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About NDA, Confidentiality & Trade Secret Agreements

whispering womanIn today’s business world it’s hard to avoid nondisclosure agreements (also known as NDAs). Once reserved for employees and contractors, these agreements have become so ubiquitous that couples on blind dates in Silicon Valley sometimes sign them just in case any business secrets are disclosed during the evening.

If you are like many small businesses, you think of yourself as a friend of employees and contractors. Asking people to sign a restrictive agreement such as an NDA may seem burdensome or out of character for your company. But the FBI and American Society of Industrial Security estimate that U.S. businesses lose at least $24 billion a year because of stolen trade secrets, most of it from the sale of secrets by employees to competitors. Using a nondisclosure agreement may prove to be the best method of protecting your business and its confidential information.

Unfortunately, businesses that indiscriminately use NDAs are often unaware of their limitations. The improper use of an NDA can backfire, with serious repercussions for your business. For example, if a court invalidates your NDA, a contractor or ex-employee may freely disclose secret information—a result that would certainly please your competitors.

In short, signing a document titled “Nondisclosure Agreement” will not automatically erect a shield around your business information. To protect you, an NDA must be properly drafted and must correctly identify secret information. In addition, you must take other reasonable efforts to keep your information secret.

The goal of this book is to prepare you for the realities of protecting business information and to give you a well-rounded picture of how NDAs fit into your business strategy. Although we don’t provide an NDA for blind dates, we do provide many other NDAs on the CD-ROM at the back of this book. These agreements can be used in a wide range of situations in which you need to preserve your business secrets and maintain your business advantage.

NDAs are an important tool to protect against disclosure of secret information. If your information is disclosed in violation of a signed agreement, you can sue for breach of contract and obtain money to compensate you for any damages as well as a court order prohibiting further disclosure. In addition, a nondisclosure agreement confers other benefits:

  • It places the party receiving the information on notice that you consider the information confidential.
  • It specifies what information is defined as confidential, which helps prevent misunderstandings and resolve disputes.
  • It can establish a method for resolving disputes—for example, mandating that the parties arbitrate any disputes instead of going to court.
  • It can guarantee that any dispute will be decided in your geographic area.
  • It can establish which state’s laws will govern disputes. For example, if you are entering into an agreement with a company in another state, you may prefer to have disputes resolved under your state’s trade secret laws rather than the laws of the other party’s state.
  • In some cases, you may have a longer period of time to file a lawsuit than if you did not have a signed agreement.

Keep in mind that a properly drafted nondisclosure agreement is not a panacea. It can be difficult for you to know whether an ex-employee has disclosed trade secrets to a competitor. Moreover, even if you are sure trade secrets have been disclosed, it can be difficult to obtain court relief for violations of a nondisclosure agreement. First, you must prove that the employee actually disclosed trade secrets. (Only information that legally qualifies as a trade secret can be protected by an NDA.) This can be an onerous task, especially if the ex-employee claims that the information allegedly disclosed isn’t legally a trade secret.

That’s why we have not limited this site to just preparing NDAs. We also cover how to approach trade secret disputes with ex-employees, acquiring and protecting trade secrets and alternatives to NDAs, such as noncompete agreements. We help you:

  • identify the information you can protect under an NDA
  • ascertain which of your employees, contractors or partners should sign an NDA
  • draft or modify a valid NDA suitable for your purposes without an attorney
  • take other necessary steps to protect your confidential business information
  • make sure you own all secret information created by your employees and contractors
  • respond to the illegal disclosure of your secrets by someone who signed your NDA