Protecting Intellectual Property with Contracts: Non-Disclosure Agreements, Confidentiality Agreements, and Non-Compete Agreements (Part I)

Intellectual Property (IP) can be protected in various ways, oftentimes through formal registration processes, such as patent, copyright, and trademark.  However, these types of formal IP protection may not be available for what an entrepreneur or business wants to protect.  Contract-based protection for IP, including non-disclosure agreements (NDAs), confidentiality agreements, and non-compete agreements, may provide a vehicle for protecting a broader variety of IP. 

Coveted Customer Data

A business’s value may include intangible assets, such as customer lists.  If you are selling a pasta strainer online, you may have collected data about who has purchased from you in the past.  That way, you can contact those past customers when you begin selling your “new and improved” pasta strainer.  Rather than building up a marketing pitch from scratch, you may find that by marketing directly to previous customers, you can more easily garner sales of this new pasta strainer.  It makes sense that you wouldn’t want to share this customer data with many others, such as competitors, certain vendors, and even some employees.  Instances can arise where it is prudent from a business standpoint to disclose that customer list in a limited fashion, and that’s where contractual protections come into play. 

Use an NDA as Trade Secret Protection

    Your customer list may be considered as a trade secret, which is information that provides a competitive advantage and is not readily ascertainable by others.  But to maximize the value of the customer list, you might want to disclose it to a vendor like a marketing professional.  The marketing professional knows how to craft advertisements but needs access to your customer list to do so.  A non-disclosure agreement (NDA) may be a relatively simple agreement or contract, that serves to identify the customer list you intend to disclose to the vendor (like the marketing professional). Your customer list is a trade secret that must be protected from misuse or unauthorized disclosure. Clearly, an NDA is not fail-safe, but it is intended to impose some level of protection for your customer list, which is acknowledged by the vendor in a signed agreement, before you proceed with the business relationship that leads to the customer list’s disclosure.  

Intellectual Property and NDAs

    Likewise, you may need to hire employees to produce, package, or ship your pasta strainer, which would expose them to the customer list.  Further, you may be training these employees in your business methods, such as the data of how best to approach your existing customers, and keep them buying from you.  Two IP-protection issues can be addressed with contracts.  First, like an NDA, you may enter into a confidentiality agreement with your employee.  This may be part of a larger employment agreement or could be stand-alone.  Second, you may enter into a non-compete agreement with the employee.  The non-compete agreement may also be part of an employment agreement or combined with the stand-alone confidentiality agreement.  

Importantly, confidentiality and non-compete agreements should identify what you as the business owner or employer wishes to protect.  If you want to try to prevent the employee from misusing your customer list or business methods, that may be included in the confidentiality agreement.  If you want to try to avoid that employee from leaving your company and starting a new competing business, you could include such language in a non-compete agreement.  By establishing restrictions on how an employee is limited in their use of your business’s trade secrets, your business may maintain its competitive advantage.  

Precise Terms Lead to Better Results

There is some overlap in these contract-based IP protections: you can use a non-disclosure agreement or confidentiality agreement in order to protect against misuse of a trade secret like business information.  These are essentially interchangeable terms for similar agreements.  A non-compete agreement is related to NDAs/ confidentiality agreements and helps protect against unwanted competition, such as by a former employee.  These agreements may have overlapping terms intended to protect a business’s trade secrets or other IP.  

It is not necessarily the title, but the contents that make a useful agreement. There are certain requirements associated with contract-based IP protection, and an experienced contracts attorney will know how best to address these. If you would like to prepare a non-disclosure agreement, confidentiality agreement, or non-compete agreement, or have any questions about using these agreements for your business, please feel free to schedule your initial consultation using the link below!

Written by Benjamin Rothermel and Connor Jaccard.