Trade secret and non-compete agreement within B2B
2024-09-26 09:31

What is a Trade Secret?

Although trade secrets are not explicitly defined, according to Article 11 of the Unfair Competition Act, they include all technical, technological, organizational, or commercial information that holds economic value and is subject to protection measures by the entrepreneur. This means that a trade secret encompasses information not generally accessible to entities in a given industry and can bring significant financial or strategic benefits to the company.

Examples of trade secrets include:

• know-how related to production processes,
• customer and contractor data,
• marketing and sales strategies,
• technologies, patents, and formulas,
• financial models and cost estimates,
• internal organizational procedures.

For a piece of information to be considered a trade secret, the entrepreneur must take appropriate steps to protect it. This includes ensuring the information is not publicly available and is secured with appropriate measures, such as signing Non-Disclosure Agreements (NDAs), installing IT security systems, limiting access to data to selected employees, or labeling documents as “confidential” or “secret.” It’s also important to establish procedures for the return of media that contain protected information after the agreement ends.

What is a Non-Compete Clause?

A non-compete clause is a commitment that imposes restrictions on one party—usually an employee, collaborator, or contractor—not to engage in competitive activities against the entity with whom they signed the agreement. In most cases, although agreements occasionally bind both parties to such restrictions.

Examples of competitive activities include:

• working for or collaborating with a direct competitor,
• starting a competing business,
• offering services similar to those provided during the collaboration.

A non-compete clause can apply not only during the collaboration but also for a period afterward—6, 12, or even 24 months. The duration of this restriction must be clearly defined in the agreement. Additionally, in B2B situations, implementing a non-compete clause often includes compensation for the person bound by the restriction.

Differences Between Trade Secrets and Non-Compete Clauses

Although both trade secrets and non-compete clauses aim to protect the company’s interests, they differ significantly in several key aspects:

• Scope of Protection: Trade secrets protect confidential information that holds economic value for the company. Non-compete clauses restrict the ability of the bound party to engage in competitive activities.
• Duration: Trade secrets are protected as long as the information remains undisclosed. Therefore, an NDA can be indefinite. Non-compete clauses have a clearly defined duration, established in the agreement.
• Subject of Protection: Trade secrets involve protecting economically valuable information. Non-compete clauses pertain to restricting competitive activities by a collaborator.

What is a Non-Disclosure Agreement (NDA)?

An NDA (Non-Disclosure Agreement) is a tool that formalizes the obligation to keep specific information confidential. When working with contractors or employees, it’s wise to safeguard your interests by signing an NDA, which clearly defines what information is confidential and the consequences of disclosing it.

An NDA can be:

• unilateral – where only one party commits to confidentiality,
• mutual – where both parties exchange confidential information and commit to keeping it undisclosed.

Elements an NDA should include:

1. Definition of Confidential Information – clearly defining what data is protected.
2. Duration of the Agreement – during and after the collaboration.
3. Scope of Obligations – outlining prohibited actions, such as disclosing information to third parties.
4. Consequences of Breach – specifying penalties for violating the agreement.

Why Protect Trade Secrets and Use Non-Compete Clauses?

Protecting trade secrets and applying non-compete clauses are crucial in today’s rapidly evolving business world. Here are a few reasons why these mechanisms are important:

• Preventing Loss of Competitive Advantage – trade secrets protect key information that provides a company with a market edge.
• Protecting Against Unfair Competition – non-compete clauses prevent former collaborators or contractors from acting against the company.
• Minimizing Financial Risks – a well-protected company can avoid financial losses from the disclosure of confidential information.

Summary

For B2B entrepreneurs, protecting trade secrets and using non-compete clauses are key safeguarding mechanisms. Trade secrets protect confidential information from being disclosed, while non-compete clauses prevent collaborators or contractors from engaging in competitive activities. Additionally, an NDA provides a practical tool to formalize confidentiality obligations.