Precautions to Take When Sharing Confidential Business Information

By:  Adrienne Knack

Most businesses have important, confidential business information that needs to be protected.  This includes customer information, pricing, trade secrets, business practices, work product, copyrights, trademarks, service-marks, and other intellectual property and proprietary information.  There are many, everyday situations in which this information is shared, including with employees, independent contractors, distributors, and manufacturers.  Confidential business information is also shared during the process of buying or selling a business.  Often, such information is shared without realizing the dangers associated with its dissemination. 

Dangers of sharing confidential information

Employers expose much of their confidential information to their employees without hesitation.  Most of the time, it is imperative to the operation of the employer’s business to do so.  This is also true regarding pricing and business practices. Unfortunately, an employee who leaves the business may attempt to take this information to a competitor and use it against his or her former employer.  The competing business may then use this information to try to lure customers away from the business owned by the former employer, or for another predatory business practice.  Another danger is sharing too much confidential information when exploring the sale or purchase of a business.  A competitor may pretend like it is interested in acquiring a business simply for the fact that it may obtain proprietary information to use in its own business in the process.

Trademarks, service marks and branding are pieces of information that are used every day.  Businesses use these marketing tools to build the goodwill of their business.  Because this information is shared so freely, it is most vulnerable to being stolen.  If not properly protected, the livelihood of the business can be copied in an instant and used by a competitor to confuse and take customers.

Another relationship that leads to the sharing of proprietary information is when a business works with a manufacturer and/or a distributor.  Important trade secrets like recipes, packaging, and labeling are shared with the manufacturer or distributor out of necessity.  Without the proper safeguards in place, there is nothing that prevents a manufacturer or distributor from sharing this confidential business information with others.

Protections

There are certain steps that businesses must take in order to protect valuable confidential information.  A lot of these protections are encompassed in specialized and specific agreements, including:

1. Non-disclosure agreements;
2. Employee agreements;
3. Independent contractor agreements;
4. Licensing agreements;
5. Purchase agreements;
6. Consulting agreements;
7. Confidentiality agreements;
8. Non-appropriation agreements;
9. Non-compete agreements; and
10. Non-solicitation agreements.

Most of these agreements can either be freestanding or used in conjunction with one another.  Often, specialized clauses encompassing one or more of these ideas are contained within a single agreement.  For example, an employer’s agreement with its employees will often include non-compete or non-solicitation covenants, as well as non-appropriation and confidentiality covenants.

In addition to having these protective agreements in place with employees, independent contractors, potential purchasers/buyers, manufacturers, distributors, etc., there are other precautions a business must take to protect its confidential and proprietary information.  These precautions include having a properly formed business entity and consistent upkeep of the company’s corporate documents, registering trademarks and service-marks at the state and/or federal level, and registering copyrights and patents with the United States Patent and Trademark Office.

It is also very important to have these agreements and policies reviewed and updated frequently to ensure that the business is protected as the business environment evolves.