One of the pressing concerns for any startup is finding a cost-efficient work place especially if it is operating in a high-cost of rental city like San Francisco, London, Singapore or Hong Kong where rental fees can reach astronomical heights.  Startup management are loathed to burn too quickly through their funds on pricey office rents when they must also face the rising cost of other business expenses they need to pay for, like salaries, marketing and R&D. 

           An emerging trend known as the “co-working space” has been developing over the past few years with a target market of those very startup companies seeking to lease trendy office space in the world’s most costly cities to do business at prices they can afford.  These companies lay claim to exclusive addresses, come fully loaded with cool amenities like fools-ball, ice-hockey, and ping-pong tables, offer free-flow beer, coffee, teaand cocktails, have hip techno-beats playing in the background, and provide a full gambit of office services like receptionists, Wi-Fi, meeting rooms, high-tech printers, etc.  Office walls are non-existent, save the occasional plexiglass partition that further encourages co-mingling and social interaction.  Pets are also allowed in fact, encouraged. These companies aim to provide a highly decorated, modern environment where millennials and Gen Xers over various companies can temper their day with mixers and social activities in a cool, community office space. Sounds like a great business model, right?

          Some business executives (probably not of the millennial or Gen X demographics) are questioning whether it is possible to get any work done within a work space that resembles a college fraternity/sorority. 

          But the emergence of the “co-working space” raises the more serious question of whether working in such an open environment is conducive to protecting the intellectual property crown jewels of a startup as a trade secret indefinitely or until it is reduced to a filed patent application.

          Nothing can be more damaging for a startup (and its investors) than to lose its competitive IP edge unwittingly over a game of fools-ball…

          Before we get to these issues, a little background on the emergence of the “co-working space”.

walls are a good thing?

          The concept of the “co-working space” is not new, only its manner of execution is. The serviced offices business model has existed for decades: the “traditional” serviced offices provider divides a working space into rentable private offices of various sizes for one person all the way up to 20-30 persons. So within an address of one serviced office location, there would be dozens of tenants each renting offices of various sizes suitable for their individual budgets and needs. These offices come with phones, internet access, IT, secretarial & receptionist support, printing & copying services as well as a common pantry where tenants can take their meal breaks. Each of these offices offers privacy to their respective tenants because each office has a lockable door as well as walls that are opaque so no nosey-body can peek through. 

          The emerging co-work space business model is exactly the same except that it seeks to make the work environment more open, fun and interactive so that the employees of the tenants within a given location are able to freely mix and network with each other.

open as a goldfish bowl

          A co-working space provider typically rents an office location at a commercially attractive business address, spruces it up with cool amenities and makes working in the 21st century as cool and open as possible by replacing opaque office and meeting room walls with glass partitions and creating common work areas with lots of sofas, bars and communal tables spread throughout. So unlike the environment of traditional serviced office, those in co-working spaces can be observed like gold fish in a glass bowl. This may not be a bad thing since this may encourage collaboration, brain-storming and relationship building. For example, many companies (from hi-tech to low-tech) have adopted a very open working environment designed to foster exactly these benefits among their employees. But why may this be a bad thing for the co-working space concept?

          Well the problem is that those doing the mixing and networking out in the open are not the employees of a single company (bound by a tightly worded NDA and strict codes of confidentiality). They are the employees, contractors and agents of a variety of companies or individuals all sharing the same work location and doing their playing, socializing and working in the open for all to see and hear by those who are nosey or curious whether naturally or otherwise…

too much openness a bad thing?

          Some of the larger co-working space providers see themselves as tech companies because their logic seems to be that if Uber (which doesn’t have a fleet of its own cars) and AirBnB (which doesn’t really own any real properties) can call themselves tech companies, then why not an office rental provider who doesn’t own any real estate. After all, the financial valuation for some co-working space providers are as high as some publicly listed companies that actually do own commercial properties located throughout the world.

          The problem is that some of the co-working spaces are very open. So open that one is able to see inside an office space and hear all that is discussed in the common work areas. 

trade secrets in an open office environment

          There are many ways for a company to protect and monetize its intellectual property. They may do so under patents, trademarks or copyright laws. They may also do so by simply keeping whatever they are trying to monetize a secret. For example, a software code may be protected as a patent (assuming it satisfies subject matter eligibility amongst other requirements), copyright or trade secret. Various jurisdictions define trade secrets differently, but the general principle is as follows.

          A trade secret consists of: 

• any information, formula, pattern, compilation, program, device, method, technique or process that:

• derives independent economic value from not being generally known to other persons who can obtain economic value from its disclosure or use; and

• is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (See in general here).

          In other words, a trade secret protects anything that is valuable so long as its owner uses reasonable efforts to keep it a secret. If these requirements are met then the owner has the right to sue any person who misappropriate its secret trade for damages and/or injunction depending on the relevant jurisdiction. Unlike patents, there is no expiration to such right.

how to lose trade secrecy in the open

          Let’s say a fintech software developer “FinTechy” rents offices from a cool downtown open co-working space provider for its team of software engineers to develop its latest trading algorithm that its management hopes to monetize exclusively to investment banks.  

          From a trade secret protection viewpoint, it would be extremely difficult, if not impossible, that any resulting work product would be protectable as a trade secret if FinTechy’s engineers or management developed, worked on or discussed their next “killer app”:

• in an office or meeting room with see-through glass walls exposing its work product to plain view to anyone that walks or stands nearby;

• in the commons or pantry area (where free flowing alcoholic drinks are served) in which the employees of other co-working space tenants hang out;

• in a document printed by a printer with no access control shared by co-tenants;

• via emails (or any form of digital media) over the open WIFI network maintained by the co-working space;

• in their rented office room in which their laptops, storage devices or physical copies of the work products are stored which is also accessible by the receptionist or staff of the co-working space provider; or

• while playing a game of fools-ball with a cold brewsky at hand.

“loose lips sink startups”

           Its never a good idea to mix trade secrets and an open work environment shared by outsiders especially one that offers free beer during work hours. Remember the phrase “loose lips sink ships”? Well, loose lips can also sink a startup too.  Working in an open environment with employees or agents of other co-tenants makes it very hard to show that these outsiders knew or had reason to know that what is being disclosed, intentionally or by accident, was actually a trade secret. If the startup is unable to show this, then whatever rights it had would be lost or unenforceable. Not good for its investors who may even have a contractual or tortious claim against the startup for breaching its duty of care to keep its trade secrets a secret. But that is for another essay.

          The best advice for a startup that plans to develop critical trade secrets is to think twice about setting up shop in a co-working space by balancing the benefits of doing so against its pitfalls. But if you are bent-on doing so, then it is prudent to educate your employees about trade secrets and the importance of keeping it confidential. Its crucial to tell them not to discuss sensitive work related matters in any area open to outsiders, especially in the commons or pantry areas. Increasing employees’ awareness about such need is one of the key elements of an effective risk-based approach towards keeping the secrecy of a trade secret. 

          Educating employees is not enough. It is prudent to discuss with the co-work space provider to see if they can accommodate your special needs to help keep your trade secret a secret.  Some of the things to ask them are whether the glass walls of their office or meeting rooms are enabled to be “fogged-up” at the command of the user to keep prying eyes out, whether tighter printer and office keys access controls are possible, permission to install your own router for internet access and whether their co-work spaces have been certified by an independent third party agent as being “IP friendly”.

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