NDAs aren’t usually more than a few pages long. They tend to look simple and fair. You’re on a deadline, and the other side shows no interest in negotiating such a tiny document. So why is your lawyer marking it up and asking to get on a call?

Can You Keep A Secret… Forever?

Some NDAs never expire. By tapping that e-sign button, you may be agreeing to protect the other side’s materials or ideas “in perpetuity.”

Are you pitching a client to create a new interface for that must-have app? Years from now, your company might still be forbidden to share any information about the project — including the fact that you worked on it. This can be a problem when you’re trying to build a portfolio and market your services.

Many NDAs have an exception for information that becomes public, so in this example you might be fine once the app was released. But a surprising number of NDAs don’t include this carveout.

Some companies happily sign up to these terms, without thinking through what it will take to safeguard confidential information for years. Will you need to pay for secure storage? Cyber insurance? Once you sign a perpetual NDA, these aren’t abstract questions anymore. In fact, they can turn into real business expenses.

Whose Stuff Is It, Anyway?

You may be comfortable with the length of your confidentiality obligations. But are you clear on what information you have to protect?

Projects can get complicated once several layers of contractors and subcontractors are involved. Whether you’re collaborating with others to create software, content, or tangible products, you may need to think carefully about who owns what.

Are you sure that the company sending you information actually has the right to do that? Let’s say an animator is about to email you some test files from that bingeable new series. Did the series creator, studio, or other owners give them permission to share?

If not, both you and your collaborator could get in legal trouble. They, or you, may have to get a separate permission from the original owners. Standard templates don’t always account for this process.

To figure out the right approach, it may take some detailed follow-up with whoever is sending you the NDA.

Plot Twist: Unlimited Indemnity

Imagine that you’re reading an NDA that’s part of an RFP, and your company wants to bid on the project. All of a sudden, you stumble across this:

You agree and acknowledge that (a) we are not obligated to enter into an agreement with you, and we are free to negotiate with other parties with respect to the potential Services;

So far, so good, you think, but the contract continues:

and (b) you will have no claims whatsoever against us relating to any agreement involving us, our affiliates, or any third parties we may engage to perform the potential services.

Wait, no claims relating to any agreement? As written, this could apply not only to the NDA, but to future agreements between the parties. In other words, you could win the business, sign a contract, but then have “no claims whatsoever” under that contract if (for example) the customer didn’t pay.

More immediately, this type of language might waive claims under the NDA you’re signing. What if, while shopping around, your potential customer turned around and shared your pricing, content, or methods with your competitors? Are you OK with having “no claims whatsoever” if your confidential information gets out?

Now, it may be that this clause was put there for a simple reason: to stop disgruntled would-be vendors from suing when they’re not selected. If so, that may be fair. But in that case, the language should say that it applies only to that specific situation.

Broadly drafted language that forces you, the potential vendor, to waive all possible claims, is just plain troublous. Yes, that is a word.

The Services Agreement Disguised As An NDA

Sometimes another company will offer to sell you services, or ask to order yours, and then send an NDA instead of a services agreement. What’s wrong with that? you might ask. Isn’t that faster and easier than negotiating a full contract?

Not necessarily, if the NDA is missing important terms related to services. If you’re the buyer, you may want a description of what you’re buying and when you’re getting it, some guarantee of quality, and the right to a refund if things don’t work out. If you’re the seller, you’ll be interested in documenting payment terms, limiting your liability, and listing anything your buyer has to do before you can deliver. These services-related terms almost never appear in NDAs.

Trying to add the right level of detail to a short NDA would be unproductive. If you’re asked to buy or sell services using just an NDA, it can make more sense to send back a short services agreement instead.

In some cases, the other company will throw in a few terms related to services. However, because NDAs are often signed quickly and not negotiated in detail, some companies use templates whose terms benefit only them, and don’t protect you. You’ll want to review those terms thoroughly and perhaps mark them up. For example, if the document you get contains any of these, it’s probably a services contract dressed up as an NDA:

• a purchase order or other description of services
• pricing terms
• a work for hire clause
• warranties
• indemnities

Each of these terms should be tailored to the services being provided, and they should reflect both parties’ agreement on who bears what risks.

Look Before You Leap

Unfortunately, it’s often large companies with significant buying power pushing these confusing clauses. The small business owner who gets the document worries about losing the business if she negotiates. And if she’s the one sending the NDA, she may be using the first template she finds online, without customizing it for her needs.

NDAs don’t bring in revenue (although they may have to be signed before a moneymaking project can get started). They’re often perceived as friction, a cost of doing business where no one wants to take the time to get it exactly right. This lack of attention is one reason for what contracts maven Ken Adams calls “NDA dysfunction.”

Every lawyer has times when they – or a client – agree to less-than-ideal contract language to get a deal done. Compromises become standards, and standards grow by accretion. Still, an NDA sets the tone for a new business relationship, and sloppy drafting at this early stage can come back to bite a small company later on.

Light At The End Of The NDA Tunnel?

By now, many legaltech companies are working to fix the problems with NDAs. Try one of their templates, or have your favorite AI produce a first draft for your lawyer to review.

Clarifying NDA terms can take a bit of extra effort upfront, but is often worth it in the long run. If the contract includes the kind of lopsided wording described in this article, a few markups and calls may be time well spent.

 

Need an NDA reviewed, or have questions about other commercial transactions? Please feel free to contact us.