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Paula Brillson is a business attorney and entrepreneur. For more than 15 years, she has successfully navigated hundreds of small businesses through the legal hurdles they face in starting and running their companies -- from corporate set up to board governance and capital raises to contract drafting, human resource matters and intellectual property protection. Paula also acts as a Mentor to the Thiel Foundation's 20 Under 20 Fellowship and is an Adjunct Professor for Franklin University's MBA program.

Tuesday, November 6, 2012

Disrupting the NDA

Brillson’s Law on Non-Disclosure Agreements (a/k/a Neurotic Delusional Approach)

 
Since mere ideas cannot be protected with patents, trademarks or copyrights, to get a concept off the ground with the support of others involves a certain degree of risk. You may need to share your ideas with vendors, investors and maybe a partner or a mentor. So how do you protect your ideas at this critical stage of development? Most would reply:  sign an NDA.

Yet, the NDA is the most overrated document in today’s business. Its purpose is to discourage someone from sharing or using your ideas under “penalty of law” but it does not prevent unlawful disclosure.  Indeed, in the age of digital communication where we can easily email, post or tweet, it may be nearly impossible to track (or prove) the source of the information leak. Yet lawyers continue to encourage the use of NDAs as a precautionary measure, in spite of its questionable effectiveness.
Protecting Information Internally. As far as Employees, directors, attorneys, accountants and other individuals that have been placed in a position of trust, state law imposes upon them a duty of loyalty — an implied obligation to keep your trade secrets and internal communications confidential and to not take actions that will cause your company harm. While confidentiality agreements are useful insofar as they specifically spell out the obligations of confidentiality and/or non-compete, even without a signed NDA, you take legal action against them to enforce their obligations.
Protecting Information Externally (e.g. contractors, potential investors, suppliers and other third parties). While there are limited state laws that impose obligations on third parties, An NDA is only as valuable as your ability to enforce it. For example, if you can’t afford to hire a lawyer to sue someone in court, chances are, you won’t be able to stop their unauthorized disclosure or theft of your ideas. And even so, can you prove it? The most common defense is that the information was developed independently. Let’s assume for a moment that you were to win your case, while you may be able to stop them from exploiting your ideas, damages may be hard to calculate – particularly if the information leak at issue is a plan or a concept that has no value other than the idea itself.
In short, NDAs are the equivalent of a handshake in documented format. It may have the effect of deterring someone from sharing your confidential information but it does not prevent it.
In my opinion, the main value of an NDA is to act as a starting point for new business discussions. It also provides verification of each party’s identity (corporate details, state of incorporation, the name and signature of an authorized representative.
In the context of today’s business environment, one may think of NDAs as a Neurotic Delusional Approach toward innovation:  an illusion of greatness in one’s ideas that gives rise to insecurity that the idea will be misappropriated.
NDAs are not a substitute for trust or good judgment. Use discretion regarding who and what to share – if you don’t think you can trust them, they are not the people you want to work with.
That being said, a great idea is worth sharing and innovators need to open up conversations with industry much earlier and disclose knowledge-based propositions pre-contract. Otherwise, be willing to put your idea in the public domain and let innovation take its course.
For alternatives to protecting your ideas and intellectual property, check out http://www.creativebarcode.com/ a Barcode system & App that uses barcodes to authenticate, attribute & protect innovation concepts disclosed to third parties and their completed creative works displayed online.
Leave me a comment and share your thoughts with me on the value of NDAs.

1 comment:

  1. Nicely done.

    A few years ago, a rather well placed bank VP, gave me some advice on soliciting VC monies for a new start. He instructed me to be very careful. He stated it is not beyond a VC to reject a brilliant company's proposal, and thereafter pass along their IP to a, "cousin". I never forgot the little gem.

    Irrespective of the reputation of a VC, no matter how promising a prospective client or partner, anyone can steal. In most instances, very little can be done about it.

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