Don’t You Trust Me? The Importance of Confidentiality & Non-Disclosure Agreements (NDAs)
Are All Business Lawyers Distrusting?
One thing most lawyers have in common is that they are assertive around confidentiality and the protection of trade secrets and assets. This tends to give lawyers a reputation for being formalistic and a little distrusting. For example, I know someone whose son wanted to invite his friend over to jump on the trampoline. This friend’s mother was a lawyer, and when asked if he could come over, she proceeded to interrogate the parents about the safety of the activity. The conversation ended with her stating that if her son was injured under their care, she would hold them liable. The parents had him over, and they made sure to watch the boys like a hawk to ensure nothing happened. While the parents may have been a little taken aback by the mother’s assertiveness, the lawyer did end up getting what she was looking for: good safe fun for her son.
Like the mother in that story, you as a business owner should take assertive measures to protect your business. Specifically, by protecting the value of your company’s intellectual property and trade secrets through the use of confidentiality agreements, or what are known as Non-Disclosure Agreements (NDAs). These may seem a little distrusting or offensive to put in place, but they are vital steppingstones in protecting your business. NDAs are court-enforceable agreements that business owners put in place with regard to those who may gain access to the inside workings of their business. A non-disclosure agreement ensures that the person with access does not use that valuable information without your approval or steal it.
When it comes to your business’s confidential information, it is best practice to make your business relationships independent of trust. As the famous book on negotiating by Roger Fisher and William Ury, Getting to Yes: Negotiating Agreement Without Giving In, states, “Do not let someone treat your doubts as a personal attack.”
What is a Trade Secret?
Your business’s confidential information is a valuable asset. It is what sets you apart from your competitors. This confidential information is what makes up your business’s trade secrets. Trade secrets are generally those bits of information that are not readily accessible to others. They are ideas and practices that are unique to your business.
While not all valuable information will qualify as a trade secret under the law, trade secrets may include things like: client lists, marketing plans, pricing, discount structures that go with that pricing, business methods, production processes, recipes, chemical formulas, software algorithms, and source code.
To be sure, even if your business’s confidential information is not considered a “trade secret” under the law, it is still very important to prevent disclosing this private business information, especially to your competitors. A non-disclosure agreement keeps your businesses information confidential through contractual obligation. This ensures your trade secrets are more protected
If you are unsure what in your business might be considered a trade secret, or at least something you would not want to be disclosed to others, sit down and start making a list. Don’t forget that these things bring immense value to your business, and they are something that you will want to protect.
Five Situations When Your Business Should Require an NDA or Confidentiality Agreement
Business owners should aim to do all they can to help ensure that a court will support them and the protection of their trade secrets. One way to do this is by establishing confidentiality and implementing non-discloser agreements with both employees and third parties. It can be as easy as that. Implementing a practice of establishing confidentiality agreements with those who gain access to your business’s intimate details is the best way to protect them.
Business owners should aim to do all they can to help ensure that a court will support them and the protection of their trade secrets. One way to do this is by establishing confidentiality and implementing non-discloser agreements with both employees and third parties.
The following is a checklist of five situations where your business should require an NDA, whether it’s on its own or incorporated in another agreement, such as an employment agreement.
1. Selling or Licensing a Product or Technology
If you are hoping to persuade manufacturers to license a product or technology that you have created, you will need to share with them enough information about it for them to understand its potential and worth. The last thing you want is for that information to be stolen and/or disclosed to the marketplace without your approval, especially after all the work you have put into it. Putting in place an NDA will protect the confidential information you might need to share.
2. Employees and Independent Contractors
Employees and independent contractors often have access to the intimate details of your company. Many companies include a confidentiality provision in the employment or independent contractor agreement, as well as in their employee handbook. At the minimum, those employees with access to key information should be expected to sign an NDA.
This written agreement also serves to give notice to the employee or independent contractor of the need for confidentiality, putting it on their radar, so to speak. It is a common practice in large corporations to have routine conversations with employees about confidentiality so that it is on their mind more often. These confidentiality trainings are sometimes introduced as early as orientation for new employees. This sets the standard for these employees and can helps businesses in the long run.
3. Presenting an Offer to a Potential Business Partner or Investor
As part of the process of presenting an offer to someone looking to buy your company, or invest in it, you will likely need to disclose some protected and valuable information about your company. You do this in hopes to show them the value of your company, its potential, and its worth. What you do not want to happen is that they take your information and expose it to the world. Before disclosing your valuable information, you will want to put in place an NDA, which will prevent that from happening, and provide some recourse if it does.
4. Receiving Services from a Company that has Access to Confidential Information
For example, if you hire a company to develop your website, they sometimes have access to your client list, which is valuable property of your business. You would want to include an NDA in your services agreement with that website developer.
5. Sharing Business Information with a Prospective Buyer
A prospective buyer needs to perform due diligence as part of the buying process. That means that they are going to dive deep into the nooks and crannies of your business. They will gain access to your financials, to your customer or client list, to some key management employees, etc. But what if they decide not to buy? You want to protect this information, and you do that by putting in place an NDA. You do this so that they will not use the information they have gained from that special access in a way that would harm the value of your business.
A Note About Trade Secrets Involving People We Know
A recent study found that almost all cases involving a business’s trade secrets being stolen involved someone that the business owner knows, including employees, business partners, companies a business has contracts with, etc. Employees were at the top of the list. This is why it is just best practice to consistently and routinely expect those with access to company trade secrets and confidential information to enter confidentiality and non-disclosure agreements. As the Godfather would say, “It’s not personal, Sonny. It’s strictly business.”
Drafting a Confidentiality or Non-Disclosure Agreement
On a final note, I cannot stress enough that NDAs cannot be something that you download off the internet. The internet is not an attorney. It cannot give you legal advice. The purpose of an NDA is to protect your business, and it needs to be customized to the situation. Only an attorney can do this for you. By doing it the right way, you will save time and money in the case that an NDA needs to be enforced. Schedule a video call with Dana Ball Legal Services today to get your questions answered so that you can move forward with your business and keep things running.