When should I use an NDA for IP protection?

Non-disclosure agreements (NDAs) are one of those tricky things in business. Understanding when you should use one can take a bit of tack. Should you be asking to have one signed every time you want to share anything? Seems like a pretty slow way to do business. But if you’re going to share some information how do you protect yourself? It’s a bit of a tightrope to walk.

NDAs are legal agreements between two or more parties that prohibit the disclosure of confidential information. These agreements are often used to protect sensitive information, such as trade secrets, customer data, and intellectual property. However, not all situations require the use of an NDA for IP protection. You’ll come across people that ask you to sign an NDA to share their startup idea with them and then tell you that their idea is ‘Burger King but for hot dogs’. What we’re saying is that not every situation requires an NDA and for a lot of them a template NDA can serve a purpose. In this post, we will explore when you should use an NDA and when it may not be necessary.

When to Use an NDA

1. Protecting Trade Secrets

   • Trade secrets are a form of intellectual property that provides a competitive advantage. They include confidential information such as formulas, processes, and methods that are not publicly known. An NDA for IP protection is critical in protecting trade secrets because it prevents employees, contractors, and other parties (especially when speaking to enterprise customers) from disclosing confidential information to third parties. If a company’s trade secrets were to be disclosed, it could result in a loss of competitive advantage, revenue, and reputation. What doesn’t constitute a trade secret? Usually, anything that’s publicly available. Your marketing, for example.

2. Sharing Proprietary Information

   • In the SaaS industry companies must share proprietary information with vendors, partners, or potential investors. This might include their software architecture when you’re going through a security review or software stack when you’re going through a data processing agreement. NDAs can protect proprietary information by legally binding parties to keep information confidential. This ensures that sensitive information remains confidential, reducing the risk of breaches and cyber-attacks.

3. Hiring Employees or Contractors

   • When hiring employees or contractors, NDAs can protect confidential information such as business plans, financial information, and, perhaps most importantly, customer data. Just think about how much information you have stored in your Hubspot or Salesforce instance. By requiring employees and contractors to sign NDAs, companies can prevent them from disclosing confidential information to competitors or using it for personal gain.

4. Collaborating on Research and Development

   • Think about all of those juicy R&D grants that you’re applying for! NDAs are often used in research and development collaborations to protect intellectual property and prevent the misuse of confidential information. For example, if two companies are collaborating on the development of a new technology, an NDA can ensure that both parties are legally bound to keep confidential information confidential. This can prevent disputes over intellectual property ownership and protect each party’s investment in the collaboration. Makes life easier in the end.

5. Acquiring a Company

   • When acquiring a company or, better yet, when your company is being acquired (fingers crossed), NDAs are often used to protect confidential information during the due diligence process. The acquiring company may need to review confidential information such as financial statements, customer data, and contracts. NDAs ensure that the acquired company’s confidential information is not disclosed to third parties and that the acquiring company is legally bound to keep the information confidential.

When an NDA For IP Protection May Not Be Necessary

1. Public Information

   • NDAs are not necessary for information that is already publicly available and as a tech company, you’ll most probably have a lot of this. Public information is information that is available to the general public, such as news articles, press releases, and public records. If the information is already publicly available, there is no need for an NDA. Once it’s out there it is out there for good.

2. Don’t sweat the small stuff

   • Not all information is valuable or sensitive. NDAs should only be used for confidential information that could cause harm to the company if it were to be disclosed. Trivial information, such as office gossip or non-sensitive business information, does not require an NDA.

3. Short-term relationships, not long enough to hurt

   • If a business relationship is short-term and does not involve the exchange of confidential information, an NDA may not be necessary. For example, if a company hires a consultant to provide advice on a specific project, an NDA may not be necessary if the consultant does not require access to confidential information.

4. Unenforceable Agreements

   • NDAs must be enforceable to be effective. If an NDA is not enforceable, it may not be worth the time and resources required to create and maintain it. For example, if an NDA includes overly broad or vague terms, it may be unenforceable in court. Think of the Burger King for hot dogs idea we covered at the start of this article.

5. Legal Obligations, doing the right thing

   • NDAs should not be used to prevent employees or contractors from exercising their legal rights or disclosing information protected by law. For example, whistleblowers are protected by law and cannot be prevented from disclosing information that is protected under