The Paranoid Entrepreneur
Ah yes, the Non-Disclosure Agreement. Most commonly referred to as the "NDA," this agreement has caused a universal paranoia amongst entrepreneurs. It's the agreement that every entrepreneur needs in order to ensure their idea is protected when dealing with anyone who can help them turn their dreams into a reality! I can't tell you how many times I've had potential clients make me sign an NDA before even sitting down with them. Although I'm bound by privilege to keep communication confidential as an attorney, if it helps my client sleep at night, I'm more than happy to sign.
NDA in a Nutshell
For those of you who are not sure what an NDA is, it’s essentially an agreement that states one or both parties will not use or share any of the information that is exchanged for a set period of time.
Types of NDAs
NDAs can come in one of two forms, Mutual or Unilateral. In a Mutual NDA, both parties are exchanging information with one another and agree to keep everything confidential. These types of NDAs are used mainly in mergers where a large amount of classified information is being shared in order to come to an agreement.
The other type of NDA is the Unilateral NDA. This is the one that every entrepreneur has in hand before they go and speak with third parties to help them turn their idea into a reality. In this agreement, only one party is sharing the confidential information. The other party agrees not to misuse or disclose any of the information they are given while working on the assignment.
Nowadays, with such easy access to information, anyone can go online and download an NDA to use, and most times it will be sufficient to achieve your goal. However, I have been presented with NDAs that lacked some of the four basic elements an NDA needs in order to be effective.
Before I get into the elements, I strongly advise consulting with an attorney before using or signing any type of document. Even though I agree that some attorneys are a bit out of touch with reality and want to charge ridiculous fees for something as simple as a basic NDA.
I do not believe an attorney should charge their startup client for an NDA. Unless of course, it is the type of situation that requires a more complex NDA.
If you find yourself stuck between paying a high fee for an NDA or rolling the dice on one downloaded from the Internet, contact me at John@BenemeritoLaw.com and I'd happily give you one free of charge.
Now for the elements:
1. Defines what is Confidential Information
The NDA should clearly define what information needs to be kept confidential. The last thing anyone wants is ambiguity in this agreement. It is important to make sure this is clear because the parties may later disagree in what actually constitutes “confidential information.” A clear definition will avoid any confusion.
2. States what is NOT Confidential Information
Not everything exchanged can be considered confidential. A good NDA will have a list of things that will not be considered "confidential information". Usually, any information that can be obtained independently or that falls into the public domain will not be considered confidential for the purposes of the agreement.
3. Lays out the Receiving Parties Obligations
A good NDA should state what the party who is receiving the information is expected to do or, better yet, not do. Generally, it is sufficient that agreement states that all the information must be kept confidential, that it must not be misused, and it must not be disclosed to any third parties.
4. Defines a Time Period
In order to avoid any complications in the future, an NDA should separately define the time period for the agreement (usually called a “Term”) and the amount of time for which the information should remain confidential. These time periods may not be for the same amount of time, and as such, should be stated separately and not grouped together as one.
Every entrepreneur I have worked with has had an extreme paranoia of protecting their ideas, and rightfully so. Everyone knows the story about Facebook and how this multi-billion-dollar company was founded on a “stolen idea” (or so it’s been told).
Bottom line, you should always consult with an attorney before doing anything with your idea. All these do-it-yourself sites will never be able to offer the one thing that a great business lawyer can: counseling. But like I said before, don't get ripped off by a lawyer who is just in it for what they can get. Work with an attorney who believes in your idea and never pay your attorney for a basic NDA.
At Benemerito Attorneys at Law, we would be more than happy to sit down and discuss this and any other concerns you have. We never charge our clients just to sit down and chat, so contact us today and let’s get started.