NDAs Only Go So Far
(Image from Blue Diamond Gallery under Creative Commons license)
Non-disclosure agreements (NDAs) are so common, they are sometimes treated as just a paperwork ritual. The parties about to discuss or do something confidential each sign the NDA one of them offers and assume it means their secrets will be kept.
NDAs are Only Promises
In my business circles, NDAs often contain one or two extra features. The parties promise more than not spreading each other’s confidential information. They may promise not to sneakily use each other’s secrets for anything other than the agreed scope of their interaction, such as using joint discussions or explorations to upgrade a production line with trade secrets learned from the other party. They may promise not to reverse engineer each other’s materials.
Even then, each NDA is little more than a promise. If one of the parties breaks the promise, whatever the consequences are, those consequences can’t be undone. The NDA could establish a penalty to be paid for breaking the promise, but collecting it is like winning a judgement in court – if your confidentiality has been breached by the other party, collecting the penalty is up to you, just as the court would leave collecting a judgement up to you. Chances are that the penalty can’t truly make up for having your secrets revealed.
Whistleblowers often have to break their NDA to try to right a wrong. Reasons for breaching NDAs aren’t always so virtuous, but the reasons for imposing NDAs aren’t always virtuous either. The threat of penalties for “going public” can be used to hide wrongdoing. Coming forward is messy, high pressure and scary. Think about how much news has come out so far this year, or last year, or any year, because someone violated the promise they made by signing a NDA. Think about how nasty life became for the whistleblower, too, and how much noise there was about the NDA.
Getting that promise signed exerts pressure on people to keep confidential matters confidential, but it is not a guarantee. Sometimes people are either brave enough or careless enough to spill some beans.
Why am I pondering about this? Because of the projects where I get involved.
Cultural Context Matters Too
In developed Western countries, we tend to think of NDAs as a strong promise. The way I’ve described them up to this point is from that perspective. But in some other societies, NDAs and even contracts aren’t regarded as having so much weight. They are more of a statement of intention at the moment when they are signed, with no power to bind future actions.
Within the first few years after I switched to being a contractor or consultant instead of an employee, one of my largest clients made the mistake of executing a large contract with another big company based in a country that does not honor copyrights and has a very non-Western attitude about contracts. The corporate vice president didn’t realize what mattered was what he said when he shook hands with his counterpart, not what was in the contract they signed. He also didn’t know the other country didn’t enforce copyrights. He promised a joint venture that would include an exact duplicate of a particular large factory.
That factory used and extensively modified for itself the source code for automation software which was one of the company’s major advantages over competitors worldwide. The software was worth millions of dollars. It was the ancestor of what are now called Manufacturing Execution Systems (MES).
The vice president’s handshake deal inadvertently gave it away. The other company enthusiastically copied it and adapted it for other facilities.
I can hardly express how valuable it was to learn that lesson early in my career by seeing it rather than by making such a mistake myself.
Within My Circles
Most of the time my circles of activity are within countries that take the Western view about NDAs and contracts. They are only promises, but they are solemn promises.
They may be breached. If so, that’s big and you may be able to do something about it. One of my bits of work in recent years was finding an affordable, low risk way for a small British company to pursue a company on the other side of the world for underpayment. How did that happen? Using the British company’s stuff across more than the agreed scope.
But occasionally a client is tempted to get work done in a country where costs are much lower and NDAs have all the weight of a feather. If my client’s work would require disclosing trade secrets, saving money on a production run could wipe out the value of the entire company. Once those trade secrets go out the door in a place where confidentiality doesn’t matter, there’s no way to pull them back in.
There’s no substitute for knowing who you’re dealing with and knowing they have a well established history of keeping their promises. NDAs, and for that matter even contracts, only go so far.