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Dolgin Professional Corporation

Great … you signed an NDA … but do you have a “Disclosure Strategy”?

Non-Disclosure Agreements (or NDAs) are a very common contract signed by many of our clients these days.

Regardless of industry classification and whether you’re a start-up, growing or mature business, sooner or later you will be asked to sign an NDA or think you need one as part of holding initial discussions with a contract counter-party on a sensitive topic like a potential financing, M&A transaction or strategic alliance.

The legal provisions of NDAs typically don’t vary too much from law firm template to law firm template and, to recap, the key terms often include:

  • what’s covered in the definition of “confidential info”;
  • what’s excluded from the definition of “confidential info”;
  • what’s the scope of remedies (i.e., injunctive relief);
  • is there a “sunset clause”;
  • are trade-secrets given special treatment;
  • how to terminate an NDA;
  • is the NDA combined with a “non-solicitation” clause;
  • whose governing law applies; and
  • what’s the venue for disputes.

However, what I want to talk about is the practical use of NDAs because what is often equally (or more) important than the verbiage of the NDA is how and when you choose to share information (and people) during the disclosure process under your NDA.

After all, just because you signed an NDA does not (usually) obligate you to disclose anything or to engage any of your staff in the disclosure process.

Hence, its precisely for this reason that you need to have an (internal) “disclosure strategy” in place BEFORE you sign an NDA to protect yourself from misuse of your sensitive info and key personnel as the process unfolds.

Typically, there is a range of information you’ll be asked to share under an NDA.

Some of it is historical and benign (e.g., segmented unaudited financial information) and some of it is the most important information in your company – the “crown jewels” if you will.

So the name of the game becomes what to share under an NDA and when to share it.

This is a function of the other side’s commitment (or perceived commitment) to the project under discussion.

Your goal is to qualify both the opportunity presented to you and how serious the other side is about moving forward with a potential deal.

In the beginning (i.e., 1st meeting), there will be some expectation that you both share “something” in order to get the ball rolling.  This is the proverbial “so … tell me about yourself…” question you might be asked at a job interview or on a blind date.

Clearly, under your “disclosure strategy”, what gets exchanged at this stage CANNOT be anything of significance since you don’t know how serious the other side is yet and may be wary (especially if they are a competitor) that they’re just snooping around.

As the process unfolds and the other side behaves in a manner that builds trust in your relationship, you can share a bit more of the “important” information on a sliding scale basis.

Often, the sharing of the “crown jewels” should be deferred until a letter of intent or term sheet relating to the overall project is tabled and signed by the other side.

In some cases, the “crown jewels” aren’t disclosed until the real deal is finally closed and signed, sealed and delivered.

The benefit of a well-constructed disclosure strategy is that you only share what needs to be shared on a “staged” basis and, if negotiations break down sooner than you might have anticipated (which is often the case), you won’t feel overly vulnerable that you’ve said too much.

Sure … if too much was shared, you’ll still have a signed NDA and will be entitled to pursue legal remedies for misuse of your confidential info.  But that will cost a fair bit in legal fees and suck up some serious management time preparing for the legal process.  This will be a major distraction from your prime directive –  running your business!!!

The other prong of your Disclosure Strategy involves your people.

Some contract counter parties (especially competitors) might wish to chat with your key people (under an NDA of course) solely to try and recruit them (and often this will be extremely subtle).  Again, as with your key info, you need to ensure your key people are kept out of the NDA process so you deprive your counter party of the ability to meet and interact with them until trust is built and your legitimate concerns re poaching are addressed.

In the real world (or at least in my world as legal counsel), many discussions under an NDA are terminated well before a deal is concluded and, for this simple reason, more info and more people are “shared” than is necessary (assuming 20/20 hindsight).

So … do yourself a favor and think hard about your “Disclosure Strategy” the next time you get ready to sign an NDA.

While its nice to have a signed NDA if you’re preparing to argue an injunction motion before a judge, its far nicer to know that a 3rd party can’t use what you never gave them and can’t poach staff they never met!

This entry was posted in Contracts, NDAs, Negotiation. Bookmark the permalink.

2 Responses to Great … you signed an NDA … but do you have a “Disclosure Strategy”?

  1. David Dunlop says:

    Totally agree Jordan. Great advice. Keeping back the “key proprietary information” until the last possible moment and under the strictest controlled circumstances is a prudent approach. In a project I worked on the “secret recipe” for an industrial formula was never shared with anyone on the transaction except between the two key purchaser and seller principals at closing, no one else saw it.

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