Covering Your Ass

May 27th, 2008 Chris Posted in Intellectual Property | 1 Comment »

I have a few friends I get together with once and a while to brainstorm ideas for new businesses. We all have some pretty cool ideas, typically for new Internet or web based services. Part of starting down the road with any of these business is getting feedback and soliciting early interest from potential partners, team members, investors, etc…

Of course, one of the things that you always need to worry about is what happens if someone steals the idea. I don’t worry too much about people I know but the reality is that if you go talk with an organization about a potential partnership and you’re not properly protected, nothing stops them from taking the idea and running. And it happens.

There are a couple of key tools in the arsenal that even if you’re not a lawyer you should be familiar with. First is the Non Disclosure Agreement (NDA). The NDA is a great way of protecting yourself with the organization or person you’re speaking with. Once signed, an NDA typically prevents an organization or individual from disclosing or using something you tell them – on pain of damages (i.e. $’s). You can get a NDA template from your lawyer as well as a few on-line resources (more on those later).

The Mutual NDA (MNDA), the NDA’s cousin, is similar but it binds both parties to a conversation to keep it confidential, versus the NDA which is typically one way (i.e. one party keeps the other’s secret). Regardless, the NDA or MNDA will typically specify the subject to be discussed that is confidential.

Using an NDA is always good advice when trying to keep your confidential information, well, confidential. But there are some issues. First, both parties to a conversation have to agree to sign one – the same one. As soon as the lawyers get involve, then you can often encounter a “my gavel is bigger than yours…” situation where someone wants changes and the negotiations begin. In a micro business, this can get expensive fast as going to your lawyer even a couple of times adds up fast. Always try to use the template you got from your lawyer or a trusted source. You won’t be familiar with the other party’s. Also, unless it’s really obvious and risk-free, get any proposed changes reviewed.

The other issue with an NDA is that it’s often tough to stop information from spreading beyond the two parties. I’ve seen a fair bit of confidential information get passed around after a few beers and, like the genie, once it’s out, it’s tough to get back in. If someone ends up with the information third or fourth hand, it becomes very hard to be able to pin the leak on anyone. Especially if you’ve discussed it with a number of people or organizations. So only disclose what you need to move a conversation forward and look to other methods to protect your ideas (see below).

What if someone wants you to sign an NDA to protect their idea? My advice is to start by saying no. First, unless you’re pretty experienced, you’ll want a lawyer to look at it (ca-ching) and then as you’ll be taking on a legal obligation before you even know much about it.

I almost always refuse to sign an NDA for an initial meeting. I want to have a phone call, meeting, etc… to learn as much as I can, before making any legal commitments. More often than not, it turns out to be something I’m not interested in and don’t need to expose myself and the company to any potential legal liability.

So – got a great idea and want pitch it to a partner or investor? Think about getting an NDA in place first. Someone wants to pitch you an idea – get the “non-NDA” version first before worrying about going legal.

Colleen always tells me that I’m still too corporate for the micro business world. Probably true. But when it comes to protecting your idea, ask yourself if you can live with it being out there in the public domain. If you can’t – consider the NDA.

Stay tuned for the second tool in your CYA arsenal – the patent. I doesn’t have to be nearly as scary as it sounds and can be even more effective than an NDA in protecting your valuable ideas.

C.