Most businesses have developed, acquired or painstakingly aggregated proprietary information that gives them a competitive advantage. As a business leader, you don’t want your proprietary data shared with competitors, but there are times you must disclose it to advance your interests. In these cases, the contract you use to keep your secrets as secret as possible is the non-disclosure agreement (NDA).
An NDA is a legally enforceable written contract by which one or more parties agree not to disclose confidential information they’ve shared as a necessary part of doing business together.
NDAs are also known as confidentiality agreements, proprietary information agreements or secrecy agreements. Parties who sign the agreement are bound by it not to use or share confidential and proprietary information for business pursuits outside the arrangement.
Consider hiring an attorney to draft NDAs, advise you on how to customize your NDAs, and follow through if someone breaches their agreement.
NDAs are crucial because they create a legal framework to protect ideas.
For example, a design company has a design for a new invention, but it must work with a manufacturer to build the prototype and future units. The manufacturer won’t know what to build without receiving proprietary information. The design company protects its information with an NDA. It can share invention details knowing it can file a lawsuit if the manufacturer divulges information about the design company’s invention.
Intellectual property insurance can help you pay for litigation against someone using your intellectual property without authorization.
If you’re a business owner, carefully consider the following before you require someone to sign an NDA.
Each NDA should be tailored to a specific relationship. Consider having an NDA in place in the following circumstances:
Make an NDA and a non-compete agreement a standard part of your onboarding process to ensure that all employees are bound by your terms.
Since NDAs vary, tailor them to your specific business arrangement. Boilerplate agreements often serve little purpose if breached; parties will simply argue over what is and isn’t considered confidential.
Here are the primary categories to address in a typical NDA:
Unfortunately, if someone breaches an NDA and spills your company’s confidential information, serious damage can be done, depending on the extent of information disclosed.
When you find out about an NDA breach, immediately notify your company’s legal counsel and determine if it’s possible to seek a temporary restraining order or preliminary injunction to prevent further information dissemination.
From there, discuss the appropriate next steps with legal counsel, including seeking damages for breach of contract, misappropriation of trade secrets, copyright or patent infringement, breach of fiduciary duty, conversion, trespass, and theft.
Each employee, client or potential investor is different, so how you approach each situation requires equal parts legal consideration and business strategy.
Remember that if you are being asked to sign an NDA, don’t think of it as a restraint. Instead, see it as an opportunity to become part of the circle of trust.
Daliah Saper contributed to the writing and reporting in this article.