You’ve surely heard of at least one story by now in which a bright young “startuprenuer” pitched their idea to a big corporation or investor. The investor turned down the idea and months later set up shop with the exact same idea. Non-disclosure agreements are designed with things like that in mind but they have so many more applications. You can also use them to create an agreement with employees so they do not sell or steal trade secrets. Let’s talk about NDAs and how you should use them.
Sometimes referred to as confidentiality agreements NDAs generally serve 3 functions, protecting sensitive information, protect intellectual property rights and outline what information is private.
When an NDA is signed it creates a contractual relationship between the parties signing that gives legal recourse in the event that one party is injured by leaking of sensitive information. The NDA can be used to ensure that people being presented acknowledge the intellectual property rights held before being presented to. This ensures the validity of rights but also creates a paper trail of sorts. There is some information however that while critical to the workings of business is in the public domain and an NDA can clearly separate this from private information.
Here are some scenarios where you can use a Non-Disclosure Agreement:
- Presenting an invention or business idea to a potential partner, investor, or distributor
- Sharing financial, marketing, and other information with a prospective buyer of your business
- Showing a new product or technology to a prospective buyer or licensee
- Receiving services from a company or individual who may have access to some sensitive information in providing those services
- Allowing employees access to confidential and proprietary information of your business during the course of their job
- Business models to be presented to a venture group for possible funding
- Plans for a new tool to be produced by a fabrication shop
- Information about clients or customers for a specific company
- Lab workers who have access to test results before patients
- Embargoed news releases or reviews
There are situations where a NDA cannot be used or it cannot bind such as;
- Publicly available information
- Information you already possess or may acquire on your own
- Information you can prove you learned of independent of the protected information provided for under the NDA
- Information received by a 3rd party source
The key elements of Non-Disclosure Agreements to be valid and legal are;
- Identification of the parties
- Definition of what is deemed to be confidential
- The scope of the confidentiality obligation by the receiving party
- The exclusions from confidential treatment
- The term of the agreement
In closing, remember that an NDA is only enforceable if it is signed by all parties, drafted properly and reasonable in nature. So it goes without saying that you should consult a legal practitioner to draft your agreement. There’s no point in having an NDA if you’re not going to hold to it when it comes to things like pitching, so stick to your guns and insist on having that NDA signed before talking to anyone at all. If you have proprietary intellectual property back it up with registration at the regional intellectual property office.