Because the theme is the same in the post here, I repost below my response to the prior piece:
"It all depends on what one means by 'NDA.'
If it means the piece of paper people ask you to sign before giving you a pitch, the author's points are largely well taken.
On the other hand:
1. If a company fails to have its employees sign NDAs, it potentially jeopardizes its trade secrets (to protect something as a trade secret, an employer must show that it took reasonable steps to treat the proprietary information as trade secret information and having employees sign NDAs is a key component of this).
2. If a supposed suitor approaches you about buying your business, and you fail to sign an NDA, then the information disclosed in the buying process - which can include your most intimate and valuable business techniques and plans - can potentially be lifted by the would-be suitor and used competitively against you after the suitor abandons the deal.
3. If you attempt to negotiate a potential strategic partnership, and you trade proprietary information relating to what would be a valuable joint venture, and do so without an NDA, then, again, the prospective partner can betray you and use your valuable information against you.
4. If you let your sales people develop all of a company's leads in their own name and using their own resources, without confidentiality agreements (i.e., NDAs) acknowledging that the customer information is valuable proprietary and confidential information belonging to the company, you leave your company exposed to having its customers raided without any legal recourse. Are sales people prone to do this? Absolutely. They tend to think of customers as belonging to them and not to the company. Without the basic legal protections afforded by NDAs, a company runs serious risks of losing its customer base to those who might chose to raid it.
5. Other examples could be multiplied, almost ad infinitem, depending on the particular business context, of how it is positively naive and, indeed, stupid, to proceed in various business dealings without benefit of the legal protections needed to protect confidential and proprietary information, that is, without an NDA.
While I think the author's basic points make perfect sense in the fast and loose world of 'pitches,' they are not generally applicable in the world of startups. As long as there are business dealings in which any party has valuable information that it wants to keep secret, NDAs will continue to serve valuable purposes and are necessary and, indeed, indispensable to the transactions involved. This is from the perspective of one who has specialized in business startup law in Silicon Valley for the past quarter century."
I really worry that people get the wrong impression from these articles. Yes, don't ask VCs and journalists to sign NDAs. Yes, don't sign an NDA if you're unsure of whether there's an opportunity.
But in the real world, refusing to sign an NDA to move a business transaction forward will very often kill the transaction and sour the prospect on you. Most businesses that have been operating for awhile have very valid reasons to get NDA cover for everyone they work with.
A really common case where NDAs are almost unavoidable is when you're working with companies that have in-house general counsel. This, by the way, is one reason not to have in-house general counsel.
There are a number of tactics to make sure NDAs you sign are reasonable:
1. If possible, use your own. This prevents you from having to pay your lawyer to review Yet Another NDA.
2. Ask for the bidirectional NDA instead of the unidirectional one most companies start with. A 2-way NDA is usually more reasonable because both parties are bound by it so no one wants to screw themselves over.
3. Work out the NDA separate from any contract terms. An NDA should not establish a business relationship.
4. Always ALWAYS have an expiration date, both of the NDA and any confidential information disclosed under it. This way you only have to keep track of the last N years of NDAs, not infinity. Also, this limits the risk of someone unreasonable coming to power in a company in the future and using the NDA against you. Life changes, nothing should last forever.
Just because it hasn't happened to you yet doesn't make it untrue. I know at least 2 people who have had deals fall through because they refused to sign NDAs.
Short version, for those unfamiliar with the story: IBM approaches Digital Research to license CP/M, Digital Research refuses to sign a fairly standard NDA, IBM licenses DOS from Microsoft instead, Bill Gates now richest man in the world.
Funny seeing this. I'm currently reviewing a NDA & contract for a consulting gig and came across this gem:
Recipient agrees that any violation or threatened violation of this Agreement will cause irreparable injury to COMPANY, entitling COMPANY to obtain injunctive relief in addition to all legal remedies without showing or proving any actual damage and without any bond required to be posted.
without showing or proving any actual damage
yeah, whatever.
Consultant agrees that all right, title, and interest in
and to any copyrightable material, notes, records, drawings, designs, inventions, improvements,
developments, discoveries and trade secrets conceived, discovered, authored, invented, developed or
reduced to practice by Consultant, solely or in collaboration with others, during the term of this
Agreement and arising out of, or in connection with, performing the Services under this Agreement and
any copyrights, patents, trade secrets, mask work rights or other intellectual property rights relating to the
foregoing (collectively, “Inventions”), are the sole property of the Company. Consultant also agrees to
promptly make full written disclosure to the Company of any Inventions and to deliver and assign (or
cause to be assigned) and hereby irrevocably assigns fully to the Company all right, title and interest in
and to the Inventions.
I probably won't be getting the job due to crossing off all of this crap.
I see your first point, but isn't the second paragraph you quote just standard practice? Granted the legal jargon is horrible, but it seems to be saying that the work you do as a consultant during the term of the contract belongs to the company. Every consulting contract says that. How is this one egregiously different?
The legal jargon is the first grievance, which I obviously have to just accept as part of the game, but the ambiguity of it is what I have difficulty accepting. Does this clause prevent me from pursuing my own ventures during this time? Is everything I do during this time claimable by them?
rising out of, or in connection with, performing the Services
This bit seems to limit it to whatever I happen to be doing for them, but as this story, currently on the front page of HN shows, even lawyers have difficulty nailing it all down.
For example, if I come up with some clever little bit of javascript that does something interesting, does it mean I can never use that for any purpose ever again? It's terribly ambiguous and limiting. I don't expect to take the job because I am currently working on my own projects and have no concrete way of defending myself against them claiming all of my work.
The second problem I have is this phrase:
Consultant also agrees to promptly make full written disclosure to the Company of any Inventions...
WTF does that mean? Even if it is limited to the "inventions" I "invent" for them, does that mean I'm supposed to immediately write some kind of disclosure after I "invent" something and give it to them? It's ridiculous. Let's assume this refers to my existing "inventions", not developed during the contract term, which I don't think it does. In that case, how could I possibly expect to protect myself? What if I forget to list one of my "inventions". They can claim it? I honestly don't think all of the doubt is even worth the time and effort to nail it all down.
I should pay a lawyer to go over it, but I already know I will require some lines to be removed, which will probably negate their interest in hiring me and thus make paying a lawyer a complete waste of money.
I understand the motivations for these kinds of contracts, but it puts all of the burden on the consultant and gives the overall impression that they can bend you over on a whim and screw you royally. It's basically making me not interested in the job, especially since I have my own things I want to work on. Initially, I recognized that my particular skills were exactly what they needed and it would be a pleasant job, but the "pleasant" part is quickly disappearing.
I'm probably just too uptight about this kind of stuff.
In general as a consultant you can assert certain rights for yourself. don't be afraid to request changes to the contract.
Also as a contractor you are VERY different from an employee and the resulting IP rights are quite different. While ALL an employee does during their employment usually belongs to the company (even inventions done while at home sleeping :) the situation is very different for a contractor.
For example it is a standard practice that NOT ALL of the code that you write for them is theirs, but only "business specific" parts.
You should retain the rights to the generic parts of the code, all successful consultancies build a code libraries that they can reuse.
We usually release such things as open source but not always, we do keep the rights to ourselves though. Customer just gets a full royalty free license to do whatever they want.
Same with inventions.
If during the term of the agreement while working on their project you invent a super-duper-fast sorting algorithm and implement it in their project, it still doesn't mean the algorithm is theirs.
The implementation is (and only if its business specific) but the idea is yours and you can go as far as filing a patent for it (I'm quite against software patents, but still). Again, the client gets all the necessary rights to use it in-this-particular-implementation but that is.
99% of the cases the person asking you to sign it, is just starting out. Because these are the only guys who think they need to protect their idea(or that an NDA will actually help them).
And the person just starting out, usually doesn't have the money to enforce the NDA anyways. Lawyers cost money, I remember I wanted to sue someone(small b.s. breach of contract clause), and the lawyer told me it'd cost 15-20K.
Let's be very clear about where NDAs are appropriate and inappropriate - An NDA is very appropriate in class (A) where it concerns the protection of the content of the Intellectual property. Signing Tables, Certificates, Source Code, Research Studies, etc... Without an NDA of some form, either in the form an employment contract, or explict "NDA", an employee would be free to tarball 500 Gigabytes of intellectual property and take it to their next employer - walking away with all the hard earned IP of a company that may have spent millions of dollars, years of effort, and entrepreneurial capital in developing it.
An NDA is completely inappropriate in class (B) when it comes to protecting ideas/concepts/market sizing/future growth that will be exposed in an employee interview, investor pitch, or press interview - all of that is typically just brainstorming by a few smart people over a week or two, has no more or less value than what might results from any other smart people of the same caliber brainstorming.
Depending on whether you are in class (A) or class (B) you should, or should not sign an NDA.
NDA's have a place in business, but not for VC's and journalists who deal with different businesses and ideas everyday.
I run a small application development services company. Our clients insist on NDA's and we have no problem signing them. We're getting pre-release insight to product development which should be protected.
I am in a similar position, but I very much make sure they have a VERY specific confidentiality marking requirement (including a "must send a follow up communication within 24 hours after voice communications enumerating specific confidential items disclosed within the voice communication") .
If they want super secrets and don't just trust us to show discretion, they can clearly mark what is super secret, just like the Government does with it's secret information.
this is key for me, too. you do the work of figuring out what is secret or not. Not me. and if you mark every communication secret, well, maybe you're not the right client for me?
I agree, If you are partnering with a firm, or retaining a firm who will have access to company private information and they won't sign an NDA that's a red flag. http://www.skmurphy.com/blog/2008/01/08/we-sign-ndas/
That being said you should be able to have one or more conversations where you don't disclose private information so that both sides can evaluate whether a relationship makes sense.
I guess there are 2 types of NDAs that I encounter.
Type 1 is the paranoid startup who thinks its a good idea to NDA everything for fear of someone "stealing" their idea. 9 times out of 10 this kind of startup is simply too naive to realize their idea isn't that original. I never sign an NDA to hear an idea, usually its a waste of my time because the NDA is typically hiding a BAD idea.
Type 2 is the legit NDA. When you're working with a large organization, or being shown very sensitive documents. Or occasionally a stealth startup that has a celebrity team or mega funding, something that would instantly get publicized should word get out. I'll sign these but usually these types of orgs are comfortable enough to give you the gist of what they're protecting and why first, and often its accompanied by a contract which seals the deal regardless.
NDA's don't help you there....they can still compete with you usually if all they signed is an NDA. You have to have a non-compete to get them to not compete....and no way I'm signing that without a HUGE additional payment for the NC.
After some thought I guess it's all about who has more money. If you're dealing with Intel or MSFT then I'm not sure how effective one of our NDAs would be.
Still some level of protection might be better than 0.
I will not sign your non-compete NDA. They are two separate things. An NDA is required to protect info from disclosure, even if we never use it (i.e. work together). A non-compete means our areas of business are too close and perhaps we should not be exchanging confidential information in the first place. However, an NDA with language that states you will not use confidential info except for the benefit of the person you received it from is perfectly reasonable.
Do established companies ever sign your noncompete NDAs? (One reason we read them carefully is because people occasionally sneak noncompete language into them).
Yes but they are smaller companies, between 5-20 million annual revenue, and none of them made competitive products. We're a software company, they were device manufacturers.
I doubt we'd ever get a fortune 500 company to sign one of our NDAs though.
Companies the size of Intel for example feel they have a right to everything in the tech domain even if they don't have competing product lines and they're the type to sue just to intimidate.
-----
But assuming at some point that you do have to sign an NDA, remember that there is no such thing as a "standard NDA". Be prepared to cross things out that you don't agree with, or add extra terms.
It might help you feel better, but unilateral modifications don't hold up in court. Of course, if the other guy agrees to your changes, it's fine. But I think this is why my company has the NDA for visitors on computer screens.
Because the theme is the same in the post here, I repost below my response to the prior piece:
"It all depends on what one means by 'NDA.'
If it means the piece of paper people ask you to sign before giving you a pitch, the author's points are largely well taken.
On the other hand:
1. If a company fails to have its employees sign NDAs, it potentially jeopardizes its trade secrets (to protect something as a trade secret, an employer must show that it took reasonable steps to treat the proprietary information as trade secret information and having employees sign NDAs is a key component of this).
2. If a supposed suitor approaches you about buying your business, and you fail to sign an NDA, then the information disclosed in the buying process - which can include your most intimate and valuable business techniques and plans - can potentially be lifted by the would-be suitor and used competitively against you after the suitor abandons the deal.
3. If you attempt to negotiate a potential strategic partnership, and you trade proprietary information relating to what would be a valuable joint venture, and do so without an NDA, then, again, the prospective partner can betray you and use your valuable information against you.
4. If you let your sales people develop all of a company's leads in their own name and using their own resources, without confidentiality agreements (i.e., NDAs) acknowledging that the customer information is valuable proprietary and confidential information belonging to the company, you leave your company exposed to having its customers raided without any legal recourse. Are sales people prone to do this? Absolutely. They tend to think of customers as belonging to them and not to the company. Without the basic legal protections afforded by NDAs, a company runs serious risks of losing its customer base to those who might chose to raid it.
5. Other examples could be multiplied, almost ad infinitem, depending on the particular business context, of how it is positively naive and, indeed, stupid, to proceed in various business dealings without benefit of the legal protections needed to protect confidential and proprietary information, that is, without an NDA.
While I think the author's basic points make perfect sense in the fast and loose world of 'pitches,' they are not generally applicable in the world of startups. As long as there are business dealings in which any party has valuable information that it wants to keep secret, NDAs will continue to serve valuable purposes and are necessary and, indeed, indispensable to the transactions involved. This is from the perspective of one who has specialized in business startup law in Silicon Valley for the past quarter century."