I'm a contrarian when it comes to Nondisclosure Agreements. Like everyone else, I draft them for clients, but I'm a little skeptical about their usefulness. As you probably know, NDA's are typically signed at the beginning of a business relationship. A party that wants to do a deal with a second party delivers to a second party its confidential information (CI). Sometimes both parties are exchanging CI with each other. Maybe a company is investigating whether to purchase a business and wants to see the financials. Sometimes a tech company needs something manufactured and proprietary information is going to be delivered to the manufacturer...there can be dozens of reasons why a NDA is thought to be necessary to protect CI. Whatever the reason, in order to protect highly valuable and confidential business information, the company about to deliver its information to another company will almost always require that the recipient sign a NDA.
I have three basic issues with NDA's. The first is that the business people who hire me to draft an appropriate NDA too often think their CI is protected just because they get a NDA signed. They often don't realize that to protect CI, and to be able to enforce a NDA, the information really has to be confidential. That means that on its face it's apparent the information is really important, secret to some degree and that the owner of the CI acts like the information is confidential. Access to the information has to be restricted. Electronic information has to be password protected; hard documents need to be locked up. A signature by itself is meaningless. If you want a court to protect it, you have to show that you take reasonable steps to protect it yourself. My second issue with NDA's is that in the many years I've been practicing law, I've almost never seen a lawsuit to enforce one, let alone a successful lawsuit to enforce one. That doesn't mean it never happens. And often when it does happen, it's often a huge company, with lots of resources, that is trying to protect really valuable IP and IC, and/or when a high level exec goes to a competitor and that executive knows everything about the former employer's business plans and strategies. But I don't see it in too many other scenarios. Finally, poorly drafted NDA's usually have a loophole that allows the second party receiving the IC to give it to all kinds of employees, lawyers, accountants, bankers and all manner of representatives. Too often, none of these people are under any obligation to keep the IC confidential, even if the recipient agrees to do so.
So my advice is, yes, get a well drafted NDA, one that's drafted by a lawyer that understands how NDA's work. But understand having one is not a panacea. Protect yourself by handing out as little confidential information as you can and never deliver all of it at one time. If, for example, you're selling your business, you will have to turn yourself inside out and pretty much disclose everything. But you can disclose information in stages, as you see the deal will really happen and that the potential buyer is really serious. Nothing is worse than giving away your most critical proprietary information to a competitor and having the deal collapse. Always deliver the truly important information last.
My law firm handles these types of issues all the time, with a high level of skill at below market rates. If you think you may need a NDA, or if you've been asked to sign one, and in either case if you want the most protection you can get, we can help you decide how to proceed.
This post is intended as a public service but may be considered attorney advertising.