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Episode 33

E33: 5 Hot Spots in Your NDAs

Non-Disclosure Agreements have become ubiquitous in US business these days because so much of our economy runs on Intellectual Property. In one of my LinkedIn Live broadcasts, I focus on some critical provisions that appear in most NDAs. I call them the Hot Spots because the person receiving the information (usually called the Recipient) needs to pay close attention to these provisions. In this episode, I review

  • Why discretion beats an NDA in the preliminary conversation phase of a deal
  • The 5 Hot Spots that should trigger your Spidey sense
  • When and why I think there’s one provision that Recipients should simply reject
  • The special challenge related to an NDA with a potential or existing competitor

In Episode 26, we talked about the benefits of an NDA to make sure the parties are comfortable bringing everything to the table for a full discussion, and this episode is the caveat to that advice – if you are going to enter into an NDA, do so wisely. If you are interested in learning more about how to protect your growing body of IP, contact me today for a consultation.

Connect with Erin and find the resources mentioned in this episode at hourlytoexit.com/podcast.

Erin's LinkedIn Page: https://www.linkedin.com/in/erinaustin/

Think Beyond IP YouTube Page: https://www.youtube.com/channel/UCVztXnDYnZ83oIb-EGX9IGA/videos

Music credit: Yes She Can by Tiny Music

A Team Dklutr production

Transcript
Erin Austin:

Hello, welcome to our LinkedIn Live.

Erin Austin:

happy for you to join me.

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I do LinkedIn lives the last Wednesday of every month where I discuss topics of

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interest to the expertise based business and helping you make that hourly to exit.

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this is also, being recorded as a podcast episode of my Hourly

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to Exit podcast that you can find on all of your podcast providers.

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and so if you are listening to this on the podcast, I do wanna let you know that

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there are slides that you can find on my YouTube channel if you are so inclined.

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So, again, I do these the last Wednesday of every.

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So if there are any issues that you would like me to cover, please feel free

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to just shoot me a note on LinkedIn, or I'll also have my contact information

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at the end of the presentation.

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these are a short form, 15 to 20 minutes.

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No topic is too small.

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I wanna know what you're struggling with, what your questions are,

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so I best serve you and have the most responsive information for.

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. So, and of course also feel free to, ask questions at any time during the

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presentation, or also at the end, if you don't do it during the conversation.

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so we are here to talk about the ubiquitous n d a, and specifically

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I'm gonna talk about a few hotspots that you need to be aware.

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Now, let me say, of course, you know, I'm a lawyer and I do

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encourage you to have all of your agreements reviewed by a lawyer.

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And NDAs are agreements, so they're binding agreements.

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and I do want you to treat them with seriousness.

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and as a practical matter, you may not always be able to do that.

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So we're gonna talk about some things to think.

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My disclaimer that I gotta throw in here is, of course I am not your lawyer.

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this is general legal information and in order to have, the law apply to

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your specific facts, then you do need to consult with a lawyer for that.

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So on with the show, N D A Hotspots.

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So, NDAs are everywhere.

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So if if you have been working with corporate, in and around corporate, at

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least for the last 10 years, maybe longer, if you're like me, then you know that

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there has been a mass proliferation.

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of n D A usage.

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And so why are they everywhere?

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Well, that is because over 70% of the value in corporate businesses

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is in intellectual property, and other intellectual assets, like

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customer lists and things like that.

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So in order to protect those assets, they require NDAs before they're going

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to share that information with you.

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And so just to back up and just to talk generally about NDAs, also known

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as non-disclosure agreements, also known as confidentiality agreements,

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what we're talking about today are those standalone agreements that you're

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signing before you enter a transaction

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with

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someone.

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So you've made contact with another party.

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Maybe you want to, pitch them something.

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Maybe they've asked you for a proposal; maybe you want

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to collaborate on something.

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And in order to figure out whether or not it's a good fit, you are going

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to have some conversations where some confidential information may be shared.

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And so you do want to have that NDA in place before you share that information.

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and so I'm not anti NDAs.

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I do think they're over-prescribed.

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I will say that my general feeling about NDAs is that if you were just in the

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talking stage to borrow a dating, Term, you should really limit the amount of

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confidential information you share, cuz at the end of the day, your confidential

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information is best protected by keeping it confidential and not sharing it.

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I like to say discretion is your best protection when it comes to, protecting

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your Confidential information, and that your NDAs are kind of the, cousin.

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So, we know we have NDAs that we have to deal with, so let's talk about them.

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So, these are some five hotspots.

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This is not a provision by provision review, but some of the main

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issues that you're going to come across that I want you to be aware.

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So the five are the confidential information definition.

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Then of course there are the exclusions from the confidential

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information definition.

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circumstances when disclosure is legally required,

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the

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non-disclosure and non-use restrictions that apply

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and indemnification provisions.

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funny when I'm working on these, you know, PowerPoints, everything looks so big and

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on my stream yard screen it looks so tiny.

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So I hope you can read everything.

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If you can't read something, please put a comment in the chat so I can

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make sure that, you get it, but also know that, well, the recording

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will be available if you miss.

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So for those of you who are listening and not watching, I am going to read.

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What I have is a typical confidential information definition.

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Now, every definition is different.

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If you have a hundred NDAs, the definition of confidential information will be

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different and every single one of them.

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But, there will be some things you can expect to see in there.

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So this example that we have, The recipients, and I want you to note, so

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the person receiving the confidential information is referred to as the

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recipient or the receiving party.

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The person who is disclosing their confidential information, I'll

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be referring to as the disclosing party throughout the presentation.

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So the recipient's obligations under this agreement shall extend

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only to confidential information that is one marked as confidential

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at the time of disclosure.

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So you'll have, a handout that has confidential marked on it.

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two is identified as confidential at the time of disclosure.

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So it's mentioned or.

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but is designated as confidential in a memorandum that is sent to

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the recipient, after the disclosure that summarizes that information.

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And then I have in red, font because it's one of my hotspots.

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any information that is disclosed, whether in writing orally or via electronic

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means by the disclosing party and which the disclosing party considers

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to be proprietary or confidential.

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So why do I not like that last one?

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Now I'm going to say a little background on this.

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There used to be before NDAs were used, Anytime you got on the phone

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with somebody, when they were used for very specific purposes, the

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confidential information definition used to be very clearly defined.

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It would be like, I'm going to share my financial information with you, or I'm

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going to share my strategic plan with you.

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And so you just had this very clear definit.

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But since we now use them all the time in all sorts of circumstances, and it's all

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templated, so they're not doing a special one for every time they're sending it out.

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They've added this catchall, like just anything that happens to come

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up that might be confidential is also considered confidential information.

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And so I hate it, but it's the way it is now.

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And so you're always gonna find these catch.

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however, the problem with them is, one of our hotspots, which is, if you have

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disclosed confidential information orally, you haven't gone back and summarized it.

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you know, it's not in some recording like, recorded zoom call that says

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it's confidential information and then there is a dispute later.

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Like, how do you prove that you shared it?

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you, unless it's something very specific that could only come from you, how

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would you prove that you shared it?

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what's the paper trail?

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And so people, you know, insist on these catchalls.

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So you're gonna see the catchalls.

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You're gonna have them in your NDAs, but if you are the disclosing party

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and you're sharing your confidential information, then I want you to

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make sure there's a paper trail.

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So if there's some dispute about whether or not someone used your confidential

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information, you have the paper trail.

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So that's our hotspot number one.

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So, As a result of these catch-alls and, uh, for the definition

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of confidential information.

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Now, of course we need to have exclusions.

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We used to not have exclusions, but now we have to have the exclusions from

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the confidential information definition because the definition is so broad.

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And so, there are a few things that you always wanna make sure that

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are excluded from the definition of confidential information.

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Here we have four that you'll typically see, The information that is generally

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known to the public at the time of disclosure or later becomes generally

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known, without receiving party disclosing, it would be excluded.

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So let's say you're having a Zoom call and people are sharing things and you

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have one of Catch-alls, just the fact that it was disclosed during that Zoom call.

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you have this catch-all that everything I tell you is confidential information.

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Well, it's not, if it really is, known to the public, you cannot

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be in a worse position than the member of the public with respect

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to that confidential information.

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it becomes, known to the receiving party from a third party.

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Somebody else shares it with you.

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so that would also be excluded.

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If you independently develop it.

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they say that there's only so many original ideas in the world.

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so if you are separately, you know, your marketing departments over there, the

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marketing department had nothing to do with, your financial team and they somehow

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come up with some similar ideas, then that wouldn't count as confidential inform.

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And then the last one that is in red here is information that is required

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to be disclosed by the receiving party to comply with applicable laws or

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governmental regulations or court order.

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Why is that a hotspot?

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Well, the fact that you had to disclose that confidential information

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for, legal purposes does not make.

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No longer confidential information.

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So let's say it's your confidential information for some reason, the

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receiving party has to disclose it for s e c purposes or something.

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And so that doesn't mean that they are now free to blast it across the internet.

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It's still your confidential information.

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It doesn't mean that they're free to use it and create

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their own products out of it.

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It's still your confidential information.

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, it is not an exclusion from the confidential information definition.

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You do not want that, circumstance of needing to disclose it for, legal

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purposes, to exclude it from the confidential information definition.

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Where it is appropriately addressed is in the next hotspot.

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So there should be a separate provision that says, in the event that you are

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required, because of legal requirements to disclose my confidential information, then

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you won't be in breach of the agreement if you meet these certain circumstances.

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And so you might see something like this provision here.

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If you are required by any legal or regulatory process to disclose any

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confidential information, you shall provide prior written notice of such

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disclosure to the disclosing party and take all reasonable and lawful

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actions to avoid and/or minimize the extent of such disclosure.

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So we have two hotspots in this provision.

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First of all, are you legally permitted to provide notice to disclosing party?

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What if the disclosing party is the object of some sort of investigation?

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And so, the f B I comes to you or the s e c comes to you and, asks

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you for some information that you received from the disclosing party.

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as part of that investigation, and they tell you, you cannot give notice that

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we are asking for this information.

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So if you have that language in there that requires you to give,

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notice to disclosing party without any exceptions, then you would be in

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breach of the agreement if you did disclose it without giving them notice.

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The other part of that is that it put the burden on the receiving

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party to get a protective order.

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The burden should be on the disclosing party.

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That's their information.

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They have the value in it.

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They have the vested interest in keeping it confidential, and so it should be

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their burden and not your burden as a receiving party to seek protective orders,

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which of course, cost money and resource.

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However, you should reasonably cooperate, at their expense, but the burden to pursue

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that should be on the disclosing party.

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The fourth hotspot is regarding the non-disclosure and non-use restrictions.

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Now you'll see that this is all in white.

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There are no hotspots in this language.

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I'm going to read it.

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for the benefit of the podcast listeners, the receiving party agrees

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that it will make no use of any of the confidential information except for the

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permitted purposes, you know, whatever.

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uh, the conversation is around, and will only disclose the confidential

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information to those of its employees or, its advisors, like lawyers,

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that have a legitimate need to know.

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It might also see on a need to know basis, for the permitted purpose and

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who are informed of the confidential information of the information and that

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also understand that the no use restric.

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So this is all very reasonable, an n d a a non-disclosure agreement.

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Although it only has the non-disclosure part in the title, it is also a

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non-use agreement, I guess it'd be too unwielding to call it the

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non-disclosure and the non-use agreement.

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But both elements are extremely important.

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Part of an N D A.

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Of course, you're not gonna disclose it, meaning you're not

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gonna tell other people about it.

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You're not gonna broadcast it.

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The non-disclosure piece, the non-use piece, is you're also not going to

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use it for your own internal purposes.

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You will only use it for whatever the reason is that you're having this

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conversation for the collaboration, for the services that you're going to provide.

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So if you didn't have that non-use restriction, then you could, use

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it internally without violating a non-disclosure, which is why

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there's always two parts to it.

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So that's why I'm happy with this provision.

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There's no red parts in it.

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However,

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The hotspot issue is, if you offer similar goods and services.

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, you don't want this to somehow turn into a non-compete, you similar to the

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exclusions that we talked about earlier.

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So you could have something going on.

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Like today, I could be working on something that I am going

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to release, on March 1st.

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And per our, conversations about.

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something else we're gonna might work on together.

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You disclosed to me something that's very similar to what I'm working on right now.

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And so you wanna make sure that you also have a provision in there

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that acknowledges that, hey, we may be working on similar things.

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We may have similar ideas.

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The fact that we're, sharing this information does not mean

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I can't offer similar services that are similar to yours.

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So, That is something you wanna make sure is covered if you are working

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with someone in similar services.

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Now, this probably is not applicable if you are entering an NDA with

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your, big corporate client.

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Probably you guys are not in the same business it's not applicable,

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but you do need to be careful if.

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it is.

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And then our last hotspot, indemnification, and, the

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entire provision is in red.

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And so this is, you know, your standard indemnification where a recipient

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indemnifies the disclosing party in the event of any third party action

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that arises from a breach of the a.

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And so generally, in services agreements, indemnification

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provisions are not that controversial.

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So why is it controversial in an N D A?

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, why is my recommendation?

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Just say no.

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Well, it's because if you are just in the talking stage and there is no

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agreement to move forward in a real transaction where you will be exchanging

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money, then there is no consideration.

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For taking on that type of liability.

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You should not be accepting the liability of indemnification just

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to talk to someone about whether or not you're going to work together.

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So, get that indemnification provision out.

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if you, possibly can, I strongly encourage it.

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So that is our fifth and final, hotspot.

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so I'm happy to take any questions, from you if you have any.

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You can just pop 'em in the chat, and of course you can also always follow

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up with me directly afterwards as well.

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Well, I hope that this was helpful to you.

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you can find me on LinkedIn.

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If we're not connected, please connect with me, or you can, find me

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on my website, think beyond ip.com.

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And of course, if you're listening to this on LinkedIn.

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Then to also check out my Hourly to Exit podcast, where we talk about, all these

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issues to help you create a scalable.

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Hopefully someday saleable expertise based business.

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And we also talk to experts as well about different elements

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of that hourly to exit journey.

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And you can also sign up for my weekly newsletter, and I have a lot of free

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resources on my website as well.

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So thanks again and hope to see you next time.

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Erin Austin

Meet Erin Austin, a Harvard Law alum with over 25 years of copyright and contracts experience. As the go-to advisor for professionals with corporate clients, Erin empowers entrepreneurs to be their own advocates, standing out for her commitment to transforming expertise into empires through the creation, protection and leveraging of intellectual property assets. Explore her blend of legal expertise and entrepreneurial insight on ThinkBeyondIP.com and the "Hourly to Exit" podcast. Off the clock, you'll find Erin in the great outdoors or connecting with business coaches to elevate 6-figure consultants into 7-figure powerhouses.