Let’s Talk About It… Or Not - NDAs & Business

NDAs. Celebrities have their friends, partners, and even families sign these things before they even talk or hang out with them! But what is an NDA?

NDA stands for Non-Disclosure Agreement. These can also be referred to as confidentiality agreements or confidentially clauses within a contract. It is an agreement that states certain information will remain confidential. An NDA binds a person who has signed it to secrecy. It prevents them from discussing any information included in the contract with any non-authorized party. The agreement can continue forever or for the period stipulated in the contract. NDAs are usually enforced to the extent necessary to protect a party’s interests and no further.

NDAs are popular among celebrities in their social life, but they're even useful for business owners. NDAs are commonly used to protect trade secrets, client information, and other sensitive or valuable information. Small and startup businesses should familiarize themselves with these agreements. NDAs can keep working projects, creatives ideas, and unique new products and services from falling into the competitor's hands. If an NDA is breached or violated, a court may require the violating party to pay money to compensate for the contract breach. Breach penalties can be listed in the contract, and are usually money damages, lost profit, and injunctive relief – but can be as severe as criminal charges. 

Here's an example – Jane has a wonderful product that'll make everyone's daily life easier. The product is unique and very profitable. Jane has the idea and the prototype but lacks the funds needed to produce it. Eventually, Jane will need to talk to potential investors, creditors, and suppliers to get the ball rolling. This is where NDAs come into play! To keep this innovative product confidential, Jane should have all potential investors, creditors, and suppliers sign NDAs before releasing any information about her product. 

Let’s consider what would happen if Jane does not make use of NDAs. Her brilliant idea could potential be taken. A potential investor could choose not to invest in Jane but instead tell a bigger company about Jane's product. A potential supplier could also choose not to supply Jane with the parts necessary to make her product but instead make the product themselves! In essence, Jane's idea and product would be in a very vulnerable state. In this case, an NDA could make or break a profitable start up business. The NDAs would bind potential partners of the business to secrecy. Even so, if the agreement was breached Jane could sue and get damages for the breach. 

This isn’t just hypothetical though, here is a real-world example from one of the biggest companies in the America, Tesla Motors!

Recently, billionaire Elon Musk has been blowing minds in the field of technology. From self-driving cars to computer chip brain implants — Elon Musk is an innovator! In 2017, Tesla filed a breach of contract lawsuit against a former employee, Sterling Anderson and former CTO of Alphabet Inc. self-driving technology, Chris Umson. Anderson was the Chief of Tesla's Autopilot Program. Tesla alleged that Anderson and Umson attempted to recruit Tesla engineers for their new company, Aurora, and stole confidential Tesla information. This new company had similar goals as Tesla and wanted to develop driverless cars. Tesla alleged that Anderson violated his employment contract and breached a duty of loyalty by stealing from Tesla and using the information for his personal endeavors. 

In this situation, the parties came to a settlement within the same year the lawsuit was filed. Tesla withdrew its complaint without damages or finding any wrongdoing and Aurora reimbursed Tesla for future ongoing audits. Aurora also had to pay Tesla $100,000, and Anderson’s contractual obligations to Tesla remained intact and even extended to Aurora as a whole! 

The bottom line is nondisclosure agreements are important. Protect your business, protect your products, and protect your creativity! Even if there is a breach, you will still be protected by injunctive reliefs and monetary damages. Be smart, get a lawyer to draft an NDA for your business, and start using them today! 

The Styles Firm would love to help you establish strong NDAs for your business! Schedule a consultation and let’s do business in Style! You'll thank yourself later!

Sources: 

Tesla Motors Inc. v. Anderson et al., case number 17-CV-305646, in the Superior Court of the State of California, County of Santa Clara.