If you are starting a business, you may be lucky or smart enough to have a truly unique business idea. Perhaps it is a method or product that can be patented, or a unique way of doing business. Very few people in the world know the secret formula for Coca-Cola, or the exact combination of herbs and spices that Col. Sanders put into his fried chicken.
The trusted employees who know those trade secrets most likely have signed an NDA, or non-disclosure agreement. NDAs are very standard forms in many areas of business. You might not need one if you’re starting a pretty standard nail salon, but if you’ve created your own way of making nail polish, do you want one of your employees taking that method?
If you’re creating a product that may be patented, such as computer software, a manufacturing method, a new machine, or an improvement on one of these things, that item needs to be protected.
In many countries in the world, once an idea is publicly known, if it has not already been presented for a patent filing, the invention is public. In the US, there is a one-year mark from the date of publication to file. But since we are such a global society, and information travels at the speed of the Internet, you probably want to keep your invention secret for as long as possible before making it public. An NDA helps ensure that, by obligating the signing party to maintain confidentiality.
This sample non-disclosure agreement from the Harvard Business School Entrepreneurship program does not replace the need for you to consult a legal professional and obtain proper advice specific to your own product, procedure, or circumstances. But it should give an idea of the basic structure of an agreement. The agreement defines what is confidential, how it will be shared, who it can be shared with, and how long it is kept secret. Such an agreement also defines clearly for the other party what the ramifications of breaching the agreement are, and the fact that the sharing of information isn’t making the agreement a transaction.
Use your NDA with vendors, consultants, employees or even prospective employees. Anyone who might see the secret method, or come in contact with information related to your private and unique design should sign your NDA first. Some investors won’t sign an NDA. I have heard VCs claim they see too many potential products, and trade on their reputations. Before revealing anything to them, consult legal counsel. By default, if you’re trying to protect something, everyone should be signing your NDA.
In a famous case from 2011, Dupont, maker of the fabric Kevlar, which is used in bullet-proof vests and other applications, won over $900 Million in judgement against a South Korean firm who hired a former Dupont employee. The employee was found to have taken secrets related to the manufacture of Kevlar and shared them with his new employer.
Your cookie recipe may not need an NDA, but Mrs. Fields or Famous Amos might disagree with me. When thinking about all the possible ways your creation, product or service could be used, consider an NDA as one of the tools to protect your starting or growing business.
Always get proper legal advice and don’t rely on forms you can download for free online.