Non-disclosure agreements can protect your trade secrets, but it’s important to know what situations they’re appropriate for.

When two entities, be they individuals or companies, want to work together, there may be some sensitive information they need to share. Often, the companies don’t want this information public knowledge, so they create a non-disclosure agreement that outlines what the other party shouldn’t share outside of the business relationship.

This information might include:

  • Trade secrets
  • Drawings of product concepts
  • Patents applied for
  • Technology
  • Inventions not yet released

Let’s say you own a software company and need to hire an outside consultant. This consultant will be privvy to your trade secrets and the technology you use to get a leg up on your competition. This is information you don’t want getting out, so having the consultant sign an NDA protects your competitive advantage.

And just because you have a patent doesn’t mean you don’t need a non-disclosure agreement. Patents protect others from copying your product or design, but they don’t exclude people from talking about them...unless you’ve got an NDA. If you’re not ready to launch your patented product, be sure to get a non-disclosure agreement to ensure that people don’t spread the word prematurely.

What Goes into the NDA

You can find one of dozens of free non-disclosure agreement templates on Docstoc, but you’ll want to customize it to cover the types of information you don’t want discussed outside of the business relationship.

The agreement should list out the two parties involved, the type of information that must be kept confidential, and how long this information must be kept private. It should also include any exclusions to the list, such as information that is public knowledge or that the parties knew prior to signing the NDA. And finally, the agreement should cover what the parties can do with the information that is discussed and any limitations to its use.

When to Bring Out the NDA

If you are in discussions with a potential business partner, make generic references to the information in question as long as possible. Once you have built trust with the potential partner and feel certain you are ready to take the relationship to the next professional level, draft your NDA and ask that they sign it before you give specifics that they will need in your business relationship.

If you get any resistance, explain your reasons for asking for an NDA. Perhaps you are about to release a game-changing product and don’t want word of it leaking out before the launch. Or maybe the sensitive material contains trade secrets that you don’t want falling into the wrong hands. Explain that this is standard procedure for anyone who works with your company on this level.

If you still get resistance, ask yourself why this individual is so reluctant to agree to keep your information private. He may have other objectives that don’t align with yours, so consider whether the relationship would really be a good fit.

If you are considering selling your business, an NDA will also help you separate those who are actually interested in buying your company from those who are merely snooping to see how you operate. Require any interested party that you’ve screened beforehand to sign an agreement before divesting any sensitive information.

When to Use Mutual NDAs

Sometimes both parties have information they want to keep confidential. In that case, use a mutual non-disclosure agreement to protect both sides. The agreement is essentially the same as a traditional NDA, only it lists the information restricted for both parties involved.

If you are a mobile applications designer and are looking for cell phone carriers to partner with, you likely both have information about how you operate that you don’t want getting out to the public, or to your competitors. By signing a mutual NDA, you both agree to keep this information between you.