Non-disclosure agreements (NDA) can help preserve business trade secrets and other confidential information. But don’t expect your attorney to sign one.
Businesses often use non-disclosure agreements with their contractors, employees, product evaluators, and site visitors. They also use them with other businesses such as suppliers, customers, potential partners, and the like. You often need these agreements to establish diligence in preserving trade secrets. If someone breaches your trade secret, you can use these agreements, along with other suitable evidence, in subsequent legal action in state or federal court.
Although in some states, non-disclosure agreements are sometimes used as a backdoor form of a non-compete agreement (e.g. attempting to restrict an ex-employee’s employment elsewhere), this is not a universal practice. California, for example, disallows this sort of thing.
NDA typically include various clauses establishing:
- Who is disclosing the information, and who is the recipient
- The boundaries of the confidential information – what is and is not covered
- Confidentiality obligations
- When and/or how the agreement ends
- Other legal provisions (beyond the scope of this blog)
Generally, NDA have carve-outs for publicly available information. They terminate either when information subsequently becomes available to others through no-fault of the recipient. They also usually terminate after a pre-negotiated number of years. You can see some examples here.
NDA can be particularly useful when you are working on an invention, but either have not filed a patent application yet, or else are continuing to work on improvements to the invention. Here, if you want to work with vendors or contractors to produce components of the invention, NDA (and other IP rights agreements) can be important.
Why don’t attorneys sign NDA?
Attorneys, including myself, usually refuse to sign NDA. Why is this? Attorneys are already subject to strict state (and federal) attorney-client rules and regulations. These already require them to keep client (and potential client) secrets. By agreeing to talk to you, the attorney has already agreed to a standardized, legally enforced, type of attorney-client “NDA”.
Consider what would happen if this were not the case. Clients would be afraid to even ask an attorney about their particular problems. Attorneys would be signing hundreds of NDA each year, each with different terms. The legal system would grind to a halt.
Professional investors (VC, Angels) usually also refuse to sign NDA. Here, there is no duty of confidentiality. However, the finance people control the money. They see a lot of ideas they don’t fund, and usually don’t want any constraints on their future investments. This is where it is good to have your patent applications filed in advance.