High-Tech Nondisclosure Agreements

High-Tech nondisclosure agreements present unique difficulties to the high-tech enterprise. Its intellectual property rights are its greatest asset. Consider:

1. Some large companies will place language in the nondisclosure agreement (NDA) that claims ownership of any intellectual property produced by the smaller company during the term of the agreement. This is rare, but I have seen it. Executing the nondisclosure is a questionable business decision. Should management take the risk or find a less rapacious customer/partner?

2. The nondisclosure agreement has a term (the time that it is in effect), but also has a clause that protects each parties confidential information for “x” years after termination of the agreement itself. This is a two edged sword. A longer period of confidentiality works for you, but it also extends the time you must be careful with the other party’s confidential information. This can prove burdensome. If your technology will be out-of-date in three years because of the development cycle in your industry, three years of confidentiality after termination will do.

3. In the Nondisclosure agreement, there is always a list of items that are not considered confidential. For example, information that turns up in the public domain, but not because of anything either of the parties did. There is one exclusion that is not always included that should be: if the receiving party develops something that is contained in the disclosing party’s confidential information without reference to that confidential information. You do not want to discontinue a project or otherwise hobble your development team because the disclosing party has developed something first, as long as you are honest. If you circulate the disclosing party’s confidential information to your development team with instructions to duplicate the intellectual property (IP) in question, you face may face problems your low ethical standards deserve.

(Be careful if the exception is for something developed by people that did not have access to the other party’s IP. If you are a small company, you may not have a large enough development group to create a “Chinese Wall” between projects.)

All NDAs are important. High-tech companies’ nondisclosure agreements may be just a little more difficult to negotiate and finalize. Effective Agreements can help.

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