Keeping Secrets with Confidentiality Agreements

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on June 8, 2013 in Business Transactions

Picture this: You’re sitting at your favorite watering hole with a gal pal (or guy friend) and are totally charged because you came up with an a-m-a-z-i-n-g new idea for a product. So amazing you cannot believe it. It fills a void in the market, it’s easy to ramp up, your brain is already brimming with ideas of how to attract investors. You’re describing your Great New Idea to your friend in passionate detail. And the more you drink, the more passionate you get. What you don’t realize is that they guy seated on the barstool to the other side of you has been listening intently (and taking notes). It also seems that the Mr. Eavesdrop has the resources to develop the Great New Idea quickly, which you do not. Faster than you can say “Jack Robinson,” your Great New Idea is now someone else’s best-selling new product. Can you go after the “thief”?

No – you are out of luck. Among many other reasons, Mr. Eavesdrop didn’t actually steal your idea. By yammering on about it in a bar (or other public place), you made the idea “public property” for anyone to take and use (even if you didn’t mean to). The legalese term is that you placed the idea “in the public domain.”

There is, however, a middle ground between a complete lack of protection, and full-blown intellectual property protection involving copyrights, trademarks and/or patents (depending on your Great New Idea). It’s called a “Confidentiality” or “Non-Disclosure Agreement” (NDA). In an NDA, the people or companies receiving information about your Great New Idea promise that they will not (1) disclose the information to anyone else or (2) use the information for their own gain without your permission. Business is done this way all the time – particularly in situations where entrepreneurs are seeking venture capital, or divulging trade secrets or confidential plans to joint venture partners.

An NDA is a way of creating “safe space” – a “cone of silence” (for those of you Get Smart fans). It ensures that what’s disclosed behind closed doors stays behind closed doors. Still, business owners often squirm at the thought of handing one to their negotiating partner. They may think:

* “I want this to be a friendly negotiation”
* “This will set a bad tone and put people off”
* “If I hand them this, they’ll think I’m hard to deal with”
* “If I start our relationship with an NDA, it indicates that I don’t trust them”
* “We’ll never be able to discuss the substance of what we want to do because they’ll have to get their attorney involved to review [the NDA]”

What if you don’t ask for one? Can you just go into a meeting and say, “I hope you’ll all agree to keep this information confidential”? From a legal perspective, you’re about as protected as if you were shouting it in a bar. Without a written agreement, it’s very difficult to prove that someone agreed not to disclose your confidential information. It’s a long, lengthy, and expensive process to litigate.

Save yourself time and money by putting the agreement in writing. An NDA should go beyond just identifying the information that will be shared, and securing the promise of confidentiality. It needs “teeth” in order to enforce them properly. Here are just a few that a solid NDA should address:

* What uses of the information are prohibited?
* What happens if the receiving party breaks his or her promise? How will the agreement be enforced?
* Can you bring an arbitration proceeding (often a cheaper and faster process)? If you have to sue in court, which court and where?
* Can you recover legal fees (if not, you’ll be bankrolling the litigation)?
* Can you get a court order (called an “injunction”) to prevent your idea from being exploited?

Without the proper language in your NDA, this might not be easily or inexpensively accomplished. NDAs may be common, but they should not be treated lightly. If you download one from the Internet, make sure you have it reviewed by an attorney to ensure it has the “teeth” you need to keep your secrets secret.

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