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Protecting Your Business: The Importance of Non-Disclosure Agreements

When you own a business, one of the most useful legal documents you will use on a regular basis is a non-disclosure agreement. Non-disclosure agreements (NDAs), which are also sometimes referred to as confidentiality agreements, are legally binding contracts that business use to protect information that gives their business a competitive edge. Businesses work hard to develop proprietary information that gives them a leg up on the competition. Such proprietary information has been carefully cultivated over time and provides a benefit to the business, so loss of the secret and protected nature of this information would result in a detriment to the business.

When To Use An NDA

Companies want to protect sensitive company information, which is why NDAs are a perfect tool by which to keep important business information secret. They are highly versatile, and can be customized based on a particular situation. A few examples of when using an NDA might be appropriate include:

  • When conducting prospective employee interviews in which it is critical to disclose sensitive business information in order to fully assess the applicant’s qualifications. By having the applicant sign a NDA, the applicant can be interviewed but is legally obligated to keep any information he or she learns during the interview confidential.
  • When assigning employees to sensitive projects where access to proprietary business information is necessary.
  • When discussing new ideas or intellectual property for which legal protection has not yet been sought. For example, if a company has a new invention, but a patent application has yet to be filed for that invention, an NDA can be used to discuss the invention prior to filing for the patent application.
  • Using an NDA to protect company trade secret information. Employees, vendors, suppliers, contractors, clients, etc. may need to know trade secret information, and businesses need to take steps to ensure that any trade secret information is protected from public disclosure.
  • When pitching ideas for new products or company development to potential investors, it is often prudent to have the prospective investors sign an NDA prior to making a business pitch.  (Note though that many investors — particularly venture capital funds — have a blanket no-NDA policy.  Each situation is different, and you may want to consult an experienced professional to determine if it is reasonable to request a certain investor sign an NDA.)

NDAs are useful because they are easy to modify for a particular application. In each NDA, the parties who are subject to the NDA can be specified and each party must sign the NDA in order for it to be binding. A duration for how long the parties are obligated to keep any information that they learn under the NDA confidential can be specified as a term of the agreement. Additionally, the NDA can specify if the parties can disclose the confidential information to others in limited circumstances.

If your business relies on proprietary or confidential information, it is important that you explore the value that NDAs can provide to your business. An experienced business lawyer can help you develop a basic NDA, or can draft (and negotiate) one for you.