⁠How do startups ensure confidentiality of their trade secrets in the absence of strong NDAs?

In the current scenario, the start-ups often rely more on trade secrets to maintain a competitive edge in various markets. However, the traditional reliance on Non-Disclosure Agreements for safeguarding their sensitive information can sometimes fail due to week enforceability measures, jurisdictional limitations or reluctance from clients and members to sign detailed contracts.

In such a situation, the start-up merged adopt alternative measures and this article explores how the start-ups use, organizational methods, technical safeguards, restricted, access, contractual closes, and various other legal frameworks that ensure the confidentiality of their trade secrets, even in the absence of strong NDAs

Start-ups are based on innovation, whether it’s algorithm, a unique process or the information about an unreleased product. At the center of all these types of innovations, there often lie trade secrets ie. the valuable information which is not publicly known and provides the sort of economic value to the business.

While the non-disclosure agreements are mainly used to prevent unauthorized disclosure of confidential information, start-ups, sometimes find themselves in jurisdictions, which have weak enforcement mechanisms or sometimes, they have to deal with people or stakeholders who are unwilling to sign all the detailed paperwork of these NDAs. This makes it necessary for the start-ups to adopt various alternative strategies that protect their confidential information and ultimately lead to growth and prosperity in their businesses. So, today we are going to cover how these start-ups ensure the confidentiality of their trade secrets. When there is absence of strong NDAs.

1. Limit Access

One should only share confidential information with those who need to know it for the project and its necessary for them to know such information to continue the project. This means limiting the access to your team members, subcontractors, or other parties who are involved in the project who may or may not have signed the NDA. One should also avoid discussing confidential information in public places, such as cafes, hotels, or airports, where you may be overheard or recorded.

Implementing secure digital platforms, password protection, and encrypted communication tools further consolidates this approach. An entrepreneur can also combine selective access with a culture of discretion among team members in safeguarding sensitive data and fostering a trusted environment within the startup.

2. Encrypt Data:

A startup should use encryption to protect any confidential data that they store, transmit, or process on their devices or platforms. Encryption is a process that converts data into a code that can only be decoded using a key or a password. They should use strong encryption methods, such as AES-256, and secure passwords that are not easy to guess or crack. Apart from this, deleting or destroying any confidential data that one no longer needs for the project is another way to safeguard the same.

Whether it's customer data, algorithms or strategic plans, encryption safeguards against unauthorized access. It implements secure protocols for data transmission and storage. This is regarded as the industry’s best practice which also leads to confidence among the stakeholders. This measure ensures that even in the dynamic and collaborative startup environment, critical information remains shielded from potential breaches.

Now, how does data encryption work? Data encryption works by using an algorithm to transform data into an unintelligible form, preventing unauthorized access and ensuring that only authorized individuals can decipher and comprehend the data.

Another major thing which can be used is two factor authentication which ensures that, even if all the passwords of a start-up are endangered, still the Hacker or the cracker has to go through another level of security for complete breach, and this gives them a window of time to secure their trade secrets

3. By eliminating the data:

As it’s nearly impossible for 1 to have their information leaked when it no longer exists. So if a start-up wants to protect their customers data from hackers, they should consider deleting the files that are no longer in use. For example, if the start-up no longer requires some personal information of the client, such as their SIN number, driver license number etc. or their Health information, instead of leaving the files in the computer, which are vulnerable to bridges, they can delete them, and then overwrite them using file shredder software and any physical files can be removed using the physical shredder machine available at the offices.

4. Comply with regional data protection laws:

The simplest and one of the best way of protecting the confidentiality of trade secrets is by following the data privacy regulations, such as the Digital Personal Data Protection Act, 2023in India, which came into effect on 11 August, 2023, which aims to protect individuals’ digital personal data and sets up a framework for its processing

Apart from this, India recognises the common tort of breach of confidence which allows a start-up to save someone who misuses confidential information without a contract, this deters someone from causing a breach

There is provision of punishment in the Information Technology Act, 2000, which punishes does disclosure of information without the consent of person concerned by someone who has access due to powers provided under the Act, this provision is mentioned under S.72 of the Act

5. Educate the team

One should train their team members on how to handle confidential information and comply with secretive measures. They must be explained about the importance of confidentiality, the risks of disclosure, and the best practices to follow. The Entrepreneur should also monitor his/her team's performance and behaviour, and address any issues or concerns that may arise.Apart from that, the team must be reminded of confidentiality obligations at the end of the project.

By spreading awareness and a forming a shared commitment to protecting sensitive data, everyone becomes a proactive guardian of confidentiality. This approach, along with clear guidelines and reminders, builds a great internal defence against wrongful disclosures within the dynamic startup ecosystem.

6. Secure Devices and keep software updated:

To secure the confidentiality of the trade secrets, the basic thing that a start-up can do is to secure their devices. As many times, client data is accessed on various devices, such as mobile phones, tablets, and not just the desktop which makes it vulnerable to breaches. One should avoid using public Wi-Fi as such networks are not secure and makes the data available on the device easily accessible to third parties. Updated software usually includes bug, fixes, and enhancements that would have made the computer or any other electronic device unprotected in case of any third party breach, so security updates must be installed from time to time.

7. Respect the Client’s wishes:

The client's wishes and preferences must be respected, regarding how they want to communicate, collaborate, and share information with the startup. Some startups may be more open and transparent, while others may be more cautious and secretive. One should ask theclient about their expectations and preferences, and follow them accordingly. Permission must be taken before any of the information of the client in one’s own portfolio, testimonials, or marketing purposes.

Having clear communication on how the client’s information will be handled, respecting non-disclosure preferences, and seeking explicit permissions before sharing details externally establishes a collaborative relationship. Respecting clients' confidentiality expectations which is foundational to long-term partnerships and credibility in the startup systems

The clients are clearly told that everything discussed is confidential and that they have to be the ones to give approval to discuss anything with a third party. That includes bankers, service providers, and even other agencies. Its recommended to have an agreement up front for the client to read and acknowledge. They must know how serious it is for a client relationship. This includes marketing materials, statements, and other public information.

8. Being Honest and Ethical:

Being honest and ethical in one’s dealings with the client and their confidential information is another way of maintaining the confidentiality of trade secrets. This is done by not using, copying, or disclosing any confidential information for one’s own benefit or advantage, or for the benefit or advantage of any other party. One should not engage in any conflict of interest, such as working for a competitor or a potential acquirer of their client. In case of any breach or any suspicion of any sort of breach, the client must be informed first and foremost

9. Using a clean desk policy:

It’s a very simple yet affective policy, under this, employees are mandated by the startups to remove confidential documents from their desks at the end of each day to prevent unauthorized access to sensitive materials by any 3rd party.

Thus, to conclude, we can say that in the absence of strong NDAs, start-ups cannot solely rely on legal documents to protect their trade secrets and have to use various other methods that includes building a culture of discretion, controlling access to sensitive information, various technological practices, embedding confidentiality clauses in broad agreements etc. And by using all these proactive and resourceful measures, start-ups, ensure their longevity and the success of their innovative edge in a competitive ecosystem, using such practical and easy strategies.