Non-Disclosure Agreements in 59 Seconds.

This article (and video) addresses a key ingredient in innovation: The Non-Disclosure Agreement, or “NDA”. Like all videos and articles on this website, this is not legal advice.

What is a Non-Disclosure Agreement (NDA)?

An NDA is a contract. Just like every other contract, it requires a meeting of the minds, an agreement to abide by the terms. Once executed, it establishes confidentiality between two or more parties. Although the terms can vary widely, the primary purpose is for the parties to agree that certain information shared between them will remain private and not be disclosed to others. If someone breaks this agreement, they are typically responsible for the harm caused and can be sued to recover.

NDAs have developed a mixed reputation in recent years, as they have been used to silence whistleblowers, prevent people who have been wronged from telling others (typically in conjunction with a settlement of a legal dispute), or even to keep information about political candidates from reaching the press. Despite certain misuses, they remain important and are commonly used in business, particularly where inventions or trade secrets need protection. WARNING: Disclosure of information can start a one-year “on sale bar” clock, which can prevent you from getting a patent (more on that in another video). An NDA can reduce the risk of starting that clock.

When to Use an NDA

NDAs are key in several scenarios, especially for inventors and innovators:

Protecting Unfiled Patent Ideas:
- If you’re discussing your invention with potential partners, manufacturers, or investors, an NDA prevents them from filing a patent on your idea before you can.
Safeguarding Trade Secrets:
- Trade secrets, like formulas or processes, require confidentiality to retain their value. An NDA ensures that anyone you share these secrets with is legally bound to keep them private.
Disclosing Pending Patent Applications:
- Sharing details about a pending, unpublished patent application with collaborators? Use an NDA to ensure the information doesn’t leak.

The Downsides of NDAs

While NDAs are useful, they’ve got drawbacks:

Overuse in Deals:
- NDAs are part of almost every deal involving patents, even when they might not be necessary. This overuse can limit your ability to discuss your work or share details about past deals.
- Consider: The “deal” that the government offers is that the inventor must disclose everything about how the invention works, and in exchange, they get a time-limited monopoly on their invention. If an NDA bars the inventor from expounding on the invention, it runs the risk of undermining the deal at the heart of the patent system.
Restrictive Terms:
- NDAs are often overly broad, preventing you from discussing important matters or even sharing information that should be public.
Enforcement Challenges:
- While NDAs are legally binding in most cases, there are some jurisdictions that prohibit them from being used in certain contexts, and even when they are permitted, enforcing them can be expensive and time-consuming.

A Note on NDAs in Innovation

Every patent-related deal I’ve been involved in has included an NDA. While this ensures confidentiality, it also means I can’t share many details about the deals I’ve done. This highlights the dual-edged nature of NDAs—they protect secrets but can also stifle open communication. Even more than that, they prevent me from having the credibility that my deal history would otherwise confer.

As an inventor, it’s essential to strike the right balance. Use NDAs to safeguard your ideas, but be mindful of their limitations and potential impact on your ability to share information. Remember also that a general rule of contract negotiation seems to be that whoever writes the check sets the contract rules. You can often negotiate away the NDA in exchange for giving up (often a significant) amount of the price you could overwise get.

Final Thoughts

NDAs are a vital tool for protecting your ideas and intellectual property, but they come with responsibilities and risks. Before signing or drafting an NDA, ensure you understand its terms and how it aligns with your goals.