Non-disclosure agreements (also known as ‘privacy agreements’, ‘secrecy agreements’, ‘confidentiality agreements’ and ‘NDAs’ are a major part of the early stages of an entrepreneurial partnership.
They are supposed to afford the signatories the piece of mind that their discussions are safe and that neither party will use the other’s intellectual property without the owner’s consent – that they won’t, in effect, pinch each other’s precious business ideas.
Or, so goes the theory.
It is obvious as to why inventors and business owners might want to take NDAs, which can either be one-way or mutually applicable, with them everywhere they go and refuse to talk to anyone without their signed paperwork in order. They want to make sure no-one steals their idea or their strategic first-mover advantage.
Fair enough, but an NDA is much like a patent: it offers you the right to protect yourself, but it doesn’t protect you. If you have a patent and a company produces a product that infringes on your patent they don’t automatically get in trouble and have to cough up a fat cheque to apologise. Quite the opposite in fact; it will cost you a pretty penny to hire a lawyer to take the bad guys to court. It is exactly the same for NDA documentation.
Sadly, there is no such thing as 'the NDA Police'. An NDA affords you the right to protection, but you have to be able to afford to protect yourself. For the sake of the argument, let’s say you have a mate who is a hotshot lawyer and will fight your corner if push came to shove, what would make a good agreement? Is there a standard NDA that you can use?
This is a grey area. Your NDA should fit the purpose you intend to use it for. You should get professional advice and have one drawn up for the purpose of your discussions where you feel you need protection (i.e. during chats with investors, potential partners and competitors, suppliers, designers, parties tendering for work etc.). Usually that will cost between £200 and £800 pounds. There are templates available out there online if you can’t afford to lay the cash out right now, but for obvious reasons, none is absolutely ideal.
The story doesn’t end there, though: when handing over your NDA/CDA/whatever you want to call it, be careful. Consider the other costs involved. How much trust are you instantly destroying? Are you creating barriers where there need not be any? Are you getting partners’ backs up before you’ve even started working with them?
Some parties, investors in particular, won’t sign confidentiality agreements. This doesn’t, however, mean you can’t trust them.
That may sound counterintuitive, but think about the scenario from their perspective. As a successful investor with a proven track record of turning ideas into reality you get approached by lots of people saying they have the best idea since sliced bread. However, a lot of these ideas, regardless of what an “inventor” may say, are not original or unique. A lot of the ideas and opportunities presented to investors are in fact, very similar. Which makes sense, as widespread and ubiquitous media means the general populous are exposed to a largely generic stimulus… But we'll come on to that another time.
As an investor, you already have investments in lots of different companies, some of which may already be working or about to begin working on ideas similar to, if not exactly the same as, the ideas that people pitch. Signing an NDA may open a can of worms that you really don’t want to be dealing with. And you want respect; you want the person pitching to you to trust you – if an investor steals someone's idea their reputation will be shot and no one will come to them to get investment in the future.
So, if you have an idea for a new company should you have an NDA? Yes, but maybe not now, maybe later and only for some meetings. Confusing? Of course it is!
This is where lawyers, IP experts, confidential prototype designers and investors who really know their stuff come in handy. They can tell you what (if any) IP protection you need and how to go about getting it. Many will even give you an initial consultation for free.
If your idea is still in concept phases and you are running about handing out NDAs, you may well be putting backs up left, right and centre. And, to be brutally honest, if you feel you need an NDA when you speak to someone about your idea, then you probably shouldn’t be speaking to that person in the first place.
Be warned: You may have to trust someone and take a risk!
James King is MD of Find Invest Grow UK