Keeping secrets: use right-sized NDAs to guard your secrets well while doing business right.

AuthorWebb, Jason
PositionLegal Brief

I'm not saying any names, but I've seen both of the following really happen: An inventor met the perfect investor, but things went nowhere when that investor refused to sign a standard non-disclosure agreement (NDA) that was needed to keep the inventor's patent rights valid. Second story: A client hired some consultants to improve her business operations, only to find out that all along they were stealing her secrets so they could start a competing company. Her standard NDA wasn't strong enough to hold them back. She ended up having to spend a bunch of money and sue them. We won--but not because of the NDA.

In both cases, the NDAs were good and typical agreements, but they were not what I call "right-sized." The problem is that most people just throw a standard NDA at all situations because they see an NDA as a checklist item: signed or not signed. They aren't confident that they can understand the complicated legal details. But you don't need to be a lawyer to recognize the issues.

Ask yourself three questions: Why do you need confidentiality? How much trust is appropriate? How will you be sharing your secrets? For each answer, the more issues you have mean a more complex NDA, while less mean a simpler NDA. For very simple situations, your NDA could be a single sentence that even a shy investor could agree to.

Confidentiality

You typically need confidentiality for one or more of the following reasons:

* You need to keep your patent rights preserved

* You've promised someone else to keep the secret

* Someone may steal your idea, and/or

* Something else bad would happen if the secrets were shared (e.g. you lose a competitive advantage, bad PR)

List out why you need confidentiality and make sure your agreement covers those bases. Avoid covering more than those bases. Sometimes that means adding a non-compete clause to the agreement or requiring that they follow particular procedures if something happens.

Trust

Understand the level of trust between the people sharing secrets and those receiving the secrets. This means you need to look hard at the relationship in the light of what is being shared. Ask yourself, if that trust were to be broken, would the worst consequences be to the relationship or would they be the problems for your business? Also, think about what factors lead to high/low trust: e.g. past behavior, interests that are aligned or not, consequences that are shared or not, and their ability to compete with you.

Come to a gut...

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