We’ve worked with many small businesses over the years and have always advised that one of their biggest concerns should be protecting the confidential information that keeps their business unique and competitive. Whether it be protecting valuable intellectual property or just wanting to keep early commercial conversations private, the best solution is a Non-Disclosure Agreement (“NDA”), or in other words, a confidentiality agreement.

As a business owner, your intellectual property and proprietary information are invaluable assets. Often times, an agreement as simple (or complex) as an NDA goes overlooked. When your company wants to conduct business with a new person or another entity, it is important to ensure that any confidential information you may end up sharing with the other party is protected.

There are various situations in which you may need and want an NDA. If you’re getting ready to pitch to investors, suppliers or contractors, it’s natural that they’ll have access to some of your confidential information and the last thing you want is someone sharing it with others or taking advantage of it and using it for themselves. 

As a general overview, there are two basic types of NDAs. The first type is probably the most common and what you may think of when you hear the term “NDA”. The “one-way” NDA is a unilateral agreement, that, for example, would be signed by an employee to ensure that they do not share any of your confidential information that they learn while they are employed. In these types of agreements, the employee is agreeing to keep the company information confidential, and the employee is not making any representations about information they will be providing to the company.

The second type of NDA, and the kind that we will explain in further detail, is a mutual NDA agreement, which is important when you are looking to do business with another company and you both agree not to share one another’s confidential information. If a company breaches an NDA, they can be sued for the profits that were lost due to the breach, be legally barred from continuing to use your information, or even be criminally charged. By having a well thought out NDA ready to use when looking to conduct business with another company, you are protecting the aspects of your business that are proprietary from being taken and used by someone else, and therefore protecting your company’s profits. Once you have a solid NDA template, you can typically reuse it and plug in new names and dates as you partner with new businesses and can ensure protection throughout the process.

The Aspects of NDAs include:

• The parties involved
• The definition of what is confidential
• The disclosure period (i.e. 1 year or forever)
• The term the contract is binding
• Any exclusions from what must be kept confidential (i.e. materials already available to the public)
• Any obligations to keep the information confidential
• Any types of permissible disclosure, such as law enforcement”

All these aspects are very important to include, but it is also important that they are created and worded in a way that is fair to both parties. For example, the definition of what is confidential should be limited to specifics and include only information that must be kept private. Otherwise, the NDA can be viewed as too restrictive by the other party and the courts. Also, be aware that any information disclosed prior to the NDA being signed is not protected by the NDA.

A case that is a good example of an NDA failing to hold up in court is Herdguard LLC v. NXT Generation Pet Inc. In this case, the two companies signed a mutual NDA that included a non- circumvention clause, which kept one another from working with companies that they gained knowledge of or built a relationship with through the other. NXT, however, began working with the company Vermont Soap, who was already doing business with Herdguard. However, the court ruled in favor of NXT because it was proven that the relationship was easily found on the internet, and NXT had found it on the internet prior to signing the agreement.

Non-disclosure agreements are an important legal framework used to protect sensitive and confidential information from being made available by the recipient of that information. Companies and startups use these documents to ensure that their good ideas won’t be stolen by people they are negotiating with. If you are thinking it is time to prepare or review your current NDA for your business, the McHattie Law Firm can help.