A non-disclosure agreement (NDA) is a confidentiality contract intended to protect sensitive proprietary information of one or more parties to the agreement. Although some people might prefer to just rely on “trust” between the parties, this can be a grave mistake if things don’t play out as expected. Here are some of the biggest risks associated with not using an NDA to protect each party’s interests.
Spelling out a confidentiality agreement ahead of time will reduce the chances of a problem occurring down the road. The parties may have already had a long and fruitful relationship, and using an NDA is a means of ensuring that relationship continues to go well. If you have sensitive information, an NDA helps make sure both sides are crystal clear about what uses of that information are and are not allowed. You’ll definitely regret it down the road if you lose a competitive advantage because your confidential information was disclosed to the wrong third party.
Without an NDA in place, it is more likely that your confidential information will be disclosed without your permission and you could lose the chance to patent your invention or maintain information as your own trade secret. Besides costing you all the money you could have made with your intellectual property, you’ll also be losing all the time and money that went into the development. It won’t be fun sitting on the sidelines when a competitor patents your idea or beats you to market using your own trade secret.
Without the certainty that an NDA can provide, the parties will be more hesitant to disclose sensitive information that could help them plan and strategize together. Business is built upon having the right information at the right time, and an NDA will help make sure the parties are more forthcoming with each other.
If sensitive information does get wrongly disclosed without an NDA in place, a party may have to suffer more litigation, time, and expense to try to protect the information or recoup its losses. The clarity that comes with putting the parties’ intentions in black and white ahead of time often greatly reduces how much time a court will need to make a ruling.
Furthermore, in an NDA you have the option of requiring disputes to be handled by an arbitration panel instead of through the formal court system, further reducing the time and expense involved.
If one side refuses to sign an NDA, then that is its own loss. You may have heard about arrogant venture capitalists or investors that refuse to sign NDAs. Supposedly this is because they think NDAs aren’t worth the time or money involved and they don’t want to “bind” themselves down the road.
That’s ridiculous, and here’s why: NDAs are now inexpensive to create, can be drafted in a matter of minutes, and not wanting to “bind” themselves is really just an excuse to get out of any potential liability should he or she “accidentally” use or disclose your confidential information without permission. They might as well say to you, “I don’t want to sign an NDA because I may (and probably will) in fact disclose your confidential information to someone else!”
If you have information that you think is important enough to be kept confidential, then tell the venture capitalist enough to show the value of your idea without giving it all away. “Hey, VC, what if I told you I have an idea that, with your funding, would cure cancer?” You can be pretty sure they would sign an NDA to hear that idea, so why not yours? Don’t short change yourself. After all, you don’t want to be like the software company that refused to sign an NDA with IBM. Because of it, IBM instead chose to deal with another young company now known as Microsoft.
Creating an NDA can be easy when you use our custom non-disclosure agreement template. Start now.