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Intellectual Property Part II: Non-Disclosure Agreements

Now that you’ve become acquainted with what intellectual property you have and how to protect it, you probably want to think about non-disclosure agreements. These are really useful particularly for small to medium-sized businesses that are generating new concepts and have a lot of sensitive proprietary information. Small to medium-size business owners have many concerns and fears, one of the top five is concept or idea theft. Intellectual property laws, unfortunately, do not protect mere ideas. Anyone can come up with the same idea, and so intellectual property protection is for the doers, not the thinkers. You must create something, not simply think of a great idea.

In pitching ideas to potential investors you’ll always be concerned about throwing out what you believe to be your rainmaker only for it to be ostensibly rejected and later surreptitiously reproduced leaving you with no royalties, or protection. This is the gap that non-disclosure agreements fill.

A good non-disclosure agreement will protect your discussions, and confidential revelations to third parties and should form part of your standard company document catalogue. What separates a good NDA from a bad NDA? A good NDA should stipulate these five (5) things in clear and precise language:

Names of the parties

This should include the names of any individuals present in the forum where the confidential information is being discussed, as well as a catch-all phrase also including “any servants, or agents of the Company”. There is also prudence in including a third-party disclosure clause which means that if anyone to whom the information is disclosed then discloses it someone else it amounts to a breach.

What is deemed to be confidential?

This section requires very careful thought. The particulars of the confidential information which is the subject of the non-disclosure should be as broad as possible so that even the most minute details benefit from some sort of protection.

Remedies for breach

What happens if the agreements are breached? You should frame this section based on the value of the information to you, the detriment you would suffer if such information were leaked, and the value of the information to the party to whom you’re disclosing the information. The rationale behind this is that the remedy for breach needs to be a sufficient deterrent to the behaviour, and a sufficient incentive to protect the information.

Consideration in exchange for non-disclosure

A contract has four parts; offer, acceptance, consideration and intention to create legal relations. What you are offering is information, the subject nature of which is confidential. What is being accepted is the information on the terms that it is confidential and not to be further discussed. The intention to create legal relations is easily demonstrated by the party’s signatures at the end of the contract and a line with words to the effect of “the parties agree that this contract is legally binding.” What then is consideration?

Consideration is bifurcated into benefit and detriment; you must give up something to get something. The information may be of such value that you may demand a sum of money as consideration for the discussion for example. This is more easily expressed in a transaction involving a car. The mechanic offers to fix your car for $500.00, you accept his offer to pay $500.00 for the repairs. His benefit is an additional $500.00, and his detriment is the time spent on your repair when he could have been perhaps engaging in a more lucrative job. The benefit to you is a working vehicle, and the detriment is that it cost you $500.00.

Terms of the Agreement

This will usually be the meatiest part of your non-disclosure agreement as it will contain as exhaustive a list as possible of the terms which the other party must accept before you produce the confidential information. This may include:

  • How long are the parties bound by the agreement?
  • What constitutes disclosure (spoken, documentary, sign language)?
  • Jurisdictions in which the agreement is to have effect.
  • The Governing Law of the agreement in the event of a breach

I would recommend having a non-disclosure agreement template drafted by an attorney. While there are templates available online for free, the elements of the agreement which may need to be more restrictive or specific according to the nature of your business may not always be immediately obvious.