in Startups

Spilling the secret sauce

Editors Note: This is a guest post by Cory Mcculloch (Linkedin, @CoryMacculloch). Cory studied law at UofT, works at Brooks Law and was a summer student at Cognition LLP. Follow Cory on Twitter @CoryMacculloch.

The following is not legal advice and may not be full depiction of the law. Do not rely on anything stated below without first speaking to your lawyer. By publishing the information below, there is no creation of a lawyer-client relationship.

At every entrepreneurial event that I go to, I, without fail meet at least one person who guards his or her business idea like it is the coordinates of a hidden treasure and I am a pirate looming for an opportunity to pillage.

While I always respect one’s decision not to disclose details about their business idea, one cannot forget about the benefits to be gained from people who, like myself, enjoy connecting entrepreneurs with others. Granted, sometimes the decision to remain confidential is wise, but I suspect people are often misguided.

When to “shut-up”

If you are working on a process or machine that you wish to patent (assuming you know what can be patented and what cannot be patented) and you believe that it is going to be more than year or so down the road before you are able patent it, then it may not be a wise decision to disclose details about your process or machine in its early stages. This is because of the “novelty requirement” embedded in the definition of “invention” in the Canadian Patent Act. As interpreted, an otherwise valid patentable subject matter becomes unpatentable when one *discloses how their invention works, and *discloses enough details to enable a skilled reader to make or construct that very invention. This is again assuming that the subject matter for which your “invention” is patentable Most general business ideas that people devise are not patentable inventions, and even if one’s idea is patentable, telling someone your target market and how your business idea will work is generally not enough to violate the “novelty requirement” of a patent as described above.

If you have signed an employment agreement, consultation agreement, shareholder’s agreement, or any other agreement that has a provision labeled as “confidential information”, then for the sake of legal safety do not disclose any particulars about the related party’s business model or any secrets until you have understood the substance of your promises. Often these agreements are intended to protect the company’s “trade secrets”. With that being said, generally agreements provide that something that is already public is no longer is a secret.

If you haven’t signed any documents with anybody but you have devised ingredients or steps for the making of a product or code, or you have received those ingredients from someone else, then it may also not be a good idea to disclose what those ingredients are. Even if you decide not to patent your invention, the common law affords a limited amount of protection for what is classified as a “trade secret”. A trade secret loses all of its protection when it is no longer is a secret.

When it may be a good idea to reveal

If none of the above situations apply to you and you have the ability to discuss general details about your idea (i.e. what kind of hot sauce you are planning to make and your target market) then it may be a good idea to disclose general details without disclosing the essential ingredients of your hot sauce.

Contrary to popular belief not everyone you talk to is in the business of ripping off ideas. A very costly mistake is creating a business without early validation. The only way to get any validation is by hearing the plight and praise of potential customers and this may require some opening up. Funding opportunities, staffing possibilities, and connection building are also some essential building blocks that people may miss out on.

So although there are times when it may be wise to not “spill the secret sauce”, there are other times when giving a little taste test can lead to valued feedback and responses.

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