To paranoia or not? Why it is good to have an NDA in place.


If you are an Intellectual Property (IP) lawyer, then you can click away. This article is meant for laymen.

If you are an IP lawyer and you still read it, then there is no need for you to criticise it. I will shoot the present article away myself, with my next article here on LinkedIn.

For the sake of good order, I am posting the article here. There are some reasons for implementing NDA prior to starting any business co-operations, despite the value of NDAs being highly overestimated.

Definition of NDA

"NDA" is an acronym for Non-Disclosure Agreement, which is at times also known as "Confidentiality Agreement". An NDA obliges the receiving party not to disclose sensitive data, such as confidential or proprietary information, to third parties.

All businesses have trade secrets to protect, as it is in their interest. However, there are often situations whereby it is desirable or necessary to share such sensitive information with others. To this end, NDAs are often utilised, with the intention to provide peace of mind to the disclosing party.

This will be more closely discussed in the following.

An NDA is a deterrent

Laymen hope that, by its existence, it discourages the party whom is receiving the sensitive information from a breach of the NDA even if the consequences of a breach and the enforceability of the NDA is not clear to the receiving party. I can say after more than two decades in practice that this hope has never ever materialised.

An NDA is an icebraker

This is true. An NDA, especially when entered into smoothly, often builds a basis for a confidential exchange which is fruitful, as it provides hope to the parties that further negotiations will also run smoothly. However, quite often, I have seen this being abused by one of the two parties.

An NDA is a trust maker

In NDA, it is often agreed by the parties that all kinds of information, be it protectable or not, is also covered by the NDA. This provides a higher felt security, especially to legally inexperienced parties. Then again, I have often seen this being abused by the legally more experienced one of the two parties.

An NDA prevents the exchanged information from becoming prior art for subsequent filing of patent applications

This is established case law in many countries, and this is one of the two only ultimately valid reasons to enter into an NDA.

An NDA prevents abusively published information (i.e. confidential information which is disclosed in breach of an NDA) from becoming prior art for subsequent filing of patent applications

This is established patent law in many countries, and this is the other one of the two only ultimately valid reasons to enter into an NDA.

An NDA forces the parties to switch on Common Sense

Since the main subject of NDA is the Confidential Information, the drafting of the definition of the Confidential information and delimiting it from free information will be required. This prompts the parties to accurately select the essential information and to plan documenting and protocolling the exchange of information.

An NDA can result in new patent filings

The exchange of info after implementing an NDA increases awareness for new inventions that is useful for identifying new subject matter for patent filings, and also identifying the respective inventors.

So much good! Why should you still be critical with respect to NDAs?

As will be shown in my next article, the value of NDAs is highly overestimated, and usually, too much time is spent when it comes to negotiating the minute details of such agreements.

NDAs also often cause issues at the pre-negotiation and negotiation stages of business dealings, resulting in more hassle than they are worth.