Competition in today’s marketplace is fierce. Obtaining an edge over your competitors is hard work — it requires savvy, creativity, and a serious investment of time and money. Maybe your edge is a unique business model. Maybe it is an innovative approach to a familiar market. Maybe it is a customer list, a pricing formula, or a manufacturing process you have spent years refining.

However you got there, the question every business owner eventually faces is the same: How do I keep someone from improperly using, stealing, or disclosing my confidential information?

How can you keep your trade secrets safe?

Non-Disclosure Agreements (NDAs) are legally binding contracts that — if properly drafted — offer real protection. In an NDA, the party gaining access to your proprietary or confidential data agrees not to use or disclose that information. The mere knowledge that one is legally bound by an NDA is often enough to keep your secrets safe. NDAs are enforceable in court, but only if they are reasonable. An NDA is reasonable if its purpose is to protect company information that qualifies as a trade secret.

Broadly speaking, a trade secret is information that:

  • is not generally known and cannot be discovered using legal methods (a client list with private contact information, for instance, rather than names that appear in a public directory);
  • gives you a competitive advantage or has independent economic value (the formula for Coca-Cola is the canonical example); and
  • is the subject of reasonable efforts to keep it secret (such as requiring employees with access to it to sign non-compete or NDA agreements).

Therefore, not every bit of information you disclose to another party is protectable as a trade secret. Determining what does and does not qualify is fact-specific, and New York courts have rendered many decisions on the question. A properly drafted, reasonably restrictive NDA can provide the protection necessary to keep confidential information secret. An overreaching NDA, on the other hand, may be disregarded by a court entirely — and then you have no protection at all.

When NDAs are not the right tool.

NDAs are not a universal solution. There are several common situations where an NDA either will not work or is the wrong instrument:

  • With sophisticated investors. Venture capital firms, family offices, and other institutional investors will almost always refuse to sign NDAs at the pitch stage. They see hundreds of similar businesses and cannot risk being precluded from investing in your competitor next month. If a VC declines to sign your NDA, that is normal — not a red flag.
  • For employee mobility. Restricting what an employee can do after they leave is a non-compete or non-solicitation question, not an NDA question. The two often live side by side in an employment agreement, but they are distinct legal tools and have different enforceability rules.
  • For information that is already public. An NDA cannot put the genie back in the bottle. If something has already been disclosed publicly, it usually no longer qualifies as a trade secret no matter what your NDA says.

What a well-drafted NDA actually does.

A good NDA will, at minimum, define the scope of “confidential information” with care, specify how that information may and may not be used, set a reasonable duration, carve out information that becomes public through no fault of the receiving party, address how confidential materials must be returned or destroyed when the relationship ends, and lay out remedies for breach (often including injunctive relief, since damages are notoriously hard to prove in trade-secret cases).

A poorly drafted NDA — one that is too broad, too long, or too punitive — will likely be unenforceable or, worse, get cut down by a court in a way that leaves you with less protection than you thought you had.

Quick FAQ.

Mutual or one-way? If only one side is sharing confidential information, a one-way (unilateral) NDA is fine. If both sides are sharing — for example, in a partnership discussion or M&A negotiation — you want a mutual NDA.

How long should an NDA last? It depends on the information. For most ordinary confidential information, two to five years is reasonable. For genuine trade secrets, you can usually require protection for as long as the information remains a trade secret.

Should the NDA be governed by New York law? If you are a New York business and the receiving party is in New York, yes. If the other side is somewhere else, the choice of law and choice of forum become real negotiating points — and you want them locked down before there is a dispute.

Can I just download a template? You can. Whether it will actually protect your business is a different question. The cost of having an experienced business attorney draft (or at least review) your NDA is small compared to the cost of finding out, the hard way, that yours is unenforceable.

One should obtain legal counsel to protect trade secrets and to craft an enforceable NDA. The investment up front is far less than the cost of litigating — or losing — a trade-secret case after the fact.