Understanding NDAs

By Julian Harlow

Non-disclosure agreements (NDA) are an important tool to help small businesses protect intellectual property (IP) or trade secrets.

Non-disclosure agreements (NDA) or confidentiality agreements are a method of protecting intellectual property (IP) or trade secrets. For small business owners, the need for NDAs arises mainly in two situations: during talks on sensitive issues with potential partners or investors, and when you need to give sensitive information to employees or consultants.

Unfortunately, the gravitas of a legal document can mislead business owners into thinking that an NDA is all that is needed to protect their intellectual property. Instead, NDAs should be seen as just one tool in a broader strategy aimed at protecting your enterprise's IP. Gaining a better understanding of NDAs and their limitations can also help business owners understand how a business can obtain the greatest benefit from its ideas.

What are you protecting?

A useful exercise when considering an NDA is to ask what information you are seeking to protect. Are those ideas registerable or better protected by other methods? There are also situations where preventing discussion of your business ideas too effectively can stifle the debate needed to develop a concept. This can happen when an NDA has overly broad terms or is a template document that has not been created to suit your needs. Templates also pose the risk of not covering the aspects you thought were protected.

Once you have looked at what you need to protect you should speak to a lawyer to ensure that your NDA document covers the information you want to protect.

Will they sign?

The other problem with an ill-defined NDA is compliance. Approaching a potential investor with a confidentiality agreement that is too broad could see them refuse to sign, leaving you with the choice of abandoning a potential source of funds or going ahead with no protection from an NDA. Asking a backer to sign too soon is also a signal that you haven't adequately considered what should be covered in your NDA, which could again deter a potential investor.

Convincing contractors to sign an NDA can also be challenging. If a contractor has spent years building a good reputation, they can see a request to sign an NDA as an imposition. Business owners may need to weigh up whether they are better off hiring a contractor with a reputation to protect or somebody whose quality of work is unknown but is willing to sign an NDA.

How can I enforce the agreement?

If you have an NDA in place to protect your trade secrets, it would be nice to think that you have accomplished your goal. However, if that agreement is broken, you then have to decide if it is worth your time and money to pursue that person through the legal system.

Don't be put off

Despite the warnings above on the limitations of NDAs, they can and should play a role in making sure your ideas are used to benefit your business and not others. A less adversarial way that they can do this is by providing a basis for discussing what should be confidential.

Even if you don't eventually use an NDA, raising the issue can help your business avoid the misunderstandings and confusion that can be just as damaging as an attempt to steal your intellectual property.

*This article contains general information only, and does not constitute legal advice, and you agree not to rely on this article in any way.


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