Can you keep a Secret?

Why should you care about Non-Disclosure Agreements? What do you really need to know about them? And how you should protect your confidential information? 

Non-Disclosure Agreements (NDAs) or Confidentiality Agreements are the equivalent in the legal world to promising to a friend to keep a juicy secret like an impending proposal to your best friend or the announcement of a pregnancy before your 12 week scan.  I know in the latter situation I wished I’d had an NDA on some of my family members!

The aim of these agreements are to set out the promises and boundaries around which the parties will keep their respective secrets under wraps and to whom they may share their information. Two parties seeking to explore or engage in new projects and collaborate to build a new and exciting application is a classic NDA example.

So why should I care? I heard these aren't worth the paper they're written on...

I would argue that in our data-driven intangible asset world of digital business where new apps and products are spun up in quick iterative cycles, NDA's are of increasing significance. The dark phase of product development and the management of your competitive advantage and your funding rounds are mostly grounded in how confidential you can keep that new idea before production goes live. For start-ups where the success of your business is deeply rooted in the power of one or two great ideas it’s essential to manage the flow of information around that idea - it’s design operation and production - secret until you’re ready to go to market. I would always advise any company to keep their business logic or algorithms, pricing structures etc. secret and limit the knowledge and access to these as they are the secret sauce that sets you apart from your market rivals.

Despite the growing importance of NDAs I still find people in business (especially in the start up community), complaining that NDAs take way to long to agree with large corporates and cause relationships to be strained before they even get to the juicy bit. I also have to say my pet peeve is the "NDA++ bastardisation" whereby people try to shoehorn more into an NDA than should really be in there and start messing about with IP creation and collaboration terms.  Please don’t do this – if you’re collaborating then do a real collaboration agreement. Take the time and effort to give IP creation the respect it deserves as it will pay off in the long-run!

So keep it simple with NDAs so we can all focus on the juicy bits - the creation and collaboration! If you want to keep something secret here’s my advice on:

• when to enter into an NDA
• what should be in an NDA
• common NDA-related mistakes
• how to create an NDA efficiently and where to get one for free.

So when should you be using this unicorn of the legal world? Basically, if you’re thinking of doing any of the following you need to open a new blank NDA template and start filling in the blanks:

• Developing a new killer product - if secrets and details about a new product hit the market too soon and that information gets into the hands of your competitors you’ll most likely be crying into your soup and wishing you’d listened to your counsel! So, when talking to people about building or collaborating to develop a new product DO get an NDA in place quick smart.
• If you’re considering a merger, acquisition or equity investment in your business. If discussions around one of the above scenarios is happening or you’re sharing info on the value of your business and its IP and this comes to light before the deal is done, the agreement could fall through and corporate laws pertaining to disclosure may end up being breached. So keep those corporate lips buttoned and get an NDA in place ASAP. 
• Engaging third parties. If you’re planning to use third party contractors in your supply or distribution chain and you want to enter into exploratory discussions around their delivery capabilities then it is essential that they are under an obligation not to use your confidential information such as designs or copyright or other information you provide to them. In such an agreement make sure it’s clear that their employees only know the info that is strictly necessary to do the job at hand. It is critical this chain of secrecy is maintained and doesn’t get broken and that you do mark and maintain a high level of notice of this obligation in your interactions. Once the chain is broken it’s very hard to restore it - the genie is out of the bottle! 

If you are still perplexed then take my Marie Claire Quiz of NDAs and ask yourself the following simple questions. If you answer Yes then you need to ping your IP counsel ASAP as you are getting into a serious discussion that puts you at risk of losing one of your greatest intangible assets!

• Are you having discussions or sharing information that contains any ideas that you have for your business development pipeline?  Y/N 
• If this information was published on the internet and was in the public domain would it be a problem and cause you to regret your actions? Y/N
• Have you invested any money in developing the information or the subject of the information you are considering sharing? Y/N 
• Does the information you are about to share relate to how you intend to commercialise your product or service or its pricing structure? Y/N
• Would there be consequences for you or your business if your competitor(s) got hold of the information? Y/N
• Could your competitors reverse engineer/decompile or misuse the information or derive benefit from it? Y/N
• Does the information relate to the future plans of your business? Y/N
• Does the information explain the inner workings and operations of your business? Y/N

In my corporate life I feel sometimes we go a little NDA-happy and overuse and abuse this agreement. I do feel however that smaller business and especially first time entrepreneurs don’t understand the value of these agreements. This is truly tragic given the value of most start-ups is normally inextricably linked to the exploitation of a single competitive idea which, if not protected, makes the business extremely vulnerable. Only today a friend told me the story of how some cool start-ups we both know were put in a situation where they were demonstrating their products and services with the hope of investment to a corporate who was clearly fishing for ideas for new products. Unfortunately, they did this without any protection and were massively exposed to exploitation and copy-cat development risks. 

Given we now live in a digital world where copy-cat products can be built at pace, managing that cloak of confidence around your new product is essential and cannot be underestimated. 

So what should you do to avoid those painful shoulda, woulda, coulda wish I’d listed to my counsel moments? 

• Not having a decent template. Go get a good template and invest in this with a decent IP lawyer. If you can’t afford that go to the UK Gov site or your local Intellectual Property office and get a one way or mutual NDA template as a starting point - see https://www.gov.uk/government/publications/non-disclosure-agreements
• Poor Project Definitions. Take the time to carefully define the scope of project to which the NDA relates and avoid sweeping NDAs as these are not likely to be enforceable.
• Poor/undefined scope of what constitutes 'confidential information'
• Failing to designate the disclosed information as “confidential information”
• Not putting in place a mutual NDA and accepting a one way NDA so both parties aren’t fairly covered. 
• Not getting an authorised signatory to sign the NDA for your/their business.
• Not having a disputes and governing law clause to set out when or how disputes related to the NDA will be determined or the appropriate jurisdiction for resolving such disputes – especially important when dealing globally and cross border.
• In certain circumstances the duration of confidence obligations may be considered too onerous or restrictive and a court may conclude these are not enforceable.

So, if you feel like you’ve got something to keep secret after reading this article please do take some steps to do the right thing and protect your assets. Confidential information is the cornerstone to any business and it is something you should cherish. Look after it - you don't want to be quoting Joni Mitchell:

“Don't it always seem to go,

That you don't know what you've got

Till it's gone”.