When is an NDA Appropriate?

Non-Disclosure Agreements are one way that we protect intellectual property.  But when are they appropriate and when not?

We use NDAs in the Ethical Collaboration framework, but only in certain circumstances.  We believe that NDAs function well when there is trust between the parties, and trust is something that is earned.

If you are having coffee with someone you just met and the conversation turns to you talking about your future business plans, your invention, or something that you feel should be covered by an NDA, what should you do?

There is a notion of a “Friend-D-A” that is popular in Silicon Valley, but a Friend-D-A has a ton of unintended bad consequences.  Specifically, there is a domino effect between your Friend-D-A and all of your other (more important) NDAs.  The domino effect means that you can wipe out other NDAs with a simple Friend-D-A.

In startup communities, NDAs are only appropriate when there is a need to have one.  Many communities have public meetings, such as a monthly meetup at a coworking space, a weekly “open coffee” meeting, a programmer’s meeting to help people learn to code, or similar meetings.

Public meetings are NOT the place for NDAs.  Any time you interact in a public meeting, you should assume that there is no NDA in place with anyone.  Even if you have an NDA with someone, such as a consultant that you hired, you should refrain from discussing sensitive information at the meeting.

The first principle of Ethical Collaboration is respect for our own intellectual property.  This means that you – and only you – are responsible for protecting your IP.  If you want to share it in a public forum, take whatever steps necessary to protect it beforehand.  It might be getting a patent, publishing a blog post, dedicating your work to open source, or whatever is appropriate for you.  If you want to learn more, you can check out the FREE IP 101 course available on IP.Education.

NDAs transfer the responsibility to keeping your IP to someone else.  You are asking someone else to keep your secret.  But do you trust them?

NDAs are enforceable, but it costs a lot of money to enforce an NDA.  The cold hard facts for entrepreneurs is that you should assume that NDAs are – for all practical purposes – unenforceable.  Yes, you could enforce an NDA, but it would take so much effort, time, and energy that you are almost better off forgetting about the transgression and move forward with the business.

What does this mean?

It means that NDAs are only appropriate when you trust someone.

You should never use an NDA when you are worried that someone is dishonest.  Bad actors will always be bad actors, and no contract will prevent them from acting badly.  If they are honest and respect the non-disclosure agreement, then the NDA has a place.

In the Ethical Collaboration framework, we recommend using NDAs for closed groups.  A closed group may be a coworking space, where everyone in the space has signed an agreement.  Another closed group may be a closed mastermind group, such as curated mastermind groups with limited number of participants.  Still another closed group might be a makerspace or hackerspace where there is a closed group.

In a communal workplace, each person might be working on their own projects, so there is a need to have an NDA in place.  This NDA is merely one that shows respect for each person’s project, but from an intellectual property standpoint, you don’t lose your IP rights merely because you had a phone conversation that someone may have overheard or someone could have walked past your open computer screen.

This is why the Ethical Collaboration agreement for coworking spaces has an NDA.

In a one-to-one interaction, you should use the Ethical NDA, which is created just for that type of interaction.