Daniel had freshly received funding for his new idea on how to branch out logistics delivery of large organizations through the use of distributed local vendors and reduce their costs, time and fuel over the western region of the US.
It was a unique idea in the market and the implementation involved extensive groundwork.
To get started on the new venture he needed the best developers available to contribute. His application was staged over multiple platforms and he needed Experts from respective domains to work on it. Since the work was limited, he researched and located the best freelancers he could find across many countries. He distributed the Modules amongst them, set up the deal, decided on the timelines and got the work started. Midway through the developments a few of the developers deserted the project and he had to go around recruiting newer developers, which caused a loss of time and money.
But amidst his busy days, Daniel received a call from one of his friends. He informed Daniel to have seen a similar concept with an almost similar product being launched a few days back by a Team local to his region. On enquiring further Daniel realized that the Product team consisted of 2 of the former developers he had recruited for the development of his product. Consequentially the UI of the new product looked the same, and the app included similar functionalities. A reason for concern was, Daniel’s product was duplicated or forged.
Daniel decided to approach a Lawyer to get the issue resolved. The very first question the lawyer asked Daniel was, did he get into an NDA with those developers.
What is an NDA?
Non-Disclosure Agreement is a legal agreement carried out between two parties, one of whom is a Disclosing party and the other is a Recipient party; wherein the Recipient Party agrees to keep all information interchanged during the term of a project as confidential. The Recipient agrees to not disclose it or misuse it in any fashion, even after the end of the term of their Project contract for a specified period. Such kind of contract is known as a Unilateral (one-way) agreement.
NDAs can also be Mutual wherein both the parties disclose information to each other (e.g. during a tie-up/merger) and get into an agreement to keep all information regarding the transaction confidential.
NDAs are usually signed when an organization is disclosing any private information to an external entity with a motive of getting into a business relationship with that entity. In such scenarios the Disclosing parties are comforted by the fact that the recipient party is aware of the gravity of the information, the repercussions it could cause to the disclosing party and the faith that they are putting in the recipient party.
Even though Daniel did interact with the concerned developers and share his idea. An idea cannot be considered under Intellectual property rights, but the source code to an application can be considered. The intellectual property law is created with a motive to secure the rights of an individual or an industry over entities, which are intangible in nature.
Intellectual property is the output generated from the creative aspects of an individual and can be termed as a unique invention. Intellectual property can include literary or artistic works, designs or images - the rights to which can be covered under copyrights, patents, trademarks or trade secrets.
Purpose of an NDA
Setting expectations right between the two parties involved in the business transaction is the primary motive of an NDA. Daniel should have communicated to the concerned parties, what information would be exchanged, how the information should be utilized, what would be considered as misuse of this information, and what losses the company would endure if the information is leaked.
The NDA would have helped Daniel establish, in case of disclosure what are the impulsive actions expected from the Recipient Party. The most common and initial action that is demanded in an NDA is that the Recipient Party immediately inform the Disclosing Party (Daniel) of the unauthorized release of the Proprietary Information. Further, it can include the monetary relief and the injunctive relief provided to the Disclosing Party.
Projects usually come across experts who are engaged with the service-providing companies and the Outsourcing firm cannot resist offering the resource to work with them. This type of employee poaching can be avoided by specifying it in the NDA, by mentioning the term period for which the resident employees cannot engage in direct employment with the Outsourcing companies. This term can be either after the end of a business relationship or the end of the particular employee’s services.
The NDA should include a list of all the formats in which data will be exchanged between the parties and which should be considered as Confidential. Usually, the disclosing parties would like to include the entire communication between the 2 parties under the confidentiality clause, but it would actually be counterproductive to include a broad definition of the information. A broad scope of the information definition is considered as unreasonably onerous and would work towards striking down the NDA.
Term of Confidentiality
Confidentiality agreements usually do not exist till eternity, unless it is a personal or business settlement deal. There is a period for which they are meant to last. Some continue until the business relationship between the two parties exists, others extend a few years even after the termination of the business relationship. A clear mention of the number of years should be made in the NDA. Even if the term ends, it doesn’t mean that the Disclosing party is giving up the rights it has under the copyrights act, patents, other intellectual property laws.
Why are freelancers reluctant to sign an NDA?
- Individual developers are reluctant to signing NDAs since most of them are working on more than one project at the same time. This will prevent them from working on a similar type of products concurrently or in the near future; as it might cause a transfer of some information or influence the product while creating similar functionalities.
- NDAs are misconstrued as lack of trust by some of the recipient parties, and hence they try to keep away from ventures that require signing an NDA.
- The Nature of work or Detailing is not disclosed until the developer signs and NDA. This becomes tedious if the developer doesn’t agree to the type of work and has to reject the project.
- Portfolios are a major work-puller for the Freelancers. If you cannot showcase your previous work or provide detailed information regarding it, that can be considered as a liability by the developers.
- Period of the confidentiality is too long to be restricted with information sharing or working on similar avenues.
NDAs are a norm in today’s business scenario. Any transfer of business-relevant information is backed by an NDA. It provides clarity for both parties on the expectation and rather establishes a foundation for a long-term relationship. Parties who are unwavering to signing NDAs are considered professional and one who realizes the severity of the information being exchanged. This creates a trust factor in the Disclosing party and hence evading any barriers to future interactions between the two parties.
We at Clarion firmly believe in preserving the proprietary rights of our clients. We indulge in a formal NDA along with the contract before going into business. The ownership of the software, rights to the code and the design solely lie with the client and we work towards preserving any exchange of information performed during the project as confidential and bound to that project.