One of the most valuable assets many companies possess is their intellectual property. Companies must take appropriate steps to protect the value of this asset just as they would with any physical asset.
However, intellectual property still must be utilized, even at the risk of exposing original ideas or concepts. Much like a distribution company would not keep its trucks in the garage to prevent them from being involved in an accident on the highway, a startup company can't keep its ideas locked away from business partners who can make it a success. The distribution company protects its asset (trucks) with vehicle insurance so they can use them without exposing the company to financial ruin. The startup company can protect its intellectual property in several ways, including a nondisclosure agreement.
What It Is
A nondisclosure agreement (NDA), sometimes called a confidentiality agreement, allows a company to share its intellectual property with others whose input it needs without unduly jeopardizing that information. For example, if you have a new product or feature in development but you need to consult an expert for advice on how to proceed, an appropriate NDA can ensure that the expert doesn't hand the details of your new product to a competitor.
A nondisclosure agreement is a legal contract between you and the other party. You agree to disclose certain information to them for a specific purpose. They agree to not disclose that information to anyone else.
Johns Hopkins University, for example, uses NDAs to preserve unfiled patent rights, trade secrets, business plans, and other confidential and proprietary information, and requires them of their researchers.
Why An NDA?
You use a nondisclosure agreement when you have information you need to give to someone, but you don't want them to pass that information to anyone else. This might occur because:
- You have developed a prototype of a new widget. Before you decide whether to produce it, you need to get a cost estimate from a fabrication shop.
- You have developed a new business model that you want to present to venture capitalists for funding, but you don't want them to take the idea and develop it on their own.
- You want to respond to a confidential request for proposal from the government but no one in your organization can write the proposal. You need to hire an outsider but don't want him disclosing to your competitors what he learns.
- You are trying to sell your company and the buyer wants details on your operations. You want to prevent them from canceling the deal as soon as they learn all your secrets and using them themselves.
What an NDA Looks Like
Many companies have their non-disclosure agreements posted on the internet for one reason or another. For example, Archaeopteryx Software Inc. posted one of its NDAs. This gives a general idea of what one might look like, but details obviously will be different depending on industry and the specifics of the intellectual property being protected.
As with any legal document, you should consult with a trained professional. Do not rely on forms you take off the internet and edit unless you are qualified to do so.