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Legal Contracts -- May 15, 2021

How to use an NDA to preserve your profit

How an NDA preserves your profit

In this time of formation and “fresh starts”, you may be considering new partnerships OR pitches to ramp up your business growth.

By all means, go forth. But, protect as you go.

Sometimes, those partnerships or employees/contractors work out – sometimes they don’t.

What happens to the information they learn while working with you (or “interviewing” or “pitching”)? Are they allowed to discuss it with anyone else?

Enter the mysterious yet often misunderstood Agreement: The Non-Disclosure Agreement (NDA). Other Street names: Confidentiality Agreement, Confidentiality Clause.

Basically, the “DO NOT TELL” clause.

The interesting point about Non-Disclosures is that: it can be a whole agreement OR a clause within a larger agreement.

Both are valid; both matter.

Also, they can be unilateral, meaning that it binds ONLY the Recipient (the party receiving the confidential information) and not the Discloser (the party disclosing the information).

OR, be mutual or bi-lateral where BOTH parties may simultaneously be Discloser and Recipient and both are bound to keep any information disclosed between them during the working relationship, as confidential.

As always – read carefully!

Ideally, you would present and sign the NDA BEFORE you enter into ANY type of partnership or discussion.

In my legal and business practice, these are the top 3 questions on Non Disclosure Agreements:

1. Do I really NEED an NDA? It seems like overkill…

Informally, a FIRST RULE of thumb is: If you, as the Discloser have any confidential information OR any confidential Products/Services that could create present or future commercial value for you, then utilize an NDA to protect your information with the Recipient.

This preserves your potential profit and commercial viability of your information.

The idea is that the NDA would put the Recipient on notice about the type of information (broadly) that is to be held confidential and that the Discloser wishes to protect: information BEFORE filing any form of intellectual property protection (such as trademarks, patents filed with the United States Patent Trademark Office or copyrights with the United States Copyright Office.).

Also, if the Discloser wishes to protect trade secrets (such as, recipes, processes, customer lists etc.), or information that cannot be protected through formal entities such as the USPTO or Copyright Office.

Unsure if you have something to protect? Consult your intellectual property (IP) attorney.

Second, if you as the Discloser is entrusted to PRESERVE private or sensitive information (regardless of commercial value) of ANOTHER 3rd party, such as client information, financial statements etc., then utilize an NDA to protect the information.

2. How do I ask someone to sign my NDA? I’m worried it will push them away from working with me!

Your idea is worth protecting and has value to you and your business. You’re asking for their silence and discretion, NOT their first-born. In reality – all successful, working relationships begin with honesty and continue with transparency. Be straight upfront and state that your working relationship is dependent upon an NDA being signed.

Still hesitant? Let’s role-play:

Potential partner – “Hey, I want to work with you”.

You – “Great! I’d be interested in that. Would you mind signing our NDA so I can explain in detail about our idea and process without any restriction? Cool? Here’s the link to our NDA online for you to sign”.

You’re honest about WHY you need this NDA to be signed and you give immediate action steps for the person to follow up on, if they’re interested.

3. What happens if: Recipient DOESN’T want to sign?

It depends on the ROLE of the person OR the person being asked.

Sometimes, potential investors to your company don’t sign, sometimes they do.

As with any business relationship, it all starts with a conversation.

Inquire as to why they won’t sign. Then try to resolve any misunderstanding or issues around the wording or actual terms.

Anyone working FOR YOU as an employee or contractor or WITH YOU as a potential partner should be invited to sign without any further negotiation.

Here’s the key, though: While this signing situation is being resolved – do NOT disclose any ideas until their signature is received.

If NOT resolved – decide if you want to proceed without an NDA (consult your lawyer!) OR close out the NDA on good terms and circle back at a later date, if possible.

For more FAQs on NDAs, consider our Unilateral Non-Disclosure or Mutual Non-Disclosure Agreement in our Dox Contract Shop.

All Dox Contracts come with Primers with “What if” scenarios, Helpful Tips, more FAQs, and Action Sheets in addition to the actual Agreement to guide you as you consider the information to be disclosed.

 


CONTRACT TO USE:

Non-Disclosure Agreement: Got sensitive information that needs to be protected? Ready to preserve the potential commercial value of your business information?

MASTERCLASS TO LEARN:

Leveraged: CONTRACTS AS YOUR FIRST PROFIT TOOL (Sign up here for advance notice!)

Shoot us a line at info@thestartupdox.com.

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