Protecting a Business Idea with New Jersey’s Trade Secrets Law

By Pictofigo (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsGreat business successes often begin with a single idea, or so we often hear from people who have succeeded in business. It is certainly true that an idea can mark the beginning of a process that, hopefully, results in “success” by whatever metric a business owner wants to measure it. That process has many steps, and it requires the assistance and involvement of many other people, businesses, and organizations. How does a business owner or entrepreneur embark on this path while keeping others from stealing their idea? Intellectual property laws are not much help for something that is still in the “idea” phase, but New Jersey’s trade secrets law may provide some protection. Caution is still a good strategy, however, and no business venture is free of this sort of risk.

The first question to address, of course, is what we mean by a “business idea.” In order to qualify for legal protection, a business idea cannot be too general or vague. New Jersey law states that a “trade secret” must be kept secret, must have “actual or potential” economic value, and must not be something that a competitor could easily figure out on their own. N.J. Rev. Stat. § 56:15-2. New Jersey law allows a person to obtain injunctions and recover damages, including actual damages and unjust enrichment, for misappropriation of trade secrets.

If an idea must be kept secret in order to have protection under the trade secrets law, how does anyone ever work with other people on their business ideas? This is the part that involves some inherent risks. A person may ask other people, prior to meeting to discuss the idea, to sign a non-disclosure agreement (NDA). This can be effective, since it is enforceable both under the trade secrets law and breach of contract law. Some larger companies, however, may refuse to sign NDAs, often on the grounds that they do not want to risk exposure to a legal claim if they reject the idea, but then later develop a similar idea entirely on their own.

Courts have reached a variety of rulings on the question of whether a business idea is entitled to legal protection. Even with an NDA, an idea may be too general, as a court held in Take It Away, Inc. v. Home Depot, Inc., No. 09-1336, slip op. (1st Cir., Apr. 15, 2010). That case involved a proposal by an equipment rental company to lease dumpsters to consumers at retail chain stores. The store rejected the idea but entered into a similar arrangement with a different company several years later. The court held that the idea was easily ascertainable by the plaintiff’s competitors, and therefore it was not entitled to trade secret protection.

A more specific idea could qualify for trade secret protection, such as a process developed by a small printer manufacturer to “creat[e] self-authenticating documents through the use of barcodes that contain encrypted data about the contents of the original documents.” Altavion v. Konica Minolta Systems Laboratory, 226 Cal. App. 4th 26, 34 (2014). The idea was specific enough, and sufficiently identified as proprietary information, to be protected as a trade secret.

Business formation attorney Samuel C. Berger offers fixed-fee legal-service packages to business owners and entrepreneurs in the New York City and Northern New Jersey areas. We help our clients on a wide range of legal issues, including business formation, contracts, and general transactional matters. To schedule a confidential consultation with a skilled and experienced business advocate, contact us today online or at (212) 380-8117.

More Blog Posts:

Benefit Corporations Allow New York and New Jersey Businesses to Combine Profits with the Public Good, New York & New Jersey Business Lawyer Blog, August 4, 2014

Trade Secrets are Protected Under New Jersey Law, Offering Security for Small Businesses, New York & New Jersey Business Lawyer Blog, August 28, 2013

Increasing Efficiency and Reducing Stress in Your Small Business, New York & New Jersey Business Lawyer Blog, March 28, 2013

Photo credit: By Pictofigo (Own work) [CC BY-SA 3.0], via Wikimedia Commons.