One of the single most important legal agreements you can use to protect your intellectual property (IP) is a non-disclosure agreement or NDA. An NDA is a contract that ensures sensitive and proprietary information is kept confidential. In the course of creating IP, you’ll likely end up sharing information with third parties. By executing an NDA, you can protect your IP from being leaked or shared with potential competitors.

What components are included in an NDA?

While all contracts should be customized to your specific needs, there are some typical components that should be in any NDA:

  1. Identification of the parties who have access to the confidential information,
  2. A definition of what’s considered confidential information,
  3. The term of the relationship (time period) and how long the information should remain confidential, and
  4. Examples of appropriate (and inappropriate) uses of the confidential information.

When should you use an NDA?

IP is the lifeblood of many businesses, and companies should not neglect to protect it while operating in a competitive market. Before you hire or work with anyone, you should have a solid NDA at the ready. Businesses especially need to employ NDAs during their hiring and onboarding process to ensure employees don’t reveal trade secrets (even if unintentionally), or use what you teach them to start a competing business of their own. Investors, partners, contractors, vendors, and other third parties that gain sensitive information about your business should also be required to keep the information confidential. 

If your business is in the research and development phase of a new product or service, everyone involved in the process should be subject to an NDA. This is also true of potential mergers, acquisitions, or business sales. When NDAs aren’t utilized effectively or information is mismanaged, companies may find themselves in the unfortunate position of having a competitor find out what makes the business profitable, and use the information against them or back out of a deal. 

For budding startups and those in the earliest stages of developing a new product or solution, it’s also important to understand when you might need an NDA with your close collaborators or early investors. For those concerned about protecting their IP while working on customer development using the lean startup methodology, we recommend you check out this video of Steve Blank sharing advice on how to navigate that:

 

When is an NDA not necessary?

Before you get concerned that you’re not using NDAs enough, it’s worth pointing out instances when you don’t need an NDA. Requesting an NDA is overkill in some situations, and worse yet, may cause third parties to think twice about working with you. As a general rule of thumb, you don’t need an NDA if you won’t be revealing confidential information or trade secrets. For example, some freelancers, such as graphic designers, may not be privy to information that could be used by competitors, so an NDA may not be necessary. 

Also, if you haven’t confirmed that you want to work with a particular vendor or agency, they may not be keen on signing an NDA when they haven’t even yet secured you as a client. 

For more information on best practices related to NDAs, please refer to EveryNDA, a website devoted to…you guessed it…NDAs!

Disclaimer: Nothing in this article shall be construed as legal advice, or as creating an attorney/client relationship.

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The Michelson Institute for Intellectual Property, an initiative of the Michelson 20MM Foundation, addresses critical gaps in intellectual property education to empower the next generation of inventors and entrepreneurs. Michelson 20MM was founded thanks to the generous support of renowned spinal surgeon Dr. Gary K. Michelson and Alya Michelson. To learn more, visit 20mm.org.