I'm reviewing an NDA for a business relationship I'm considering. The company may potentially be helping me formulate a product for retail consumption. e.g. white-label, formulation etc.
Here's some language in the NDA that caught my attention. Is this standard?
The termination clause has a 30 day clause but contains language stating that the "obligations will survive termination.
There's also a clause that prevents me from contacting their suppliers, vendors, etc.
Term; Termination. This Agreement will terminate five (5) years after theEffective Date; either Party may terminate or at any time upon thirty (30)days written notice to the other Party. Recipient’s obligations under thisAgreement will survive termination of this Agreement and will be bindingupon such Recipient’s heirs, successors, and assigns. Recipient’s obligationshereunder will continue in full force and effect with respect to non- technicalsales, marketing, and financial Confidential Information of the Provider forfive (5) year(s) from the date of disclosure of such Confidential Information.Recipient’s obligations with respect to all technical Confidential Informationof the Provider will terminate only pursuant to Section 2(b).
Anything you sign increases your legal exposure, so make sure it is worthwhile.
I often get asked to sign NDAs to hear about someone's startup idea which I almost never do.
The reason is that unless it is very clear what specific information is private and not to be disclosed the NDA is undecipherable or simply has unreasonable terms. This could limit your ability to work on related projects or expose you to legal harassment but likely serves no legal purpose without explicitly stating what is truly a secret and what is not.
I can't think of a case where a startup ever properly and legally bound intellectual property in such a way that an NDA would cover something appropriate. Almost every time I come across them, they are unseasoned entrepreneurs who really do not have any private information to share in the first place.
Your work contract or employment agreement should cover ownership or rights or prevent disclosure of specific things like passwords or harmful materials etc.
If this is just asking you to sign something before you hear about what they are doing? Then I suspect that the NDA is just something they push in front of you without bounding any actual secrets.
If you are working on a government project with protected, secret information? You'll know it and the legal documents will be clear and conceise about what is private and what is not.
So, unless you are working on driverless cars for Apple, then I advise you to avoid NDAs in almost all situations that it is not clear and obvious about what is truly a secret.
If you are an entrepreneur and trying to cover your legal bases and protect your idea? I suggest you do the opposite and talk as much about your idea as you can, to anyone who will listen. The law will not prevent competition and secrets or ideas are not what make a startup valuable.
If you present your startup to a venture partner and ask they not disclose or obligate them legally about your 'idea' ? You will look like an amateur and you will also look like a legal problem waiting to happen.
Good luck and be wary of NDAs. If you find yourself asking what it is all about? That is telling you that it is not appropriate and likely should be avoided.
Unfortunately no one but an attorney can give you legal advice (I'm not one). Most NDA boilerplates contain the maximum protective language possible, without any consideration for individual circumstances.
What is it that you're worried about losing? That's more important than what the document might mean without context. I don't see things in this snippet that seem highly unusual, but it all comes down to the details of what freedoms you wish to or need to retain.
Those are legitimate concerns, particularly if the universe of suppliers in your industry is limited, and you would likely run into them on your own even if you hadn't met this development partner. Chat with the company who put forward the NDA and express your concerns. It might be revised to allow you access, though not to disclose other information. The partner should be able to explain what they're trying to prevent/protect with the clauses that you note. If you aren't confrontational about it, just inquiring to get a better understanding, then it shouldn't be a difficult condition to overcome.
To @Jesse Tayler's point, knowing what is worth protecting and not is an important part of choosing to ask for a contract of any kind. Here's an example where I was not worried about sharing my idea, but I still needed an NDA. Part of my business plan included purchasing another company's assets, a trade show. The customer and financial data was not mine to reveal because I had not acquired the trade show yet. So while I summary figures for financials were not in need of protection, if the investor candidate wanted to dig into details about how I arrived at those summary numbers for trade show revenue, it required an NDA because I didn't have permission to share those operating details with anyone outside of the company I was buying.
In this case my NDA was protecting a party whose information I was not allowed to disclose without such coverage.
The problems Jesse points to usually come out of boilerplate language written out of an abundance of caution, instead of simply and succinctly covering specific areas of information that actually need to be protected. In other words, if you are being smart, you can have a very simply NDA that shows you understand what is worth protecting and what is not a concern. Most stuff probably doesn't need protection. Proprietary processes, ingredients, formulas, rare resources, someone else's borrowed data, and such may need a little protecting. Your high-level concepts are not so likely to need protecting.
When you're given a boilerplate that is meant to broadly cover too much, don't be shy about proposing a much simpler version. It's asking them to revise it that would likely be perceived as annoying. When you rewrite for them and inquire if the simplified version is adequate, it's much easier to have an opinion.
In addition to both Jesse & Paul - what is important is 1) specificity of the covered material, and 2) how it is marked confidential. I have seen NDAs that claim everything is confidential. Those I immediately reject. Anything confidential needs to be marked as so, be unique, and reasonably recent. Sending me a diagram of a 5 year old work flow is questionable.
In my consulting, I will sign an NDA after some point, usually where I start asking for company documents (planning, legal, operational and financial). However, I place the burden on the company to clearly identify what is confidential.
WIthout context of the type of business you are in, prevention of contact with suppliers and vendors, unless they are disclosed (in list format) as confidential and meant to prevent you from circumventing them, is a little odd. I would not agree to this without a fully disclosed list of the covered suppliers and vendors prior to signing. If you already have such relationships, you want them struck from the list.