An NDA is a versatile document that can either save your project or create a lot of damage. Knowing how and when to use an NDA correctly can make or break a project, business relationship, or even a company.
In this article, we will teach you about this document, how to use it, and its strengths and risks,including claiming confidentiality, protecting your intellectual property (IP), and preventing unwanted obligations in the future.
The scenarios an NDA covers run from soliciting business (e.g. pitching, discussing projects, or hiring process) to identifying confidential information during a business relationship, all the way to how to treat information after the relationship ends (e.g. not to speak about certain details of a break up).
The Core Mechanic: Keeping Things Secret
Regardless of whether you are loosely discussing some fancy monetization ideas with peers, invited to an interview, launching a closed Beta, negotiating a publishing deal or a company buyout, or breaking up a business relationship – there will always be sensitive information about art, tech, business, or personal matters you want to keep secret from others.
A Non-Disclosure Agreement will mandate that one party or all parties involved cannot discuss the details of the relationship with any non-involved personnel or publish the information discussed on any public platform. To do that, the NDA has to include the following basics: i) which relationship it is referring to, e.g. employment between certain parties, pitch of game X, etc.; ii) what is confidential information, from dates, to names, to business practices, to deal terms; iii) who is bound by it, i.e. is it mutual or unilateral; and iv) what happens if the obligated party discloses this information in breach of the NDA, e.g. demanding for monetary relief.
What About Work Unprotected by the Law?
Let’s say you are early in development and pitching for funding, or you are in an interview for employment or winning a project for contract work, and you are showing off ideas and concepts rather than finished content. This unfinished or new content can be a vertical slice, novel business model, or any other solution that came to your mind in that meeting. Regardless, it’s enough to pitch, or convince, and in that situation it is your most valuable prospective business asset.
The problem: the receiving party (publisher, employer, company) may decide it likes what you are showing, and, well, runs with it. Can they do that? Don’t you have IP protection in your work? As it turns out, you might not, depending on what you brought. Copyright law protects “expressions”, not ideas (see one of our previous articles on Copyright), and Trademark law wouldn’t apply because your idea has not yet been used in commerce (See also: one of our articles on Trademark, and its uses and purposes). You can’t claim it’s a trade secret either because you just disclosed it to someone outside of your business.
Your NDA is your safest bet to protecting you, because if the receiving party cannot disclose, they will have a hard time using the content. Further, an NDA can (and should) also speak to who owns/keeps what is being discussed within the “walls of confidentiality.” Ideally, the NDA says: all my bases are belong to me, allowing you to walk out of that room with what you came into it.
Easter Eggs in an NDA: How an NDA can seriously hurt
New Scenario—this time you are being courted and are being presented with an NDA. A big publisher wants you to develop a project for them, or perhaps you’ve been headhunted for an exciting employment opportunity. Before they can tell you the details of the project, they want you to sign their NDA.
Unlike the NDA you have written for your company, their NDA has some interesting additions. The company has added an ownership clause or residual clause (depending on what the clause is designed to do). If agreed to, the subject of your meeting with the other party, or the underlying idea, may be entirely owned by that (other) party. This situation occurred in dramatic fashion in recent years when John Carmack jumped ship from Zenimax to work with Palmer Luckey at Oculus.
Similarly, obligation clauses may rope you into a situation you did not intend to enter. It may impose an obligation on you as a party (or, in the reverse, disclaims a party of any obligation to you aside from the present solicitation) to do whatever the clause describes.
Be sure to carefully read the obligations you are agreeing to beyond promising secrecy and whether what you are contributing is run off the mill or important tech or other specialized knowledge to the project.
But! Do NDA’s Actually Work?
Yes! At least they are supposed to – do note, contracts are not magic (stay tuned for a piece on this blog on how to enforce contracts). If a party breaches an NDA, you still have to enforce it. However, like with any contract, writing it, signing it, and having it on file is so much more than hoping the other party will keep things confidential – that includes having to enforce monetary relief agreed to in an NDA, like Epic did a couple years back against a leaky Fortnite playtester named Ronald Sykes.
NDAs also have other issues though: What if the other party does not want to sign, it scares them off, they are allergic to lawyers, etc.? What if there is not the time – you are in a trade show five-minute meeting – or you don’t have time to write a bespoke contract with a connection at the bar (because the best ideas come over a beer). What do you do now? First of all: always have the simplest, most general of NDAs in your figurative – i.e. digital – “back pocket.” If that does not work, here are some options: you either i) place in bold, red and all caps CONFIDENTIALITY in the footer/ header of all documents you want protected or in the email or ii) you say: “this is confidential” and stop right there until you hear an “understood,” “agree,” or “gotcha,” etc. You then follow up later by email and reiterate that and ask for confirmation.
The beauty of the NDA is it is versatile. You can gear its content and form to the situation you are in. However, that does not mean you are good without. An NDA has become a good example of a break it or make document.
To paraphrase those nutty toymakers over at Nintendo: “Take this [NDA]--it's dangerous to go alone!" ~The Legend of Zelda, 1986.
Author: Edward Baxter and Daniel Koburger
First Published: 03/16/2023