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Do Sweat the Small Stuff: Beware of the Hidden Restrictions in Non-Disclosure Agreements

Written by: Marijo McCarthy

Article Overview: Recession or not, my clients and colleagues are doing business, the smart ones even capturing a little more space in their particular niche as the timid and fearful hang to the rear. As you do so, however, keep in mind that if you sign contracts too quickly (understandably not wanting to lose the opportunity), you run the risk of getting caught up in those little "gotchas" that we fail to recognize until it's too late.

Do Sweat the Small Stuff: Beware of the Hidden Restrictions in Non-Disclosure Agreements

Recession or not, my clients and colleagues are doing business, the smart ones even capturing a little more space in their particular niche as the timid and fearful hang to the rear. As you do so, however, keep in mind that if you sign contracts too quickly (understandably not wanting to lose the opportunity), you run the risk of getting caught up in those little "gotchas" that we fail to recognize until it's too late.

Non-Disclosure agreements are a perfect example of this. They're short, they're standard... they're boilerplate for goodness sake. What could possibly go wrong?!

My answer? Plenty. There is, dear reader, no such thing as a "standard" or "boilerplate" NDA. Each one is different, and as such, each carries with it certain risks and penalties for the careless or unfamiliar small business owner who signs without proper counsel.

First, because even with the best of intentions on both sides, it is difficult to craft a perfect NDA... one that is sufficiently protective without being onerous, and that is balanced and fair to each party. [If you come across one that satisfies those criteria, please let me know! I'm a collector!]

Second, many of these documents are deliberately written to include at least one "gotcha," which, if the need to enforce it against you ever arises, may very well have you by the proverbial shorthairs.

Consider, for example, the question of whether or not the recipient of confidential information (e.g. you) is permitted to disclose such confidential information if required to do so "by law or legal process."

You'd think, in other words, that if someday a constable strolls into your office and serves you with a subpoena for a deposition, to which you are required to bring certain documents in your possession, no signed NDA would prevent you from doing so.

Not necessarily true. In your haste to get the deal done years ago, you may very well have signed away your right to respond to the subpoena, leaving you now in the unenviable position of either facing court sanction for failure to obey, or litigation by the other party who fully intends to hold you to your written agreement... Gulp!

Here then is an example of the kind of "exception" language you want to see in an NDA which would allow you to respond to a subpoena, notwithstanding your obligation to protect the other party's confidential information:

"Limited Exceptions. The obligations set forth in Section XXX hereof shall not apply to any Confidential Information which Recipient can demonstrate ...

"... is required to disclose in order to comply with applicable laws or regulations, or with a valid order of a court or other governmental body of the United States or any political subdivisions thereof, but only to the extent and for the purposes of such required disclosure and provided that (a) Recipient promptly notifies Discloser in order to provide Discloser the opportunity to seek a protective order, and (b) Recipient takes all reasonable actions, at the sole cost and expense of Discloser, to obtain confidential treatment for such information and, if possible, to minimize the extent of such disclosure."

Bottom line? Take advantage of every opportunity that makes good business sense, but do sweat the small stuff before you enter into that transaction!

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  So You Thought Non-Compete Agreements Were Safe? Think again.

Article Tags: colleagues, doing business, limited exceptions, nondisclosure agreements, sign contracts, small stuff



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