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Expert Guide: Secrets and Lies

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17th May 2005
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Bevans LogoAnthony Hughes of Bevans solicitors discusses the secret and lies that businesses can be guilty of.

Any business person will tell you that know-how is what makes a business competitive, but can they also tell you what steps they has taken to safeguard their commercial secrets?

These same businesses will often invest heavily in innovation and creativity yet are uncertain about who owns the copyright on new materials. The issue only comes to a head on when a key person leaves the business and it becomes clear that trust alone - be it between an employer and employee, business partners or between fellow shareholders and directors - is not sufficient protection and can provide an unsound foundation for pursuing a legal remedy.

Increasingly, the value of the business is reflected in this know-how, including its confidential information, and the intellectual property rights that it owns in the broadest sense. Without proper written agreements between the parties by way of an employment contracts, partnership or shareholder's agreement or contracts with sub-contractors the law will not provide the protection that many people would expect.

Keeping these issues under review is important. The following steps are recommended:

  • Take practical steps to ensure that highly sensitive information is only made available to a restricted number of people. Increasingly that information is transmitted and stored electronically. Ensure that the passwords are adequate to protect it.
  • If information is confidential make sure that employees and others are told that this is the case. If, for business purposes, confidential information does need to be transferred more widely make it known to those receiving it that the company regards the information as highly confidential and that they should take practical steps to keep it safe.
  • Use restrictive covenants in employment contracts. Employment contracts should contain clauses restricting the use by employees of confidential information during employment and after it has ended. However since it can be very difficult to prove that confidential information has been taken also include reasonable provisions to prevent the employee from dealing with existing customers after leaving, so as to protect the integrity of the remaining business.
  • Always get contractors to sign written agreements. Ensure that contractors (i.e. anyone doing work for you who is not an employee) sign a proper contract. In addition to clauses referring to the use of confidential information and non-dealing clauses, contractors should also agree that the copyright in anything that the contractor creates on behalf of the business would belong to the business. Without such a clause, the copyright is deemed to be owned by the contractor. Note that these provisions are becoming increasingly important as we see an increase in the volume of business being done through networks of independent contractors rather than through companies with employees.
  • Use shareholder/partnership agreements to deal with the relationship between business principals. Finally, if you are working in a small business with partners or shareholders then similar provisions can be contained in a simple partnership or shareholders' agreement so that the remaining partners or shareholders are properly protected in the event that another one of their number leaves to set up in competition. Partnership agreements and shareholder's agreements will usually cover other situations as well and can include provisions which disentitle the partner or shareholder from claiming the full value of his shares in the event that s/he leaves under a cloud.

For more information contact on 0117 923 7249 or at [email protected]

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