I have a soft spot for nondisclosure agreements, or NDAs (also known as confidentiality agreements): They’re relatively short and straightforward, yet they’re subtle enough that drafters routinely screw them up. And they’re commonplace; in fact, they’re something of a nuisance—the cockroach of the contract-drafting world. These characteristics mean that they’re the obvious guinea pig for anyone contemplating innovation in contract drafting.
But my recent experience with NDAs suggests that getting control of NDAs would involve not only a drafting solution but also persuading people to ease up on requiring NDAs.
Two potential clients asked me to sign NDAs. No bid deal—I signed. But after speaking with decisionmakers, they told me that in fact they wouldn’t be needing my services. They could readily have figured that out before asking me to sign an NDA. I suspect that my experience isn’t unusual and that often people are too quick to ask a potential business partner to sign an NDA. Asking for an unnecessary NDA demonstrates a lack of judgement and experience, could well aggravate whoever it is you’re dealing with, and serves to devalue NDAs generally.
8 thoughts on “Abuse of Nondisclosure Agreements”
Once again, I emphatically agree! http://www.ericgoldman.org/Articles/overusedndaarticle.htm Eric.
I just wrote about this same topic a few days ago… I agree with you completely, btw. :)
I personally think that most people would be better served by NOT signing the template NDAs as a matter of course. Typically they’re poorly written, overbroad, lopsided, one way, and fail to achieve the business objectives the “sophisticated” parties intend. Moreover, most boilerplate NDAs go further than mere nondisclosure by reaching into intellectual property rights and non-competition.
That said, I doubt the wisdom of negotiating the terms of the form NDA in most circumstances. If for no other reason, it is usually cost prohibitive. It also usually starts the business relationship off on the wrong foot. Moreover, I some times doubt the enforceability of many of the boiler plate terms. They usually lack of a reasonable duration, are genuinely overbroad in scope, may be against public policy in some jurisdictions, etc.
My typical advice is to ask: “why?” or “why now?” or “can we address this when we get to a point that we’re going to disclose non-public information, trade secrets, etc.?” If they insist, a review and revision of an NDA can take 5 minutes with the goals of: setting a short term (less than a year), striking anything and everything but the language addressing non-public, trade secret information, specifying how you will know what information is non-public, trade secret, and limiting the scope of confidential information to address only the subject matter of your role. Then be done with it and move on.
On the other side, if you’re the one presenting the agreement, I say go for it, of course. As you say, “they’re commonplace.” Most people expect to sign them and do so without revision.
I can only concur. I’ve seen some large companies insist on provisions that they claim are there only to protect their trade secrets, but have the effect of transfering intellectual property right. This is particularly problematic when something gets created that is somehow based on something subject to the NDA.
For example, if I disclose something to you, and you create a compilation including it, the copyrights do not belong solely to either of us. But this agreement would have had you assign me all your copyrights in the compilation. So, when you, for example, respond to my RFP, you grant me ownership in your response! And if you have an RFP response library, you can’t re-use your own response after that.
And when they are 1,000 times bigger than you, your real options may be limited to signing or walking.
1. My practice has always been to decline to enter into an NDA with a prospective legal client. I’ve never had a prospective client object to this, because I simultaneously explain that if I were to violate a client- or prospective-client confidence, it could get me in serious trouble with the state bar ethics committee.
2. If you’ll indulge my combining a request for comments with a bit of self-promotion: I’d be grateful for any thoughts on the short-form NDA at my Web site* — use the pulldown menu to select “Short form (very)” and click on the “Clean up” button.
There is a real danger in assuming that NDAs are harmless boilerplate. Consulting firms are asked to sign these as a matter of course. Buried in these 2 – 15 page documents, you often find ownership of work product provisions (client owns everything, even our first born), indemnity for everything (with no connection to the consulting firm’s actions or inactions), waiver of all rights to dispute a permanent injunction, etc. Signer beware!
I work for a privately held biotech company. I tell my folks that before doing an NDA to have a “first date” or “meet and greet” to determine if they are actually interested in disclosing anything confidential to them. With vendors or consultants, many times it turns out that they can provide info that makes a decision on whether to buy or use them easy and we go straight to a service agreement or consulting agreement. Saves time and aggro for everyone.
I once heard it said that a CDA is the “cornerstone of any business relationship” and I concur with that sentiment in that it is the beginning of something larger (or sometimes once information is exchanged and evaluated, the end).
But, if CDAs are used to abuse potential recipients and disclosers then by all means one should raise a red flag and scream “what are you thinking!” to your clients. (I have seen many companies approach my clients wanting to enter a 1-way CDA under which they would receive information from my clients, but only under conditions that one would best describe as disingenuous – more akin to a competitive intelligence fishing expedition than the genuine beginnings of a commercial relationship.)
A CDA is like any other contract, and must be drafted, negotiated, read and understood in the context of the potential business relationship. It is not a contract to be taken lightly. It is not merely an assemblage of boilerplate. And it most certainly is not a “fill-in-the-blanks” template that one can confidently hand to a non-lawyer with the instruction that “if you’re going to tell any secrets, have them sign this.”