Protect your Intellectual property.
Trade secrets, business models, know how and confidential information are often the most valuable IP’s your business has. They must be protected at all time.
If any of such information is disclosed without proper legal protection or contract, they are lost.
What this means is, that you cannot prevent anyone who is familiar with your IP to share or use it freely and there is no way you can stop them without an NDA.
Do you want to disclose secrets?
Companies often rush into creating an NDA without thinking about the the business reasons for disclosing information. Imagine you inveted the Compact disc and you need Sony as a partner to continue development. Whatever reasons you have for disclosing information with Sony must be considered carefully. For instance, has SONY previously violated NDA’s and used IP or disclosed IP?
What happens if your NDA gets violated?
Do you have the resources available to take on whoever violated your NDA? Do you have resources to take on SONY? If you are a small business, probably not. You have to be very carefull about disclosing information only to partners and people who will respect your NDA and who you can compete with in a court of law.
Imagine you are fighting SONY in court. They have alot of resources available and could use tactits to delay the court case to increase costs for your business. If you cannot handle those costs the case is lost and Sony can continue to violate the agreement endlessly.
Do not blindly assume the NDA will protect you for the above reason.
Define and clarify the confidential information.
You want to tighten down the NDA around the core secrets and methods. This could be your code base for a new operating system.
Sometimes confidential information is delivered verbally. Reinforce that the information you just shared is covered by the previously signed NDA. Do the same when writing emails. At the end of your email make sure that you state that the information you just delivered is covered by your NDA.
Length of secrecy obligation
One of the most famous trade secrets, the coca cola recipe has been secret for aproximately 100 years. What happens if you create a NDA for a duration of 5 years and your business is going to run for 20? After 5 years your secrets can become public domain and suddenly you have competitors brewing the same Coca Cola as you.
Most of the time, professional investors will not sign a confidentiality agreement. If your secrets are merely disclosed by laying out your business idea, then you do not really have anything that is protectable in the first place. In such cases it might be a good idea to only reveal the results of your business model and not the actual secrets and methods.
If we use the new operating system you just delivered as an example, in this case you would want to present only the amazing new features but not the code itself. There is no reason for the investors to see your secret code.
Information flow direction?
Imagine you are working with a partner on a project which is protected by a mutual non disclose agreement. During a meeting your partner offers you ideas to improve your product. Now you have the problem, did your partner just give you confidential information? Can he now protect that information? This can lead into a dispute. Are you allowed to use that information?
Be sure to only use a mutual NDA if there is flow of information from both sides. Otherwise, you should use a one way NDA directed towards the recieving end of confidential information.
Lisa Nichols, twitter handle @lisa_nichols7 was so kind to make me aware of her own post on this topic.
I suggest you read her post aswell: http://www.smeweb.com/index.php/sme-advice/5061-are-non-disclosure-agreements-really-worth-it