So many contracts to keep up with!
You’ve likely heard of a NDA before and wondered what it is and if you should implement one into your business dealings. At the core of an NDA (or a non-disclosure agreement) is a protection for you and your business to succeed and for your hard work to not become general knowledge for others to steal, copy, or use without your approval. Let's explore this a little bit further.
What is an NDA?
An NDA is a legally enforceable contract that creates a legal obligation to privacy between parties. The agreement creates a contractual relationship between the parties (typically known as the “Disclosing Party” and the “Receiving Party”), wherein the Receiving Party promises to hold a secret to the benefit of the Disclosing Party. A legal recourse is provided for failure of compliance or disclosure of the information protected, such as trade secrets or any privileged, sensitive, or confidential information. You may have heard of NDAs in the media lately, as their usage in sexual assault/harassment case settlements has been criticized.
Typically, NDAs would be offered as a requirement of a settlement agreement, preventing either party from discussing allegations, defenses, or terms of the settlement with third parties. The use of NDAs in this situation is problematic because it can prevent future victims from knowing of a potential threat to their livelihoods. NDAs can be overused and abused, but they can also be incredibly useful if used appropriately.
So do YOU need one in your business?
As a business owner or creator, you are building an empire that is unique from any other. You don’t want what makes your product or service unique to become widespread. Thus, it could be a good idea to request employees, interns, or contractors sign an NDA to protect your business. You want to be explicit with those who work with and for you in what is confidential versus fair game for disclosure or is “general knowledge.”
For example, you would want to assert an NDA for licensing anything proprietary to someone else to ensure they do not use (or steal) without your approval. This is also a way to prevent prior employees from starting their own businesses, competing with yours specifically using the private information from your business. (Think: client lists, manufacturing plans, supplier agreements, etc.) This is also a way, as an inventor, to maintain (or prevent voiding) your patent rights. You should also want to sign one with anyone you are creating a privileged relationship with (for example, a doctor or a lawyer). This is also useful to use when presenting your business plans for funding in front of investors, as you want to keep your potential business plans under wraps. In sum, the possibilities for NDA coverage are limitless.
How to draft an NDA
The agreement typically includes four categories:
The first part of the agreement should include categories of privileged information and set the rules and subject matter of the NDA. The next category should outline what kinds of information would not be considered a compromise, notably what is determined between the parties to be general or common knowledge or anything collected before both parties signed the NDA. The third category details the obligations for the parties, which goes beyond merely breaching the agreement. It holds the Receiving Party liable not just for disclosure, but any encouragement of others to breach or inadvertent leaking of information due to negligence. Finally, the time period category is typically negotiable and sets how long both parties are bound by the privacy agreement.
Although generic NDA templates are available online and may be helpful, it is a worthwhile investment to work with an attorney who can craft an agreement specific to your needs. This can save you time, money, and energy in the long run in the event you must enforce a NDA against a burdened party. It should be noted that there will be circumstances where an NDA is either unnecessary nor unenforceable, so make sure to be advised based on the specifics of your business needs. If you find that you have actually agreed to a NDA that you believe is unfair or contrary to public policy, you can also consult an attorney to find what your rights are for release of responsibilities.
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