Startup Law

Enforcing confidentiality agreements and NDAs

Is it worth going to the trouble of pushing potential investors to sign a confidentiality or non-disclosure agreement (NDA)?

It’s a question commonly posed by many startup founders. Particularly given the fact that many potential investors will flat out refuse.

Even so, Gadens partner Richard Partridge says if your technology is of particular importance and of high value if it was to be disclosed to the public, then you should insist on it.

“I understand that this relationship has to be strong and held in good faith for these negotiations,” he says.

“These guys are usually pretty eager to get into the detail and test your numbers, so I often send it across and say, it’s a pretty vanilla agreement. Lets just sign it and get on with it.”

However he warns that in the end, enforcing a non-disclosure agreement in the event of a breach, can come down to which party has the most resources, and that can be a problem for startups.

“It’s a shame, because it often does come down to resources in order to pursue it,” he says.

“You can have the best claim in the world, and there are some litigation funders out there, but it would have to be a substantial size, transaction and a guarantee of success (to be funded).

“An injunction is normally sought for breach of confidentiality agreements (or NDAs), that will cost you $10,000-$15,000, and all that does is oblige someone to prevent them from doing something, or compel them to do something. It doesn’t give an award for damages.

“It’s an unfortunate.. But I would much rather still have that argument when an issue arises, than not have one at all.”