Protecting Intellectual Property with Contracts: Non-Disclosure Agreements, Confidentiality Agreements, and Non-Compete Agreements (Part II)
In the first section of this series, we laid out a general overview of some ways contracts can be used to protect your business’s intellectual property. We will now discuss non-disclosure agreements (NDAs) in depth. We will also briefly cover some key points relating to trade secret law, because this important type of intellectual property protection often includes the use of NDAs.
What is an NDA, When Might You Use One, and How do They Work?
An NDA is a contract that is signed by an individual or business, who will be disclosing some information, and by another individual or business who will be receiving the information. The contract sets forth the rules for how the disclosed information can be used and shared. NDAs can come in several forms to fit the needs and desires of the parties involved and generally include several common elements.
Typically, a well-drafted NDA will include the legal names and addresses of the parties, a statement of the reason for the NDA, the start and end dates of the agreement, terms stating how the disclosed information may or may not be used by the recipient, signatures, and any other legal terms that the parties desire.
NDAs can be useful in various circumstances and can be used to protect several types of information. Some common examples of when a business might choose to use an NDA are employee agreements, contracts with independent contractors (such as consultants, marketing firms, etc.), and in discussions with manufacturers or others who might be interested in licensing your intellectual property. A few examples of information that can be protected by the use of an NDA prior to disclosure are financial data, customer data, and other trade secrets.
Other examples include new ideas or inventions that are not yet protected by a federal intellectual property right, such as a patent, or for undecided intellectual property strategies, and other types of useful business information that you do not want to be disclosed to others. To learn more about developing your intellectual property portfolio, read our earlier blog posts on the subject here: “What are Copyrights, Trademarks, Patents, and Intellectual Property Portfolios?” and “Building an Intellectual Property Portfolio.”
As a final note on NDAs, it is important to be careful in drafting the terms, because certain mistakes or oversights can lead to the invalidation or ineffectiveness of the NDA. For instance, if the scope of an NDA is overly broad or unreasonable, a court may find that the agreement is unenforceable and the disclosed information would no longer be protected.
What is a Trade Secret?
Like patents, copyrights, and trademarks, trade secrets are a type of intellectual property protection, but unlike these other forms of protection, the majority of laws governing trade secret protections vary from state to state. Trade secret law generally provides protection for many types of information used by a business provided that two requirements are met.
First, the information must provide the owner with a competitive advantage in the market, and second, the information must be protected in such a way that it is reasonable to expect that neither the public nor the competition will discover the secrets without some level of foul play. Some examples of information that is eligible for trade secret protection are recipes, data compilations, and source code.
As stated above, it is important to take reasonable measures to protect trade secrets from being discovered by others, and having a well-drafted NDA is one step that can help you to meet this legal requirement.
If you would like to prepare a non-disclosure agreement or have any questions about using these agreements or protecting trade secrets for your business, please feel free to schedule your initial consultation using the link below!
Written by Benjamin Rothermel and Connor Jaccard.