Why Confidentiality Agreements Are Not Enough
Love ‘em or hate ‘em, confidentiality agreements aka non-disclosure agreements aka NDAs are everywhere.
These days, NDAs are the entrance ticket to almost every 2-party interaction. Every pitch meeting. Every RFP. Every hire. Pull out the NDA.
They are important and necessary…sometimes. But do you know what is even better than an NDA? Discernment.
Every time you share confidential information it becomes a little less confidential.
Whenever my clients are presented with an NDA, I always ask whether sharing confidential information is necessary. Do you have a signed engagement yet? No? Don’t share any confidential information. Absolutely wow them with the results you get with your proprietary process, but don’t share it until you get the gig and the check has cleared.
My strong preference is against NDAs but for confidentiality provisions within a services agreement. When the services agreement is signed, both parties are invested. The relationship is real and forming (at least for the term of the engagement). And most importantly, you are sharing the confidential information only as needed to perform the services.
Why aren’t I a fan of NDAs? Because they give us a false sense of security that we have done everything necessary to protect our secrets. However, alone, these agreements are not very useful. You must take additional, reasonable steps to maintain the confidentiality of your information.
Part of our misstep is that we don’t realize the broader context of what NDAs are for. Yes, they notify the receiving party that you are sharing confidential information and, yes, they lay out the terms for its use. Namely, the receiving party is permitted to use the information only in connection with the transaction being discussed and that the information can’t be shared with anyone else without the disclosing party’s permission.
But the broader context is to create an enforceable remedy in the event of a misappropriation of your trade secrets. Did you know that trade secrets are intellectual property? Just like copyrights and trademarks and patents. However, the way you protect them is not by registering them, but by keeping them secret.
A trade secret is generally defined as information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (a) has economic value because it is not generally known and not readily ascertainable by proper means by others who can exploit the information, and (b) is subject to reasonable efforts to maintain its secrecy.
Part (a) means the information to be protected gives you a competitive advantage in the market and if the information were widely known and used by competitors it would harm your business. Got it.
The rub is in part (b). What are “reasonable efforts” depends on the nature of the information being protected. Generally, more than a signed NDA is required. It also means:
Providing physical or technical restrictions to secure and protect the information (such as watermarking, stamping or labeling documents as “confidential” or “secret”);
Limiting the dissemination of the information to third parties to a strict need-to-know basis;
The ability of the third party to disseminate the information is tightly controlled;
Printing and copying of sensitive and confidential information are limited; and
All confidential information is retrieved when the use is concluded and the receiving party verifies that all information, electronic or otherwise, has been returned (or destroyed) and no copies have been kept.
Are you doing all of these?
Here’s the thing, confidentiality agreements cannot make information that has not been kept confidential secret again. Be careful about how and who you share your confidential information with.
Hit me up with any questions.