In October, NetApp Inc. sued its rival, startup Nimble Storage Inc., in the U.S. District Court for the Northern District of California, alleging unfair competition, misappropriation of trade secrets, breach of contract, and five other counts related to the hiring by Nimble of former NetApp employees. NetApp accuses Nimble of recruiting its employees and encouraging them to steal confidential information, including sales materials, pricing models, and details about customers. According to the complaint, about 15 percent of Nimble’s employees — or 55 employees — and half of its executives are former NetApp employees. The suit was filed just weeks after Nimble filed to raise up to $150 million in an initial public offering. The company went public on December 13, and is led by former NetApp executive Suresh Vasudevan. Both Nimble and NetApp are in the business of providing data storage.
This lawsuit raises a very important issue for startups: Keeping secrets — particularly trade secrets — private. Startups should understand that there are four types of intellectual property that can and should be protected: (1) trademarks; (2) copyrights; (3) patents; and (4) trade secrets. A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others. Examples of trademarks include McDonald’s golden arches symbol. Figures or characters, such as Geico’s talking gecko, can also be a trademark. A copyright protects works of authorship, such as writings, music, and works of art that have been tangibly expressed. A patent is a limited duration property right relating to an invention, granted by the United States Patent and Trademark Office (PTO) in exchange for public disclosure of the invention (we have discussed patent trolls many times in previous articles). A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. Examples of trade secrets include the recipe for Coca-Cola and KFC’s fried chicken. Both recipes are allegedly stored in secret safes and known only by a few select employees.