The Risks and Current Position Of The Non-Disclosure Agreement

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					Where is the NDA Today? “The Risks and Current Position Of The Non-Disclosure Agreement”

Peter Groverman Risk and The Law Fall 2009 Prof. Aagaard

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I.

Intro

Last week you had a meeting with a potential investor. Thinking you were smart, you had this investor sign an NDA that you tailored and found off the website DocStoc.com.1 Though your young organization is small, profits have just started rolling in and you credit some proprietary methods in your workflow and operations in giving you an advantage over your competition. The meeting went quite well and the investor seemed genuinely interested in moving forward – you looked forward to hearing back from him. This morning when you checked your daily industry blogs you found that the investors‟ firm unfortunately decided to back one of your competitors. To make matters more disturbing, they have released a press release announcing the implementation of several of the exact strategies you shared during your meeting. You feel devastated, taken advantage of, and lost – you call your attorney.

II.

Overview

Immediately after every entrepreneur has that „eureka‟ moment (or the spark that travels through their body getting them excited, motivated, and enthused about a new concept or venture), an urgent sense of skepticism kicks in – more notably, “someone‟s going to steal my idea!” As a form of protection, it is standard in the industry to use a one to three-page document commonly referred to as a non-disclosure agreement (NDA).

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See: http://www.docstoc.com/docs/272018/Non-Disclosure-Agreement-(NDA)-

Template

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A typical non-disclosure agreement, also known as a confidentiality agreement, secrecy agreement, and proprietary information agreement (PIA), is a legal contract – agreed to by at least two companies, individuals, or other entities (such as partnerships, networks, or groups).2 The purpose of a standard NDA, is to protect nonpublic information from being accessed by third parties and to keep confidential material, knowledge, or information, safe and secure.3 If executed properly, an NDA will bind contractors, partners, and employees, from legally disclosing sensitive information. A standard NDA is composed of numerous clauses created to protect confidentiality. They are usually signed prior to any formal discussions and many individuals rarely take the time to look through and read the content of the agreement. They are logged, recorded, and filed, usually remaining out of site. If a conflict does arise, individuals usually cite to their signed NDA‟s for insurance and security. Like most business contracts, NDA‟s require specific language and constraints to be enforceable. Every state has different requirements and regulations vary depending on the industries they cover and the governing jurisdictions. Emerging digital technologies have made it easier to create ventures and thus have streamlined communication, interaction, and information. An unforeseen consequence of these efficiencies has been the change of the intent, purpose, and effectiveness of the NDA.

2

Non Disclosure Agreement, (October 5, 2009 at 01:59), available at

http://en.wikipedia.org/wiki/Non-disclosure_agreement.
3

Id.

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Over the past several years, there have been a plethora of cases where NDA‟s have failed to offer the protection they were initially designed to cover. The general validity of the NDA is being challenged in courts. The purpose of this paper is to identify where this document currently sits in the eyes of entrepreneurs, investors, and the legal system. I will address numerous questions that entrepreneurs now face and explain the implications from improper use. Furthermore, I will provide suggestions on appropriate NDA etiquette. Through the help of business minded individuals, research analysis, and legal decisions – you should have a clearer picture and overview of societies opinion on the non-disclosure agreement. III. Protection Outside Of The NDA

It is important to note that states have a vested interest in protecting and promoting good business practices. In order to protect ventures‟ intellectual property (including trade secrets, patents, and trademarks), states have enacted their own loosely knit and organized protections.4 One such example came from The National Conference of Commissioners (NCC), who enacted their own regulations and governing agreements to protect and monitor fair business practices.

4

A trade secret is any formula, pattern, device or compilation of information which is

used in one‟s business and presents an opportunity to obtain an advantage over competitors who do not know or use it (See: Fox v. Tropical Fish)

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In 1979, the NCC passed the Uniform Trade Secrets Act (UTSA).5 As of today, 45 states (plus the District of Columbia and the U.S. Virgin Islands) have adopted the UTSA for the purpose of defining the common law rights and remedies for misappropriated trade secrets.67 Business owners are protected from any wrongful acquisition or disclosure of certain sensitive information (especially when that information is found to derive from an individual who had an obligation not to disclose it). Imposing civil rather than criminal sanctions on violators, the UTSA gives courts the power to impose injunctions, punitive damages, and in cases of bad faith - compensation for legal costs.8
5

Uniform Trade Secrets Act History, (no date of last update listed), available at

http://www.google.com/search?q=Uniform+Trade+Secrets+Act+history&hl=en&client=f irefox-a&rls=org.mozilla:enUS:official&tbs=tl:1&tbo=u&ei=Mmn7StXiN5PglAeK4ZGcBQ&sa=X&oi=timeline_re sult&ct=title&resnum=11&ved=0CC0Q5wIwCg.
6

Uniform Trade Secrets Act, (September 22, 2009 at 00:40), available at

http://en.wikipedia.org/wiki/Uniform_Trade_Secrets_Act.
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The act defines a trade secret as information, including a formula, pattern, compilation,

program, device, method, technique, or process, that: 1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and 2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
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Id.

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While most states have these statutes to protect companies from theft of information, counsel and businesses some times falsely assume that the strong protection of trade secrets that exists in one state exists in others.9 The „Uniform‟ Trade Secrets Act serves mainly as a guide for states and while many states abide by similar standards, some have additional provisions that are quite unique.10 This judicial interpretation varying from state to state can be seen upon examination of the individual civil codes. One blaring difference can be found in South Carolina and Nevada who are the only two states to have criminalized the theft of trade secrets. Outside the scope of the UTSA, California likewise differentiates by having strong regulations not to compete - the courts may award exemplary damages if the misappropriation of information is willful or malicious.11 In some states, NDA‟s, may protect material not properly characterized as a trade secret, and thus, may afford broader protection to an employer than the loosely organized trade secret law does.12 3) The NDA Legal Risk Analysis In addition to the broad protection offered by the states, entrepreneurs have depended on NDA‟s to legally protect their ventures‟ intellectual property. Intellectual property represents potential currency to small businesses and entrepreneurs and it is easy

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SKF USA, Inc. v. Bjerkness, 636 F.Supp.2d 696, (Ill. 2d J. Cir. R. 18. 2009). Softchoice Corp. v. MacKenzie, 636 F. Supp 2d 927, (Neb. Dist. Ct. 2009) Cal Civ Code § 3236.3(c) SKF USA, 636 F. Supp.2d at 696.

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to conceptualize how one may be „burned‟ when this information is leaked outside the scope of it‟s intention.13 As described above, an NDA is enforced through trade secret litigation, which usually involves messy disputes over what information was disclosed, when, under what terms, and how the recipient used it. For this reason, trade secret cases often require an expensive and time-consuming trial of facts that absorb significant employee and management consideration.14 NDA’s generally will only be enforced if the enforcing party can show: 1) The existence of a trade secret or other confidential information; 2) That the trade secret or confidential information was acquired improperly or as a result of a confidential relationship; and 3) That there was actual or threatened unauthorized use of the trade secret or confidential information.15 If a suspected violation of an NDA occurs, the company may have probable right to final relief from a court. In order to see if a violation is present, a court will first

13

Jeroma A Katz, Ellen F Harshman, Kathy Lund Dean, Non disclosure agreements in

the classroom: A student entrepreneur’s refuge or risk? J.L. Mgmt. Educ. 235 (Apr 2000).
14

Eric Goldman, Do Internet Companies Overuse Nondisclosure Agreements?,

available at http://www.ericgoldman.org/Articles/overusedndaarticle.htm (no date listed).
15

Enforcement of Non-Disclosure Agreements, Mich. Bar L.J. (Jan. 2002).

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closely examine the enforceability of the non-disclosure provisions in the signed agreement. In addition, the court looks to see if each of the following are present: a) the existence of a wrongful act; b) the existence of imminent harm; c) the existence of irreparable injury; and d) the absence of an adequate remedy at law.16 Pending the existence of the above and if the court sees ample standing and basis for a hearing, the case will move to trial. IV.

Risks Of Enforcing an NDA

Pursuing legal remedies for a non-disclosure agreement violation can be very complex, lengthy, and expensive. Technical and specific nuances pertaining to the document and the content of the document can some times be difficult to distinguish. Furthermore, even if the document is legitimate, employers face a major hurdle in enforcement. Courts will initially review and question the validity of the document itself. What makes this difficult is that many states have unique requirements relating specifically to the validity and enforceability of NDA‟s. Corporate attorneys specializing in this sector are often upfront with perspective clients and caution heavily on the risks one faces when going after an NDA violation. Even the nationwide law firm of Russakow, Ryan &

14

Montfort v. Trek Res. Inc., 198 S.W.3d 344,350 (Tex. App. Eastland 2006, no pet.).

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Johnson, prominently caution on their website that an NDA “is only worthwhile if it can hold up against litigation.”17 Some states examine the reasonableness of an executed restrictive covenant like an NDA. If enforcement of the executed document will be injurious to the public, cause undue hardship to an employee, or if it is greater than is necessary to protect the employer, some courts will dismiss it as being unreasonable.18 In Soft Choice v. MacKenzie, an employee left his prior job and took his company client address book with him. After starting a new venture (competing in the same space as his previous opportunity), he was sued for violating a clause in his NDA. Ultimately, the court found that the contact lists were outside the scope of the agreement – citing that: When an employee leaves his employer and goes elsewhere, he may lawfully use his new employment knowledge gained in the old, provided only that he does not disclose secret processes or confidential information… the knowledge, experience, and efficiency that an employee obtains in his employment do not become the property of the employer and they are not trade secrets.19 Basically, the Nebraskan District Court found that information in an exemployees rolodex is not protected and constitutes common information and ‘experience.’ What is fascinating is that this decision could very easily have been different if it had been in another state - enforcement of NDA’s can get confusing.

17

Non-Disclosure Agreements, available at http://www.california-business-

litigators.com/PracticeAreas/Non-Disclosure-Agreements.asp (2009).
18

SKF USA, 636 F. Supp.2d at 696 Softchoice Corp., 636 F. Supp 2d at 927

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Now imagine how puzzling this gets when ventures deal with intrastate business and there exist NDA’s with employees, customers, and suppliers in other venues.20 Though the list is pretty lengthy, several blatant state differences include: Florida – If a post-term restrictive covenant predicated on the protection of trade secrets or other statutory legitimate business interests is scrutinized, a court shall presume the covenant to be reasonable in time if it is for five years or less and to be unreasonable if greater than 10 years.21 Georgia - Indefinite restrictions on disclosures of trade secrets is permitted, but not on other confidential information.22 Nevada - NDA’s against former employees will be enforced only if the agreement is supported by valuable consideration and is otherwise reasonable as to its scope and duration.23 Pennsylvania – A secret must be a particular secret to employer and not necessarily to the trade. Pennsylvais may enforce NDA‟s without a temporal limitation if the restriction expires when the information no longer is confidential.24 Wisconsin – If any part of the agreement is found illegal or overly restrictive, the entire document will be dismissed.25 V. Compensation For Violated NDA Even if an employer’s NDA is strong enough to make it down the long channels of the legal system, receiving adequate compensation to rectify the loss or
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.Enforcement of Non-Disclosure Agreements, Mich. Bar L.J. Fla Stat § 688.001, Fla Stat § 542.335. Allen v. Hub Cap Heaven, Inc, 225 Ga App 533, 484 SE2d (1997) Nev Rev § Ann 613.200. Macbeth-evans Glass Co v Schnelback, 239 Pa 76,86. Tatge v Chambers & Own, Inc, 219 Wis 2d 99.

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damage is usually quite rare. While monetary damages can be awarded, they rarely are adequate compensation for the actual harm committed.26 Court’s have had difficult times awarding appropriate judgments simply because in most NDA cases, it is hard to set or determine a sufficient, adequate, and appropriate dollar figure for the compensation. In light of the fact that financial compensation may be difficult, employers might seek other options to enforce their agreements. Injunctions preventing previous employees from disclosing certain information, taking employment, or competing in the industry directly against the venture, may be other desired verdicts. One example can be found in the case of Fox v. Tropical Fish Ware House; where a tropical fish wholesaler brought action against its former general manger for violating an NDA, and sought an injunction that prevented the general manger from starting his own entity that would sell fish to many of the wholesaler’s customers.27 Ultimately, the court found in favor of the tropical fish wholesaler and instituted an injunction enforcing the NDA and limiting how the former GM conducted his business. A company seeking to enforce an NDA has multiple options on how to pursue their claim and face numerous risks no matter which path they settle on. Even

26

Eric Goldman, Do Internet Companies Overuse Nondisclosure Agreements?,

available at http://www.ericgoldman.org/Articles/overusedndaarticle.htm (no date listed).
27

Fox v. Tropical Fish Ware House, 121 S.W.3d 853 (Ct. App. Tex. 2004).

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before an NDA is signed, one can face numerous other risks that may impede on their reputation, professionalism, and business as a whole.

VI.

Practical Risks

Investors, attorneys, and future employees, comprise only a fraction of the individuals an entrepreneur interacts with – but before business can be conducted, is it necessary to request an NDA be signed by each of them? Who should and shouldn’t be asked to sign an NDA? What - if any - ramifications exist for an individual who is improper with a NDA? When inappropriately handling an NDA, an entrepreneur can very easily go from being a respectable businessman to an unprofessional novice. Social risks are

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very prevalent and though ones’ intentions might be positive, when using an NDA, in certain situations, they may cause more harm than good. a. NDA-ing Investors Imagine you are an investor and a team comes to you with a product that helps an individual quit smoking. You decide to “pass” on the product because the concept has yet to be fully developed and needs to be further de-risked. Six weeks later, another venture comes to your office and gives you a presentation on another item that can help individuals quit smoking. Though this second item may be in the same space as the first, you think this team and vision is secure and you decide to invest in the venture. What would have happened if you had signed an NDA with the first team that came in? What legal issues could have developed? Most venture capitalist or angel investors are against signing an NDA. Investors see hundreds of ideas a year and chances are they have seen something similar to your idea or something very close to it. If they were to sign an NDA for one company, they might pigeonhole themselves into an individual market segment or vertical.28 In fact, if you came into an investor’s office with an NDA, there is a fairly good chance you would be politely escorted out the door before you had an opportunity

28

Interet user bdfh42, hackernews, available at

http://apps.ycombinator.com/item?id=479662 (submitted Jan. 16, 2009).

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to setup your presentation.29 Top VC firms even have statements on their websites like: “We receive so many plans each week that if we signed every NDA request, we would quickly be overwhelmed with legal documentation.”30 This information is understood in the business world and one might come off as offensive, insulting, or amateurish, if they were to come into an investor’s office demanding them sign a document. With over 50 early stage investments, founder of Half.com, and now principle of The First Round Venture Capital Group, Josh Koppelman has a very straight forward answer to the NDA: “We have a simple business policy - we do not sign non-disclosure agreements (NDA’s).”31 b. NDA-ing Advice For Entrepreneurs Steve Barsh is all too familiar with the non-disclosure agreement. Working with numerous first time entrepreneurs, Steve is one of the heads of the early stage investment incubator, DreamIt Ventures. In exchange for a small equity stake, DreamIt provides a handful of start-ups with initial funding, office space, attorneys, and several other benefits that can help accelerate a venture to becoming a fully functional company.32
29

I should note that some exceptions exist amongst the different types of investment

opportunities. Biotec investment companies are more flexible on whether or not they sign NDA‟s, while most technology firms are the complete opposite.
30

First Round Capital Webpage, Available at http://www.firstround.com/contact.html

(2009).
31

Presentation with Josh Koppelman, First Round Capital, (May 15, 2008). Available at www.dreamitventures.com

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When asked about what advice he gives entrepreneurs afraid of someone stealing their idea, Steve remarked: “NDA’s have a time and place, it just requires you to use some environment understanding to decide.”33 He went on to add: “I don't ask people to sign them - I believe a lot is about execution NOT ideas. Ideas are a dime a dozen, but can you execute?” Steve does admit to certain opportunities during the hiring practice when an NDA can and is important: “When I am hiring consultants and I am going into excruciating detail about my product, I will get an NDA. If you are trying to do something cooperative and you want to make sure no one will back stab you, an NDA can make you feel a little bit better.” Overall, Steve suggests Entrepreneurs primarily push a general agreement of understanding; or as he calls it a “FriendDA.” This handshake agreement is not only more friendly, but “seems to work quite well.”34 Overall, Steve suggests one focus on their emotional intelligence, use it and be smart.

33

Telephone Interview with Steven Barsh, DreamIt Ventures, (Nov. 10, 2009). For more information on the FriendDA see

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http://thenextweb.com/2009/07/01/friendda-nda-friends-douche/

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c. The Attorney Perspective of the NDA*35 With several years under his belt as a corporate and small business attorney at the Law Firm of Morgan Lewis and Brokius, Michael Crossey shared several of his personal and professional experiences on NDA’s. There are two schools of thought on utilizing the NDA; one from an entrepreneurial perspective, and the other from an entrepreneurs lawyers‟ perspective. Ultimately, it highly depends on the stage of the business you are in and the idea itself. If your idea is brilliant - you might have to force it (NDA) on people. But, otherwise, until you get to a substantial point of negotiations with an investor or someone conducting due diligence, my suggestion is to simply reveal as much as you can without giving away the secret sauce. Mike also goes on to discuss about the times when NDA‟s become a necessity oppose to an option. “Sometimes industry practices are custom. If you are in the later stages of a venture and merging a company with a larger company, NDA‟s must be in place for securities laws.” Finally, Mike has his suggestions for entrepreneurs, “From a startups perspective you should do two things 1) Recognize you can‟t force an NDA on people. So try not to reveal everything, get a good elevator pitch, and NDA down the line. 2) Always think about whom you are disclosing information with. Advantages Benefits – Other Utility of NDA’s

VII.

* As most facts are unique to every situation, when dealing with an NDA, one should always contact their attorney. With that being said, I decided to contact mine and get his thoughts of the NDA. Attorneys should be consulted when/if there is a question about use of an NDA.

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Besides all of the risks, non-disclosure agreements can also be used to bring credibility, professionalism, and additional security, to a start-up or entrepreneur. Furthermore, even those who know all of the risks that come with NDA‟s can still feel as if an added layer of protection has been made official from the signing of an agreement. In an effort to increase interaction amongst their classrooms, many business school professors have begun having their students sign NDA‟s amongst themselves.36 As teams develop and build out their business plans, it has been found that students feel more comfortable and are more apt to fully exploring and vetting-out an idea.37 Sure this might be a false sense of security, but the reality is that students are more open and are benefiting from the candidness of their peers.38 This group though can have notably more pros than cons. Though the risk of an NDA not holding up in court may be real, they still may discourage people from considering taking the chance. Besides the fact that court cases involve attorneys and attorneys require capital, some who sign NDA’s may think twice before going out on their own, stealing data, etc. To this regard, an NDA may be quite valuable. Furthermore, starting a meeting with an NDA may not only set the proper tone, but make one seem more professional and legitimate. When Hiring developers for example, having a custom tailored document for your venture
36

Jeroma A Katz, Ellen F Harshman, Kathy Lund Dean, Non disclosure agreements in

the classroom: A student entrepreneur’s refuge or risk? J.L. Mgmt. Educ. 235 (Apr 2000).
37

Id. Id.

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may signal a level of organization – we’re not just ‘two guys and a dog’ working out of our parents basement.39 To a consultant or lower level individual, an NDA can show you are not just a typical unorganized startup and you actually have certain protocols, procedures, and formalities. Along the same vein, some more traditional business individuals may expect an NDA (they might even request one). Though this may go against what mainstream entrepreneurship speaks, like with new hires, an NDA may be interpreted to some as a way of giving the venture credibility. Finally, it is important to not forget that an NDA can actually be a legal and protective document. If drafted correctly and used properly, NDA’s do still serve a purpose and can be extremely beneficial. As stated above, a properly executed NDA will protect a venture from having employees compete directly, broadcast trade secrets, and mishandle other intellectual property/information owned by the entity. VIII.

Conclusion

“I've often viewed NDA's much like patents, they don't offer you any real protection. They only offer mild discouragement to someone attempting to capitalize on something you created or invented. An NDA (much like a patent) basically just gives you a strong edge should you choose to pursue something legally, YOU have to determine still if that battle is worth your time and money.

39

The „two guys and a dog‟ statement comes from my E-Business Law professor Arnold

Cohen. I think it describes the situation quite well.

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The above being said, it is still a good idea, IMO (in my opinion), to use NDA's (they're basically free) and patents when/where appropriate.” -Hacker News User BRK (2009)40 Throughout my research, the phrase “emotional intelligence” was stated quite often. Emotional intelligence (EI) describes the capacity, skill or, selfperceived ability, to identify and assess, the emotions of one's self, of others, and of groups.41 An important part of entering the business community is developing the ability to understand and identify certain situations. By using ones experience and even generally reading the audience (whether it is one person or many), an individual should count on their emotional intelligence to properly understand each unique environment. Based off whom they are speaking with and what goals each member has, I believe one will be able to weigh out whether the timing is proper or not for a non-disclosure agreement. Furthermore, even if a situation might be right, if the social ramifications seem off, one can always limit what is discussed, said, and explored. Comfort is key. Use your best judgment to decide if the person you are seeking out fits the bill for an NDA. Some practical areas for an NDA might include interviewing potential hires, interns, or individuals with less industry experience. People at this level are looking

40

Interet user brk, hackernews, available at http://hn.whyslow.net/item?id=479708

(submitted Jan. 16, 2009).
41

Bradberry, Travis and Greaves, Jean. (2009). "Emotional Intelligence 2.0". San

Francisco: Publishers Group West. (ISBN: 9780974320625).

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more for an experience and usually pose less of a combative nature. Investors, attorneys, and higher-level professionals usually require a deeper analysis and thought as to use an NDA or not. One aspect that has always made me feel more comfortable is that many people are simply too busy to „steal your idea.‟ A typical venture capitalist for example sits on as many as ten boards (meeting several times a year and sometimes monthly), has numerous investors to keep informed and happy, is constantly raising money, has partners, offices, and usually a family to keep an eye on – this guy is more than likely not someone you should be overly scared of. 42 43 When starting a venture, I have found that to a certain degree, it has been in my best interest to vet out my idea(s) with others. Sharing my concepts and visions with others has created a collaborative environment around me. One of the beauties of the entrepreneurial space is that everyone knows someone who knows someone who might be able to help further a vision. Lately, when I receive phone calls from people with ‘an idea,’ I usually tell them that it is in their best interest to share with me what they are doing – if I think it has legs and could be developed, I have enough people within my network that I am comfortable I could direct them

42

Guy Kawasaki, available at http://www.firstround.com/forbes_article.html (Jan. 27

2004).
43

On the other end of the spectrum, it is important to remember that the people on this

higher level are also the ones who „talk‟ the most around the industry (they also have more power to make executive decisions as well – which can be scary).

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ahead. Staying hush-hush about your ‘idea’ not only comes off as annoying but makes an individual look paranoid and inexperienced. Furthermore, entrepreneurs should never hesitate to contact a local corporate or business attorney for advice and help in drafting a strong and protective document. One other safe method I would recommend, is teaching employees to identify when truly valuable information must be disclosed or not. Either way, employees should understand when to require an NDA and how to identify other sensitive information.44 The NDA has absolutely evolved over time. When executed properly, it can protect and serve its intended purpose. For the most part, it is extremely difficult to enforce and may be more of an illusory tool with practical parts that make it advantageous. I always have an NDA “just in case,” for the right situations, it is comforting.

44

Eric Goldman, Do Internet Companies Overuse Nondisclosure Agreements?,

available at http://www.ericgoldman.org/Articles/overusedndaarticle.htm (no date listed).

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IX.

Bibliography of Sources a. Cases i. SKF USA, Inc v. Bjerkness - 636 F.Supp.2d 696 ii. Shoreline Gas v. McGaughey – 2008 WL 1747624 (Tex.App.Corpus Christi) iii. Estee Lauder Companies v. Shashi – 430 F. Supp.2d 158 iv. Fox v. Tropical Fish Warehouse -121 S.W.3d 853 v. SoftChoice v. MacKenzie – 636 F. Supp 2d 927 b. Nondisclosure Agreemens In The Classroom: A studnt Entrepreneur’s Refuge or Risk? – Jerome A. Katz – Journal of Management Education – April 2000 c. Enforcement of Non-Disclosure Agreements – Business Problems & Planning – Michigan Bar Journal – January 2002 d. Californai Non Disclosure Agreement Lawyers – www.californiabusiness-litigators.com e. Do Internet Companies Overuse Nondisclosure Agreements? – Eric Goldman – www.ericgoldman.org f. Interviews:

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g. h. i. j. k. l. m. n.

i. Josh Koppelman – Former CEO of Half.com, current Partner of First Round Capital (Philadelphia, PA) ii. Steven Barsh – Partner of DreamIt Ventures (Philadelphia, PA) iii. Michael Crossey – Former Attorney for Morgan Lewis (Philadelphia, PA) iv. Nicolas Warren – Vice President – TapInko.com LLC (Philadelphia PA) http://thenextweb.com/2009/07/01/friendda-nda-friends-douche/ FriendDA Article http://hn.whyslow.net/item?id=479708 http://www.thevc.com/strips/strip05.html COMIC STRIP http://www.my25percent.com/2009/07/trade-secrets.html Trade Secrets Montfort v. Trek Res., Inc., 198 S.W.3d 344,350 (Tex. App. – Eastland 2006, no pet.). Uniform Trade Secrets Act Information: http://nsi.org/Library/Espionage/usta.htm Bradberry, Travis and Greaves, Jean. (2009). "Emotional Intelligence 2.0". San Francisco: Publishers Group West. (ISBN: 9780974320625) http://www.firstround.com/forbes_article.html

Though it may seem as if the states have no commonalities when it comes to enforcing an NDA, one fact that seems unanimously agreed on is that any information a venture discloses to a third party without an NDA, will lose its trade secret status.45 When/If this happens, a venture will have no opportunity to seek restitution from the courts and clearly in certain circumstances it may be better to play it safe than sorry.

Say you work at Google and you want to get a prospective partner to sign an NDA. You can send someone your NDA document and it goes to their lawyer. There will probably be a bunch of back-and-forth on the terms. That's pretty time consuming. However, why not do it the easy way? Just invite the guy over to lunch on Google's campus. Because whenever anyone gets a visitor badge at Google they are asked to sign an NDA as part of their visitor badge process. I'm sure glad everyone brings a lawyer to help them sign-in at reception ;-) Josh Koppelman
45

(Do Internet Companies Overuse NDA)

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Investors are fortunate enough to be in the position where they have a constant supply of individuals coming their way with pitches, products, and ideas. This luxury puts them in a unique position and it seems that entrepreneurs are ok for the most part in not having an investor sign an NDA. One investor, in response to their strong stance on not signing NDA‟s, states it best: “I am not aware of any situation where that has lost us work.”46 It took 6 weeks for a company we were just working with to send us an NDA, we made a couple changes and it certainly slowed things down. I'm not patent expert but fi you are disclosing things and you are going for a patent, not sure you can do that, kinda cancel things out. Investment commmunity nobody likes to sign them because people here hear it again and again and again. How can you sign an NDA if you hear numerous ideas. Even DreamIt Ventures, we heard 350 applications and we heard things days apart. Not that people are copying people, but you have a lot of similarities

"my wife was starting a bio tech a year ago - every VC signed an NDA and they were used to it. You want to be careful - she was disclosing scientific stuff and VC after VC was sure to sign an NDA. If you want an NDA for nuclear reactors, you might want to speak to someone in IT because it differs from tech." My partner and I usually play it safe when it comes to NDA, usually default to the NDA, More safe so decrease chance of being sorry IN the words of Guy Kawasaki: Few investors will sign one (NDA), and even if they did, simply hearing your idea better not make it copyable. I've never seen a case where an entrepreneur told an investor about an idea, and the investor ripped it off. The bottom line is still that the best protection of an idea is great implementation of the idea.47 NDA’s Can Handcuff Competition 1. “Say 2 indirect competitors sign an NDA while doing a deal. Company A discloses a future business or product plan to Company B under the NDA. Is company B now foreclosed from pursuing that plan? While exceptions in the NDA may allow Company B to proceed without breaching the NDA it has significantly more risk even it proceeds legitimately. If Company B aborts desired business or product plan due to the NDA, the strategic consequences can be enormous” (NDAs Overused In Internet)
46 47

http://hackerne.ws/item?id=479662 http://www.firstround.com/forbes_article.html

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Usually is in your best interest to disclose venture. If you are as organized and have a novel idea, people like to help others .

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