Insights from a Seasoned Startup Lawyer


Building a High Profile Web/Software Company

Posts tagged contracts
Dangerous NDA's

Recently, an NDA came across my desk for review that shocked me.  This NDA included the following:

The Consultant hereby assigns to the Corporation its entire right, title and interest in or to any idea, invention, product, program (including written programs and documentation) and written works hereafter made, developed, created, discovered, conceived or written wholly or in part by the Consultant: 1. at any time while hired by the Corporation, or assigned to perform an executive, managerial, planning, technical, research, programming, system analysis, or engineering capacity (including development, manufacturing, systems, field and customer engineering) for or on behalf of the Corporation; and 2. which relates in any manner to the actual or anticipated business, research or development of the Corporation, or is suggested by or results from any task assigned to the Consultant or work performed by the Consultant for or on behalf of the Corporation.

Not only does an assignment of rights have no place in an NDA, but this assignment purports to assign anything and everything that relates to the corporation’s business developed by the consultant after the date of the NDA.  This grant may be too outrageous to be enforceable, but it’s dangerous at that.

The lesson here is be careful what you sign.  Don’t assume the boilerplate isn’t meaningful or dangerous.

There’s more on what to look at when signing an NDA here.

Arbitration and Class Action Suits

In a 5-4 ruling this week in the case of AT&T Mobility v. Concepcion, the Supreme Court said that clauses in contracts in which consumers agree to arbitration block them from later joining class-action lawsuits.  This means that by adding an arbitration provision to your contracts, you can effectively block class-action suits.

Here is an interesting post on what to use for an arbitration provision,

Non-Disclosure Agreements (NDA’s)

It’s a good idea to sign an NDA with any party you are doing business with that might have access to anything proprietary about your company.  All your vendors should sign NDA’s.  You should only give a mutual NDA if requested – why promise not to disclose their secrets unless you are asked to.  You should be careful who you do a mutual NDA with or when you agree not to disclose their confidences.  Consider what they may be telling you and if you are in a similar business and may someday be accused of stealing their ideas.

You should have a standard form of NDA (one-way) and NDA (mutual).  Note that VC’s will not sign NDA’s – don’t even ask.  They stake their reputation on not stealing ideas submitted to them.  That said, you may want to be careful as to what board the partner you are pitching to sits on.  What you tell him may influence his input to any company he/she is building.

When asked to sign another’s NDA, there are a few key points I always look for.  The most important is the definition of “Confidential Information” or whatever the defined term is.  If you’re signing that you will hold confidences, you want to be sure the definition is as limiting as possible, but reasonable.  Marked “Confidential” is the best – very clear and not much falls into this category.  I’ve seen “all our customers, reports, information, ….” – way too broad, doesn’t even indicate that it needs to be non-public, sensitive, and/or private information.  I find a good common ground is “information which is marked confidential or is of a nature which should reasonably be expected to be held confidential.”  This works well for both the giver and receiver.