Watch Your Mouth!

Smart Business

Who should you make sign an NDA? Just about anyone you bring in on your little secret.

  • Family and friends. Generally speaking, it's not necessary for your immediate family members to sign an NDA. However, your uncle, brother-in-law or cousins are another matter. To be safe, it's best to have them sign some kind of NDA.

The most common compensation offered in family situations is one dollar. A family member signs the agreement, and you in turn compensate him or her with one dollar. The same NDA you use with your family can also be used with friends and acquaintances you aren't doing business with.

  • Business associates. Showing your idea to people or companies that might help you with it is another matter and requires a different NDA than the one signed by friends and family. Their consideration will be the opportunity to do business with you. For example, you show your idea to a plastic injection molding company so it can give you a quote on building a mold. Its consideration is the opportunity to sell you a mold. If you share your idea with a consultant, the consultant's consideration is possible consulting fees.

In these cases, consideration is more clear cut. In fact, courts have a tendency to designate such disclosures made without the signing of an NDA as confidential since it's necessary to speak with such people to get an idea off the ground. But it's still better to be safe than sorry and get an NDA signed.

  • Buyers. Asking a potential buyer of your idea to sign an NDA is problematic. Let's say your idea is for a new type of watch. To ask a potential buyer who is a watch manufacturer to sign an NDA will probably bring a swift end to your meeting. Chances are, they have a research and development department working on new watches all the time. If they sign your NDA and your idea is something they're already working on, they've just precluded themselves from their own idea.

A more likely scenario in this situation is for the watch manufacturer to ask you to sign a nonconfidential agreement. Such an agreement typically states that you agree to disclose your invention on a nonconfidential basis and rely only on the patent laws to protect your interests. This is why it's so important for you to file for a patent.

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This article was originally published in the August 1999 print edition of Entrepreneur with the headline: Watch Your Mouth!.

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