Why Non-Disclosure Agreements (NDAs) Are Useless
I used to pride myself on never having signed a Non-Disclosure Agreement, or NDA.
The reason why is that I thought they were silly and useless.
For this very same reason I began signing them.
Any and all of them.
Give me more!
What I tell people when they ask me to sign an NDA is this:
If you think I have the means and proclivity to steal your idea do not tell me your idea. Otherwise, I’d love to hear it.
This is the truth. It’s partly to break up the seriousness of signing a contract but also because I want to be honest with people in business. Honesty is important and a valuable and rare business tool. They don’t teach this stuff in B-School.
If you spill your entire business plan to someone who has the means (resources, money, experience, background, etc) to steal your idea your NDA won’t help you much.
Let me give an example:
Let’s say back in the early 90’s I was talking to Larry Page and Sergey Brin about creating a search engine.
Let’s say I wanted to create one that that intelligently crawled the web to first, exhaustively find what is out there, and secondly, decide through a democratic process of links and chatter (and later keywording and anchor text) which sites are the authority on what and give them a score and give lesser pages a lesser score. After all this scoring and evaluation, then deliver those results on a clean and simple page to an end user, vetted by the largest and most critical group of people: the entire web community. And get this, i’d place ads next to that content that used some client side scripting like DHTML (ok it ended up being Javascript; small detail) to scan the page’s content and return contextually relevant advertisements.
I told them this, both of them Computer Science grad students at Stanford, presumably with connections and capital (hey Stanford aint cheap; hey Stanford sure is close to the Silicon Valley and Sand Hill Road).
Let’s say I made them sign an NDA.
5 Years later they launch Google, it rumbles along for a little bit doing not too much.
10 years later it is the exact picture of what I described, and is highly profitable. I call a lawyer.
I tell him (or her, hey who says women can’t practice IP law you sexist pig) that Google was my idea. Fifteen laughing hang-ups later I find one that will take my case.
I show up in court armed with a boilerplate NDA that I found on some document website or that my uncle’s friend made based on some boilerplate template his firm keeps on file.
It basically says that they cannot discuss anything that has to do with XYZ Search company, my company; Most NDA’s are not very detailed.
The judge looks at it.
“So you’re telling me that the founders of Google discussed search engines with other search engine companies before launching the biggest search engine in the world? I will not believe it!”
This judge is very sarcastic.
He is old and has yellowish gray hair like the dad from Punky Brewster who went on to play many TV and Movie judges. He holds court pleadings up in the air limply while being sarcastic and looking at the ceiling and talking in a fake high-pitched naive voice—- What a bastard. He even winks at the founders of Google.
It’s lame how star-struck even members of the judiciary can be.
My case gets thrown out. To keep me quiet Google offers me $100,000; after taxes I get $63,000.
I spend it on a boat and many (many) nights out at bars telling people how Google was my idea.
Had I not been the creepy formal guy with the useless contract those guys may have asked me to join them in their new venture as a partner.
If you must shove a contract in someone’s mouth use a Covenant Not To Compete (Non-Compete) agreement and hire Larry and Sergey for $10 each (or some other nominal amount) as consultants (a formality, you explain) for a term of 10 years.
You know, in case you fellas decide to get in this little search engine racket.
The main point of this post is this:
- Don’t do business with people you don’t trust
- Let’s bring the handshake agreement back; it worked. It produced warm and fuzzy feelings; those are required for business.
- NDAs are dumb and useless
- Nobody believes I came up with the idea for Google
I did however come up with the idea for Ikea.
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Yep, it’s a useless legal formality, like signing a piece of paper when you use your credit card–also a total waste of time and utterly worthless if you ever needed to prove in court it wasn’t you using your credit card for that purchase.