In today’s fragmented and quickly changing business environment, intellectual property (IP) has become one of the most valuable assets, if not the only valuable asset for a lot of software as a service companies. From seed stage startups to unicorns, startups are investing more and more in research and development (R&D) to create products and services that can help them stay ahead of the competition or create an entirely new playing industry to operate in. However, with acceleration of the tech industry and the growth of software as a service providing real world solutions, the risk of intellectual property copying or worst yet, theft has also grown. That’s why non-disclosure agreements (NDA’s) have become a crucial tool to protect the intellectual property of startups. In this blog, we will discuss the question of why are NDA’s important to protect IP.
Firstly, what is an NDA?
An NDA is a legal contract between two parties that sets out the terms and conditions of how confidential information will be shared between them. The parties involved in the NDA are the disclosing party (the party that shares the confidential information – in a lot of cases this will be you and your business) and the receiving party (the party that receives the confidential information, this could be contractors, customers or investors). The NDA ensures that the receiving party keeps the confidential information private and does not use it for any purpose other than the purpose for which it was disclosed. The NDA can be mutual, meaning both parties agree to keep each other’s information confidential, or it can be one-sided, with only one party disclosing confidential information.
Now, let’s discuss why NDA’s are important for protecting intellectual property when you’re scaling up your SaaS business.
Are NDA’s important to protect IP?
NDA’s Protect Your Hard Earned Knowledge
What you have learned and what you have built are types of intellectual property that can be critical to a company’s success in defending itself in the marketplace. They are deemed as confidential information that provides a competitive advantage, such as code, customer lists, or marketing strategies. If these trade secrets are disclosed to a competitor or made public, it can cause significant damage to the company’s business such as letting others replicate what you’ve built to having others take your hard earned customers. NDA’s can protect these forms of IP by ensuring that the receiving party does not disclose or use the confidential information for any purpose other than what is stated in the agreement.
NDA’s Keep Confidentiality
For any SaaS company to be successful the company needs to share confidential information with third parties such as investors, suppliers, and contractors. However, sharing confidential information with these parties can be risky as they may use it for their benefit or disclose it to others. NDA’s help preserve confidentiality by legally binding the receiving party to keep the information confidential. This can help startups build trust with third parties and ensure that their confidential information is not misused or disclosed without authorization.
NDA’s Encourage Collaboration and Communication
Collaboration is an essential part of innovation. If fact, it would be surprising if anyone could build a company without it. Companies often need to work with third parties to develop new products or services. But, the constant threat of intellectual property theft can prevent companies from collaborating with others. NDA’s can encourage collaboration by providing a set of legal guidelines for sharing confidential information. This can help companies form partnerships and work together without the fear of losing their intellectual property.
NDA’s Provide Legal Recourse
If a receiving party does breach an NDA by disclosing or misusing confidential information, the disclosing party can take legal action against them. The NDA serves as evidence of the confidentiality agreement and can be used to seek damages or injunctions against the receiving party. This can help companies protect their intellectual property and ensure that their confidential information is not misused or disclosed without authorization.
Protecting IP Increases Valuation
Companies with strong intellectual property portfolios are often valued higher than those without. NDA’s can help companies protect their intellectual property and build a strong portfolio. This can increase the company’s valuation as investors and potential partners will be more willing to invest in or collaborate with a company with a strong intellectual property portfolio.
At the end of the day if you are building a software company intellectual property is most probably the only valuable asset that you have. It is the cornerstone of your business strategy and protecting it is essential for long-term success. NDA’s are a crucial tool for protecting intellectual property as they allow you to stay protected as you grow. NDA’s are an important tool to have in your SaaS contracting tool kit.