Trade Secrets and NDAs: Why Startups Still Miss the Bigger Picture

Introduction

In the high-stakes world of startups, ideas are currency. Founders rush to protect their innovations from being stolen or copied, often believing that a well-drafted Non-Disclosure Agreement (NDA) is enough to safeguard their intellectual assets. But as many later discover, relying solely on NDAs is like locking the front door while leaving the windows wide open. The protection of trade secrets demands much more strategic foresight, internal safeguards, and a culture of confidentiality.

This blog explores how startups often misunderstand trade secret protection, why NDAs are not the ultimate solution, and what a holistic approach to information security really looks like.

The Allure of NDAs: A Startup’s First Line of Defense

NDAs have become a staple of startup culture. From investors to interns, everyone is often asked to sign one. These contracts prohibit the recipient from disclosing or misusing confidential information shared during discussions or collaborations. For early-stage ventures, NDAs seem like a simple and affordable way to secure business ideas. Legal templates are easy to find online, and founders can quickly adapt them without much expense. It creates a psychological sense of security of an impression that “our ideas are now legally protected.”

However, this reliance on NDAs often creates a false sense of protection. In reality, these agreements only work when certain conditions are met and are enforceable only if the underlying information truly qualifies as a “trade secret.”

What Exactly Are Trade Secrets?

Under both Indian and international law, trade secrets are confidential business information that provide a competitive advantage. They include formulas, algorithms, manufacturing processes, customer databases, pricing strategies, and more.

The key elements that make something a trade secret are:

Confidentiality – The information is not generally known or easily discoverable.

Commercial Value – It provides a business advantage.

Reasonable Measures of Secrecy – The holder has taken steps to keep it secret (such as internal policies, access controls, and NDAs).

Unlike patents or copyrights, trade secrets don’t require registration. But this also means they don’t enjoy automatic legal protection. The burden of maintaining secrecy rests entirely on the business itself.

NDAs Alone Don’t Make a Trade Secret

A critical misconception among startups is that signing an NDA instantly converts all disclosed information into protected trade secrets. Courts, however, see it differently.

An NDA is merely evidence of intent to keep information confidential but it does not itself guarantee protection. If a startup fails to show that it took reasonable steps beyond the NDA to safeguard its information, courts may refuse to enforce the agreement.

For example, if an employee has unrestricted access to confidential files, or if data is stored without encryption or security protocols, the company’s claim of secrecy may collapse. In such cases, the NDA becomes a paper shield-legally weak and practically useless.

[Image Sources: Shutterstock]

The Enforcement Problem: NDAs Are Hard to Police

Even when valid, NDAs are often difficult and expensive to enforce. Litigation over breach of confidentiality can drag on for years, with uncertain outcomes. Startups, usually operating with limited funds, rarely have the resources to sustain such legal battles.

Moreover, proving a breach can be complex as it requires demonstrating both that the information was confidential and that it was wrongfully used or disclosed. Cross-border collaboration makes enforcement even harder. A developer or partner located in another jurisdiction may not be bound by the same legal standards, making remedies difficult to obtain.

Thus, while NDAs are important, they are only one layer in a much larger framework of trade secret protection.

Trade Secret Culture: What Startups Overlook

The most effective form of protection is not just legal—it’s cultural. Startups that truly understand trade secret protection integrate confidentiality into their daily operations.

Here’s what that looks like in practice:

Access Control – Limiting who can view sensitive information based on necessity.

Internal Policies – Written confidentiality and data-handling policies for employees and contractors.

Employee Training – Regular sessions explaining what qualifies as confidential and how to handle it.

Technical Safeguards – Using encryption, secure storage, and monitoring systems.

Exit Protocols – Ensuring employees returning laptops or files don’t walk away with sensitive data.

In short, trade secret protection should be a system, not a signature.

The Indian Context: Legal Uncertainty and Practical Gaps

India does not yet have a dedicated Trade Secrets Protection Act, unlike jurisdictions such as the United States (with the Defend Trade Secrets Act, 2016) or the EU (with the Trade Secrets Directive, 2016). Instead, trade secret disputes in India rely on contract law (NDAs and employment contracts) and equitable principles of breach of confidence. This piecemeal approach often leaves startups vulnerable.

Courts have recognized the protection of trade secrets through judicial precedents. For example, in John Richard Brady v. Chemical Process Equipments Pvt. Ltd. (1987) and Emergent Genetics India Pvt. Ltd. v. Shailendra Shivam (2011) but the absence of a clear statute makes enforcement inconsistent. This legal uncertainty makes it even more crucial for startups to adopt robust internal mechanisms to prove “reasonable measures of secrecy” if disputes arise.

Global Lessons: What Other Jurisdictions Teach Us

United States:

The U.S. approach under the Defend Trade Secrets Act (DTSA) emphasizes both preventive measures and civil remedies. Companies must show they took steps to maintain secrecy—such as NDAs, secure systems, and employee protocols—to qualify for protection. The DTSA also allows federal jurisdiction and seizure of stolen information, making enforcement stronger.

European Union:

The EU’s Trade Secrets Directive requires that businesses implement “reasonable steps” to protect information. It balances protection with freedom of information and employee mobility.

China:

China has significantly strengthened its trade secret laws in recent years, introducing harsher penalties for misappropriation. However, enforcement remains an evolving challenge.The common thread in all jurisdictions is this: legal protection begins with organizational diligence. NDAs are necessary but not sufficient.

The Investor Paradox: Disclosure vs. Protection

Startups often face a dilemma when pitching to investors or potential partners—how much to disclose without risking their secrets. Investors, on the other hand, are often reluctant to sign NDAs at early stages, citing the volume of pitches they receive.

This creates a practical tension: founders want to protect their innovation, while investors want transparency before committing funds. The solution lies in strategic disclosure, sharing only what’s necessary and keeping the “secret sauce” undisclosed until a deal progresses. Founders should also document what was shared, to create a record of their efforts to maintain confidentiality.

Beyond NDAs: Building a Real Trade Secret Framework

To truly safeguard trade secrets, startups must adopt a multi-layered strategy that goes beyond contracts.

1. Identify and Classify Secrets – Not all information is equally valuable. Identify what gives your company its competitive edge and mark it as “confidential.”

2. Implement Technical Controls – Use password protection, encryption, and access logs.

3. Educate Employees – Build awareness about the importance of confidentiality.

4. Regular Audits – Periodically review who has access to sensitive data.

5. Legal Integration – Combine NDAs with non-compete and non-solicitation clauses where permissible.

6. Crisis Management Plan – Have a strategy to respond swiftly to data breaches or leaks.

Trade secret protection should evolve with your business, technology, and team.

Case Studies: When Startups Got It Wrong

1. The Uber–Waymo Dispute (2017)

Waymo, Google’s self-driving car project, accused Uber of stealing trade secrets through a former employee. Despite NDAs, internal systems failed to prevent the theft. Uber had to pay a massive settlement and faced reputational damage.

2. Zomato Data Leak (2020)

Although not a classic trade secret case, this incident highlighted how weak data security can expose sensitive information. The breach undermined user trust and demonstrated the need for internal security beyond contracts.

3. Indian Startups and Employee Mobility

Numerous Indian startups have faced issues where departing employees took client lists or code to competitors. Without clear internal confidentiality policies, NDAs alone rarely helped.

These examples show that the real risk lies in internal lapses, not external theft.

Conclusion

Startups thrive on innovation but innovation thrives only when information is secure. NDAs are a necessary starting point, but they are not the finish line. They define intent but do not build protection. True trade secret security lies in systems, culture, and foresight. It requires startups to treat confidentiality not as a legal formality but as a core business value. This means investing in policies, training, and technology that make secrecy sustainable.

In a digital world where ideas move faster than contracts, startups that understand this bigger picture will not only protect their knowledge but also strengthen their credibility and competitiveness. Protecting trade secrets is not just about keeping others out, it’s about building an ecosystem where trust, control, and innovation coexist. For startups, that’s not just smart law- it’s smart business.

Author: Anushka Saha, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.