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NDAs: What is a Non-Disclosure Agreement? Should I sign an NDA?

Corporate & Business Law

8 minute read

Welcome to CL basic law, nondisclosures, NDAs. The first question is what is an nda? It's an agreement between 2 parties to keep info confidential. It can keep the info of both parties, or one party or the other party, confidential, preventing the other party from disclosing. What is confidential info? Could be customer lists, business info, business strategies, tech, plans, how your corp operates, future business, raising capital, anything that’s critical to your business that the public does not know about. The info not included in an NDA is public info- do not include that, that cannot be part of the NDA for obvious reasons. It’s only private and confidential/secret info. When are NDAs used? A variety of situations. You’re setting up a partnership and bringing in a new partner, you might want to sign an NDA there because you’re gonna allow that person access to the confidential info of your business or tech, or you’re out raising money with a financier or angel investor and you want them to sign an nda because you’re showing tech to them, or your selling your business and opening up your books to the purchaser and there’s tech there, under those circumstances you may not want that info to get out. Are they enforceable? Absolutely. But like all contracts you must enforce them, they are not self enforcing- so if someone breaches an NDA then your only choice is to go to court. When are ndas not accepted? Often investors do not accept them, venture capitalists do not accept them because they’re out seeing a lot of opportunities and they don’t want to sign an NDA with company A and say you know what i’m not interested in that investment, that’s a bad management team and i’m going to keep looking for another place to put our money- and they come up to company B who has a very similar product and it’s been going on the same dev path and they invest in company B. if they had signed an NDA, company A could have accused the VCs of stealing their idea and giving it to B and that’s where B got the idea from. Vcs are highly reluctant and often never sign NDAs for that reason alone. Are there special words that have to be in an NDA? No but you should describe the tech clearly or the confidential info clearly. If you want to enforce it, it’s much more powerful if what you're trying to protect is clearly identified. you don’t have to disclose it clearly but at least give a full enough description that when someone does steal it you can connect the two in a court. Business records, marketing plans, customer lists, that’s pretty clear- not listing customers but identifying the list. And you accuse someone of stealing a customer list and sue them and show that they have the list in their possession, then the two are connected. you wanna say that you have equitable remedies because your no1 thing in an NDA is an injunctive relief. It’s the ability to go to court and sue for injunction to get a court order preventing the person from using that info. So you want the parties to agree that equitable relief is appropriate. Always include attorney’s fees. They’re a great club because even if you’re marginally successful you’ll get your attorney’s fees back and that's a great cost for the other side. It discourages people from doing wrong because they don’t want that cost. And if you do catch them and you threaten them, they're more likely to back down if they think they could be subject to not only damages and their own attorney’s fees, but also your attorney’s fees. You also wanna state what state this lawsuit needs to be brought in- jurisdictional provision so that the lawsuit can be brought in your state- you don’t want to be brought into another state for it. If you're the one requiring the NDA you’re the one who’s likely to bring the lawsuit- you want to bring it in your state where your lawyers are located- it’s convenient and familiar to you. What language should you look at? Let’s say you get the NDA and you’re gonna sign it- is there anything in the language to look out for? Yes. Let’s say someone puts in language- you shouldn’t have arbitration in there. If you wanna enforce an NDA you do not want an arbitration provision. Arbitration doesn’t have the equitable right to enforce NDAs, they are unpredictable, arbitrators are unqualified and often result in poor decisions. You don’t want language that delays the enforcement of the NDA like mediation. Some people like to put in a mediation- oh someone stole your stuff, let’s talk and have a meeting for 60 days, if we can’t resolve it we go to a formal mediator and then go to trial. That’s just to drag out so you can’t enforce your own NDA. you want to be able to go to court without delay. Also sunset provisions- you wanna make sure the NDA survives long enough to protect your confidential information. You don’t want it to be a 6 month NDA and after 6 months that person steals your information and uses it. You have to have it going on for a number of years so that it protects the life of your secret info. You don’t want restrictive coverage- i've seen NDAs where they put noncompetes in or non-solicitations, you can’t solicit the employees or compete. Absolutely inappropriate, shouldn’t be in the NDA- it’s a way of handcuffing you without you even knowing it. Any kind of restrictions should be a red flag. Are ndas tricky to enforce? They are. What’s confidential info? Did the person really steal it, was it really yours? It’s tricky. But NDAs are still important because they keep honest people honest and if someone is doing something you’re concerned about and you put the NDA back in front of them, it might put them back on the right path because they’re afraid of exposure and liability. If you wanna do something with the courts, you have the option to do it. Without the NDA your options are little to none. Finally, do I need a lawyer for an NDA? No but as you can see they’re tricky. It;s not a bad idea, particularly if you’re being asked to sign an NDA and there’s unusual language in there, you may want a lawyer to explain that language and see if you’re being tricked into agreeing to some restriction/obligation that you don’t intend to agree to.

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