The Secret About Trade Secrets: Protecting Your Startup’s Intellectual Property

One of the biggest mistakes a startup can make is forgetting to plan for the future. No one knows this better than Mary Guzman and Phil Antoon, who work together to create accurate valuations for startups of all sizes to better protect their intellectual property (IP).

Guzman is the founder and CEO of Crown Jewel Insurance, a risk and insurance advisory firm that helps identify and insure value and help regain any stolen IP assets. Phil Antoon is the Managing Director of Alvarez & Marsal, a global consulting company for early stage companies all the way to multinational companies. Both work with TechUnited:NJ to support early stage companies on their paths to success.

Aaron Price, CEO of TechUnited:NJ sat down to talk with Guzman and Antoon about Trade Secret Insurance, the key differences between patents and trade secrets, and the importance of always thinking five years ahead. Read ahead for key insights that could save your startup down the line.

What are Trade Secrets anyway?
Trade Secrets are the fourth intellectual property type aside from patents, copyrights, and trademarks. It is an expansive category that includes all elements of a business that can affect its unique value, including a business process, a code, or an image. This type of IP is often disregarded, because it’s generally very young; the legal protections around Trade Secrets only began in 2016 with the Defend Trade Secrets Act

The importance of protecting and insuring Trade Secrets is particularly pertinent to modern tech startups. The modern business needs to prioritize secrecy to avoid stolen ideas. This can help avoid the “Uber/Lyft/Via” effect; as we know, whoever gets there first gets the advantage.

As a young startup, how important is it for me to get Trade Secret Insurance?
All startups are unique and need to highly consider cost/benefit ratio in the beginning stages. With that said, “Without insurance protection, you could lose the value of your entire company in a heartbeat,” explained Antoon. If you are a software business and experience a theft of your software code, your entire business is compromised. As a young business, one stolen key algorithm, code, or other piece of IP could tank your business before it even has a chance to begin growing. 

Insuring early and insuring correctly can be pivotal to your business’s success. The Trade Secret Examiner software provided by Crown Jewel Insurance is one example of a process that is streamlined and blockchained to be tamper-proof. Especially as a new business, expert advice can be a good investment.

Insuring is also a worthy investment for securing buyers and investors down the line. It is attractive to private equity firms to have protection. You can get more capital if you have more tangible assets as collateral. Most of your early value is in insured assets in the beginning for early companies. Show you are organized and accountable to open up valuable possibilities.

When should you patent, and when should you use Trade Secret Insurance?
Even large companies see the value in Trade Secret Insurance versus patenting. If your IP is still in development, that could be a good sign to insure instead of patent. “Companies with a large patent portfolio often have an even larger Trade Secret portfolio,” says Guzman. “That contemplates everything that’s still in research and development. The further down the R&D lifecycle, the more valuable that asset is.”

Trade Secret Insurance avoids the loopholes that patent laws can create. For example, a competitor taking an algorithm and tweaking it enough for it to be feasibly different can be legal, but still ruin your business. Trade Secret Insurance provides the confidentiality needed for fresh proprietary ideas to get the debut they need to succeed.

Also consider going the route of Trade Secret Insurance if you want to avoid the lengthy, and sometimes irrelevant process of a patent. Tech as an industry moves very quickly, which does not match the pace of patents. But this property still needs confidential protection to have a chance to perform.

As crucial as they are to the success of a business, business processes are not patentable. That’s where Trade Secret Insurance comes in. It can protect this relationship to make sure your business has a fighting chance before it reaches the hype pipeline. “What happens in reality is there is a proprietary process that is difficult to replicate,” says Antoon. Software can be outsourced, but the process is what matters.

What are some best practices I can use to protect my IP?
Nondisclosure and Noncompete agreements may not be robust enough in today’s business landscape. You should go the extra mile to protect your growing business’s assets and processes. This includes developing an exit interview and agreement for employees moving on from your startup that protects proprietary information. 

Also, certain states don’t legally enforce Noncompete Agreements, such California. It is important to look up the laws in your specific state so you can create the protection you need. In New Jersey, Noncompete Agreements are enforceable with strict conditions

Be sure to develop robust internal documentation processes. This is known as EONA Proofs (Existence Ownership Notice Access), notes that establish the validity of trade secrets. This proof can be an Excel spreadsheet tracking specific dates, details, ideas, and hours worked towards formulating your IP. It’s recommended to be as detailed as possible, and do complete this process at least once a month.

Although patents aren’t public property, they are public knowledge. In certain cases, this could affect the rollout of your business plan. Do your due diligence and research the benefits of  properly protecting your intellectual property. Build these habits early on, and then you can focus on all other elements of taking your startup to the next level.

Catch the full episode on YouTube or listen on the go on Spotify.

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