Costly Misconceptions About NDA's (Non-Disclosure Agreements)

By: Michael J Foycik Jr. 
The author is a patent attorney with over 28 years experience in patents and trademarks. For further information, please email at, or call at 877-654-3336.

You (the owner) has  an invention, a business idea, or a trade secret.  To develop your invention, start a business, or talk with investors, you'll need to share information with these recipients, and you'll want protection before showing them anything.  Many think an NDA (Non-Disclosure Agreement) will solve this problem, but there are major pitfalls to avoid.  And, an NDA might not be the best solution anyway.

The biggest misconception, in my view: an NDA is intended to protect and help the owner of the invention, business idea, or trade secret.  An NDA is much more likely to protect the recipient of the information, and not the owner.  Let's see why that may be true.

Many NDA's provide for arbitration as a remedy rather than litigation, but that only benefits the richer party.  Why?  A court action can be filed for free or at very low cost, but an arbitration usually requires the payment of substantial fees up front, and more fees at later stages.  When the recipient is a relatively substantial corporation or business, such fees may seem small, but to an individual or small businessperson such fees may be too great and they cannot enforce the NDA.

Normally, large companies fear litigation, and that is incentive for them to keep honest.

Another misconception: all NDA's are alike.  Not at all.  Each has to be studied in detail, because
many NDA's have fine print that lets the recipient off the hook.  I have reviewed many NDA's over the years, and have found serious flaws in most of them: the legalese unbinds the recipient one way or another.  Some unbind the recipient after a period of time, while others grant rights to the recipient.  Some are written to be so confusing that they defy interpretation.