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Protect your company from misappropriation by acquisition

Jan 28, 2021 | Trade Secrets

Discussions between businesses involving acquisition are highly sensitive. There can be vast sums of money involved, and the future of both entities rests on the outcome of these conversations. Thus, they must be open, honest and protected.

However, situations can arise in which a party takes proprietary information gleaned during this process and misuses it.

Trade secret battles turn ugly

In the last year, there have been numerous cases involving misappropriation by acquisition claims, a few of which played out in one sector.

According to reports, a handful of beauty and lifestyle companies have been ensnared in trade secrets disputes that stem from acquisition challenges.;

In one case, Seed Company claims that two businesses for which it created, designed, manufactured and distributed products were endangering its trade secrets. It argues that the acquisition of the companies by Coty, Inc. put their proprietary information at risk.

In another case, Le Tote accused retailer Urban Outfitters of misappropriating trade secrets by starting its own company to compete with Le Tote after acquisition discussions were underway.

Critical lessons to learn

These cases can serve as a critical reminder of how vulnerable information is during potential acquisitions. While it is often necessary to share proprietary information throughout this process, there are several ways to protect sensitive data from theft and misappropriation.

First, companies should identify the information they deem to be a trade secret. Calling out what it is can ensure all parties understand what is protected.

Signing a non-disclosure agreement is also critical. These agreements confirm the responsibility of the parties to refrain from misusing information learned during acquisition discussions.

Should a party misuse protected materials by creating a rival company or negotiating a deal with another business by using trade secrets for leverage, the owner of the trade secrets must prepare to take legal action. Those who do not pursue damages can lose money, legal rights and standing in the market.

Thus, if you are discussing possible acquisitions with another company, it is wise to protect yourself and your business. You might want to use extreme caution when sharing proprietary information and talk with an attorney about the legal resources in place to secure your trade secrets.

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