Non-disclosure agreements are common in business, but they're not magic shields. Understanding their limitations helps you use them effectively.
Key Takeaways
- NDAs don't prevent all disclosure
- Enforcement is expensive
- Definition of confidential information matters
- Duration and scope affect enforceability
When NDAs Help
- Due diligence in M&A
- Sharing proprietary technology
- Employee access to trade secrets
- Partnership discussions
When They Don't
- Information already public
- Without clear definition of confidential info
- When you can't afford to enforce
The 'Residuals' Clause Trap
Big tech companies loves this clause. It says: "It is not a breach for my employees to use any knowledge retained in their unaided memory." This essentially voids the NDA for ideas. If they "remember" your algorithm or business plan, they can use it. Always strike the residuals clause or strictly limit it to general industry knowledge.
Defining 'Confidential Information'
Don't rely on a broad definition. The best NDAs require the disclosing party to mark documents as "CONFIDENTIAL." If you disclose something verbally, follow up with an email saying "What I just told you about Project X is confidential." If you don't mark it, a court might say you didn't treat it as a secret.
Residuals Clauses: The NDA Backdoor
Big Tech companies often slip a "Residuals" clause into an NDA. It says: "It's not a breach if our employees use information retained in their 'unaided memory'."
This effectively nullifies the NDA. If you pitch them your algorithm, and their engineer remembers how it works, they can go build it. Never accept a residuals clause if you are sharing true trade secrets (code, chemical formulas).
Protect Your Business from Costly Legal Mistakes
A handshake deal is fine until things go wrong. Whether you're starting a company, negotiating a contract, or protecting your IP, you need clear legal agreements. Don't risk your hard work.
We offer a free 15-minute consultation to review your business needs.
Get Your Free Consultation NowHow long should an NDA last?
Standard is 2-5 years. Trade secrets, however, should be protected "for as long as they remain trade secrets" (indefinitely).
Can I use an NDA for an investor?
VCs almost never sign NDAs. They see 1,000 deals a year. If you ask for one, you look like an amateur. Focus on execution, not idea protection.
Disclaimer: This article is for general information only and is not legal advice.