January 18, 2021
January 18, 2021
A nondisclosure agreement (NDA) is an important tool for business. An NDA is essentially a contract that prohibits one person from disclosing the confidential information of another or from using another’s confidential information for an unauthorized purpose. NDAs can help protect proprietary information and trade secrets, which are important assets for many companies.
Of course, like any legal tool, NDAs should always specifically fit the task at hand. NDAs are sometimes overused in the business world. In addition, poorly-drafted NDAs are rampant, leaving information unprotected in some instances and inviting legal battles in others.
Here are some things to think about as you consider using an NDA.
There are many scenarios in which your business needs to have a solid NDA in place. Such situations may include:
Keep in mind that sometimes an NDA is not desirable. On the one hand, your business has valuable, sometimes immensely valuable, information to protect. But one also needs to consider the risk in some instances that negotiating or imposing an NDA could result in a missed opportunity.
When one requests that a potential partner, investor, licensee, or customer signs an NDA up front, this may come across to some as adversarial. People want to be trusted, and an NDA by its nature plans for the possibility that trust will eventually be broken. In addition, some might see reviewing and negotiating a legal contract right off the bat as a hassle. In some cases, the other party may prefer to move on before they learn what you have to pitch.
Obviously these considerations do not mean that an NDA should never be used. Far from it. Proprietary information and trade secrets are costly to develop, and they can provide a competitive advantage and add significant value to a business. Moreover, consistency is important. In the event your business ever needs to protect its trade secrets in court, it will need to show that it took reasonable steps to protect its information all along the way. Decision-makers need to weigh many factors, in consultation with counsel, to determine when an NDA is called for.
Like any contract, an NDA is only as good as its drafting. Too many businesses and individuals use generic NDAs that they find on the Internet. That can lead to problems. A contract that you find online is not tailored to your business or the project at hand. And such a contract may not be legally reliable. It may not be properly crafted for your jurisdiction, or for the subject matter at issue, and it may contain provisions that can backfire on you. Though you probably do not need to create a new NDA from scratch every time you need one, it is to the advantage of any business to have its own standard agreement or set of agreements that can be adapted for various situations in consultation with counsel.
A poorly drafted NDA can make enforcement difficult and costly – or even impossible. A solid NDA can be a powerful took for protecting some of your most valuable assets.
Maxwell Goss represents plaintiffs and defendants in all stages of federal and state court litigation and provides strategic advice on intellectual property and business law matters.