Much like a distribution company would not keep its trucks in the garage to keep them from being involved in an accident on the highway, a start-up company can't keep its ideas locked away from the business partners who can make it a success. The distribution company protects its asset (trucks) with vehicle insurance so they can use them without exposing the company to financial ruin. The start-up company can protect their asset (IP) in several ways. One way is through a non-disclosure agreement.
A non-disclosure agreement (NDA), sometimes called a confidentiality agreement, allows a company to share its IP with others, whose input it needs, without unduly jeopardizing that information. For example, if you have a new product or feature in development, but you need to consult an expert for advice on how to proceed, an appropriate NDA can ensure that the expert doesn't hand the details of your new product to a competitor of yours.
A non-disclosure agreement is a legal contract between you and the other party. You agree to disclose certain information to them for a specific purpose. They agree to not disclose that information to anyone else. Sample agreements are included at the bottom of this article.
- A non-disclosure agreement is only one way to protect your IP. In their excellent article Covenants Not to Compete in Intellectual Property Transactions, Lott and Freidland states "In the protection of intellectual property, trademarks, patents, copyrights and trade secrets, it is important to utilize all means available. Obtaining appropriate registrations, and taking adequate security precautions are critical, but they are no substitute for contractual restrictions on the use and disclosure of intellectual property."
Johns Hopkins University uses NDAs to preserve unfiled patent rights, trade secrets, business plans, and other confidential and proprietary information and requires them of their researchers.
Why An NDA?
You use a non-disclosure agreement when you have information that you need to give to someone, but you don't want them to pass that information to anyone else. This might occur because:
- You have developed a prototype of a new widget. Before you decide whether or not to produce it, you need to get a cost estimate form a fab shop
- You have developed a new business model that you want to present to venture capitalists for funding, but you don't want them to take the idea and develop it on their own
- You want to respond to a confidential RFP from the government but no one in your organization can write the proposal. You need to hire an outsider, but don't want him disclosing to your competitors what he learns
- You are trying to sell your company and the buyer wants details on your operations. You are concerned that they not cancel the deal as soon as they learn all your secrets and go use them themselves.
What Does An NDA Look Like?Many companies have their non-disclosure agreements posted on the Internet for one reason or another. Here are some of the NDAs currently on the Internet. There are many similarities among them, yet they show a broad range of industry and company size.
As with any legal document, you should consult with a trained professional. Do not rely on forms you take off the Internet and edit unless you are qualified to do so. For those for whom it is appropriate, here are a couple of sample blank NDAs.
- www.ideacafe.com sample Non-disclosure Agreement
- Internet Legal Resource Guide sample Employee Non-disclosure Agreement
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