Non disclosure agreements are essential to keep the lid on confidential information you don’t want shared with others.
Non-disclosure agreements (NDAs) ideally are the most potent when the parties who are contemplating a potential business relationship agree in advance to keep each other’s confidential information confidential. Not doing this right up front may end up with the other party telling others your secrets, using them for their own economic benefit, and exposing valuable intellectual property rights for use by anyone.
John, the innovative entrepreneur noted for his unique approach to doing business in a way that made him a roaring success, decided to partner on his newest venture with an employee he thought had the moxy to become successful. John was almost paranoid about locking sensitive files in the safe every night and taking the time to encrypt all his e-files. He didn’t give much thought to the information he shared daily with his protégé.
John didn’t mention a NDA when he first proposed his business idea to his employee, Tyler. In fact, he didn’t really think he’d need one. After all, they chatted daily and he felt Tyler was an upstanding young man.
John’s business idea of launching an online MLM that taught people how to get out of debt and make money at the same time had real potential in today’s dire economy. Tyler appeared to share his enthusiasm about the launch and how to set up the business.
John was understandably shocked when he discovered a few months later that there was a new site on the Internet that offered to teach people the tools to get out of debt and then recruited them into the business of selling the ‘get out of debt information’ to others. He called his business attorney, Arnold, to find out what he could do about this distressing state of affairs when he found out Tyler was behind the new website.
Arnold regretfully informed John that it was typically recommended that a NDA be entered prior to doing any negotiations, interviews or anything else that related to a proposed new venture where confidential information or material is shared. The fact that the cat was out of the bag was unfortunate, but there was not much anyone could do about that in the absence of a NDA.
Typically, a non-disclosure agreement clearly spells out conditions between party A and B, specifically dealing with sharing and using confidential information and materials. It usually makes reference to the parties keeping highly sensitive information confidential, details solutions for violating the agreement, and suggests arbitration for disputes over violations if necessary.
Sadly, in John’s case the NDA would have been essential to keep his brainchild MLM idea protected and it should have been put into place prior to any discussions taking place or material changing hands.
There are many examples in which a NDA is considered a critical tool. One instance involves software or other network solutions or the sharing of intellectual property (such as John’s online MLM idea.) In many instances the NDA is specific to the business being contemplated – tailored to cover each different case. So borrowing someone’s NDA won’t cut it, as it might not be enforceable later.
Generally speaking the vast majority of NDAs contain information about who the parties are, various clauses that may need to be incorporated, and most importantly, what information should be kept confidential. If either party violates the agreement, legal action can be taken. Having said that though, the whole idea of having a NDA in the first place, is to avoid litigation.
If you’re about to set up business with another person, call a business attorney and discuss the value of drafting a non-disclosure agreement. It will save you a lot of grief later. As for John, he had to kibosh his idea and move on to opening a business towing wrecks rather than make money online, while his former employee became rather wealthy from John’s original idea. If John had taken precautions up front to get a NDA in place, these roles might have been reversed….at least that is what this lawyer thinks.
Roni Balint writes for the Law Office of Alan M. Insul. The content contained within this feature is not intended as legal advice and does not constitute an attorney-client relationship. To learn more, contact Los Angeles business attorney and California corporate lawyer, Alan M. Insul by visiting Insullaw.com.