In simple words, a non-disclosure agreement (NDA) protects the trade secrets of an individual or company from plagiarism or exploitation. They identify what information can be shared with another party and establish how it can or cannot be shared.
NDAs are commonly used nowadays. Most online startups have standard NDAs in place, which are used in different scenarios. A couple of examples are listed as follows:
- A startup shares their business idea with an outsourcer i.e. a developer. The developer might be asked to sign an NDA to keep the business idea and activity confidential.
- A prospective business partner is given confidential data and is asked to keep the data confidential.
There are many other scenarios which will warrant a use of an NDA, but you get the idea.
How effective are NDAs?
A correctly drafted NDA will provide protection for your confidential ideas or information. It creates a contractual agreement between two parties, and should indicate the seriousness of any breach that may occur. The important aspect to focus here is the term ‘correctly drafted NDA’. Most people have a tendency to copy NDAs found online. This creates two issues, the NDA isn’t fit for your specific purpose and are often too vague to be considered effective.
An NDA should describe the information that is being shared in good detail. It’s important to note that the information has to have value and must not exist in the public domain. If you’re protecting an invention through an NDA and you have made a patent application, then there is no need for it. In case of a breach of an NDA, the onus will be upon you to prove that the information had value and wasn’t available publicly.
In most cases, businesses are looking to protect their idea through an NDA. What they fail to understand is that most of the ideas already exist, or something similar at least. So it seems like a lot of unnecessary work to protect something that is already void.
Though this isn’t to say don’t pursue your ideas, because ultimately there is a lot that goes into making an idea a success, a brand, investment, advertising and lots more, and not everyone has the whole package, or a successful one.
Enforcing an NDA
Enforcing an NDA is a difficult task. It would involve detailing what information was disclosed, how it was misused and the potential losses incurred. If the case were to be taken to court, it can be a drain on time and money. It involves lawyers, lots of research and outcome won’t cover the costs you’ve spent on taking the breach claim to court.
Most startups would not have the funds to sue a party for breach of their NDA. Even if they were to win the case in court, the compensation wouldn’t cover the costs incurred.
If not an NDA, what else?
Business owners and their employees should identify what information can be truly classified as a trade secret and use an NDA if necessary. You can also follow a few basic tips which will keep you away from using an NDA:
- Only disclose valuable information to reliable people, with a good track record
- Only reveal the necessary information that is appropriate for a specific time
- A little trust goes a long way; getting investors to sign NDAs is seen in bad taste and your business ideas are often not valuable information
If you feel an NDA can be a deterrent in any situation, then you should use a correctly drafted NDA. Be sure to know that information is truly a secret, and finally enforcing an NDA isn’t easy or cheap, so know the consequences of a potential breach.