting between Top Agent and Zillow executives.  Those slides, according to the complaint, included “internal metrics concerning client engagement, market penetration, members’ use of information on [Top Agent’s] private web pages, and the size of its homebuyer secondary market; the frequency with which members in different markets open their emails; the percentage of home sales made by [Top Agent] member agents in three geographic areas and member statistics from those markets; and market research survey results indicating how clients specifically use [Top Agent] in advancing their businesses.”

The amended complaint further alleged that all of the above information was kept confidential (through confidentiality provisions in employment agreements) and had economic value.

Finally, Top Agent alleged Zillow misappropriated its trade secrets by using the aforementioned metrics and market data without Top Agent’s permission, after Zillow assured Top Agent that the information would be kept confidential.

Zillow filed a motion to dismiss Top Agent’s amended complaint.

The District Court’s Order

This time around, the District Court ruled that Top Agent stated a valid claim for trade secret misappropriation.  Whereas Top Agent’s first complaint failed to specify what constituted its trade secrets (with the allegations sounding more like non-protectable ideas, features, and functions), the amended complaint provided the necessary details and focused on protectable metrics and market data.

As to misappropriation, the court acknowledged that Top Agent’s allegations remained “somewhat conclusory,” in that they fell short of “chronicling in precisely what manner such data proved integral to the development of” Zillow’s competing product offerings.  But, the court held, “to impose such a steep hurdle prior to discovery would be inappropriate.”

The court also upheld Top Agent’s claim for breach of oral contract, which alleged that Zillow broke its verbal promise to keep Top Agent’s information confidential.

The court dismissed, without leave to amend, Top Agent’s fraud and unfair competition claims on the grounds that they were superseded by the California Uniform Trade Secrets Act.


The main lesson from this case, as stated in our prior post, remains that companies should be acutely aware of their trade secrets, and should always obtain a written NDA before sharing those secrets.

Top Agent’s failure to properly articulate its trade secrets in its original complaint and its failure to obtain a written NDA turned out to not be fatal to its case, but it forced the case into an early defensive posture, which is never good for a plaintiff.

We’ll continue to monitor this case for developments.


U.S. Supreme Court Holds Patent Holders Can’t Charge Royalties After Patent Expires

Jul 09, 2015

In a decision issued June 22, 2015 — Kimble v. Marvel Entertainment, LLC — the United States Supreme Court reaffirmed and declined to overrule long-standing precedent holding that a patent holder cannot charge royalties for the use of an invention after its patent term has expired.

The invention: a Spider-Man type web-blaster!

Not all patent cases feature inventions that are easy to understand.  Take, for example, patent cases in the mid/late 2000s featuring orthogonal frequency-division multiplexing (a method of encoding digital data on multiple carrier frequencies).

spider web photoThis case, in contrast, features an invention to which almost all of us can relate.  In 1990, inventor Stephen Kimble obtained a patent on a toy that allowed children to role-play as a “spider person” by shooting “webs” (pressurized foam string) from the palm of their hand.  Kimble met with Marvel Entertainment, the manufacturer of various Spider-Man products, seeking to sell or license his patent.

Marvel apparently liked Kimble’s invention.  Sometime after their meeting, Marvel began marketing a “Web Blaster” — a toy mimicking Kimble’s invention, using a polyester glove and a canister of foam.  But Marvel did not sign any agreement with Kimble, and made no payments to him.

The patent infringement case and settlement

Kimble sued Marvel for patent infringement in 1997.  That case settled, and the settlement agreement provided that Marvel would purchase Kimble’s patent in exchange for a lump sum of approximately $500,000 and a 3% royalty on Marvel’s future sales of the Web Blaster and similar products.  The settlement agreement set no end date for the royalty payments.

In negotiating the settlement, neither party appeared to be aware of a 1967 decision by the United States Supreme Court — Brulotte v. Thys Co. — holding that a patent holder cannot receive royalties for sales made after the patent’s expiration.

The sequel lawsuit

When Marvel finally “stumbled across” (the Court’s words) the Brulotte decision, it filed a new lawsuit for declaratory relief confirming that Marvel could cease paying royalties under the settlement in 2010 — 20 years after the patent issued, which is the duration for most patents.

The District Court sided with Marvel, and the Ninth Circuit affirmed.  The Supreme Court granted certiorari “to decide whether, as some courts and commentators have suggested, we should overrule Brulotte.”

The Supreme Court’s holding

In a 6-3 decision, the Supreme Court affirmed, holding that Brulotte remains good law unless and until Congress  determines otherwise.

The Court observed that in crafting patent laws, Congress struck a balance between fostering innovation and ensuring public access to discoveries.  Patents, the Court held, “endow their holders with certain superpowers, but only for a limited time.”  During the patent’s lifespan, the holder has exclusive rights to the invention, and may sell or license those rights.  But upon expiration, the rights to the invention pass to the public.

The Court rejected Kimble’s invitation to overrule Brulotte and replace it with a “flexible, case-by-case analysis” of post-expiration royalty clauses, noting: “Overruling precedent is never a small matter.”  Brulotte’s “statutory and doctrinal underpinnings,” the Court held, “have not eroded over time.”  Kimble also argued that Brulotte suppressed technological innovation and was based on a mistaken view of the competitive effects of post-expiration royalties.  But the Court essentially told Kimble, and others critical of the Brulotte decision, to direct their concerns to Congress.

Perhaps most noteworthy was the Court’s explanation that parties “can often find ways around Brulotte” in permissible ways, given some creativity in transaction structuring.  For example:

  • a licensee can defer payments for pre-expiration use of a patent into the post-expiration period
  • licensing agreements covering multiple patents can provide for royalties “until the latest-running patent covered in the parties’ agreement expires”
  • licensing agreements covering both patents and closely related non-patent rights (like trade secrets) can provide for continuing royalties after patent expiration as long as the royalties are tied to the non-patent right
  • parties may structure their relationship as a joint venture in which the parties share risks and rewards of commercializing inventions but without a royalty component


After a patent expires, patent holders can’t continue charging royalties for use of the invention.  To secure post-expiration revenue streams, patent holders must look to other transaction structures.


HBO’s “Silicon Valley” Is Like Sesame Street for Start-Ups

May 28, 2015

A recent  episode of “Silicon Valley” was brought to you by the letters N-D-A.  The protagonists are seeking funding for their start-up, Pied Piper, and one of the potential investment groups starts asking curiously technical questions regarding how Pied Piper’s algorithm works.  Pied Piper’s developers are so flattered that somebody finally appreciates their genius that they fail to recognize that the investors aren’t conducting due diligence, the investors are trying to steal Pied Piper’s intellectual property.

Sesame Street & HBO
Sesame Street & HBO

Beware of TMI; don’t overshare without the protection of a nondisclosure agreement.  Nobody expects an investor to take a meeting, much less invest, without understanding the general nature of your start up.  But start-ups are often so hungry for investors that they provide too many details of their product or service, their business plans or other proprietary information without the protection of an NDA.

Under the Uniform Trade Secrets Act, there are two prongs to a trade secret:

(1) the information must provide the owner with independent economic value by not being generally known to the public or those in the relevant industry; and

(2) the owner must have taken reasonable efforts to keep the information secret.

A start-up that shares its proprietary information with a potential investor or partner without an NDA has blown the second prong by failing to take “reasonable steps.”  So even if the investor passes and doesn’t misappropriate your idea, evidence that you failed to obtain an NDA from the investor can and will be used against you if a third party, say a disgruntled employee, misappropriates your trade secret.

A potential investor or partner will respect you more if you act professional and insist on an NDA.