Public service announcement reminder from back in your school days — Condoms are only 97% effective. Public service announcement from your lawyer — NDAs, or non-disclosure agreements, are even less so when you think they also act as a prophylactic device.

While an NDA isn’t a prophylactic, that isn’t to say they aren’t helpful in putting preventive measures in place since they can be an effective legal remedy to prevent the misappropriation of trade secrets. After that, their effectiveness wanes. Once the confidential information protected by an NDA is misappropriated or otherwise publicly disclosed (intentionally or accidentally), the toothpaste is out of the tube and you can’t put it back in.

What we tell our clients is that how you act after an NDA is signed is more important than the NDA itself. In other words, be careful about keeping that toothpaste in the tube.

What is a Non-Disclosure Agreement?

Nondisclosure agreements are very basic documents. It’s a simple form that is ubiquitous in most business environments. People throw them around easily. Effective versions of them can even be downloaded from the internet.

Generally, most NDAs are self-explanatory and don’t present a lot of contentious issues between the parties. They are typically used in a situation where two parties want to share information about a company’s products, technology, or confidential information in furtherance of some form of collaboration, deal, or another business arrangement. 

NDAs are a common way to obligate parties to keep their respective trade secrets, well, secret. 

Where we see problems is that most people — when they have an NDA in place — feel like they can talk about anything and share everything under the sun. In effect, they start blabbing too much and about things that aren’t necessary to get the deal done.

An NDA is just a piece of paper, like any other contract. It’s not a prophylactic device. It’s just a contract that gives you the ability to sue someone for misappropriation of your own trade secrets.

So, if you (or the other party) inappropriately discloses confidential information to someone, and a nondisclosure agreement is in place, the irreparable harm of your trade secrets being in the public domain is difficult — if not impossible — to recapture.

Related: Is a Trade Secret Right for You?

You Can’t Unring the Bell – The Problem With Enforcing NDAs

At that point, the “teller” could be sued for trade secret misappropriation, or more easily, breach of contract. But, the bell cannot be unrung. You can’t put the toothpaste back in the tube. The cat is out of the bag. Choose your cliche but the damage is done and the confidential information may be out in the public domain with no way to effectively make it secret again.

The remedy in these situations is to sue and ask for immediate injunctive relief to stop the faucet from dripping. But there’s water already in the sink, right? This is what is referred to as irrevocable harm so often mentioned in an NDA and other contracts.  

Even with immediate court intervention, you might never be able to cure the breach or find a remedy that would fix what just happened. The agreement that was to prevent that from happening is just a piece of paper and as the title of this article suggests isn’t capable of preventing this type of “leak.”  Yeah, that was gross but I couldn’t resist.

There’s no guarantee the person will actually respect the obligations in that agreement. So what I tell my clients is just that, the NDA is not a prophylactic. My advice to them is always the same.

Do not tell third parties anything that is not absolutely necessary for them to know. Focus on the purpose of your discussion, rather than information that is outside the scope of the meeting or other information exchange.

Implementing NDAs Properly

A lot of times the people negotiating the NDA are higher-ups. It’s the engineers and the technologists who are actually the ones in a conference room collaborating with a third party.

Oftentimes the type of instruction about the implementation of the NDA is more important than the NDA itself. How you act when you’re in a situation where confidential information can be shared is critical and those instructions need to be given to the ones on the ground. 

Don’t tell them anything you don’t need to tell them. It’s that simple.

That advice goes both ways. You may be the one in a situation where someone else is saying a little too much, and you want to protect yourself there too. Don’t ever be afraid to just say, “Hey, what you just said is kind of beyond the scope of what I was willing to talk about today. Do we really need to have that disclosed for this conversation?”

Implementing an NDA effectively requires the responsibility of both parties, and it’s all in the details.

Related: New Injunction Policy Boosts Power of Essential Patents

It’s All in the Details

Most NDAs are generalized and broad in scope, but you can put details in the picture as well. The more details you have in there, like labeling the document as confidential, the stronger your agreement.

If it’s electronic, it should have some sort of legend on it. It’s also important to say verbally and in writing; “What I’m about to tell you is confidential and falls under the scope of this nondisclosure agreement.”

If you don’t do that, or forget, follow it up. You want a good paper trail to show that you’re actually treating your information as confidential. The first thing a court will look at if you want to enforce an NDA is whether you actually treated the information as confidential. If you, or your company, have loose rules about access to confidential information, a court may actually find that it isn’t confidential at all.

NDAs don’t have to be specific, most are broad and generalized. The goal is to have an engagement with a third party, exchange information, and be comfortable talking about things.

Problems with NDAs arise when you’re exchanging information that you just don’t need to. If it’s not necessary, don’t talk about it. Even if you don’t know specifically what you can’t talk about, most NDAs will have a broad or blanket definition of what is confidential.

Other details to consider are with larger companies that might have dozens, if not hundreds, of individual nondisclosure agreements with various people and parties. Managing that can be a problem.

So it’s not just about keeping track of who you have agreements with, but also keeping track of when they expire, or what you need to do in order to terminate the agreements. Understanding which ones will automatically renew without action is also an important detail to track.

Those can come into play and bite you later if, for instance, you want to sell your company and the suitor is doing some diligence and realizes you’ve got a thousand NDAs out there, all of which are still in force.

That might be a problem. Bigger companies might have a contract manager role to take care of all of that, but smaller and mid-sized companies might not. Those NDAs may get lost in the shuffle.

Practice Safe Disclosure

The most important thing to remember with NDAs is they are not a prophylactic device to prevent all preventable mishaps. Practice safe disclosure. 

If you have any questions about protecting your information and non-disclosure agreements, contact us. We are here to help.