Startups and small businesses start from a single place: ideas. An entrepreneur comes up with an idea so brilliant and he immediately gets to turn that idea into something concrete.

But here’s the thing about ideas: they are not completely safe. They, too, can be stolen. When they fall on the wrong ears, you can kiss your brilliant startup idea goodbye, unable to do anything but watch from the sidelines as someone else gets credit – and profit – from something that you thought up in the first place.

It stings, but these things do happen.

This does not mean, however, that you should simply keep your ideas to yourself, never to see the light of day, just so you can protect them from those who will steal them. With several proper methods and tools, it is entirely possible for you to bring out your ideas and prevent other people from stealing them from you. They will remain your own. One of these tools is a non-disclosure agreement, or an NDA.

How to Prevent People from Stealing Your Idea through NDAs

© Shutterstock.com | Guy Ben

In this article, you will learn about 1) non disclosure agreements and 2) how to use NDAs to prevent people from stealing your ideas.

NON DISCLOSURE AGREEMENTS

Many know NDAs by its other, more popular name, “confidentiality agreement”. A non-disclosure agreement is basically a legal contract that binds two or more parties in a confidential relationship, with regards to any confidential knowledge, material, or information. The other alternative terms that apply to it include “proprietary information agreement”, “confidential disclosure agreement”, or even “confidentiality clause or statement”.

Significance and Importance of NDAs

Businesses look to NDAs as one of the many tools that will help them maintain competitive advantage, since it enables them to protect their proprietary information and intellectual property. This could refer to trade secrets, ideas for new products, and the like. It involves the party that owns the information or idea, and the parties that they will be disclosed or shared to.

When do you normally see NDAs coming in handy? You will be surprised at how often they are used, or their roles in many transactions. NDAs come into play in any relationship involving an attorney and a client, for instance. A doctor and his patients are also covered by NDAs, as they are not allowed to readily divulge any information regarding their patients’ health to just anybody.

In cases where a startup is seeking possible funding from investors, they would have to present a business model to their prospective funding sources. The investors are going to be bound by NDAs not to take information about the presented business model to other parties, especially the startup’s competition. Companies also keep a database or information gathering facility about their clients or customers. For example, credit card companies have information about their clients. An NDA means that they cannot release this information to other parties at any time.

From the scenarios mentioned above, we can simplify NDAs’ key functions or main roles into these three:

  1. Protection of sensitive information. Once an NDA has been signed by the parties involved, they are bound to prevent the information in question from being leaked or released to people who are not party to the contract.
  2. Clearly distinguishes private information from the details that may be shared to the public. This effectively eliminates the difficulty encountered by businesses when telling which information must be protected and which is fair game and good for “public consumption”.
  3. Aids in granting patent rights to inventors or creators of original work. This refers to scenarios involving the development of new products or new business concepts. The original creator of an idea or a product can use a properly and completely drafted NDA to keep his ownership rights over the idea or product.

Not all NDAs have a single or common form. There are two main types of NDAs that you should know about.

Unilateral NDA

This is easily the most common type of NDA. In this agreement, one party agrees that they will not divulge specific information, as stated in the contract, about the other party it is entering into an agreement with.

An example of this is an NDA entered into by a contractor and a business, where the former is bound to keep secret any information on the latter’s business operations. Similarly, in an employment contract, a newly hired employee in the company’s manufacturing line may be bound to keep any production method he or she encounters while working within the manufacturing plant of the company.

Mutual NDA

As the word “mutual” implies, this agreement concerns the agreement of both parties that they will not share information on each other to anyone.

This is often entered into by companies that share protected communication or two companies that are planning to explore a business opportunity that is of mutual interest to them.

Say, for example, that a mobile app developer is approached by someone who says that he has a brilliant idea on the “next great multi-million dollar app”. He will give the idea, and the programmer will develop the app.

You would immediately think that this a unilateral NDA will be required so the programmer will not go off and develop the mobile app, then solely claim credit for the app afterwards, especially when it does hit it big. The one who came up with the idea is not the only one who is entitled to – and needs – the protection provided by an NDA.

Developers also see an NDA as proof or indication that the person with the idea is truly serious about the project, and has the will and the funds to go through with it. Many developers do not want to end up working on an app that is given up on by the other person halfway through.

Elements of an NDA

A simple online search will direct you to numerous NDA templates, whether they are unilateral or mutual NDAs. This has certainly made things easier for many, as all they would have to do is to fill in the blanks and supply the necessary information. In some cases with unique facts or circumstances involved, they can simply tweak several parts of the templates to suit their needs and preferences.

Despite making these changes, there are certain elements that are always present in an NDA.

Definition of “confidential information”

There is a need to clearly set out what “confidential information” means, especially in the context of the agreement being drawn up. There are many types of information that may be covered by the agreement, and it is in this part where those types or categories are clearly indicated, even without stating specifically or precisely what those pieces of information are.

As an example, in an NDA entered into by an advertising company and the manufacturing company that is acquiring its services, the confidential information indicated includes the list of customers and their financial information, as well their purchase history with the company. There is no need to spell out the vital credit or financial information are, as long as the type or category has been explicitly stated.

Of course, it goes without saying that any information that has been divulged, but are not outlined in the NDA, are not subject to its protection. Therefore, the disclosing party that divulged the non-covered information will not be liable for any breach of the agreement.

Aside from the examples cited above, some of the most common types of confidential information explicitly outlined in many NDAs include technical information; plans, blueprints or engineering drawings; lists of customers, vendors and suppliers; prototypes and similar new product plans; tests and test results, and business practices, tactics, or strategies.

Exclusions of confidential information

Take note that “confidential information” is not all-encompassing. There are certain information that are not covered by the protection provided by the NDA. They are called exclusions and they, too, must be stated in the NDA. More often than not, the exclusions pointed out in most NDAs are those pieces of information that are already common knowledge by the parties (and even the general public). Thus, protecting them with the NDA is already moot.

The exclusions are for the protection of the party receiving the information. Without expressly stating the exclusions in the NDA, it is possible that they will be accused of divulging information when they are innocent of the act and the information was already of public knowledge, to begin with.

The parties involved

Who are the parties that came up with the agreement? You have to state clearly who are bound by the NDA, as it will only be enforceable between or among them. Those that are not mentioned in the NDA are considered to be outsiders, and are not covered by the terms of the agreement. There are two parties involved in any NDA: the “Receiving Party” and the “Disclosing Party”.

All the parties must affix their signature on the signature block at the end of the agreement, which also contains their companies or organizations, agents or representatives (if any), and the date they signed the NDA.

Obligations of all parties

It is also important that the NDA be clear on what is expected of the parties. Up to what extent is the recipient of the information allowed to release information? What are the allowed uses of the information? What are the specific restrictions that he must adhere to with respect to the use of the information provided? Is there a limit on the use of information by the recipient? If so, what is that limit? At the end of the day, who retains the intellectual property rights and similar ownership rights of the information?

Stating the obligations of the parties is a way to outline their responsibilities and accountabilities so that, should one party fail to comply with what was agreed upon, it will be easier to take the necessary corrective action.

Focus is given more on the obligations of the receiving party. After all, they are the ones being held to keep the information they receive confidential. In many cases, however, parties are allowed to reveal information, but only under specific conditions or circumstances. In this case, the NDA should also contain a list of what those conditions or circumstances are.

The key provisions that must appear include details on:

  1. Protection against the reproduction, copying, maintenance, or retention of the confidential information mentioned;
  2. Protection against the disclosure or release of the information that was provided, with the understanding that said information is not yet in the public domain, or of common or general knowledge by the parties and external parties; and
  3. Remedy or sanction that must be enforced, in case of breach by any of the parties. This includes penalties, fines, or even judicial actions.

Time periods

NDAs should also set forth clearly the duration within which the parties will adhere to the agreement. For example, in an employment contract between a research and development think tank and a scientist, it is possible that the NDA requires the newly hired scientist to keep any information he acquires from the company even after he has been separated from it, or is no longer working within the organization.

An integration clause

This is the clause declaring that the NDA will supersede all agreements drawn previously. It essentially establishes the fact that the NDA is the complete and final agreement, and those before it are no longer in effect. This is to avoid confusion where parties will hark back on various previous agreements when there is a newer and more complete one recently drawn up.

HOW TO USE NDAs TO PREVENT PEOPLE FROM STEALING YOUR IDEAS

In this day and age of highly advanced technology, it would seem that all ideas are fair game. This is certainly bad news to creators and generators of these ideas, since they will have trouble keeping their ideas as their own. That does not mean, however, that they are without any methods to make this happen.

Non-disclosure agreements are very useful tools when it comes to protecting your ideas from being stolen by others. But how can you use NDAs in order to prevent this type of theft?

Prepare a strong and solid NDA.

For “maximum security” of your ideas from theft, you have to make sure that the NDA you prepare is strong and solid.

In order to do this, the NDA must be complete. Meaning, all the elements of an NDA must be present: the definition and exclusion of “confidential information”, the parties involved and their obligations and responsibilities, the time period involved, the integration clause, as well as a specific choice of law, in case the parties are from different states with differing state laws when it comes to settling issues related to NDAs.

The NDA must be duly signed before a notary.

Notarization also entails the following information to be included:

  1. State, county and date of notarization
  2. The parties or parties, as well as witnesses, who appeared before the notarizing officer
  3. The notary’s name, signature, Notary ID number, and the expiration date of his license to notarize.

Get help when you need it.

You do not have to hire the services of a lawyer to draft an NDA. In fact, many non-lawyers routinely draft these types of agreements. As mentioned earlier, there are even templates that you can get started with, filling in all the necessary information as they apply. There are NDA templates that can be purchased off the shelf, but you can also go online and look for templates that are downloadable for free.

However, if you want to make sure, you can have a lawyer or someone with more than enough know-how to go over the agreement. It definitely helps to have another, unbiased and objective, perspective on it. They may even spot something that you missed.

Before signing, read the fine print, and understand them completely.

There is absolutely nothing wrong with dissecting the contents of the NDA before you put your signature on it. This is true even if you were the one who prepared it, or you had a bigger hand at drawing it up. Do not skim the small print. This is a mistake often committed even by those who are experienced in dealing with and handling these types of agreements or documents.

Keep to the terms of the agreement.

Whether you are the Receiving Party or the Disclosing Party, you must display good faith and adhere to the terms of the NDA. This will ensure that no problems will arise in the course of your business relationship. It will also help pave the way for you to build more meaningful, productive and highly beneficial business relationships in the future.

When done correctly and enforced properly, an NDA will definitely provide the protection that you need when it comes to ideas being stolen by other people. Sure, there are other ways to protect your ideas, but a non-disclosure agreement is certainly one of the more secure or “airtight” methods.

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Would you please recommend your favorite NDA template? I would greatly appreciate your input regarding one or two.

Sam