“Sshhh – It’s a Secret!” Protecting Your Business with Non-Disclosure Agreements

Competition in today’s marketplace is fierce. Obtaining an edge over your competitors is tough work. It requires savvy and creativity, not to mention a serious investment of time and money. You may have found success due to your unique business model or perhaps due to your innovative approach in the market. But how do you protect your competitive edge? How can you stop others from improperly utilizing, stealing or disclosing your confidential information? How can you keep your trade secrets safe?

Non-Disclosure Agreements (NDA’s) are legally binding contracts that offer protections if properly drafted. In an NDA, the party gaining access to your proprietary or confidential data agrees not to utilize or disclose that information. The mere knowledge that one is legally bound by an NDA can be sufficient to keep your secrets safe. NDA’s are enforceable in court as long as they are reasonable. An NDA is reasonable if its purpose is to protect company information that qualifies as a trade secret. Broadly speaking, a trade secret is information that:

• is not generally known or can’t be discovered using legal methods (such as a client list with private information not found in phone books or other public sources);

• gives you a competitive advantage or has economic value (such as the formula for Coca-Cola); and

• is the subject of reasonable efforts to keep it secret (such as by having employees with access to the information to sign Non-Compete or NDA’s.

Therefore, not every bit of information that one discloses to another party is protectable as a trade secret. Determining whether information can be qualified as a trade secret capable of being protected under the law is complicated and New York courts have rendered many decisions on this topic. A properly drafted and reasonably restrictive NDA can provide the protection necessary to keep confidential information secret. However, an overreaching NDA might be disregarded by a court entirely.  Additionally, venture capitalists and other equity investors will often refuse to sign NDA’s because they do not want to preclude themselves from investing in other similar or competing investments.

One should obtain legal counsel in order to protect trade secrets and to craft an appropriate and enforceable NDA.


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