Over the past three months, I’ve been asked to sign Non-Disclosure Agreements (NDAs) more often than ever before, and as usual I’ve said “no” to each request.
I’ve been involved in the computer & technology industry for more than 25 years, starting as a reporter, later as an attorney, and now as a marketing consultant. In all that time, I’ve signed exactly two non-disclosure agreements (one as part of an employment contract).
Of course, I’d never use or disclose someone’s confidential information improperly.
As a former attorney, I know that the vast majority of NDAs are simply unenforceable, due to vagueness or conflict with state laws. I also know that they are rarely litigated, and that trade-secret litigation rarely succeeds.
And unfortunately, I also know that signing an NDA provides nearly no practical benefit: some people who steal trade secrets will happily sign NDAs and ignore them.
Alas, some people refuse to sign NDAs because they plan to use your information. This is especially true of “Venture Capitalists” and “Angel Investors,” who will tell you they can’t sign NDAs: first, because they deal with so many companies, it would be utterly impossible to review and manage thousands of NDAs (quite true); second, they say you should trust them because if they broke their word they’d never be able to do another deal (completely untrue – and without an NDA, there’s no “word” to be broken). Many investors lie, cheat, and steal. And some startup companies actively use their investors as a resource to gather competitive intelligence. (He’s not considering funding your venture: he’s getting information to help the competitor he’s already invested in.)
Why don’t I sign NDAs?
- Too Early: I won’t sign an NDA to learn “what’s hidden behind the curtain.” If you have a business, tell me what the business is, and what you believe your unique value proposition is. If I’m interested in the opportunity, then I might consider signing an NDA.
- Vague or Non-Specific: Nearly all NDAs presented to me are insanely overbroad and non-specific. No rational person should sign an NDA that doesn’t provide a clear mechanism for identifying the specific information that will be protected against disclosure. Often, the person who sends me the NDA doesn’t know what information they want protected, or they want to protect “absolutely everything.”
- Cluelessness: Quite often, I am asked to sign an NDA by “clueless” people who are unprofessional and don’t understand how to operate a business. Often, they have no business plan at all, but just some vague ideas. Sometimes, they “disclose” some information anyway (after I refuse to sign the NDA) and I usually conclude that their idea is unoriginal and implausible.
- Attorneys Held to Higher Standard: I also must recognize that although a judge might refuse to enforce an overly-broad NDA against someone who is unsophisticated, she might enforce it against me because, as a former attorney, I have a better understanding of the contract and the law.
- Abusive Litigation: Although trade-secret litigation is rare, it is often used as a “strategic tool” to prevent competition and interfere with other companies and with former employees’ ability to work.
- Deception or Trickery: Earlier this week, I replied to an ad regarding a job listed as being in San Francisco. In response, I received an NDA from a company in New Jersey, requiring that any disputes be resolved in court in New Jersey — and the NDA identified a different name than the person used in his email. Why would I sign a contract with someone whose first communication with me was a lie?
- Litigation History: Occasionally, I am asked to sign an NDA by someone who has a history of litigating disputes. When I googled the name in that “New Jersey NDA,” I found a history of abusive litigation — an unprofessional individual who was unwilling to obey the law or fulfill his promises, but who proved his willingness to litigate frivolous claims. My worry, in this case, is that this person is just “collecting NDAs and waiting” — then, if any of the people who signed his NDA ever become involved in successful venture, he’ll try to extort money by claiming a breach of trade secrets.
- Over-Reaching or Absurd Clauses: [Added August 2016] I recently received an NDA which included broad “non-solicitation” language, restricting our company from hiring any of the other firm’s employees. I informed the vendor that I stopped reading when I saw that language (thus I don’t even know if there were any other bizarre provisions).
Some other articles on “Why Don’t People Sign Non-Disclosure Agreements?”
- On NDAs and Confidentiality (Mark Suster)
- NDAs and Contracts That You Should Never Sign (Joel Spolsky)
- Why Most VCs Don’t Sign NDAs (Brad Feld)
- Why VCs Won’t Sign Your NDA (Mark Davis)
*/ When I wrote this in 2009, I was licensed to practice law; in 2010, I opted to switch to “inactive” status, and in 2012 I resigned from the State Bar of California. http://www.markwelchblog.com/2010/02/26/ianal-i-am-not-a-lawyer-any-more/