By Richard A. Chapo
Every business should protect
proprietary information when dealing with independent contractors,
vendors and other businesses. The best way to do this is to use a non-disclosure
agreement, often referred to as an “NDA.”
What is an NDA?
An NDA is an agreement between
two parties to protect confidential information disclosed in a
business transaction. The proprietary information can include
business methods, finances, client lists, and anything that
isn’t already readily available in the public arena. If a party
subsequently breaches the NDA, the injured party can sue for
damages, an injunction against further disclosure and attorney’s
In many situations, only one
party requires the protection provided by an NDA. If you invent a
new product, you are going to need an NDA from manufacturers,
distributors, etc., before you discuss the product with them.
While this may seem like common sense, most businesses fail to
carry the thought through to their daily activities.
Practically every business hires
independent contractors, but they rarely obtain NDAs prior to
disclosing information to the contractors. For example, do you use
third parties to create or maintain your websites? Did you obtain
NDAs from any of them? If not, what’s to keep that party from
using your business methods on other sites? A directional NDA can
keep this from occurring.
As the name suggest, a mutual NDA
allows two parties to protect confidential information. The mutual
NDA is typically used when two businesses are negotiating a joint
venture. Each party must disclose enough information to make the
negotiations viable, but neither wants that information made
public if the negotiations fail. If negotiations go well,
additional non-disclosure information will be incorporated into
the joint venture agreement to protect additional information
revealed during the joint venture.
Refusing to Sign an NDA
Alarms and warning lights should
go off if a party refuses to sign your NDA. Unless they can
provide a very compelling reason for the refusal, you should walk
away from the business relationship.
When An NDA isn’t really an
Just because a document is
titled, “Non-Disclosure Agreement”, does not mean it provides
you with protection. You should ALWAYS read the language of an NDA
because the document may establish that you are WAIVING all
The waiver might be very direct
and read something like, “The disclosure of information pursuant
to this Agreement shall not be considered confidential.”
Alternatively, the language may be more indirect and read, “The
parties acknowledge and agree that all information exchanged
pursuant to this agreement has previously been established in
public forums.” Regardless, the “reverse NDAs” strip you of
protection and should not be signed.
agreements should be a standard practice for your business.
Don’t exposure your proprietary business secrets to others
without this protection.