This article is for general information purposes only; it is not intended as legal advice. If you need specific information regarding NDAs and your particular legal situation, consult your lawyer.

Flossing your teeth can be tedious work -- it takes self-discipline, but it helps ensure you have a smile on your face down the road. The same is true of non-disclosure agreements (NDAs). Like floss, NDAs come in a variety of flavors, and if used diligently they will help keep you smiling.

An NDA is a type of contract. The place to get an NDA form is from your intellectual-property (IP) or corporate attorney. This is also the place to have reviewed an NDA that someone wants you to sign, especially if it seems to contain unusual terms.

The most fundamental skill in building and maintaining IP is keeping a secret. Your unique idea needs to be turned from the seed of an invention to the flower of a valuable innovation. Keeping this seed of an idea protected during this cultivation process is essential to being able to harvest the rewards of innovation. If you let your invention out into the breeze like dandelion seeds, then anyone can cultivate and harvest it.

Patents help protect your innovation when you are harvesting the fruits of your invention. However, how do you help protect your invention during the critical cultivation phase? This is where you need an NDA.

The basics of an NDA are such that the other party won’t spill the beans or run off with your fabulous invention, and likewise that you won’t run off with the other party’s confidential information. Since any innovation takes the help, skills, and resources of other people from investors to vendors to collaborators, there is a need to talk with others willing to commit to confidentiality.

The first thing to think about when considering the execution of an NDA is the purpose of your interaction: Is it discussing a business opportunity?; bringing on an employee?; hiring a consultant?; or utilizing a vendor? These are times when you will want to have an NDA. What if you are just picking someone’s brain for information, or if someone is asking you for free advice? You might want to think about signing an NDA in these circumstances, or see if there is a way to be helpful without binding yourself to an agreement.

Remember that agreeing to an NDA makes you responsible to keep secret and not use the information you are given. If you don’t want this potential encumbrance, you might not want to sign the NDA or agree to receive the other party’s confidential information.

There are times when the other party will not sign an NDA, even if you are disclosing confidential information. One of these is when you are presenting to a venture capitalist. Make sure you have at least a provisional patent application in place before you make your presentation. This also goes for if you are presenting to an angel investment group (e.g. the Keiretsu Forum or Life Science Angels.) Some larger companies can be very reluctant to sign NDAs with individual inventors or small companies. And if they do, they usually will only allow use of their own NDA forms.

Here are some of the typical terms and provisions of an NDA:

• One-way NDA is when one party is disclosing confidential information to another party, and the other party is not disclosing such information.
• Two-way or Mutual NDA is when both parties are sharing confidential information. An agreement like this is typically put in place when two companies in the same business are discussing a mutual business opportunity.
• Purpose describes why you are having a conversation and sharing information. Example: to collaborate on product development.
• Non-disclosure means that the party receiving confidential information will not disclose it to a third party.
• Non-use is a term where the receiving party will not make use of the information shared for their own purposes. An NDA will typically have non-disclosure and non-use terms.
• Scope describes how much information is intended to be shared and in what area. The NDA should accurately describe the type of information the parties wish to keep secret.
• Term is the length of time the information is to be kept secret. The typical term is three years. Some NDA’s ask for a 5-year term, and some ask for an indefinite term. Typically you would agree to the shortest term possible if you are the one signing the NDA. Also, avoid signing an NDA for an indefinite term. The exceptions are trade secrets; these should have an indefinite term.
• Damages specifies the relief expected for a breach of confidentiality or misappropriation of confidential information. Typically this is the right to seek an injunction, which demands the offending party stop using the information or selling products that incorporate the information. Another form of damages is “liquidated damages,” or a specified amount of monetary damages expected in case of a breach.
• Venue is where a legal case to enforce the NDA would be tried. Usually you want to have this venue as close to your business location as possible, or one known for handling IP issues quickly and fairly.
• Maintaining records is the real “flossing” part of maintaining an NDA. When information is disclosed under an NDA, it is good practice to keep an accurate record of the information disclosed, to keep a record of it on file with the NDA, and to communicate a list of the information that was disclosed to the other party. Follow-up with emails or meetings that obtain an agreement that what is written down afterwards represents an accurate record of the information that was disclosed under the agreement. This can be a tedious, but essential part of maintaining an enforceable NDA, and a step that often is skipped.

It is also important to make sure any information, written or transmitted in any fashion, such as photos or verbal, is labeled “Confidential” and documented.
It is also important to be diligent about requesting the return of any confidential information and materials after the need to have the materials has passed, or the relationship has terminated. Keeping records and control of information in a timely way is essential for handling these materials properly.

Be sure to keep your NDAs current with any parties with which you maintain ongoing relationships. Keep a file for NDAs, as well as records of correspondence, such as emails and presentations, and keep track of the expiration date of the NDAs, especially if you maintain several NDAs with a number of parties. Here an old Chinese proverb applies: “the faintest ink is better than the strongest memory.”

NDAs are contracts, and usually understandings between two ethical parties. Before you rely entirely on an NDA to protect confidential information, check the references and reputation of people with which you intend to have business relationships. Snakes in the grass don’t respect agreements, no matter how well crafted they are, and may misappropriate your confidential information to do their own patent filings. If you get the feeling you are dealing with someone that makes you want to count your fingers after you shake their hand, perhaps you should just avoid getting involved with them.

The assistance of Cecily O’Regan Esq. of Greenberg, Traurig LLP, E. Palo Alto, CA, and Paul Backofen, Esq. of Crockett and Crockett LLP, Laguna Hills, CA, in preparing this article is gratefully acknowledged.