For his latest article, Grid Law founder David Walker provides answers to two of the most common problems with non-disclosure agreements encountered by small business owners.
Whenever you’re dealing with confidential information, there’s a lot at stake because once confidentiality is lost, it’s lost forever.
In my last article, we looked at the benefits of using a non-disclosure agreement (NDA) when an entrepreneur needs to share confidential information. Unfortunately, things don’t always go according to plan and even when you do use an NDA, your confidential information can still be at risk.
So, in this article, I’m going to look at what to do if you’re faced with two common problems whilst sharing confidential information.
What should you do if someone refuses to sign your non-disclosure agreement?
Someone refusing to sign your non-disclosure agreement is a common problem, but before you question their trustworthiness, it’s important to understand why they might do this.
Let’s say you’re pitching an idea for a new product or service to a large company. Clearly, the details of this product and service will be confidential and you will want to keep them secret in case you don’t manage to do a deal.
However, the company may refuse to sign your NDA because they may be working on a similar idea internally. They may be concerned that even though they’re doing this completely independently, with no prior knowledge of your idea, your NDA could potentially block them from developing their idea any further.
They don’t want to take this risk, so refuse to sign your confidentiality agreement.
What should you do if you find yourself in this position?
Should you walk away and find another company to pitch to?
Should you take a risk and disclose your confidential information without an NDA being signed?
Before you do either, take a step back and look at the information you’re planning to disclose and the restrictions you’re putting on its use.
In my experience, both confidential and non-confidential information will be disclosed during the course of discussions. Therefore, you may be able to start by discussing only the non-confidential information. You could discuss your idea in general terms without disclosing specific, sensitive details about it to see if there’s a willingness for both parties to work together.
The company you’re pitching to can then understand whether your idea is likely to conflict with anything they’re already working on. If it’s not, then great, a non-disclosure agreement can be signed and discussions can continue.
If there’s an overlap between your idea and something they’re working on, you can be aware of this and manage the situation accordingly. Perhaps you no longer want to pitch your idea to them or maybe you change your pitch and could collaborate instead?
If, after the initial discussions have taken place, it’s clear that the relationship isn’t going anywhere, then nothing has been lost and your confidential information is still secure.
What happens if someone breaches the terms of your non-disclosure agreement?
Let’s continue with the example above. After signing an NDA, you pitch your idea to the company, sharing your confidential information with them. What do you do if they breach their agreement and either use your confidential information for purposes that aren’t permitted, or they make it public without your permission?
In both situations, you should probably instruct a solicitor to represent you straight away. You need to act fast to limit any damage that may be done and you may need the full power of the law to do this.
If you come to me, the first thing I will do is send a letter of claim to the company demanding that they immediately stop using your confidential information. I will also ask them for an undertaking (a legally binding promise) that they will not use it any further.
If they don’t give an undertaking straight away, we may go to court to obtain an injunction to stop them making any further use of the information.
Judges don’t give out injunctions lightly, so you will need to have a strong case and a good reason for needing one. If your confidential information has already been made public, an injunction is not going to get it back so a judge will be unlikely to grant one.
However, if the company is using your confidential information to gain an unfair commercial advantage, for example to speed up development of their own product and get it to market faster, an injunction may be granted to stop them.
If an injunction is granted, it will probably be for a short period of time so you will want to claim compensation too. You will also be claiming compensation if your confidential information has been made public without your authority.
When you claim compensation, you can either claim for any losses that you have suffered as a result of the company’s breach of contract, or you can claim an account of profits in relation to their gain. As you can imagine, this can be difficult to calculate and the true extent of the damage may not be apparent straight away.
In my previous article I asked the question: “Are non-disclosure agreements worth the paper they’re written on?”
In my opinion they most definitely are, but they have to be used in the right way to protect the right information. However, as we have seen, there can still be problems disclosing confidential information even if an NDA has been signed.
Therefore, NDA’s are not the only solution. There are also practical steps that you must take to protect your confidential information and that’s what we will look at in my next article.
In the meantime, if you have any questions regarding problems with non-disclosure agreements and protecting your confidential information, email me at email@example.com
Missed the last few article’s in David’s series? Catch up here.
- The benefits of non-disclosure agreements for entrepreneurs
- The benefits of a shareholders’ agreement for small business owners
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