NDAs … Worth the paper they’re written on ?

An ISP asked us this week whether the pile of non-disclosure agreements they have signed have any value to anyone.

The answer is ‘yes’ if you understand what an NDA can and can’t achieve.  Peter Moon explains …

You don’t need an NDA to have confidential info

The law recognises that important, secret information that is handed over in circumstances of confidence should be protected.

Even if you don’t sign an NDA, obligations of confidentiality apply to info that the law regards as confidential.

But you do need confidential info to have an (effective) NDA

The law refuses to allow a party to pretend that non-secret information is suddenly confidential just because an NDA says so.  If it isn’t really confidential, an agreement can’t make it so.

If a court considers that an NDA tries to lock up information that is not genuinely confidential, it will throw it out.

So if you try to do too much, you shoot yourself in the foot

This is the main reason that most NDAs are useless.  They try to define as confidential a whole range of stuff that really isn’t.

For instance, imagine you are dealing with someone and your NDA says that all information whatsoever about your plans and pricing is ‘Confidential Information’.

That has to be nonsense.  If you are already doing business, there’s lots of information freely available about your plans and pricing.  People just need to check your website, read the newspaper or call you.

Sure, unreleased plans and pricing might be confidential, but not all plans and pricing.

If you write an NDA that steps across that line, and tries to create confidential information out of open information, the courts will throw it out.

So why bother with an NDA ?

Let’s assume that our NDA relates only to information that’s (at least arguably) secret.  In that case, there are several advantages to having it signed.

It will help in relation to ‘grey’ areas.

If an NDA is sensibly drawn, and there’s debate about whether certain information was truly confidential, a court will give credit to what the parties agreed in writing.  It’s a helpful factor.

It will help prove ‘confidential circumstances.’

If a person discloses confidential information in circumstances that don’t suggest it needs to be kept confidential, the recipient may not be obliged to do so.

A written confidentiality agreement makes it very clear that disclosure was indeed in confidential circumstances.

It can create procedures that best suit the situation.

A written agreement can set out processes and procedures that are tailored to the case.  The general rules a court might adopt may not suit so well.

It helps people do the right thing.

Some people are unaware of their legal obligations, but will obey them if they are pointed out.  A written agreement can be educational, and help people to understand and do what’s required.

It can improve your legal position.

For instance, there’s a general legal rule that a person seeking an injunction must make certain big promises to the court.  A written agreement can pre-agree that they would not be required.  Although such a pre-agreement isn’t always water-tight (because it can depend on the circumstance that apply when the parties come to court), it can be a big help.

Conclusion

Many NDAs are a waste of paper, but a sensible one can do a lot of good.  The golden rule is only to use them to protect genuinely confidential material.