Fuller Tech Law - Please, Please, Please Read Your NDA. And Consider Not Signing It.

Please, Please, Please Read Your NDA. And Consider Not Signing It.

NDAs (nondisclosure agreements) have become as common in Silicon Valley as Patagonia vests. You just can’t get into a meeting without one. Should you sign what’s presented to you to be polite and get the pitch or interview you covet? Not necessarily. Read the agreement and feel free to push back, even if it means rescheduling. Too many companies are offering wildly broad NDAs with serious implications that may deceptively disadvantage the recipient.

I just taught a Contracts section in the Entrepreneur’s Clinic at Santa Clara University School of Law, where I had the opportunity to show my students that these contracts, once fairly benign, are being used as not-so-subtle power plays that go far beyond protecting company data and trade secrets. Consider the risk – reward balance and whether it’s worth missing the Meet-Up or developer conference if the terms are too restrictive.

Some NDAs are heavily weighted in favor of the drafter. For example, shareholders in private companies are often asked to sign NDAs, and some include clauses that say the shareholder won’t use the information she or he learns to bring a lawsuit against the company. That may sound like a fair constraint, but what about the case where the shareholder learns the company is engaging in illegal activity? Would a court uphold the NDA’s constraint? Hard to say. In that case becoming a whistleblower may be the only way out!

Some companies have launched “instant NDAs,” which provide their sales teams with pre-signed NDAs through a mobile app, rather than reviewing and negotiating thousands of individual NDAs on an annual basis. This innovation can save the large organizations millions of dollars. 

But unless these NDAs are written fairly, signing (or clicking) one introduces a tremendous shift in advantage, especially to those susceptible to one-click prompts for action. You need not only to read the NDA, but also understand the terms.

So are shorter NDAs safer than longer ones? Not necessarily, especially if they contain overly broad terms like “related to,” or lack the proper exclusions. Be especially wary of “liquidated damages provision,” which means the company is entitled to damages specified in the NDA without even having to show what the actual damage was.

NDAs are serious contracts, and once signed, put almost all the burden on the recipient to prove they did nothing wrong. So read your NDA. Signing the wrong one can have long-term consequences.

General Counsel, Legal Problems, Startup Law

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