Does Your Startup Really Need an NDA?

Startup NDA

Do startups need an NDA?

Even if you haven’t encountered one, you’ve probably heard about non-disclosure agreements (NDAs). They’re a bit scary, but probably misunderstood – so we’re going to demystify them!

What’s an NDA?

An NDA is introduced when two or more parties come together to discuss business that hasn’t been made public yet. It could be a product that hasn’t yet launched, a merger or acquisition, or even a partnership. Really, an NDA can encompass anything the people involved don’t want to get out.

NDAs have a few other names, too:

  • Confidentiality Agreement (CA)
  • Confidential Disclosure Agreement (CDA)
  • Proprietary Information Agreement (PIA)
  • Secrecy Agreement (SA)

If you are asked to sign any of those, they’re essentially the same as an NDA.

When is a NDA Necessary?

The best use-case for an NDA is when information should remain private. It’s designed to keep parties legally responsible for leaking information or discussing details of a meeting. Many times, NDAs are introduced to prevent insider trading (acquisitions and mergers) or giving the competition a heads-up on plans.

The most common reason an NDA is introduced is to protect intellectual property (IP). In tech, an NDA is often used to avoid disruption; if you didn’t ask someone to sign an NDA for an app or service you were creating, they could easily duplicate your effort themselves. In signing a legal document acknowledging they discussed a product with you, you’d have a legal leg to stand on down the line.

Proprietary information is another reason to introduce an NDA. This is nuanced. Sometimes a business wants to keep under wraps who its suppliers are; but a non-disclosure agreement can also shield details on research or the results of internal testing. It’s not always necessary, though. The Uniform Trade Secrets Act says a ‘trade secret’ is “information that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Are NDAs Always Legally Binding?

First things first: hire a lawyer to create your NDA. You’re smart, but not so clever that you can pick up legalese on the fly. Sorry to burst your bubble.

Aside from speaking the language, a lawyer will know if your product, service or business actually needs an NDA. Let’s be blunt; if you’re creating ‘Tinder for non-binary persons in NYC’ using JavaScript, you don’t need an NDA.

If a lawyer creates your NDA and the other party or parties sign it, it’s safe to assume it’s legally binding and enforceable. Keep in mind the scope of the NDA is typically limited to a few years, at best. Once your project is public, it will be hard to assert a disruptor who may have been privy to your private plans didn’t act independently. A good example of that is the ongoing issues between Waymo and Uber. Though both were public about their automated vehicle projects, the underlying tech is allegedly stolen IP because of confidentiality agreements.

Determining if – and when – an NDA was breached is the tough part. For most, this is where enforcement gets too cumbersome. Mediation is probably the best avenue for resolving an issue with NDAs, specifically because it bypasses the expensive legal process. Naturally, this depends on the size and scope of a project and how vehemently your company wants to defend its position.

Be Realistic

In closing, we’ll offer words of caution. First, assume your product needs an NDA. If you think it’s worth having people sign a confidentiality agreement, then spend the time and money to have one worked up properly.

Second, be realistic. You may not need an NDA for a service only your company is in a position to offer, and treating the work like a state secret might not win you any favors with employees.

A lawyer is your best bet for creating an NDA, but some boilerplate online forms handle a lot of the more general language associated with most non-disclosures. If you just need to work something up quickly (say, if you’re in a funding round or interviewing engineers), it’s a good option to have in your back pocket.

Be objective; do you have an advantage in the market, or are you just iterating on ideas that have been around? If it’s the former, a bespoke NDA is worth the expense, and a good way to ensure rivals will tread lightly.

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