What is a Non-Disclosure Agreement, and when do I need one? In this episode, Nasir and Matt shares why you need to use Non-Disclosure Agreements, basic facts about NDA’s, and discuss about the infamous Jenner-Woods story. Having the right Non-Disclosure Agreement in place not only protects you and your business, but it also makes the purpose of sharing the information clear.
Full Podcast Transcript
NASIR: Today, we are covering nondisclosure agreements.
MATT: I feel like that’s all I talk about.
NASIR: What is an NDA?
MATT: It can stretch pretty far.
NASIR: Let’s get to the meat of an NDA. Is it really confidential?
MATT: It all depends on the scenario too.
NASIR: I’m telling you this in confidence.
MATT: This one’s a little bit tricky.
This is Legally Sound Smart Business where your hosts, Nasir Pasha and Matt Staub, cover business in the news and add their awesome legal twist. Legally Sound Smart Business is a podcast brought to you by Pasha Law PC – a law firm representing your business in California, Illinois, New York, and Texas. Here are your hosts, Nasir Pasha and Matt Staub.
NASIR: All right. Welcome to our podcast! Today, we are covering nondisclosure agreements – probably the most favorite topic of all business owners. I can’t run into anyone that is in business and they don’t want to just sit down and talk about nondisclosure agreements. Don’t you agree, Matt?
MATT: Yeah, I feel like that’s all I talk about with our clients – nondisclosure agreements. But, yeah, if you’re a business owner, I mean, depending on the line of work and how long you’ve been doing business, you’ve at least encountered some – possibly hundreds.
NASIR: Yeah, literally.
MATT: Yeah, I can’t even keep track of how many you and I have probably reviewed, but it’s at least a few hundred at a minimum.
NASIR: Yeah, at minimum. Nondisclosure agreements are also known as NDAs. They’re sometimes called confidentiality agreements. Sometimes NDAs include the word “agreement” in there, but sometimes contracts have confidentiality provisions that are somewhat applicable, but this is kind of a very narrowed topic, so we are going to make it a little interesting because we’re going to talk about these extremes where NDAs go way too far. You know, especially in the media, we’ve heard this quite a bit, I think, especially in the last few years, and we’re going to talk about everything and how NDAs were being used in The White House to how celebrities use it and different aspects like that.
MATT: Right. Like I was saying before, we’ve seen so many different iterations and there’s always going to be some standard terms you’ll find in any NDA but, like you said, we’ve definitely also seen instances of it going too far, and that’s going to be the focus here – those experiences that we’ve had when we’ve seen language in there that makes us kind of think twice. Obviously, we have to notify our client at that point. I think this is a little bit of an overreach.
NASIR: Absolutely. Let’s start. What is an NDA? Well, Matt, let me ask you that question. What’s your definition of an NDA?
MATT: Sure. Let me see how I would answer that. Like you said, it’s a nondisclosure agreement. Basically, it’s typically two parties can be more disclosing information. It could be unilateral, or it could be mutual, but basically you have at least one party – maybe two – disclosing information to the other party and they’re prevented from sharing that information with any third party that’s not part of the agreement. How did I do?
NASIR: You did great. That’s probably what I would have said. As you were talking, I started to think about different components of what we were going to cover today, but let’s talk a little bit about when to use an NDA or when this is applicable. I think the most common thing in business is that the first thing you do when you’re about to enter into a potential transaction, you want to disclose certain sensitive confidential information that is not available in the public in order to have a very candid conversation. In a lot of ways, it reminds me of the purpose of the attorney-client privilege. In that same way, that should be the purpose of an NDA – allow the freedom for Party A to disclose to Party B certain confidential information so that they can get down to business and talk about what the next step is in the transaction. To me, that is the essence and the real purpose of when an NDA should be used.
MATT: Right. I think you put that well. The majority of the time, it’s going to be two parties that probably haven’t done business together previously but want to possibly do business together in the future. Then, it could be for a specific purpose. It could be more general in nature. That’s kind of the essence of it is, “Well, we’re going to tell things to you, you’re going to tell things to us, and this needs to stay only internal because it’s confidential and proprietary information.”
NASIR: Now, these NDAs – as you mentioned, Matt – literally, a business owner – depending on the business you’re in – can be signing NDAs on a weekly or monthly basis just in the interactions and different processes, but because of that, they do tend to be not only overused, but people tend to sign them without much consideration. Because of that, people can get in trouble because, oftentimes, NDAs can go too far.
In fact, I try not to sign personally NDAs myself because it’s hard to keep track of all the confidential information I have. It’s easier for me to keep quiet but, at the same time, I don’t want to be bound by some agreement and being able to keep track of that as well. Not only that, sometimes these agreements contain provisions that just go way too far – like, non-solicitation and non-competes and these kinds of things. We’re actually going to talk about that a little bit later in the show.
MATT: Yeah, and we’ll see that occasionally. I don’t know what percent of the time. Yeah, they can be used strategically in that sense too. I’ve definitely had discussions with clients and what’s the actual motive behind wanting to get this NDA signed because you do have to think about it because if there is non-solicitation or a non-compete in there, the other side could use that to their favor, and maybe that was their objective from the beginning.
You mentioned, a lot of times, people just sign them and don’t really review. It could be pretty critical to make sure the terms in there are not going to be anything that stretches too far because it can least for years and it could be something that is anti-competitive down the road.
NASIR: Correct. These days, pretty much everybody knows what they are. Even in pop culture, right? You’ll read that – and this is, again, too far extreme, I don’t know – celebrities will actually require the people around them – like the people that they date and even one-night-stands – they literally have them sign an NDA prior to any kind of engagement because, as you all know, just the disclosure of certain personal whereabouts or comings and goings could be worth money to tabloids and so forth. And so, celebrities want to protect themselves.
MATT: Yes. Particular celebrities or anyone in entertainment, you know, their most valuable thing is their brand and their image. While, on one hand, it does seem a little bit ridiculous to have these people sign NDAs in those circumstances you brought up, you can see why they would want to do it as well because, as you mentioned, someone could just leak this to any sort of tabloid and they pay a lot of money for that stuff and, you know, there could be some value there. It’s not just always in the business sense. I mean, I think the focus here in this episode is going to be in the business context, but it is everyday people. Well, it is non-business entities as well.
NASIR: That’s the uses of an NDA. Let’s start breaking down some of the components and find the extremes and where people tend to go too far and what to look for when you’re actually getting an NDA. You mentioned at the top of the show, Matt, that usually it’s two parties – one party is disclosing to the other, or two parties could be disclosing to each other – but how do you define who those people are? Because, oftentimes, it’s not necessarily two individuals. Sometimes, it’s two organizations. Organizations is one thing, but there are still people behind those organizations. Who exactly is bound by this confidentiality agreement?
MATT: Yeah, and it can stretch pretty far. Like you said, in the business context, it’s usually two entities, but it can also include their affiliates, subsidiaries, et cetera. When that’s the case, I mean, it just keeps getting spread wider and wider, and that can be a huge issue down the road if there’s some sort of affiliated company and they find out this information and disclose it for some other purpose and it wasn’t even the intent of the original NDA or the original contracting party. That’s going to be a violation or it’s going to be a breach of the NDA. You really have to be careful. It’s going to be typically in the first paragraph of the NDA who’s going to be included. You know, that’s the first place to start. Who are the actual parties in the NDA?
NASIR: Right. When it’s an NDA where you expect confidential information to be continuously divulged back and forth – like in some kind of ongoing business relationship – you can expect that not only you but the employees and even maybe your contractors could be bound by this NDA. Another is you may even have obligations to bind your contractors to sign a separate NDA to keep certain things confidential based upon the NDA that you signed with that third party.
And so, you mentioned the parties, but then there’s also typically another section that’s often overlooked which is the representatives or authorized representatives’ section where it defines like you can tell certain people – like your lawyers or financial representatives about this confidential information – but then you can’t tell other people. Sometimes, it’ll say, “Basically, only the people that are in the need to know,” so to speak. Almost kind of a government secret kind of context like that.
MATT: Yeah, I think that’s the most common. Instances will be sometimes it defines who the representatives but, yeah, it’s only people with a need to know, and typically there’s some sort of requirement that they’re bound by terms – nondisclosure terms just as strict as the ones contained in the NDA. You know, I’m fine with that in general but, again, it’s something you need to look out for because sometimes you have to be pretty careful on who you divulge this information to internally because, oftentimes, you’re going to be on the hook if they go rogue and disclose to a third party. And then, if it funnels all the way back up, then you’re in trouble at that point.
NASIR: Another way it goes too far is if it’s a large organization and the party is either defined this way or the authorized representative is defined this way where the entity and its affiliated entities or subsidiaries or parents are also included in this. Sometimes, that may be appropriate, but sometimes where you have a very limited kind of transaction going on, confidential information is transmitted. You don’t want, all of a sudden, a sister company or whatever being bound by this NDA that they may not even have been exposed to that confidential information and be completely separate divisions or companies of the enterprise. And so, sometimes, you may need to narrow that down a little bit to the extent that confidential information has been disclosed to those entities or if it’s the other way around where it may be the confidential information of those affiliate entities that are being shared with the other party.
All right. Let’s get to the meat of an NDA. What I call the meat of the NDA is the scope of how you define confidential information. At times, when we’re reviewing, it’s become kind of boilerplate, but it also goes to the critical question as to what exactly is being discussed here. it’s funny because, when clients come to us and say, “Hey! I have this NDA to review,” or “Can we get an NDA?” one of our first questions is “what type of confidential information is actually going to be discussed?” You’d be surprised at how often the answer is not really clear to them to the extent that, “Well, I’m not sure we’re going to give any confidential information.” Sometimes, it’s very specific. “Yeah, they’re going to give us their performa, their financial data, et cetera.” If it’s very clearly defined, then maybe we narrow that exception down so that the NDA is used appropriately.
MATT: Yeah, it all depends on the scenario too. It could be defined very broadly as essentially everything under the sun. Like you said, you have to ask the client what they’re going to be disclosing or what they expect to be disclosed and vice versa – what they’re expecting to have disclosed to them.
NASIR: Right. If I’m on the receiving end of confidential information and I’m a party to an NDA, you know, you want to narrow down the definition. You want clarity. I like when it requires you to go, “Confidential only includes things that are disclosed in writing, marked ‘confidential.’” Yeah, the things that are discussed orally that relate to that or verbally that’s related to that written document is considered confidential information. I don’t like when it’s just like everything under the sun. It’d be hard to construe anything that’s not confidential information.
The problem with that is, again, you don’t want to inadvertently disclose something that is confidential information. If you’re a busy businessperson or what-have-you, keeping track of what’s confidential or not confidential and having to just keep your mouth shut is not a very appetizing way to live if that’s what ends up happening.
NASIR: Look, I’m kind of critical with NDAs in general because it’s like, “Is it really confidential?” because people come in with this information that pretty much everyone else knows if you know the right people or whatever. It’s like people are so guarded. They want this document as some kind of blanket to make them feel comfortable when, in reality, it’s not. The problem is the opposite can be true too. It could be a pretext to litigation to cause disputes to the extent that they go, “Okay. I don’t have anything else to bring claims against this other party. Let me just reference this NDA to kind of get some leverage over them.” I’ve seen that happen more often than not as well. We’ve seen that in litigation in the public sphere as well.
MATT: You brought up a good point. I think, a lot of times, people do err on the side of believing everything is confidential when that’s not the case.
NASIR: That’s become standard.
MATT: Yeah, sometimes people are very guarded with what they want to disclose because they feel like everything is proprietary. The reality is that’s just not how it works. I mean, obviously, it’s fact-specific, but I think sometimes we’ll see clients that, even after they’ve signed an NDA, are reluctant to disclose certain information because they feel like it’s so confidential and proprietary to them that it can’t possibly ever get out even though they have this NDA signed.
Well, let’s talk about the exceptions because I think, you know, if you’re going to talk about the scope and the rule, you have to combine that with the exceptions because, obviously, you can have a broad definition and then have it narrowed by the exceptions, and there are about – I would say – four standard ones. Really, every NDA should have these four – if not more – and there are different ways to phrase them but, at the least, they should have these four which is, if it’s information already known by the recipient of that confidential information, that should not be included in the definition of confidential information. I guess that seems obvious, but it may not be to the extent that you need to make it clear in the NDA.
MATT: Right. First of all, to me, there are five, and I’ll give you the fifth one after we go through the four that you came up with.
MATT: One of the next ones would be information that becomes public – or I guess non-confidential in nature – the key with this being through no fault of the receiving party’s disclosure or breach of the agreement. It’s similar to the first one you brought up. You know, if it’s already known, it’s probably typically fairly public at that point, but there is a distinction between that. You know, usually, it’s going to be something that gets disclosed down the line after it’s disclosed to the receiving party.
NASIR: Right, and that makes sense. I mean, if it’s public, then how can that be confidential information at that point? That seems pretty obvious as well.
MATT: A good example here would be trade secrets.
MATT: The big key with trade secrets is there has to be the effort to keep that information a secret. If you’re out there publishing the recipe of Coca-Cola, then that no longer becomes a trade secret anymore.
NASIR: Classic trade secret example.
And then, the next one is independently developed. For example, a particular trade secret or confidential information could be the list of all the competitors in a certain region, right? That list may take a lot of effort and intellectual property to develop that list, but if the person it’s being disclosed to has already independently developed that – or could and does independently develop that using their own research – then again that can fall outside the definition of confidential information.
MATT: Again, the caveat I hear being it’s independently developed without use of the disclosing party’s confidential information.
And then, the last one – or at least my last one – basically disclosed by another party, right? There’s a small distinction between it being public because, obviously, it may not be public information, but if I receive this information from another party that’s not bound by a confidentiality agreement and I was told about that, then now, all of a sudden, it’s not in the confidential information sphere. This is one of those where it may or may not be included and sometimes there’s pushback on that particular provision.
NASIR: What’s your fifth – and possibly sixth – exception?
MATT: Well, the fifth one, I would describe it as legally compelled to disclose it.
NASIR: Okay. I know where you’re going with that.
MATT: Subpoena. Basically, if you’re required to disclose the information by some sort of court order.
MATT: But, usually, with this you’ll see language in there only disclosing what’s absolutely necessary to comply with the court order. Usually, there’s also something in there too about notifying the other party prior to disclosing because they want to have the opportunity to possibly (0:21:16 unclear) so that’s fifth.
NASIR: Okay. I agree with you.
MATT: It’s mutually agreed upon between the parties.
NASIR: Okay. Well, that’s also implied. You don’t need to put that in there, but you’re right. That’s often put in there because, obviously, the parties agree to be able to disclose it, then that is a case, but then in order to avoid having to amend the agreements, for example, you could put that in there.
MATT: You don’t see that language in there too often, but sometimes.
MATT: The legal requirement is usually in there. I mean, oftentimes, it’s even in its own section in the NDA – separate from the other exclusions.
NASIR: Right. I think to go too far with this is to not include those exceptions. That’s really the essence of the scope and whether it’s too broad or too narrow. If you have a broad confidential information definition and you’re missing these exceptions, that’s an issue because you’re just asking for trouble and, frankly, you’re also concerned about enforceability as well because, if it’s too broad, and you’re on the disclosing side, it may be so ambiguous to the extent that it becomes meaningless and too vague. Therefore, unenforceable.
MATT: I agree. It should be some variation of these exceptions.
NASIR: All right. The next component of an NDA is the term. How long do you have to keep the confidential information confidential? I think you see a pretty wide range on this. Right, Matt?
NASIR: I think certain clients like a certain number of years and so forth. It seems to be the sweet spot tends to be between two to five years – you know, two to three maybe, and oftentimes five years.
MATT: This one’s a little bit tricky, I think, because you can technically have – and you’ll see this – two different terms defined in the actual NDA. The first one will be what’s the actual term of the NDA, meaning what’s the covered period of when information is going to be disclosed?
NASIR: Right. Good point.
MATT: And then, you could have a separate term – or it should be a separate term – of how long they’re required to keep the information confidential. The tricky thing is you don’t always see that second part in NDAs. Sometimes, we’ll get one from a client. They’ll say it says two years. Yeah, this is only the duration of the actual NDA though. That doesn’t mean there’s a two-year obligation to keep the information. We need to define what that nondisclosure period is. Like you said, I think two to five, that’s where the majority of them fall – within that range.
NASIR: I think that what Matt’s saying is a very important thing. Now, when we say two to five years, I think what we’re referring to – and correct me if I’m wrong, Matt – is we’re talking about the period of time from the time that confidential information is disclosed that you have to keep it secret.
NASIR: Oftentimes, if you don’t have that provision, then it could be construed as being indefinite. That means, as soon as you’re told that secret, you’re going to have to literally take it to the grave with you. I think that can be problematic, right? It’s one of those things. This is kind of the running theme of this episode. If you’re disclosing confidential information, you don’t want to inadvertently trip or breach this agreement. When we’re talking about two to five and five-plus years or even ten years more, it’s like, “How can you keep track as to what’s confidential?” It becomes very difficult.
NASIR: I think the concept is that, after that period of time, by that time, information starts to become less valuable. For example, and I think Matt mentioned earlier the classic trade secret example of the Coca-Cola formula, I think we would all understand how that would not have a time limit because the criticalness of keeping that secret indefinitely is so high that the recipient would have an understanding as to why that would have an indefinite term.
MATT: You’ll see that NDA sometimes too. There will be a separate section that deals specifically with trade secrets. Anything that could be deemed a trade secret has essentially infinite duration on when that information can be disclosed.
NASIR: The next aspect of this NDA is what happens if it’s breached? This is the enforcement level. This is where things kind of get interesting and can go to an extreme. Pretty much every NDA has a provision that talks about the ability for the party that disclosed the information and then the other party breached – for them to go into court and seek a preliminary injunction and injunction from the court. Now, that makes it just easier by having that provision in there. It’s not necessarily necessary, but it’s often good practice to put that in because you want to be able to tell the court that whatever this person is doing as far as disclosing information, have that person at least stopped – stop the bleed – until we can pursue a further case for damages against that person. That’s one aspect.
Matt, let’s talk about this concept of penalties or liquidated damages.
MATT: How liquidated damages work is the parties could agree that it’s difficult to place a value on what this information is worth and the damages if it were disclosed would be this damaging. The parties can agree beforehand to a set amount which basically states that it’s difficult for us to place a value on this, so if there is a breach of this NDA, it would be worth X amount. I know you’re a big Kardashian fan, so I know you had a good example you wanted to bring up.
NASIR: Yes, I think I have that reputation. I’m being sarcastic just in case anyone’s listening. Yes, I thought this was interesting to bring up because it was a penalty that the Kardashian family apparently has in their NDAs. They have a liquidated damages clause of some sort. Reportedly, this is what it says. I haven’t actually seen it. Reportedly, it has a ten-million-dollar liquidated damages clause that, if you violate this, you have to pay ten million dollars. We’ve seen this in other cases too. Even in the Stormy Daniels case with President Trump, I recall that she also had a liquidated damages clause in her NDA which she admittedly violated but had certain exception to it.
Anyway, back to this particular pop culture reference, apparently, someone named Jordan Woods who was the ex-best friend of Kylie Jenner, apparently, she told all in this Red Table Talk with Jada Pinkett Smith on some show of hers. And so, just by the act of whatever she told, she may have violated that NDA and, in theory, could cost her ten million dollars. Now, the thing is you could put any number on there, but it doesn’t mean that it’s going to be enforceable. It doesn’t mean that a court is going to agree with you. A liquidated damages clause does have certain requirements. It has to have some connection with reasonableness or reality. I mean, in the sense, why not put a trillion dollars if you can just put a number there? Ten million? I don’t know. That seems a little high – depending on probably what was said – but I’m not the judge in that case.
MATT: Yeah, it does seem pretty high, but I also don’t know what was disclosed.
NASIR: You know, given that they’re a celebrity and that bad reputation could hurt their sales of products that they endorse and sell, et cetera, they can definitely prove up quite a bit of damages in that sense, but it seems almost kind of unfair a little bit if someone were to inadvertently trip an NDA. Of course, the opposite is not true if they are malicious with the information that they disclosed, then I could understand. Again, that’s the reason why celebrities have these NDAs – to protect themselves.
MATT: I’m just thinking from a practical standpoint. It has to be difficult to be somebody’s best friend or previous best friend. Anything they ever tell you? I mean, you can never speak to that. It just seems like it’s very difficult to accomplish that. I mean, from this Jordan Woods individual, it’s like, whatever that’s said to you over this period of years, you can never say anything. I feel like you’d accidentally say something at some point just offhanded, you know. That’s a tough one.
NASIR: Yeah, but to backtrack a little bit, I mean, think about it. Think of your friends. There are certain things that are secrets that our friends tell us. I’m not sure if I would inadvertently disclose that. And so, again, it comes to the definition of confidential information. And so, if Kylie Jenner told Jordan Woods a secret that was clearly a secret and she disclosed that secret, I can understand that that makes sense.
NASIR: Ex-friend or not, that’s a breach of trust that I think, you know, within the normality of our social life that we would kind of fall under, but if it’s things that are not innocuous or clearly just not some kind of “oh, you know, I used to hang out with Kylie, and she used to do this, she used to act this way,” and so forth – like you would with any other ex-best friend – I’m not sure that should be protected, right? It just seems a little extreme.
MATT: That’s what I was getting at, but we don’t know the specifics. Usually, friends will say, “I’ll tell you something in confidence.” I feel like that’s usually how people preface before they say something that they don’t want other people to know.
NASIR: Right. Provided that you preface the conversation with “I’m telling you this in confidence” or “this is confidential,” then that’s the definition of confidential information. That would be good.
MATT: I think so.
NASIR: All right. This next section, Matt, I feel like I’m very passionate about because this goes to one of my kind of rules. You know I have a lot of rules with dealing with clients. It has to do with non-solicitation and non-compete clauses within NDAs. Matt knows this very well, but we train our entire law firm that, when you review on NDA, if you receive an NDA and it has a non-solicitation or non-compete clause in there, you automatically remove it and don’t let our client sign it unless the other party pushes back and are able to justify the purpose and reasoning for that.
In general, in my opinion, non-solicitation, non-competes within an NDA context is almost always unnecessary. In fact, I’ve seen so many times where they’re put in these templates that people sign, and they have no idea of what they sign until years later – for the same reason we talked about in the beginning of the show. It’s like people just tend to sign these NDAs. That’s something that I feel passionate about.
MATT: Yeah, particularly with non-compete, but with non-solicitation as well. Again, it depends on what the discussion is between the parties. I guess there could be instances but, yeah, these restrictive covenants should not be NDAs. I mean, it’s something you can put in place later on if you actually get to a definitive agreement, and that’s fine. Going back to what we said at the beginning, it’s for initial discussions. It’s kind of testing the waters, so why should you not be able to solicit the employees or compete with the other company solely because you’re just having initial discussions?
NASIR: Right. Why is that information that you’re going to disclose so valuable that once that information is disclosed, that other party now is restricted somehow from what they do in the future? There are exceptions to that and things that make sense. For example, one place it may make sense is if I am disclosing to you a party – a person that’s interested in buying your business. After I disclose that, the cat is out of the bag. I mean, that information is disclosed. I don’t want you to circumvent me from going to that party to then take me out of the deal to get your business sold.
In that business broker relationship, that makes sense, but sometimes it’s just thrown in there and I could be just talking about anything. Like, “Here’s my idea about my next venture.” All of a sudden, I have a non-compete that I can’t go in that space. If I receive that information, I cannot compete against you in whatever you seem to be doing. That doesn’t make sense and is way too extreme.
You’ll find that those that have these kinds of provisions within their template, either one of two things is occurring – (1) either it’s just out of ignorance that maybe they grabbed the template online which is one of our blunders that we’ve talked about in the last couple of episodes, or (2) they’re doing it intentionally, and that’s even worse because then, all of a sudden, to me, it’s in bad faith, and they want you to just sign the NDA and then have this restrictive covenant that maybe you’ll end up regretting.
MATT: I agree with that completely. There are few and far between examples where I guess it would make sense but, for the most part, there’s no need to have that language in there. Like you said, if you don’t read it, then it becomes a big problem because you think it would be fine as long as you’re not disclosing the information you receive, but if you’re actually doing these other things that are restrictive covenants that you agreed to, then there’s just another way to breach the NDA.
NASIR: Right. And so, just to hoist things out a little bit, one thing that I think we talked about in our blunders episode of using templates and how sometimes using templates that you grab online may not be the best idea, but in the NDA context, because there are so many sometimes that are going on, using templates in this context is actually, to me, a good thing because, for example, we just talked about non-solicitations and non-competes, if you receive an NDA and you just search “non-compete” or “solicitation” and so forth and it’s on there, instead of doing this pushback or whatever – and maybe taking more time to revise an NDA – if you have a template that you know what’s in there and you’re comfortable in signing, you can push that back to them and say, “This is what we’re willing to accept.” You could have different versions.
You can have an NDA where you’re accepting information, you can have an NDA where you’re disclosing information, and you can have an NDA where you’re mutually exchanging information. That’s three templates. That’s all you need. With that, you can actually do business in a way that’s not too disruptive or you’re going to have to send it to your attorney and that takes time and so forth. That’s often what we do. It’s like, “Hey! We can review and redline this NDA. Or you could just use a template because that’s ready to go and it’ll actually be faster for you.” Sometimes, every party wants to use their own template, of course.
MATT: I think that’s more so the attorneys don’t want to have to review something else.
NASIR: That’s also true.
MATT: To me, I think the biggest thing when I need to look at an NDA, if it’s mutual, a lot of times, it’s going to be relatively fine, and I say that, don’t take that as legal advice, but take it from the perspective of obviously the other party wants to protect their information just as much as you want to protect yours. If it’s mutual, it’s usually going to be pretty neutral in terms of what’s actually the requirement. Now, I say that, but I’ve also seen NDAs – I’m sure you have too – where they’ll define confidential information and then there will be supplemental terms for the other party specifically which to me is like, well…
NASIR: Yeah, that’s not parallel.
MATT: Yeah, so it’s kind of a fake mutual NDA.
NASIR: Right. There’s also an issue too when maybe they’ll want you to sign a mutual NDA, but the reality is that the parties aren’t exchanging information and the confidential information is just going on way.
NASIR: Even though it’s a mutual NDA, maybe it may not necessarily be in the best interest of both parties to sign that because it’s still maybe leaning towards one way or another.
MATT: Yeah, you’ll definitely see that as well. Again, it’s a very fact-specific, case-by-case situation, but to summarize, if you get an NDA, the first questions you should ask yourself are – “Are you going to be disclosing information? If so, what information are going to be disclosing?” The third thing I would think of is “What information are you expecting to receive as the receiving party?” I think those three main questions dictate how you view an NDA and what you need to push back on, if anything.
NASIR: Right. I feel like I should have mentioned this earlier, but I’m trying to figure out what topic it would fit into – maybe in the beginning – the purpose of the NDA, of course, is to protect your confidential information, but everyone should be aware that there is a practical defect in this NDA thing because the NDA is a written document that’s supposed to protect you, but if someone breaches that promise, it’s sometimes impossible to prove that that actually occurred. And so, just like all business, it still comes down to who are you dealing with, who do you trust, and what information you’re actually disclosing – to the extent of is it necessary to disclose that information? I’ve heard different stories.
There’s a story that I read by a reporter. It was a very secret meeting of a bunch of owners in a certain trade industry. They would all meet annually, and they would have these very strong NDAs that they would sign. Once signed, they would disclose their financials with each other – things that wouldn’t necessarily be disclosed otherwise to your competitors. Somehow, they were able to create this level of trust between them. They did that because then they can be candid with each other on how they can help each other out – like, “Hey, I’m dealing with this issue and this issue” and kind of this very strange cooperative discussion within their industry. I thought that was interesting because, normally, you know, it seems contrary to what we understand to be US competition, but this was what was reported. But what protected them wasn’t that NDA. It was that trust and that culture environment that that provided. I thought that was interesting.
MATT: Yeah, not to harp on what I was saying before, but it’s all fact-specific and that’s the starting point.
NASIR: Well, I think that’s our episode. Don’t forget to listen to us on the various channels where you can find our podcast – whether it’s Spotify or iTunes. And then, of course, we’re also active on social media – Instagram and Facebook. Please follow us. We post a lot of interesting content, especially the things that are in-between our episodes. If you want to keep up to date with some Kardashian news. That’s where you’re going to find it – the latest of it all. I think that’s it. Well, thanks for joining us!
MATT: Keep it sound and keep it smart!