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companies, like all tech companies, love non disclosure agreements
(‘NDAs’). Particularly enthusiastic companies tend to scatter them
around like confetti. But NDAs are often misunderstood or used in the
wrong way - which can have serious legal consequences. Besides which, we
regularly see NDA ‘embargoes’ being breached, to no apparent ill
effect. In this post, I talk about what NDAs are, what they do and
give some tips for how to use them more effectively.
is a NDA?
A NDA is a contract
intended to protect confidential or sensitive information. Examples of
information which can be protected by a NDA are: business proposals,
financial data, new IP (like a game beta) and trade secrets.
How does a NDA work?
Under a NDA, the signer promises the recipient
that he will not disclose certain information to any third parties,
except under circumstances described in that contract. The value of the
NDA is meant to be that: (i) the signer is legally bound by his promise
not to disclose the information to third parties; and (ii) if he breaks
that promise, the recipient can go to court to stop him and/or can sue
him for damages or for other legal remedies.
Typically, NDAs are
drafted as widely as possible in order to cover pretty much any kind of
information which can be imparted from one party to another. So much so
that in one case recently I saw the judge read a NDA and comment “the
only thing it is missing is the kitchen sink!” The reason for this
one size fits all NDA is fairly obvious: the wider you draft it, the
greater the chance you will capture everything you want to have
protected. Or so the argument runs. In fact, this is a pretty risky
attitude to adopt – more on that below.
Important: there are a
number of standard exceptions built into NDAs (and if they aren’t
expressly in the contract they’ll likely be imposed by the law of most
jurisdictions). The key exception is where the information is already
in the public domain. In other words, if the confidential information
you are trying to protect becomes public information (e.g. you give
someone exclusive press coverage over whatever you sought to protect -
like a new game) then there is a good argument any NDAs covering it
would become unenforceable.
Benefits of NDAs
The primary perceived advantage of NDAs is that
they provide protection of important information at relatively little
cost. The chances are that a party which signs a NDA will be
persuaded/cowed into compliance by the mere threat of legal consequences
if he doesn’t. And besides, they’re drafted so widely they can cover
everything you could want, eh?
Issues for NDAs
In fact the one size fits all, standard form NDAs
have three serious issues and a number of lesser problems too:
- You’re in the hands of the NDA signer: a NDA,
like all contracts, is only as good as the person signing it. No
matter how well drafted it may be, if the signer wants to breach
the NDA, he will. And, more often than not, he’ll do it in a way
that makes life difficult for you. So they are clearly not a
concrete protection for your confidential information.
- Do you want to enforce the NDA anyway?:
Even if you have a good NDA and can show that the breach of it is
an open and shut case, ultimately you have to take the guy to court
to protect your legal rights – which is expensive and an instant
reputation killer in many industries. That’s essentially why
a whole bunch of journalists have been able to break big games
exclusives despite being quite clearly subject to NDAs.
- Does it even really work?: the wide
drafting of NDAs which I talked about above is in reality a
double-edged sword. On the one hand, yes it can cover as many
situations as possible. On the other hand, this kind of ‘fire and
forget’ approach can make it unclear what you actually want to
protect. As a result, there is a risk that, if you ever needed
actually to rely on the NDA in court, there may be legal issues
with that wide drafting. Take that example I gave above of
the judge who commented the NDA was so wide it virtually covered
the kitchen sink – he went on to give the NDA and the party which had
drafted it a hammering in court. To be avoided
And a number of other problems with
quite apart from the legal considerations, standard NDAs are often
impenetrable to everyone except lawyers. This defeats the primary
purpose of the NDA: to encourage the signer not to spill the
beans. If the signer doesn’t really understand what ‘the beans’
are, that’s not good news. Again, to be avoided.
- Too complicated: looking at it yet another
way, some NDAs are just too complicated for their own good.
If you can get what you need legally in 10 words rather than 30,
then use 10 words. It’s good drafting and good business.
- Overzealously applied: NDAs are also known
to some as the “Silicon Valley handshake” because of their liberal
use over there. Again, its good business to only use a contract –
especially one that tries to restrict someone’s liberty to speak –
if you really need it. Besides which, using NDAs liberally just
encourages all of the above problems because each NDA is less
likely to be tailored and enforceable.
Tips for using NDAs
and protecting your confidential information:
Important proviso: these
problems don’t mean that NDAs are useless in the games/tech industry.
Far from it. Rather, they illustrate that NDAs need to be used
carefully if you want actually to achieve protection for your
confidential information, whether it be a new game or a really good
business idea you have.
Here are some
quick bullet-point tips about NDAs to bear in mind:
- NDAs are meant to protect your most important business assets
– so treat NDAs just as importantly as those assets.
- Spend the
time (with your lawyer ofc!) to ensure the NDA is drafted carefully and
actually covers the points you want to deal with. If the NDA doesn’t
scream out what you are trying to protect, something is going wrong.
- This is
critical: make sure the signer of the NDA knows exactly what he can
and cannot do. Don’t leave him to decipher the legal wording alone.
- If there is a
media sensitivity regarding the subject matter of the NDA, then
make it even clearer to the signer what he can and cannot say to the
media/press about it. If need be, build in sensible exceptions so
that you can control the information flow.
- Consider alternatives/supplements to NDAs, for example agreed public statements. If you do want to use
a NDA, be prepared to sue to protect it.
And lastly, of course,
if you want to run any specific questions about NDAs or confidentiality
generally past some friendly expert lawyers, drop a line here :P
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Obligatory legal stuff:
© Jas Purewal 2010. Gamer/Law and this post are intended only as a
means of bringing news of games and technology law and practice to its
readers; it is not intended to provide legal advice and is no
substitute for it.
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