How Solid is a Non-Disclosure Agreement and When Do You Need One? – Dayna Thomas, Esq

Joining us on the Atlanta Small Business Show once again is Dayna Thomas, a local attorney that specializes in the field of entrepreneurship and small businesses. Today, Dayna is here to talk about NDAs or non-disclosure agreements. What are they, who needs to sign one, when to use one, and how solid is an NDA in legal proceedings? Tune-in to hear her answers.

VIDEO TRANSCRIPT

Jim Fitzpatrick: Everybody knows your book by now, or our viewers, and it’s the Entrepreneur’s Guide to Building a Solid Legal Foundation. Something you definitely want to do before you open up a business, right?

Dayna Thomas: Absolutely. Pay attention to legal foundations. It will help make you money.

Jim Fitzpatrick: Yeah, that’s for sure, that’s for sure. You don’t want to make it and then give it away because you didn’t cover the bases, right?

Dayna Thomas: Exactly.

Jim Fitzpatrick: Well, one of those bases we’re going to talk about today is an NDA or a nondisclosure agreement. A, what are they? Then, who needs to sign one, right? Talk to us about the NDAs.

Dayna Thomas: Absolutely. An NDA is a nondisclosure agreement. Essentially, the same as a confidentiality agreement, and so a lot of times in our businesses we have to work with a variety of people to help us attain our goals or reach our goals. We have these ideas that we love, we’re so excited about them, passionate about it-

Jim Fitzpatrick: Sure.

Dayna Thomas: But we’re kind of reluctant to share it with people because we don’t want them to steal our ideas.

Jim Fitzpatrick: That does happen, doesn’t it?

Dayna Thomas: That does-

Jim Fitzpatrick: That’s a real thing.

Dayna Thomas: Yes, that does happen. I get a lot of those phone calls. The best way to do that is to protect against it upfront with a nondisclosure agreement. Essentially, what it says is that, “I’m going to be sharing this particular type of information with you, as well as any information that might stem from that.” It’s really a promise to keep that confidential, a promise that if you have to share that with someone else, that they’re going to sign a nondisclosure agreement as well. It’s a very important step in the business process, but I will say this, it’s not that strong when it comes to the law.

Jim Fitzpatrick: Really?

Dayna Thomas: Yeah. I can explain.

Jim Fitzpatrick: There’s a little false sense of security in some cases?

Dayna Thomas: Somewhat, because I’ve heard cases and situations where if you changed just something minor on an idea that you were told, even if you signed a nondisclosure, the court can still say that this is a new idea and not the same idea.

Jim Fitzpatrick: Wow.

Dayna Thomas: Be weary.

Jim Fitzpatrick: Okay, didn’t realize that.

Dayna Thomas: Yeah, be weary and make sure that no matter who you’re sharing your information with, that you trust that person or that company, because a nondisclosure is a good layer of protection, but it’s not bullet proof.

Jim Fitzpatrick: Right. You just brought up an important factor that I wasn’t thinking about, and that is that if I tell somebody my idea, and then they tell … I get them to sign an NDA, now I feel like I’m covered with that individual. But if they’re sitting at the health club, or the bar, or out at lunch and they share it with someone else, that person didn’t necessarily sign one.

Dayna Thomas: Exactly.

Jim Fitzpatrick: Now they go, “Wow, that’s a really great idea and I think I’m going to go ahead and pursue that.”

Dayna Thomas: Exactly.

Jim Fitzpatrick: Then it leaves that entrepreneur going, “How did that happen all of a sudden?”

Dayna Thomas: Yeah, and so it may seem like nondisclosures are simple to draft. You just find one on Google and you just use it. But really, it has to be drafted in a particular way to protect against things like that. It’s super important to at least make sure you have that layer of protection in case you need to share your idea.

Jim Fitzpatrick: Sure. You just brought up a good point about going to Google and seeing if there’s a standard one and filling it in, but is that really the best way to handle that, or should it be maybe just the beginning and bringing that to an attorney to say, “Hey, I’m about to make a presentation for either private funding, or to get into a corporate park, or a storefront, or what have you?” Because sometimes those individuals want to know, “What’s your business? Tell us all about it.” Right?

Dayna Thomas: Exactly. I would say depending on your budget, finding a template that the attorney can start one can be helpful for the legal fee. It just depends on, one, if that’s a good template that you found. Because sometimes templates are so bad I might as well start over. But then also, who are you sharing it with? Because if you’re sharing it with a friend that kind of wants to invest, it might be different than if you’re sharing it with a corporation that’s going to invest. It has to be airtight for certain situations. We just want to make sure that whatever you’re using, it does exactly what you need it to do and it fits the particular situation.

Jim Fitzpatrick: Yeah. Because if it’s not written properly, then that could be the loophole as well, right?

Dayna Thomas: Yep. You don’t-

Jim Fitzpatrick: If somebody’s going to steal a concept from you, they’re probably going to go to their attorney first and say, “Hey, I signed this NDA, but I like the person, but … I like the concept, but I’d like to do it.” They may find a loophole in it, right?

Dayna Thomas: Yes. They’re always trying to find loopholes in nondisclosures. Something else is that your nondisclosure has to be drafted in a particular way so that you also add what’s not covered in the nondisclosure. Courts often find that if a nondisclosure is too overreaching, they’ll just scrap it altogether.

Jim Fitzpatrick: Oh, okay, okay.

Dayna Thomas: You want to make sure that you put in there what’s confidential and then also what’s not confidential. For example, if they find out that same information from the public, you have to state that that would not be confidential information, so it has to be tight.

Jim Fitzpatrick: Then, now I’m a new business … Or I’m an entrepreneur, and I’ve got an idea, and I’m all excited about, and I think … I’ve done all the research, and yes, there’s a need for this product, and there’s a market for this product, and it’s a product that can be built and sold, and I tell my neighbor about it. Does the neighbor need to sign an NDA?

Dayna Thomas: I would say, yes.

Jim Fitzpatrick: See-

Dayna Thomas: Maybe-

Jim Fitzpatrick: That’s-

Dayna Thomas: At the beginning stages, maybe your neighbor will sign that template if you really can’t afford to get a good one drafted, but as you’re building in your business, definitely invest in trying to upgrade the things, or the contracts that you’ve had people sign.

Jim Fitzpatrick: What about my cousin? He’s in the family but I only see him once a year at a picnic and I’d love to tell him about the project.

Dayna Thomas: Those are the main culprits.

Jim Fitzpatrick: That’s a very good point.

Dayna Thomas: No, I’m just kidding. But yeah, just keep-

Jim Fitzpatrick: But it could be, right?

Dayna Thomas: It could be. It’s very true, it could be. It just depends on how serious you are with that idea. Are you really going to take it to the next level?

Jim Fitzpatrick: Sure.

Dayna Thomas: If so, try to protect it in some other way, so whether that is a copyright, a patent, a trademark. If it can fall under one of those categories, that’s much better than an NDA.

Jim Fitzpatrick: Yeah, sure.

Dayna Thomas: Yeah.

Jim Fitzpatrick: Sometimes you hear families breaking up and it’s over business and you say, “Well, what do you mean? What happened?” “Well, he stole my idea and then he went ahead and ran with it.”

Dayna Thomas: Yeah, exactly.

Jim Fitzpatrick: I’ve heard that a number of times from people, somebody that-

Dayna Thomas: Now, how do we know who had the idea first?

Jim Fitzpatrick: Right. My roommate, we talked about it and he ran off and did it. Now I’m left with nothing.

Dayna Thomas: That happens. Even if it’s just a consultation you want to start with to say, “I have this idea. I don’t know how to protect it. What should I do?” At least you can consider the options.

Jim Fitzpatrick: Yeah. Kind of like Mark Zuckerberg, right?

Dayna Thomas: Yeah.

Jim Fitzpatrick: He heard a great idea from these two individuals-

Dayna Thomas: I know and just-

Jim Fitzpatrick: And ran off and did it.

Dayna Thomas: Ran with it. That happens.

Jim Fitzpatrick: It does, it does. Well, thank you again very much for visiting with us on the Atlanta Small Business Show. We appreciate it.

Dayna Thomas: Thank you.

Jim Fitzpatrick: I know that our viewers get a lot out of your visit here and we appreciate the good insights that you’re bringing to us.

Dayna Thomas: Absolutely. I have so much more.

Jim Fitzpatrick: Great, great.

Dayna Thomas: Thanks.

Jim Fitzpatrick: Well, we’re going to have you back on the show to share with us some of these other topics I want to cover, so thank you.

Dayna Thomas: Awesome. Thank you.

Jim Fitzpatrick: Okay.

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