Trade Secret Tips for Strategic Buyers

By on September 27, 2018

Executive Summary of an article written by
Christopher J. Cox, Kyle C. Krpata and Edric C. Itchon, Weil, Gotshal & Manges

More than other form of intellectual property, a buyer’s exposure to the seller’s trade secrets can cause liability and restrict the buyers’ business moving forward. The buyer’s actions in the context of a strategic acquisition can also impact the value of the trade secrets acquired. A buyer should have a broad view of what constitutes a trade secret. Any information that derives independent economic value from remaining secret and is subject to reasonable efforts to maintain secrecy could qualify for protection. For example, negative information, such as initial designs that failed, can be incredibly valuable to a competitor by saving time and resources in an R&D budget.

It is important to have a signed non-disclosure agreement in place at the beginning of the due diligence process. Accessing trade secret information carries the risk of misappropriation claims should the relationship become contentious. Be mindful of the stage of the transaction when sharing trade secrets. Often, the seller phases its disclosures so that highly sensitive information is disclosed later. Conversely, the buyer will push for broader disclosures earlier in the process.

Be mindful of special considerations where the seller’s material trade secrets include proprietary software. The buyer will want to learn from due diligence where the source code is stored, who has access and whether any audits have been performed. Trade secret litigation could arise following a failed transaction, especially between competitors. The buyer should begin the deal process mindful of this possibility.

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