Business Opportunities Weblog

October 26, 2004 by Dane Carlson | 2 Comments

Nolo Law Center:

The real purpose of NDAs is to create a confidential relationship between a person who has a trade secret and the person to whom the secret is disclosed. People who have such a confidential relationship are legally bound to keep the information a secret.

A confidential relationship can also be created through an oral agreement or can be implied from the conduct of the parties, but few people rely on such informal arrangements because they are always more difficult to prove than a relationship based on a written agreement. In one case, for example, an inventor developed a ratchet and brought it to the attention of an independent dealer for the Snap-On Tools company. Later, the inventor submitted a tool suggestion form to Snap-On’s corporate headquarters. The inventor never requested confidentiality and never indicated that he expected compensation for his idea. Snap-On manufactured and sold the ratchet without paying the inventor. The inventor sued, but the court ruled against him because he disclosed the information without strings attached and without stating that it was a business proposition for which he wanted payment.

NDAs are often categorized as either “mutual” or “one-way.” A mutual NDA is one in which both parties are exchanging confidential information — for example, you provide secret information for a company to evaluate and they provide you with secret information about their marketing strategy. A one-way agreement is used when only one party is making a disclosure — for example, when you explain your secret to a contractor or investor.

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