Few businesses are without competition. If you are an entrepreneur, you have likely spent painstaking hours and costly resources crafting a novel product design, a strategic marketing plan, or an innovative manufacturing process. Your next step may be to find investors or employees to help you bring your product or plan to market.
Bringing other parties on board often necessitates selectively disclosing your sensitive business information. This can put you at risk of your confidential information being stolen or used without your permission to the detriment of your business.
A popular way businesses and entrepreneurs protect their secret information is by having third parties sign a nondisclosure agreement (NDA) or a confidentiality agreement. In this article, we use the terms “NDA” and “confidentiality agreement” interchangeably.
An NDA creates a confidential relationship between you and the party to whom you disclose your sensitive information (i.e., the receiving party). This relationship establishes a legal obligation on the receiving party to keep your information secret, and provides you with the legal recourse to sue them should they disclose such information without your permission.
An NDA can protect virtually any type of information. The protections are driven by the way the agreement is drafted. Therefore, it is important to make sure that any NDA defines “confidential information” very clearly and with regard to the type of information you intend to share.
NDAs should also clearly describe the term of the agreement, the restrictions on use and sharing of the information, and what exceptions may be permissible. A poorly-drafted NDA may not be enforceable if its terms are overly broad or vague or if the terms violate applicable laws governing restrictions on trade or competition.
If the party disclosing information under an NDA establishes the terms of an NDA have been violated, prompt legal action should be taken against the breaching party. Failure to do so can put an owner at risk of having potentially consented to, or “waived,” the breach. In such a case, the owner will not only have to face the market repercussions of having lost the secrecy of their sensitive business information, but may also be unable to pursue damages against the breaching party.