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The Legal Aspects of Protecting Ideas and Creativity

Andrew J. Sherman, Partner, Dickstein Shapiro Morin and Oshinsky LLP

Creativity is the emotional lifeblood of entrepreneurship. Without creativity, thousands of companies would not have been launched. However, it is an element of entrepreneurial life that isn't easy to safeguard under the law.

As a general rule, a mere idea or creative concept does not qualify for patent, copyright, trade secret, or trademark protection. The right to the exclusive use of an idea is lost by voluntary disclosure unless the following three elements are present: the idea is in a concrete form; the idea is original and useful; and the idea is disclosed in a situation in which compensation is contemplated. If this test is satisfied, the idea may qualify as a "property right" and may be protected under theories of implied contract, unjust enrichment, misappropriation, breach of a fiduciary relationship, or passing off. Recovery under these circumstances usually depends upon the relationship between the submitter and the receiver of the idea, as well as the facts surrounding the disclosure.

However, as a general rule, the law of intellectual property seeks to protect and reward the creative firm, innovator, or entrepreneur for effort by prohibiting misappropriation or infringement by competitors. It is crucial, therefore, that the legal considerations to protect these "crown jewels" are incorporated into the strategic marketing plan of any emerging business. If proper steps are not taken to protect new products, services, and operational techniques, then it will be extremely difficult to maintain and expand the company's share of the market because others will be free to copy these ideas as if they were their own.

The Role of Show-How and Know-How

The proper protection and, where possible, registration of intellectual property is essential to building and sustaining a company's growth. The procedures and expenses necessary to protect these valuable intangible assets are crucial to the continued well-being of an entrepreneurial company and its ability to continue to survive in a competitive marketplace.

Certain types of intellectual property are treated as such primarily because a third party is willing to buy or license it from a company or individual that possesses a particular expertise. In such cases, show-how consists of training, technical support and related educational services, whereas know-how usually takes the form of information that has been reduced to written rather than spoken form. Know-how and show-how often arise in the context of a licensing agreement where the licensee is requesting support services in addition to the tangible technology or patent which is the central subject matter of the agreement. To the extent that the know-how or show-how is confidential and proprietary, the law of trade secrets will generally govern it, unless otherwise covered by a patent. To the extent that the know-how or show-how is non-proprietary and constitutes common knowledge, it will be governed by the term and conditions of an agreement between the parties.

Trade Secrets as a Protective Device

The best way to protect creative ideas and concepts is for them to be developed into a trade secret. Under the law, a trade secret consists of any type of information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value from not being generally known to other persons who can obtain economic value from its disclosure or use. The information does not need to be unique or even invented by its owner to be protected, as long as the data is kept confidential and provides value to the company. A company uses its trade secrets to provide it with an advantage over competitors. Therefore, the corporate owner must treat the trade secret as confidential and proprietary. The scope of protection available for trade secrets may be defined by a particular contract or fiduciary relationship, as well as by state statutes and court decisions. Unlike other forms of intellectual property protection, there are no federal civil statutes providing for the registration of trade secrets. State law typically protects trade secrets.

Many entrepreneurs owe their success in part to the competitive advantage they enjoy by virtue of some confidential formula, method, design or other type of proprietary know-how, and generally understand the importance of protecting trade secrets against unauthorized disclosure or use by a current or former employee, licensee, supplier, or competitor. Disclosure can cause severe and irreparable damage, especially to a smaller company where trade secrets may be the company's single most valuable asset.

Qualifying as a Trade Secret

Courts have generally set forth three requirements for information to qualify for trade secret protection: the information must have some commercial value; the information must not be generally known or readily ascertainable by others; and the owner of the information must take all reasonable steps under the circumstances to maintain its confidentiality and secrecy. Examples of trade secrets include business and strategic plans, research and testing data, customer lists, manufacturing processes, pricing methods, and marketing and distribution techniques. In order to maintain the status as a trade secret, a company must follow a reasonable and consistent program for ensuring that the confidentiality of the information is maintained.

However, in addition to those discussed above, the courts have considered many other factors when deciding the extent to which protection should be afforded for trade secrets. Among the most often cited factors are the following:

  • The extent to which the information is known by others outside the company, including the efforts by the company to keep the information guarded from disclosure.
  • The value of the information, including the resources expended to develop the information and whether the information truly provides a competitive advantage.
  • The amount of effort that would be required by others to duplicate the effort or to reverse-engineer the technology.
  • The nature of the relationship between an alleged infringer and the owner of the trade secret.

Unlike many large corporations, smaller companies cannot generally afford a complicated security system to protect their trade secrets. With the mobile nature of today's work force, turnover caused by promotion within, and the chaotic nature of most growing businesses, it is practically impossible to prevent a determined employee from gaining relatively easy access to the company's proprietary information. Unfortunately, it is therefore easier to simply ignore the problem and do nothing at all about it. However, there are some fundamental, affordable and practical measures that the company can readily adopt to protect the data that is the core of its competitive advantage. The entrepreneurial company is urged to review all such options thoroughly with its legal counsel in an effort to safeguard the critical intangible called creativity.

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