A Non-Disclosure Agreement (NDA), also referred to as a Confidentiality Agreement, is a legal document used by individuals or businesses who want to protect sensitive, technical, or nonpublic information from being disclosed publicly or utilized by another party they are entering a business relationship with.
That may sound simple enough, but if you are a business or individual looking to research information about NDAs, you may soon find yourself lost down a rabbit hole. Case studies, personal stories, and expert opinions about whether or not an NDA is a useful document or not are littered over the internet. Understandably, you may be left confused regarding which views are realistic, and which ones are more ideal.
Read our crash course below to develop a clearer idea of the ideal vs reality of NDAs.
Ideal No. 1: Non-Disclosure Agreements provide watertight protection against leaks
Above all, the purpose of an NDA is to provide strict protection for your sensitive and confidential information. This is done by presenting a legally binding agreement that stipulates the other party will not compromise the confidentiality of your information, nor will misappropriate it for their own gain.
Reality: It’s impossible to control people with a sheet of paper
As is the case for all legally binding contracts, it is ultimately up to the party who signs the contract to comply with the terms set forth. In other words, an NDA, no matter how well-crafted or persuasive, cannot categorically stop anyone from compromising your information. If someone is set on utilizing your information for their own purposes, no mechanism- legally binding or otherwise- will hinder their efforts.
What an NDA can do is:
- Act as a strong deterrent for any would-be offenders
- Be a mechanism to inform and alert anyone who may have unwittingly compromised your information.
Hopefully, the signer will may think twice about breaching the contract after considering the repercussions. Many breaches of confidential or sensitive information occur when individuals were not even aware they were doing anything wrong.
Thus, an NDA mostly prevents leaks by making it clear what information is sensitive or confidential, what actions or behavior will constitute a breach to that information, and the possible consequences of a breach.
Ideal No. 2: You have an idea so brilliant it needs tight safeguards
If you have a “million dollar idea”, requiring another party to sign a Non-Disclosure Agreement is a necessary first step to take before you progress your business relationship.
Reality: Your idea -sorry to say- might not even need protecting
“Pre-emptive Non-Disclosure Agreements”, that is, NDAs used to protect ideas, are criticized quite strongly by a number of business experts. Due to the increasing number of individuals and businesses wanting to remain tight-lipped until an NDA is signed, there has been quite a significant backlash from experts who believe pre-emptive NDAs may signal an inherent sign of mistrust, places limitations on the progress of your relationship and work, and can even make you seem inexperienced or overly threatening.
The desire to use a pre-emptive NDA is predicated on the following two assumptions:
- Your idea is genuinely so original and niche that it is certain to be successful
- Other people will feel inspired to use their free time to chase your idea
As harsh as it may sound, chances are your idea is not as valuable as you may envision. In fact, it is often argued that “ideas are worth nothing without action”, as without financial backing or real interest from investors, ideas will just remain as such. Millions of ideas are spawned every day- and of those, only a few are actually groundbreaking, and worth legally protecting.
How do you know then, if you should use a pre-emptive NDA? Entrepreneur and startup mentor Martin Zwilling recommends the key is in “balancing the risk-reward scale”. He highlights that while on one hand there are situations in which one is highly recommended. On the other hand, there are some where the “potential good far outweighs the risk”.
Every situation is different, and as such, it is important to conduct a balanced evaluation of the risks and rewards of using an NDA to protect your ideas.
Ideal No. 3: A breach is easily rectified with a day in court
In the case that your NDA is breached, the hope is that you can easily take the offender to court to receive due damages.
Reality: Justice is sometimes difficult to achieve, even if you’re “right”
One of the most pervasive misconceptions about law is that suing someone is the natural course of action to take if your legal rights are breached. However, over the past few decades, the number of cases going to trial has been declining at dramatic rate. Although this may seem difficult to believe given that we live in what many would call an overly litigious country, consider that in 2002, only 2% of cases went to trial.
How can this decline be explained? A major component is that settling outside of court often more ideal than the lengthy and costly process involved in a court battle. For this reason, many lawyers advise their clients against going to court unless they are confident of winning.
When you are determining the course of action to take, it’s important to consider the following matters:
- The strength of your case
- The quality of the evidence you have accumulated of the breach
- The type of damages you wish to pursue
- Time and money required to pursue legal action
- Your personal/company’s financial and time constraints
- The emotional costs
- The possible consequences for your brand equity with pursuing the matter publicly
It’s important to remember that even with evidence of a breached NDA, there is no guarantee that you will receive the damages you believe your company deserves. That being said, evidence of a breached NDA will certainly bolster your case and help your chances of receiving damages in or outside of court.
An NDA can play a potentially integral role in protecting the sensitive and confidential information of individuals and businesses who are entering in a new business relationship with another party. With the legal protections an NDA offers, it can help protect such information from being publicly disclosed or used by others for their own gain.
However, an NDA, like any other legal document, should not be taken at face value. As such, there are a number of important considerations that need to be taken into account prior to drafting the document. Reviewing the above points will enable you to develop a more nuanced, critical understanding of NDAs to draw on next time you need to keep your confidential information, confidential.
— Legal Templates (@LegalTemplate) May 25, 2016