Every business should protect proprietary information when
dealing with independent contractors, vendors and other
businesses. The best way to do this is to use a
non-disclosure agreement, often referred to as an “NDA.”
What is an NDA?
An NDA is an agreement between two parties to protect
confidential information disclosed in a business
transaction. The proprietary information can include
business methods, finances, client lists, and anything that
isn’t already readily available in the public arena. If a
party subsequently breaches the NDA, the injured party can
sue for damages, an injunction against further disclosure
and attorney’s fees.
Directional NDA
In many situations, only one party requires the protection
provided by an NDA. If you invent a new product, you are
going to need an NDA from manufacturers, distributors, etc.,
before you discuss the product with them. While this may
seem like common sense, most businesses fail to carry the
thought through to their daily activities.
Practically every business hires independent contractors,
but they rarely obtain NDAs prior to disclosing information
to the contractors. For example, do you use third parties to
create or maintain your websites? Did you obtain NDAs from
any of them? If not, what’s to keep that party from using
your business methods on other sites? A directional NDA can
keep this from occurring.
Mutual NDA
As the name suggest, a mutual NDA allows two parties to
protect confidential information. The mutual NDA is
typically used when two businesses are negotiating a joint
venture. Each party must disclose enough information to make
the negotiations viable, but neither wants that information
made public if the negotiations fail. If negotiations go
well, additional non-disclosure information will be
incorporated into the joint venture agreement to protect
additional information revealed during the joint venture.
Refusing to Sign an NDA
Alarms and warning lights should go off if a party refuses
to sign your NDA. Unless they can provide a very compelling
reason for the refusal, you should walk away from the
business relationship.
When An NDA isn’t really an NDA
Just because a document is titled, “Non-Disclosure
Agreement”, does not mean it provides you with protection.
You should ALWAYS read the language of an NDA because the
document may establish that you are WAIVING all
confidentiality rights. The waiver might be very direct and
read something like, “The disclosure of information pursuant
to this Agreement shall not be considered confidential.”
Alternatively, the language may be more indirect and read,
“The parties acknowledge and agree that all information
exchanged pursuant to this agreement has previously been
established in public forums.” Regardless, the “reverse
NDAs” strip you of protection and should not be signed.
Obtaining non-disclosure agreements should be a standard
practice for your business. Don’t exposure your proprietary
business secrets to others without this protection.
Richard Chapo is the lead attorney for the law firm
– a firm providing
legal advice to California businesses. This article is for
general education purposes and does not address every facet
of the subject matter. Nothing in this article creates an
attorney-client relationship.
