ZPEnergy.com - Protecting your business ideas with nondisclosure agreements

solaris writes: AllBusiness.com / Wednesday, December 14, 2005

You can never be too careful about protecting your valuable business ideas. When discussing confidential business ideas with investors, customers or other parties, a confidentiality agreement, sometimes known as a nondisclosure agreement, can help guarantee that your business secrets stay just that: secret.

Here are some typical situations where you may want to use a confidentiality agreement:

-- Presenting an invention or business idea to a potential partner, investor or distributor.

-- Sharing financial, marketing and other information with a prospective buyer of your business.

-- Showing a new product or technology to a prospective buyer or licensee.

-- Receiving services from a company or individual who may have access to some sensitive information in providing those services.

-- Allowing employees access to confidential and proprietary information of your business in the course of their job.

Confidentiality agreements may be presented to new employees or used when companies are working on a joint business deal or a merger in which one company will be privy to the process or procedures used by the other.

From software programs to secret recipes, most businesses will typically have some confidential material that needs to be protected.

Such an agreement, drawn up with help from your attorney, will include: what material needs to be kept confidential; under what circumstances and in what manner any confidential information may be used; your right to seek an injunction should the other party violate the agreement; how any such dispute regarding the agreement will be settled; a specific time frame, including when the agreement begins and how long it lasts after your business interaction ends.

The party receiving the confidential information then signs the agreement and is legally bound not to disclose your information.

Many new businesses, particularly in the planning and development stages, are very diligent about making everyone associated with the company as an employee or independent contractor sign such an agreement.

Confidentiality agreements can play a key role in your ability to maintain valuable intellectual property rights. Too often, inventors have been burned by disclosing an idea to a potential business partner or investor without taking the time to draw up such an agreement.

There is an unlimited range of material that can be deemed confidential. It is your decision as the business owner to determine what information, in the hands of another business or individual, could prove detrimental to your business or to you personally.

You can also determine in which situations the material is confidential and where it may be used. It is equally important to determine which individuals could, intentionally or unintentionally, use such confidential information and get them to sign.

Elements of a nondisclosure agreement

Confidentiality agreements, also called nondisclosure agreements, don't have to be long and complicated. In fact, the good ones usually aren't more than a few pages long. Every agreement should include these first five sections. You may include the others if your situation warrants them.

Identification of the parties

Definition of what is defined to be confidential

The scope of the confidentiality obligation by the receiving party

The exclusions from confidential treatment

The term of the agreement

Jurisdiction if there is a dispute

Your right to seek an injunction should the other party violate the agreement

Never ask VCs to sign one

Most venture capitalists refuse to sign nondisclosure agreements. For them, signing one is too much work and may restrict future opportunities. If you ask a VC to sign your nondisclosure agreement, don't be surprised if you are shown the door.

Source: San Francisco Chronicle


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